<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 15)*
Intek Diversified Corporation
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
458134 10 3
----------------
(CUSIP Number)
Nicholas R. Wilson
Chairman
Intek Diversified Corporation
970 West 190th Street, Suite 720
Torrance, California 90502
(310) 366-7335
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
April 11, 1996
-----------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 3d-(a) for other parties to whom copies are to
be sent.
__________________________________
The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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CUSIP No. 458134 10 3 13D Page 2 of 4 Pages
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(1) NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Simmonds Capital Limited
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS*
WC; OO
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(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) [ ]
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Canada
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(7) SOLE VOTING POWER
3,010,850
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NUMBER OF (8) SHARED VOTING POWER
SHARES
BENEFICIALLY --
OWNED BY ----------------------------------------------
EACH
REPORTING (9) SOLE DISPOSITIVE POWER
PERSON WITH
3,010,850
----------------------------------------------
(10) SHARED DISPOSITIVE POWER
--
----------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,010,850
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(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
27.75%
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(14) TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP NO. 458134 10 3 Page 2 of 4 Pages
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SCHEDULE 13D
The Schedule 13D filed on March 7, 1994 (the "Schedule 13D") and amended on
March 29, 1994 ("Amendment No. 1"), on July 22, 1994 ("Amendment No. 2"), on
September 23, 1994 ("Amendment No. 3"), on April 10, 1995 ("Amendment No. 4"),
on May 10, 1995 ("Amendment No. 5"), on June 5, 1995 ("Amendment No. 6"), on
June 9, 1995 ("Amendment No. 7"), on June 26, 1995 ("Amendment No. 8"), on July
10, 1995 ("Amendment No. 9"), on August 9, 1995 ("Amendment No. 10"), on
November 27, 1995 ("Amendment No. 11"), on March 18, 1996 ("Amendment No. 12"),
on April 8, 1996 ("Amendment No. 13") and on April 16, 1996 ("Amendment No. 14")
on behalf of Simmonds Capital Limited ("SCL") is hereby further amended as
follows:
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Item 6 of the Schedule 13D is hereby amended by inserting immediately prior
to the penultimate paragraph thereof, the following:
On April 11, 1996, SCL borrowed the original principal amount of
U.S. $3,000,000 from Octagon Capital Canada Corporation, a corporation
incorporated under the laws of the Province of Ontario, Canada
("OCC"), pursuant to a Loan Agreement between OCC, SCL and Midland (the
"OCC Loan Agreement," a copy of which is attached hereto as EXHIBIT T
and incorporated herein). In connection with the OCC Loan Agreement,
Midland guaranteed SCL's obligations under the Loan Agreement pursuant
to a Secured Guaranty, dated April 11, 1996, of Midland in favor of OCC
(the "Midland Secured Guaranty," a copy of which is attached hereto as
EXHIBIT U and incorporated herein), and pledged as security for
Midland's obligations thereunder substantially all of its assets, as
set forth in the Security Agreement, dated as of April 11, 1996, made
by Midland in favor of OCC (the "Midland Security Agreement," a copy of
which is attached hereto as EXHIBIT V and incorporated herein) and the
Pledge Agreement, dated as of April 11, 1996, made by Midland in favor
of OCC (the "Midland Pledge Agreement," a copy of which is attached
hereto as EXHIBIT W and incorporated herein). Pursuant to the terms of
an Assignment Agreement, made April 11, 1996, from OCC to Mees Pierson
ICS Limited ("Mees Pierson") (the "Assignment Agreement," a copy of
which is attached hereto as EXHIBIT X, and incorporated herein), OCC
assigned its rights in the OCC Loan Agreement, the Midland Secured
Guaranty, the Midland Security Agreement and the Midland Pledge
Agreement to Mees Pierson. Pursuant to the terms of the Loan
Agreement, SCL issued a Debenture in the original principal amount of
U.S.$3,000,000 in favor of Mees Pierson as assignee of OCC (the "Mees
Pierson Debenture," a copy of which is attached hereto as EXHIBIT Y and
incorporated herein). The Mees Pierson Debenture bears interest at the
rate of 12.68% per annum and is due on October 8, 1996. Pursuant to
the terms of the Mees Pierson Debenture, SCL pledged 400,000 shares of
Common Stock and SCL's rights to acquire 1,000,000 shares of Common
Stock from Roamer One Holdings, Inc. pursuant to the SCL Option
Agreement as collateral to secure SCL's repayment of the Mees Pierson
Debenture and the performance by SCL of all of its obligations to Mees
Pierson.
ITEM 7. EXHIBITS.
Item 7 of the Schedule 13D is hereby amended by inserting the following new
Exhibits at the end thereof:
EXHIBIT T Loan Agreement between OCC, SCL and Midland dated the 11th day
of April, 1996
Exhibit U Secured Guaranty dated April 11, 1996 of Midland in favor of
OCC
Exhibit V Security Agreement dated as of April 11, 1996 made by Midland
in favor of OCC
Exhibit W Pledge Agreement dated as of April 11, 1996 made by Midland in
favor of OCC
Exhibit X Assignment Agreement made April 11, 1996 from OCC to Mees
Pierson ICS Limited
Exhibit Y Debenture of SCL dated April 11, 1996, in favor of Mees Pierson
and in the original principal amount of $3,000,000
[SIGNATURES COMMENCE ON NEXT PAGE.]
CUSIP NO. 458134 10 3 Page 3 of 4 Pages
<PAGE> 4
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth herein is true, complete and correct.
SIMMONDS CAPITAL LTD.
April 19, 1996
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(Date)
/s/ David C. O'Kell
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(Signature)
David C. O'Kell, Executive Vice President and Secretary
-------------------------------------------------------
(Name/Title)
CUSIP NO. 458134 10 3 Page 4 of 4 Pages
<PAGE> 1
EXHIBIT T
THIS AGREEMENT made as of the 11th day of April, 1996.
BETWEEN:
OCTAGON CAPITAL CANADA CORPORATION, a corporation incorporated under the
laws of the Province of Ontario,
(hereinafter referred to as "Octagon")
OF THE FIRST PART
- and -
SIMMONDS CAPITAL LIMITED, a corporation incorporated under the laws of
the Province of Ontario,
(hereinafter referred to as "SCL")
OF THE SECOND PART
- and -
MIDLAND INTERNATIONAL CORPORATION, a corporation incorporated under the
laws of Delaware,
(hereinafter referred to as "Midland")
OF THE THIRD PART
WHEREAS Octagon desires to lend to SCL and SCL desires to borrow from
Octagon the sum of U.S. $3,000,000 on the terms and conditions set forth herein;
AND WHEREAS such borrowing is to be evidenced by a U.S. $3,000,000
secured debenture issued by SCL on the terms and conditions set forth herein;
AND WHEREAS Octagon requires as a condition of making the said loan that
the obligations of SCL in respect thereof be guaranteed by Midland, such
guarantee to be issued by Midland on the terms and conditions set forth herein;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto covenant and agree as follows:
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ARTICLE 1 - THE LOAN
1.1 Octagon hereby agrees to lend to SCL and SCL agrees to borrow from Octagon
on the terms and conditions set forth herein the sum of U.S. $3,000,000
(the "Loan").
1.2 The closing of the Loan shall take place at the offices of Heenan Blaikie,
Suite 3350, South Tower, Royal Bank Plaza, Toronto, Ontario M5J 2J4 at
12:00 p.m. on April 11, 1996.
1.3 At closing:
(i) SCL shall execute and deliver to Octagon, or as Octagon may direct,
a U.S. $3,000,000 debenture in the form of the debenture attached
hereto as Schedule "A" (the "Debenture");
(ii) Midland shall execute and deliver to Octagon a secured guarantee in
the form of the secured guarantee attached hereto as Schedule "B"
(the "Guarantee"), a Security Agreement in the form attached hereto
as Schedule "C" and a Pledge Agreement in the form attached hereto
as Schedule "D" (collectively, with the Guarantee, the "Guarantee
Documents"); and
(iii) SCL and Midland shall execute and deliver to Octagon all other
documents and certificates contemplated by this Agreement, the
Debenture or the Guarantee Documents to be delivered by them to
Octagon at or prior to closing;
all against the advance of the Loan by Octagon to SCL by the delivery of a
certified cheque or bank draft payable to or to the order of SCL in the
amount of U.S.$3,000,000 or by wire transfer of same day funds of the said
amount to an account specified in writing by SCL.
1.4 The terms and conditions of the Loan, including the terms as to repayment
and interest, shall be as set forth in the Debenture.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
2.1 Octagon represents and warrants to SCL, and acknowledges that SCL is
entering into this agreement in reliance thereon, that: (a) Octagon has
been duly incorporated under the laws of Ontario, is duly organized and
existing under such laws and has the corporate capacity, power and
authority to enter into this Agreement and to carry out its obligations
hereunder; and (b) that the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Octagon.
<PAGE> 3
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2.2 SCL represents and warrants to Octagon, and acknowledges that Octagon is
entering into this Agreement in reliance thereon, that: (a) SCL has been
duly incorporated under the laws of the Province of Ontario, is duly
organized and existing under such laws and has the corporate power,
capacity and authority to enter into this Agreement and to carry out its
obligations hereunder, (b) the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of SCL; (c)
each of this Agreement and the Debenture constitutes a legal, valid and
binding obligation of SCL enforceable against SCL in accordance with its
terms, and the execution and delivery of and the performance by SCL of
this Agreement and the Debenture and the performance by SCL of its
respective obligations hereunder and under the Debenture: (i) do not
contravene, violate or conflict with any term or provision of any law,
statute, governmental regulation, licence, judgement, decree, order, writ,
injunction, agreement, undertaking, indenture or other document or
instrument to which SCL is a party or by which it is bound; and (ii) does
not result in a breach of or constitute a default under or require a
consent under or result in the creation of any lien, charge or encumbrance
upon the property or assets of SCL pursuant to any indenture, contract,
credit agreement, mortgage or other agreement or instrument to which SCL
is a party or by which SCL or any of its property or assets may be bound
or affected; (d) SCL has good title to the Collateral (as defined in the
Debenture) free and clear of all liens, charges, pledges and encumbrances
whatsoever, except as created by the Debenture, the U.S. $2,500,000
debenture dated September 15, 1995 made by SCL in favour of Octagon (the
"Octagon Debenture") and existing liens in favour of the Royal Bank of
Canada, or as otherwise described below in this Section 2.2; (e) the
Debenture will create a valid first security interest in the Collateral
and the Proceeds, subject to no prior pledge, lien, mortgage,
hypothecation, security interest, charge or other encumbrance, except in
respect of $1,025,000(CDN) principal amount of Class A Debentures of
Circuit World Corporation which are subject to a prior security interest
in favour of Octagon created by the Octagon Debenture; and (f) the only
security granted to Quest Capital Corporation ("Quest")(the "Quest
Security") by SCL pursuant to the $3,000,000(US) loan by Quest to SCL is a
pledge of 1,000,000 common shares of Intek Diversified Corporation and a
security interest in the assets of SCL (which security interest, by its
terms, is stated to be subordinate to the security interests provided
hereunder).
2.3 Midland represents and warrants to Octagon, and acknowledges that Octagon
is entering into this Agreement in reliance thereon, that: (a) Midland has
been duly incorporated under the laws of Delaware, is duly organized and
existing under such laws and has the corporate power, capacity and
authority to enter into this Agreement and to carry out its obligations
hereunder; (b) that the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Midland; (c)
each of this Agreement and the Guarantee Documents constitutes a legal,
valid and binding obligation of Midland enforceable against Midland in
accordance with its terms, and the execution and delivery of and the
performance by Midland of this Agreement and the Guarantee Documents and
<PAGE> 4
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the performance by Midland of its respective obligations hereunder and
under the Guarantee Documents : (i) do not contravene, violate or conflict
with any term or provision of any law, statute, governmental regulation,
licence, judgement, decree, order, writ, injunction, agreement,
undertaking, indenture or other document or instrument to which Midland is
a party or by which it is bound; and (ii) does not result in a breach of or
constitute a default under or require a consent under or result in the
creation of any lien, charge or encumbrance upon the property or assets of
Midland pursuant to any indenture, contract, credit agreement, mortgage or
other agreement or instrument to which Midland is a party or by which
Midland or any of its property or assets may be bound or affected; (d) that
Midland has good title to the Collateral (as defined in the Guarantee
Documents) free and clear of all liens, charges, pledges and encumbrances
whatsoever; and (e) the Guarantee Documents will create a valid first
security interest in the Collateral and the Proceeds, subject to no prior
pledge, lien, mortgage, hypothecation, security interest, charge or other
encumbrance.
2.4 The representations and warranties contained in this Agreement shall
survive the closing of the Loan and shall survive until all amounts owing
under the Debenture have been paid in full.
ARTICLE 3 - UNDERWRITING FEES
3.1 In consideration of its services in arranging the Loan, SCL shall pay to
Octagon on closing an underwriting fee of U.S. $175,000. In addition, a
further U.S. $125,000 shall be deposited by SCL on closing with its
solicitors, Heenan Blaikie, to be held in trust by them in an interest
bearing account pursuant to written instructions to deliver such amount to
Octagon as provided in the next sentence of this section 3.1. In the
event that the Principal Amount (as defined in the Debenture) and all
accrued and unpaid interest thereon has not been paid in full on or prior
to May 29, 1996, such amount shall be paid to Octagon as an additional
underwriting fee. Otherwise it shall be returned to SCL.
3.2 All reasonable out-of-pocket expenses incurred by Octagon in connection
with the Loan will be paid by SCL on closing upon submission of
documentation in respect thereof to SCL.
ARTICLE 4 - GENERAL
4.1 This Agreement represents the entire agreement between the parties hereto
and may not be amended or modified in any respect except by written
instrument executed by the parties hereto.
4.2 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
<PAGE> 5
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4.3 Any covenant or provision hereof determined to be void or unenforceable in
whole or in part shall be deemed not to affect or impair the validity or
enforceability of any other covenant or provision hereof and the covenants
and provisions hereof are declared to be separate and distinct.
4.4 Any notice required or permitted to be given hereunder shall be in writing
and shall be effectively given if (i) delivered by hand, (ii) sent by
electronic or facsimile communication, or (iii) sent by prepaid courier
service, addressed, in the case of notice to Octagon, to:
Octagon Capital Canada Corporation
Suite 406, 181 University Avenue
Toronto, Ontario
M5H 3M7
Attention: Paul D. Davis
Facsimile: (416) 368-3811
in the case of notice to SCL, to:
Simmonds Capital Limited
Suite 1050, 5255 Yonge Street
Willowdale, Ontario
M2N 6P4
Attention: David O'Kell
Facsimile: (416) 221-3800
and, in the case of notice to Midland, to:
Midland International Corporation
Suite 1050, 5255 Yonge Street
Willowdale, Ontario
M2N 6P4
Attention: David O'Kell
Facsimile: (416) 221-3800
Any notice so given shall be deemed conclusively to have been given and
received when so delivered by hand or sent by electronic communication or
facsimile or on the second day following the sending thereof by courier.
Any of the parties hereto may change any particulars of its address for
notice by notice to the others in the manner aforesaid.
4.5 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. The parties
acknowledge and agree that Octagon will assign on the date hereof all of
its rights and benefits under this Agreement and any other documents which
may be issued pursuant to this Agreement to Mees Pierson ICS Limited.
<PAGE> 6
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4.6 All dollar amounts referred to in this Agreement, unless otherwise stated,
are in lawful money of the United States of America.
IN WITNESS HEREOF this Agreement has been executed by the parties hereto as
of the date first above written.
OCTAGON CAPITAL CANADA CORPORATION
By: /s/ Paul Davis
-----------------------------------
Name:
Title:
SIMMONDS CAPITAL LIMITED
By: /s/ David O'Kell
-----------------------------------
David O'Kell,
Executive Vice-President
MIDLAND INTERNATIONAL CORPORATION
By: /s/ David O'Kell
-----------------------------------
David O'Kell,
Director
<PAGE> 1
EXHIBIT U
SECURED GUARANTY
In consideration of Octagon Capital Canada Corporation (the
"Lender") making loans to Simmonds Capital Limited (the "Borrower") pursuant to
a Loan Agreement between the Lender and the Borrower and a Debenture of the
Borrower in favour of the Lender, each dated as of the date hereof (together the
"Loan Documents"), the undersigned Midland International Corporation hereby
unconditionally guarantees due payment, performance and fulfilment to the Lender
of all liabilities, obligations and undertakings of the Borrower to the Lender
under the Loan Documents, whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising or acquired, sole, joint
or several, and whether consisting of obligations to pay money or to perform the
Borrower's obligations to the Lender ("Obligations").
This agreement shall operate as a continuing and absolute
guaranty and shall remain in full force and effect until receipt by the Lender
of written notice of the revocation of this guaranty. Such notice shall not
affect any obligations of the undersigned existing at the time such notice is
received, and, if after any such revocation, death or incapacity (if the
undersigned is an individual), but prior to the Lender's receipt of such notice
thereof, the Lender grants any loan or extension to, or accepts any assignment
of indebtedness of, the Borrower or takes other action in reliance upon its
guaranty, the undersigned hereby agrees to indemnify the Lender against and save
it harmless from all loss, cost, liability and expense which it may incur or
suffer by reason of such action.
Notice of the acceptance of this guaranty and notices of
transactions entered into in reliance hereon are hereby waived. The undersigned
consents to any renewal, extension or postponement of the time of payment of any
of the Obligations or to any other forbearance or indulgence with respect
thereto and consents to any substitution, exchange, modification or release of
any security therefor or the release of any other person primarily or
secondarily liable on any of the Obligations whether or not notice thereof shall
be given to the undersigned, and agrees to the provisions of any instrument,
security or other writing evidencing or securing any of the Obligations, and the
enforcement hereof shall not be affected by the delay, neglect or failure of the
Lender to take any action with respect to any security, right, obligation,
endorsement, guaranty or other means of collecting the Obligations which it may
at any time hold, including perfection or enforcement thereof, or by any change
with respect to the Borrower in the form or manner of doing business, whether by
incorporation, consolidation, merger, partnership formation or change in
membership, or otherwise, it being hereby agreed that the undersigned shall be
and remain bound upon this guaranty irrespective of any action, delay or
omission by the Lender in dealing with the Borrower, any of the Obligations, any
collateral therefor or any person at any time liable with respect thereto.
On any default or failure to pay or perform by the Borrower,
the liability of the undersigned hereunder shall be effective immediately and
the undersigned waives all requirements of notice, demand, presentment or
protest and any right which the undersigned might otherwise have to require the
Lender first to proceed against the Borrower or against any
<PAGE> 2
other guarantor or any other person or first to realize on any security held by
it before proceeding against the undersigned for the enforcement of this
guaranty. The undersigned shall not assert any right arising from payment or
other performance hereunder, whether by set-off or counterclaim, or claim of
indemnity or reimbursement, or otherwise, until the undersigned's liability
hereunder shall have been discharged in full and all of the Obligations shall
have been fulfilled.
This Guaranty of the Obligations of the Borrower to the
Lender shall be secured by the Collateral, as defined in the Security Agreement
of even date herewith between the undersigned and the Lender.
The undersigned guarantees to the Lender the payment of any
and all expenses paid or incurred by the Lender (including reasonable attorney's
fees) in connection with the collection of all sums and the Obligations
guaranteed hereunder, whether such collection be from the Borrower or from the
undersigned.
If for any reason the Borrower has no legal existence or is
under no legal obligation to discharge any of the Obligations, or if any amounts
included in the Obligations shall have become irrecoverable from the Borrower by
operation of law or for any other reason, or if any security or other guaranty
shall be found invalid, the undersigned shall nonetheless be and remain bound
upon this guaranty.
Any deposits or other sums at any time credited by or due
from the Lender to the undersigned, and any securities or other property of the
undersigned at any time held by the Lender may at all times be held and treated
as security for all obligations of the undersigned hereunder. Regardless of the
adequacy of security the Lender may apply or set off such deposits or other sums
against such obligations at any time.
This instrument, and all rights and remedies of the parties,
shall be determined as to their validity, construction, effect and enforcement,
and in all other respects of the same or different nature, by the laws of the
State of Missouri, United States of America. No provision of this guaranty may
be amended or waived except in writing signed by the Lender.
-2-
<PAGE> 3
This guaranty is intended to take effect as a sealed
instrument, shall inure to the benefit of the Lender and its successors and
assigns and shall be binding upon the undersigned and legal representatives,
successors and assigns of the undersigned.
GUARANTOR:
/s/ David C. O'Kell
-------------------------------------
Dated: April 11, 1996 By: David C. O'Kell
-------- ----------------------------
Title: Director
----------------------------
WITNESS: Address: 718 Kingfisher Drive
---------------------------
/s/ Dinah Nault Pickering
- ------------------------------ ---------------------------
-3-
<PAGE> 1
EXHIBIT V
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of April 11, 1996 made by
Midland International Corporation, a Delaware corporation (the "Guarantor") in
favour of Octagon Capital Canada Corporation (the "Lender").
RECITALS
Pursuant to the Loan Agreement of even date herewith (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement"), between Simmonds Capital Limited (the "Borrower") and the Lender,
the Lender has agreed to make loans to the Borrower, upon the terms and subject
to the conditions set forth therein, to be evidenced by the Debenture issued by
the Borrower thereunder. It is a condition precedent to the obligation of the
Lender to make its loans to the Borrower under the Loan Agreement that the
Guarantor shall have executed and delivered a Secured Guaranty together with
this Security Agreement to the Lender.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce the Lender to make its loans to the Borrower
under the Loan Agreement, the Guarantor hereby agrees with the Lender as
follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Loan Agreement or the Secured Guaranty and used herein are so
used as so defined; the following terms which are defined in the Uniform
Commercial Code in effect in the State of Missouri on the date hereof are used
herein as therein defined: Accounts, Chattel Paper, Documents, Equipment,
Fixtures, General Intangibles, Goods, Instruments, Inventory and Proceeds; and
the following terms shall have the following meanings:
"Code" means the Uniform Commercial Code as from time to time
in effect in the State of Missouri.
"Collateral" shall have the meaning assigned to it in Section
2 of this Security Agreement.
"Obligations" means the unpaid principal amount of, and
interest on, the Debenture and all other obligations and liabilities of the
Guarantor to the Lender, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, the Loan Agreement, the Debenture, the Secured
Guaranty, or the Security Agreement and any other document executed and
delivered in connection therewith or herewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs,
<PAGE> 2
expenses (including, without limitation, all reasonable fees and disbursements
of counsel to the Lender) or otherwise, but excluding any such obligations of
the Guarantor to the Lender arising through the purchase by or assignment to the
Lender of the Guarantor's obligations to third parties.
"Security Agreement" means this Security Agreement, as
amended, supplemented or otherwise modified from time to time.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, the Guarantor hereby grants to
the Lender a security interest in all of the following property on Schedule A
hereto now owned or at any time hereafter acquired by the Guarantor or in which
the Guarantor now has or at any time in the future may acquire any right, title
or interest (collectively, the "Collateral"). Notwithstanding the foregoing,
such grant of security interest shall not extend to, and the term "Collateral"
shall not include, any of the foregoing which are now or hereafter held by the
Guarantor to the extent that (A) the same are not assignable or capable of being
encumbered as a matter of law or under the terms of any agreement applicable
thereto (but solely to the extent that any such restriction shall be enforceable
under applicable law), without the consent of the other applicable party thereto
and (B) such consent has not been obtained; provided, however, that such grant
of security interest shall extend to, and the term "Collateral" shall include
(1) any and all proceeds of the foregoing to the extent that the assignment or
encumbering of such proceeds is not so restricted and (2) upon any other
applicable party's consent being obtained with respect to any of the foregoing
that is otherwise excluded, thereafter the same as well as any and all proceeds
thereof that might have theretofore been excluded from such grant of a security
interest shall be included within the term "Collateral".
3. Rights of Lender; Limitations on Lender's Obligations.
(a) Guarantor Remains Liable under Accounts. Anything herein
to the contrary notwithstanding, the Guarantor shall remain responsible with
respect to each of the Accounts, to observe and perform all the conditions and
obligations to be observed and performed by it thereunder in accordance with the
terms of any agreement giving rise to each such Account. The Lender shall not
have any obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Security Agreement or the receipt
by the Lender of any payment relating to such Account pursuant hereto, nor shall
the Lender be obligated in any manner to perform any of the obligations of the
Guarantor under or pursuant to any Account (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto), to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled to any time or times.
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(b) Notice to Account Debtors. Upon the request of the Lender
at any time after the occurrence and during the continuance of an Event of
Default, the Guarantor shall notify account debtors on the Accounts that the
Accounts have been collaterally assigned to the Lender and that payments in
respect thereof shall be made directly to the Lender. In accordance with the
Lender's customary practices, the Lender may in their own name or in the name of
the Guarantor communicate with account debtors on the Accounts to verify with
them to its satisfaction the existence, amount and terms of any Accounts.
(c) Collections on Accounts. The Guarantor shall have the
sole right to collect the Accounts, except that after the occurrence and during
the continuance of an Event of Default, the Lender may curtail or terminate said
right and collect the Accounts as the secured party hereunder. All Proceeds
constituting collections of Accounts shall be applied in the manner set forth in
the Loan Agreement. If required by the Lender at any time after the occurrence
and during the continuance of an Event of Default, any payments of Accounts,
when collected by the Guarantor, shall be forthwith (and, in any event, within
two Business Days) deposited by the Guarantor in the exact form received, duly
endorsed by the Guarantor to the Lender if required, in a special collateral
account maintained by the Lender, subject to withdrawal by the Lender only, as
hereinafter provided, and, until so turned over, shall be held by the Guarantor
in trust for the Lender, segregated from other funds of the Guarantor. If an
Event of Default shall have occurred and be continuing, at any time at the
Lender's election, the Lender shall apply all or any part of the funds on
deposit in said special collateral account on account of the Obligations as set
forth in the Loan Agreement, and any part of such funds which the Lender elect
not so to apply and deems not required as collateral security for the
Obligations shall be paid over from time to time by the Lender to the Guarantor
or to whomsoever may be lawfully entitled to receive the same. Upon the
occurrence and during the continuance of an Event of Default, at the Lender's
request, the Guarantor shall deliver to the Lender all original and other
documents evidencing, and relating to, the agreements and transactions which
gave rise to the accounts, including, without limitation, all original orders,
invoices and shipping receipts, or copies thereof if such originals are not
available.
(d) Title to Collateral; Location of Collateral. The
Guarantor represents and warrants to the Lender that it has good title to all of
the Collateral, free and clear of all liens and security interests, in favor of
any person or entity other than the Lender, and that the Collateral is located
within the jurisdictions listed on Schedule B hereto.
4. Covenants. The Guarantor covenants and agrees with the Lender that,
from and after the date of this Security Agreement until the Obligations are
paid in full:
(a) Further Documentation; Pledge of Instruments and Chattel
Paper. At any time and from time to time, upon the written request of the
Lender, and at the sole expense of the Guarantor, the Guarantor will promptly
and duly execute and deliver such
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further instruments and documents and take such further action as the Lender may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Security Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests and liens created hereby. The Guarantor also
hereby authorizes the Lender to file any such financing or continuation
statement without the signature of the Guarantor to the extent permitted by
applicable law. A carbon, photographic or other reproduction of this Security
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel Paper, such
Instrument or Chattel Paper shall be immediately delivered to the Lender, duly
endorsed in a manner satisfactory to the Lender, to be held as Collateral
pursuant to this Security Agreement.
(b) Indemnification. The Guarantor agrees to pay, and to save
the Lender harmless from, any and all liabilities, reasonable costs and expenses
(including, without limitation, reasonable legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral, (ii) with respect to, or resulting from, any delay in
complying with any law, rule, regulation or order of any court, arbitrator or
governmental entity, jurisdiction or authority applicable to any of the
Collateral or (iii) in connection with any of the transactions contemplated by
this Security Agreement. In any suit, proceeding or action brought by the Lender
under any Account for any sum owing thereunder, or to enforce any provisions of
any Account, the Guarantor will save, indemnify and keep the Lender harmless
from and against all loss, damage or reasonable expense suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction or liability
whatsoever of the account debtor or obligor thereunder, arising out of a breach
by the Guarantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor of such
account debtor or obligor or its successors from the Guarantor. The foregoing
indemnification shall not apply to any liabilities, costs, or expenses resulting
directly from the negligence or willful misconduct or bad faith of the Lender or
the Lender' failure to exercise reasonable care with respect to the Collateral
in their possession as set forth in Section 8 hereof.
(c) Maintenance of Records. The Guarantor will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including without limitation, a record of all payments received and
all credits granted with respect to the Accounts. For the Lender's further
security, the Guarantor hereby grants to the Lender a security interest in all
of the Guarantor's books and records pertaining to the Collateral, and upon the
occurrence and during the continuance of an Event of Default, the Guarantor
shall turn over any such books and records to the lender or to its
representatives during normal business hours at the request of the Lender.
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<PAGE> 5
(d) Right of Inspection. The Lender shall at all times have
full and free access during normal business hours, and upon reasonable prior
notice, to all the books of record and account of the Guarantor, and the Lender
or their representatives may examine the same, take extracts therefrom and make
photocopies thereof. To the extent permitted by law, the Lender and their
representatives shall at all times also have the right during normal business
hours, and upon reasonable prior notice, to enter into and upon any premises
where any of the Inventory or Equipment is located for the purpose of inspecting
the same or otherwise protecting its interests therein.
(e) Compliance with Laws, etc. The Guarantor will comply in
all material respects with all laws, rules, regulations and orders of any court,
arbitrator or governmental entity, jurisdiction or authority applicable to the
Collateral or any part thereof or to the operation of the Guarantor's business
except where the failure to so comply would not have a material adverse effect
on the Guarantor's business or financial condition; provided, however, that the
Guarantor may contest any such law, rule, regulation or order in any reasonable
manner which shall not adversely affect the Lender's rights or the priority of
its liens on the Collateral.
(f) Payment of Obligations. The Guarantor will pay promptly
when due all material taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits therefrom, as
well as all material claims of any kind (including, without limitation, claims
for labor, materials and supplies) against or with respect to the Collateral,
except that no such charge need be paid if (i) the validity thereof is being
contested in good faith by appropriate proceedings, (ii) such proceedings do not
involve any material danger of the sale, forfeiture or loss of any of the
Collateral or any interest therein and (iii) such charge is adequately reserved
against on the Guarantor's books in accordance with GAAP.
(g) Limitation on Liens on Collateral. The Guarantor will not
create, incur or permit to exist, will defend the Collateral against, and will
take such other action as is necessary to remove, any lien, security interest,
pledge, mortgage, deed of trust, levy, attachment, claim or other charge or
encumbrance on or to the Collateral, other than Permitted Liens, and will defend
the right, title and interest of the Lender in and to any of the Collateral
against the claims and demands of all persons or entities whatsoever.
(h) Limitations on Dispositions of Collateral. The Guarantor
will not sell, transfer, lease or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so, except for sales or other dispositions of
Collateral permitted by this Agreement.
(i) Maintenance of Insurance. The Guarantor will maintain,
with financially sound and reputable companies, insurance policies (i) insuring
the Inventory and Equipment against loss by fire, explosion, theft and such
other casualties as may be reasonably satisfactory to the Lender and (ii)
insuring the Guarantor and the Lender against liability for personal injury and
property damage relating to such Inventory and
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Equipment, such policies to be in such form and amounts and having such coverage
as may be reasonably satisfactory to the Lender.
(j) Further Identification of Collateral. The Guarantor will
furnish to the Lender from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Lender may reasonably request, all in reasonable
detail.
5. Lender's Appointment as Attorney-in-Fact.
(a) Powers. The Guarantor hereby irrevocably constitutes and
appoints the Lender and any officer thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of the Guarantor and in the name of the Guarantor or in
its own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Security Agreement, without notice to or assent
by the Guarantor, to do the following:
(i) at any time when any Event of Default shall
have occurred and is continuing, in the name of the Guarantor or its
own name, or otherwise, to take possession of and endorse and collect
any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any Account, Instrument or with respect to
any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Lender for the purpose of
collecting any and all such moneys due under any Account, Instrument
or with respect to any other Collateral whenever payable;
(ii) at any time when an Event of Default shall
have occurred and is continuing, to pay or discharge taxes and liens
levied or placed on or threatened against the Collateral, to effect
any repairs or any insurance called for the terms of this Security
Agreement and to pay all or any part of the premiums therefor and the
costs thereof;
(iii) Upon the occurrence and during the
continuance of any Event of Default, (A) to direct any party liable
for any payment under any of the Collateral to make payment of any and
all moneys due or to become due thereunder directly to the Lender or
as the Lender shall direct; (B) to ask or demand for, collect, receive
payment of and receipt for, any and all moneys, claims and other
amounts due or to become due at any time in respect of or arising out
of any Collateral; (C) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices and other
documents in connection with any of the collateral; (D) to commence
and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or
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<PAGE> 7
any thereof and to enforce any other right in respect of any
Collateral; (E) to defend any suit, action or proceeding brought
against the Guarantor with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described in
clause (E) above and, in connection therewith, to give such discharges
or releases as the Lender may deem appropriate; and (G) generally, to
sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Lender were the absolute owner thereof for all purposes,
and to do, at the Lender's option and the Guarantor's expense, at any
time, or from time to time, all acts and things which the Lender deem
necessary to protect, preserve or realize upon the Collateral and the
Lender's liens thereon and to effect the intent of this Security
Agreement, all as fully and effectively as the Guarantor might do; and
(iv) at any time when an Event of Default shall
have occurred and is continuing, to take any and all appropriate
action and to execute any and all instruments which may be necessary
or desirable to accomplish the purposes of this Security Agreement.
This power of attorney is a power coupled with an interest and shall be
irrevocable.
(b) Other Powers. The Guarantor also authorizes the Lender,
at any time and from time to time, to execute, in connection with the sales
provided for in Section 7 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Lender's Part. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Guarantor for any act or failure
to act hereunder, except for its own gross negligence or willful misconduct,
provided that the Lender shall be required to exercise reasonable care at all
times with respect to Collateral in its possession as set forth in Section 8
hereof.
6. Performance by Lender of Guarantor's Obligations. If the Guarantor
fails to perform or comply with any of its agreements contained herein and the
Lender, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses of the Lender incurred in connection with
such performance or compliance, together with interest thereon at a rate per
annum equal to the Prime Rate plus 5%, shall be payable by the Guarantor to the
Lender on demand and shall constitute Obligations secured hereby.
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<PAGE> 8
7. Remedies. If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted to it
in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Lender, without demand of performance or other demand, presentment, protest, or
notice of any kind (except any notice required by law referred to below) to or
upon the Guarantor or any other person or entity (all and each of which are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any exchange, broker's board or office of the Lender or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity or redemption in the Guarantor. The Guarantor further agrees, at the
Lender's request, to assemble the Collateral and make it available to the Lender
at places which the Lender shall reasonably select, whether at the Guarantor's
premises or elsewhere, provided that such place shall be reasonably convenient
to the Guarantor. The Lender shall promptly apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Obligations, in such order as set forth in the Loan
Agreement, and the Lender shall account for the surplus, if any, to the
Guarantor. To the extent permitted by applicable law, the Guarantor waives all
claims, damages and demands it may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, provided that such
release shall not apply to any claim, damage or demand resulting directly from
the gross negligence, willful misconduct or bad faith of the Lender, or the
Lender's obligation to exercise reasonable care with respect to Collateral in
its possession as set forth in Section 8 hereof. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least ten days before such
sale or other disposition. The Guarantor shall remain liable for any deficiency
if the proceeds of any sale or other disposition of the Collateral are
insufficient to pay the Obligations and the reasonable fees and disbursements of
any attorneys employed by the Lender to collect such deficiency.
8. Limitation on Duties Regarding Preservation of Collateral. The
Lender's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to exercise reasonable care and deal with it in the
same manner as the Lender deal with
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<PAGE> 9
similar property for its own account. Neither the Lender nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Guarantor or otherwise.
9. Notwithstanding anything to the contrary contained herein, Lender
agrees that it shall not sell, transfer, assign, pledge, or otherwise dispose
of, or cause the sale, transfer, assignment, pledge, or other disposition of,
the shares of Common Stock ("Common Stock") of American Digital Communications
Inc. ("ADC") constituting the Collateral unless such sale, transfer, assignment,
pledge, or other disposition has been registered or is exempt under the
Securities Act of 1933 (the "Securities Act") and has been registered or
qualified or is exempt from registration or qualification under applicable
securities laws, and Lender provides to ADC an opinion of counsel satisfactory
to ADC that a sale, transfer, assignment, pledge, or other disposition of such
Common Stock may be made without registration.
(a) Lender represents as follows:
(i) The interest in the Common Stock and any Common
Stock that may be acquired by Lender will be acquired for Lender's own
account and not with a view to, or present intention of, distribution
thereof in violation of the Securities Act, or any applicable state
securities laws and will not be disposed of in contravention of the
Securities Act or any applicable state securities laws;
(ii) Lender is sophisticated in financial matters
and is able to evaluate the risks and benefits of any investment in
the Common Stock;
(iii) The executive officers of Lender had an
opportunity to ask questions and receive answers concerning the terms
and conditions of the acquisition of the interest in the Common Stock
of ADC and have had full access to such other information concerning
ADC Lender has requested.
(iv) Lender is able to bear the economic risk of
any investment in the Common Stock of ADC for an indefinite period of
time because the Common Stock of ADC has not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such
registration is available.
(b) Lender acknowledges that until such time as the Common
Stock has been registered for resale pursuant to the Securities Act (or an
opinion of counsel reasonably satisfactory to ADC is provided that a public
sale, transfer, or assignment of
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<PAGE> 10
such Common Stock may be made without registration under the Securities Act),
each certificate representing the Common Stock shall be endorsed with the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF
UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE AND THE CORPORATION SHALL HAVE
RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF
SUCH EXEMPTION REASONABLY SATISFACTORY TO THE CORPORATION
(WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION).
(c) Lender acknowledges that ADC may place stop transfer
orders against the registration or transfer of any Common Stock until such time
as the requirements of the foregoing legend are satisfied.
10. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
11. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12. Paragraph Headings. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
13. No Waiver; Cumulative Remedies. The Lender shall not by any act
(except by a written instrument pursuant to Section 14 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No
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<PAGE> 11
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Lender would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
14. Waivers and Amendments; Successors and Assigns. None of the terms
or provisions of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Lender, provided that any provision of this Security Agreement may be waived
by the Lender in a written letter or agreement executed by the Lender or by
telex or facsimile transmission from the Lender. This Security Agreement shall
be binding upon the successors and assigns of the Guarantor and shall inure to
the benefit of the Lender and their successors and assigns.
15. Governing Law. This Security Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Missouri.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Guarantor has caused this Security Agreement
to be duly executed and delivered in favour of the Lender as of the date first
above written.
MIDLAND INTERNATIONAL
CORPORATION
By: /s/ David C. O'Kell
---------------------------------
Name:
Title:
OCTAGON CAPITAL
CANADA CORPORATION
By: /s/ Paul Davis
---------------------------------
Name: Paul Davis
Title: Director
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<PAGE> 13
SCHEDULE A
COLLATERAL
All of the following assets of the Guarantor, wherever located and
whether now owned or hereafter acquired or arising, and all proceeds therefrom,
including
(i) all of the Guarantor's inventory, goods, wares, merchandise, raw
materials, supplies, work in process, finished goods, and other personal
property of every kind and description held for sale or lease or furnished or to
be furnished under any contract of service, and all goods which are in transit,
and all returned, repossessed, and rejected goods of the foregoing description,
and any other tangible personal property held by the Guarantor for licensing,
processing, sale, or other business purpose or to be used, licensed, or consumed
in the Guarantor's business;
(ii) all machinery, equipment, motor vehicles, furniture, office
equipment and supplies, plant equipment, tools, dies, molds, fixtures, and
leasehold improvements of Guarantor, of every kind and description, wherever
located and including all additions, improvements, accessions, and substitutions
thereto;
(iii) all accounts, accounts receivable, and notes receivable of the
Guarantor, whether now existing or hereafter arising, as well as all right,
title, and interest of the Guarantor in the goods, license rights, or services
which have given rise thereto, including the rights of reclamation and of
stoppage in transit and all other rights to the payment of money (including
without limitation, tax refunds);
(iv) all contracts and contract rights of the Guarantor, now existing
or hereafter arising, under contracts to sell or lease goods or render services;
(v) all insurance proceeds, whether arising out of any of the foregoing
or otherwise;
(vi) all notes, bills, drafts, acceptances, choses in action, chattel
paper, instruments, and any other forms of obligations and receivables and
rights to payment for credit extended and for goods sold, licensed, or leased or
services rendered, whether or not earned by performance, all deposit accounts
maintained by the Guarantor with any bank, trust company, investment firm or
fund, or similar institutions, documents, books and records, rights in and to
all goodwill, and all other general intangibles of the Guarantor, including all
customer lists, causes of action, judgments, rights to performance, licenses,
permits, copyrights, trademarks, servicemarks, trade secrets, trade names,
patents, patent applications, patent rights, proprietary processes and related
documentation, intellectual property rights, rights as a licensee to
intellectual property rights, blueprints, drawings, designs, diagrams,
engineering details and specifications, plans, reports, charts, catalogs,
manuals, inventions, know-how, notes and memoranda,
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<PAGE> 14
technical data, and any and all concepts or ideas in any manner related to the
design, development, manufacture, sale, marketing, license, lease or use of any
or all goods produced or sold, licensed or leased, or services rendered by the
Guarantor in its business;
(vii) 4,230,906 shares of American Digital Communications Inc.; and
(viii) all securities and all guaranties for, and all products,
proceeds, additions, substitutions, and accessions of, any of the foregoing
property.
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<PAGE> 15
SCHEDULE B
LOCATION OF COLLATERAL
Midland International Corporation
1690 North Topping
Kansas City, MO 64120
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<PAGE> 1
EXHIBIT W
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of April 11, 1996 made by the undersigned,
Midland International Corporation, a Delaware corporation (the "Guarantor"), in
favour of Octagon Capital Canada Corporation (the "Lender").
RECITALS
Pursuant to a certain Loan Agreement between Simmonds Capital Limited
and the Lender dated the date hereof (as amended, supplemented, or otherwise
modified from time to time) (the "Loan Agreement"), the Lender has agreed to
make loans to Simmonds Capital Limited upon the terms and subject to the
conditions set forth therein. The Guarantor has entered into a Secured Guaranty
and Security Agreement with the Lender each dated the date hereof securing the
prompt payment and performance of all Obligations of Simmonds Capital Limited to
the Lender arising under the Loan Agreement. The Guarantor is the legal and
beneficial owner of the Pledged Securities (as hereinafter defined). It is a
covenant of Simmonds Capital Limited under the Loan Agreement that the Guarantor
shall execute and enter into the Secured Guaranty and Security Agreement, and
deliver this Pledge Agreement to the Lender.
NOW, THEREFORE, in consideration of the premises, the Guarantor hereby
agrees with the Lender as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Loan Agreement or the Debenture and used herein are so used as so
defined, and the following terms shall have the following meanings:
"Code" means the Uniform Commercial Code from time to time in effect
in the State of Missouri.
"Collateral" means the Pledged Securities and all Proceeds.
"Obligations" means the unpaid principal of and interest on the
Debentures issued by Simmonds Capital Limited in favour of the Lender (the
"Debenture") obligations and liabilities of the Guarantor to the Lender, whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Loan Agreement, the Debentures or this Pledge Agreement and any other
document made, delivered or given in connection therewith or herewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including, without limitation, all reasonable fees and
disbursements of counsel to the Lender).
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
<PAGE> 2
"Pledged Securities" means the shares of capital stock and other
securities listed on Schedule I hereto, together with all stock certificates,
instruments, options or rights of any nature whatsoever which may be issued or
granted to the Guarantor in respect of the Pledged Securities, while this Pledge
Agreement in effect.
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Code and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Securities, collections thereon or
distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Guarantor hereby delivers
to the Lender all the Pledged Securities and hereby grants to the Lender a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to the Lender of each
certificate or instrument representing the Pledged Securities, the Guarantor
shall deliver an undated stock power or other transfer document covering such
certificate or instrument, duly executed in blank with, if the Lender so
requests, signature guaranteed.
4. Representations and Warranties. The Guarantor represents and
warrants to the Lender that:
(a) the Guarantor is the record and beneficial owner of, and
has good and marketable title to, the Pledged Securities listed on Schedule I,
free of any and all security interests, liens or options in favor of, or claims
of, any other person or entity; and
(b) upon delivery to the Lender of the certificates and
instruments evidencing the Pledged Securities, the lien granted pursuant to this
Pledge Agreement will constitute a valid, perfected first priority lien on the
Pledged Securities enforceable as such against all creditors of the Guarantor
and any person or entities purporting to purchase any Collateral from the
Guarantor.
5. Covenants. The Guarantor covenants and agrees with the Lender that,
from and after the date of this Pledge Agreement until the Obligations are paid
in full:
(a) If the Guarantor shall, as a result of its ownership of
the Pledged Securities, become entitled to receive or shall receive any stock
certificate or other certificate or instrument (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any reclassification, increase or reduction of capital or any certificate
or instrument issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversation of, or in exchange
for any of the Pledged Securities or otherwise in respect thereof, the Guarantor
shall accept the same as the Bank's agent, hold the same in trust for the Lender
and deliver the same forthwith to the Lender in the exact form received,
together with an undated stock power or other transfer document covering such
certificate or instrument duly executed in blank and with, if the Lender so
request, signature
-2-
<PAGE> 3
guaranteed, to be held by the Lender hereunder as additional collateral security
for the Obligations. Any sums paid upon or in respect of the Pledged Securities
upon the liquidation or dissolution of the issuer thereof shall be paid over to
the Lender to be held by it hereunder as additional collateral security for the
Obligations, and in case any distribution of capital shall be made on or in
respect of the Pledged Securities or any property shall be distributed upon or
with respect to the Pledged Securities pursuant to the recapitalization or
reclassification of the capital of the issuer thereof or pursuant to the
reorganization thereof, the property so distributed shall be delivered to the
Lender to be held by it, subject to the terms hereof, as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Pledged Securities shall be received by the
Guarantor, the Guarantor shall, until such money or property is paid or
delivered to the Lender, hold such money or property in trust for the Lender,
segregated from other funds of the Guarantor, as additional collateral security
for the Obligations.
(b) Without the prior written consent of the Lender, the
Guarantor will not (i) sell, assign, transfer, exchange or otherwise dispose of,
or grant any option with respect to, the Collateral; or (ii) create, incur or
permit to exist any lien or option in favor of, or any claim of any person or
entity with respect to, any of the Collateral, or any interest therein, except
for Permitted Liens. The Guarantor will defend the right, title and interest of
the Lender in and to the Collateral against the claims and demands of all person
or entities whomsoever.
(c) At any time and from time to time, upon the written
request of the Lender, and at the sole expense of the Guarantor, the Guarantor
will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Lender may reasonably request for
the purposes of obtaining or preserving the full benefits of this Pledge
Agreement and of the rights and powers herein granted. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note, other instrument or chattel paper, such note, instrument
or chattel paper shall be promptly delivered to the Lender, duly endorsed in a
manner satisfactory to the Lender, to be held as Collateral pursuant to this
Pledge Agreement.
(d) The Guarantor agrees to pay, and to save the Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying any and all stamp, excise, sales or other taxes (exclusive of
taxes based on income, gross receipts, franchise rights and related items) which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Pledge
Agreement.
6. Cash Dividends; Voting Rights. Notwithstanding the provisions of
Section 5(a) hereof, unless an Event of Default shall have occurred, the
Guarantor shall be permitted to receive all cash dividends and other cash
distributions paid by the issuer of any of the Pledged Securities in respect of
the Pledged Securities and to exercise all voting and corporate rights with
respect to the Pledged Securities, provided, however, that after written notice
from the Lender to the Guarantor, no stockholder vote shall be cast or corporate
right exercised or other action taken by the Guarantor which, in the Lender's
reasonable judgment, would impair the Collateral or which would result in any
violation of any provision of the Loan Agreement, the Debenture or
-3-
<PAGE> 4
this Pledge Agreement, except if and to the extent that the Guarantor is
obligated to effect such vote, exercise or action pursuant to an agreement
between the Guarantor and one or more third parties.
7. Rights of the Lender. (a) If an Event of Default shall occur and be
continuing: (i) the Lender shall have the right to receive any and all cash
dividends paid in respect of the Pledged Securities and make application thereof
to the Obligations in such order as it may determine, and (ii) all of the
Pledged Securities shall be registered in the name of the Lender or their
nominee, and the Lender or their nominee may thereafter exercise (A) all voting,
corporate, and other rights pertaining to the Pledged Securities at any meeting
or otherwise and (B) any and all rights of conversion, exchange, subscription
and any other rights, privileges or options pertaining to such Pledged
Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization of
other fundamental change in the corporate or partnership structure of the issuer
thereof or upon the exercise by the Guarantor or the Lender of any right,
privilege or option pertaining to such Pledged Securities and in connection
therewith, the right to deposit and deliver any and all of the Pledged
Securities with any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine), all
without liability except to account for property actually received by it, but
the Lender shall have no duty to exercise any such right, privilege or option
and shall not be responsible for any failure to do so or delay in so doing.
(b) The rights of the Lender hereunder shall not be
conditioned or contingent upon the pursuit by the Lender of any right or remedy
against the Guarantor or against any other person or entity which may be or
become liable in respect of all or any part of the Obligations or against any
other collateral security therefor, guarantee thereof or right of offset with
respect thereto. The Lender shall not be liable for any failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so, nor shall it be under any obligation to sell or otherwise dispose of
any Collateral upon the request of the Guarantor or any other person or entity
or to take any other action whatsoever with regard to the Collateral or any part
thereof.
8. Remedies. If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted in
this Pledge Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Lender, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Guarantor, any guarantor or any other person or entity
(all and each of which demands, defenses, advertisements and notices are hereby
expressly waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give option or options to purchase or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, in the
over-the-counter market, at any exchange, broker's board or office of the Lender
or elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption
-4-
<PAGE> 5
of any credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Guarantor, which right or equity is hereby
expressly waived and released. The Lender shall apply any Proceeds from time to
time held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Lender hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Obligations,
in such order as the Lender may elect, and only after such application and after
the payment by the Lender of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Lender
account for the surplus, if any, to the Guarantor. To the extent permitted by
applicable law, the Guarantor waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise by the Lender of any of
its rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least ten (10) days before such sale or other disposition.
9. Amendments with Respect to the Obligations. The Guarantor shall
remain obligated hereunder, and the Collateral shall remain subject to the lien
granted hereby, notwithstanding that, without any reservation of rights against
the Guarantor, and without notice to or further assent by the Guarantor, any
demand for payment of any of the Obligations made by the Lender may be rescinded
by the Lender, and any of the Obligations continued, and the Obligations, or the
liability of the Guarantor upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Lender, and the
Loan Agreement, Debentures and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Lender may deem advisable from time to time, and any right of offset or other
collateral at any time held by the Lender for the payment of the Obligations may
be sold, exchanged, waived, surrendered or released. The Lender shall have no
obligation to protect, secure, perfect or insure any other lien at any time held
by it as security for the Obligations or any property subject thereto. The
Guarantor hereby expressly waives any and all notice of the creation, renewal,
extension or accrual of any of the Obligations and notice of or proof of
reliance by the Lender upon this Pledge Agreement; the Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred
in reliance upon this Pledge Agreement; and all dealings between the Guarantor
and the Lender shall likewise be conclusively presumed to have been created or
consummated in reliance upon this Pledge Agreement. The Guarantor hereby
expressly waives diligence, presentment, protest, demand for payment and notice
of default or nonpayment to or upon the Guarantor with respect to the
Obligations.
10. Limitation on Duties Regarding Collateral. The Bank's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Lender deal with similar
securities, instruments and property for its own account. Neither the Lender
-5-
<PAGE> 6
nor any of its directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Guarantor or otherwise.
11. Notwithstanding anything to the contrary contained herein, Lender
agrees that it shall not sell, transfer, assign, pledge, or otherwise dispose
of, or cause the sale, transfer, assignment, pledge, or other disposition of,
the shares of Common Stock ("Common Stock") of American Digital Communications
Inc. ("ADC") constituting the Collateral unless such sale, transfer, assignment,
pledge, or other disposition has been registered or is exempt under the
Securities Act of 1933 (the "Securities Act") and has been registered or
qualified or is exempt from registration or qualification under applicable
securities laws, and Lender provides to ADC an opinion of counsel satisfactory
to ADC that a sale, transfer, assignment, pledge, or other disposition of such
Common Stock may be made without registration.
(a) Lender represents as follows:
(i) The interest in the Common Stock and any Common
Stock that may be acquired by Lender will be acquired for Lender's own account
and not with a view to, or present intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws and
will not be disposed of in contravention of the Securities Act or any applicable
state securities laws;
(ii) Lender is sophisticated in financial matters
and is able to evaluate the risks and benefits of any investment in
the Common Stock;
(iii) The executive officers of Lender had an
opportunity to ask questions and receive answers concerning the terms
and conditions of the acquisition of the interest in the Common Stock
of ADC and have had full access to such other information concerning
ADC Lender has requested.
(iv) Lender is able to bear the economic risk of
any investment in the Common Stock of ADC for an indefinite period of
time because the Common Stock of ADC has not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such
registration is available.
(b) Lender acknowledges that until such time as the Common
Stock has been registered for resale pursuant to the Securities Act (or an
opinion of counsel reasonably satisfactory to ADC is provided that a public
sale, transfer, or assignment of such Common Stock may be made without
registration under the Securities Act), each certificate representing the Common
Stock shall be endorsed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
-6-
<PAGE> 7
SECURITIES LAWS, AND MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF
UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE CORPORATION SHALL HAVE
RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF,
EVIDENCE OF SUCH EXEMPTION REASONABLY
SATISFACTORY TO THE CORPORATION (WHICH MAY
INCLUDE, AMONG OTHER THINGS, AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION).
(c) Lender acknowledges that ADC may place stop transfer
orders against the registration or transfer of any Common Stock until such time
as the requirements of the foregoing legend are satisfied.
12. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
13. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. Section Headings. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.
15. No Waiver; Cumulative Remedies. The Lender shall not by any act
(except by a written instrument pursuant to paragraph 16 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Lender of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.
16. Waivers and Amendments; Successors and Assigns; Governing Law.
None of the terms or provisions of this Pledge Agreement, may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Guarantor and the Lender.
-7-
<PAGE> 8
provided that any provision of this Pledge Agreement may be waived in writing by
the Lender in a letter or agreement executed by the Lender or by telex or
facsimile transmission from the Lender. This Pledge Agreement shall be binding
upon the successors and assigns of the Guarantor and shall inure to the benefit
of the Lender and its successors and assigns. This Pledge Agreement shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of Missouri, United States of America.
17. Notices. Notices by either party hereto to the other shall be
given as provided in the Loan Agreement.
18. Counterparts. This Pledge Agreement may be executed in several
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-8-
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above.
MIDLAND INTERNATIONAL
CORPORATION
By: /s/ David C. O'Kell
------------------------------
Name:
Title:
OCTAGON CAPITAL
CANADA CORPORATION
By: /s/ Paul Davis
------------------------------
Name: Paul Davis
Title: Director
-9-
<PAGE> 10
SCHEDULE I
PLEDGED SECURITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Name of Issuer Description of Securities Certificate Number
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
American Digital 4,230,906 shares of Common Stock 3526-1
Communications Inc.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 1
EXHIBIT X
ASSIGNMENT AGREEMENT
This Assignment Agreement is made, executed and delivered
under seal of the 11th day of April 1996 by Octagon Capital Canada Corporation,
a corporation formed under the laws of Ontario ("Assignor"), to Mees Pierson ICS
Limited ("Assignee"), a corporation formed under the laws of the U.K.
WITNESSETH:
WHEREAS Assignor is a party to that certain Agreement (the
"Loan Agreement") dated as of April 11, 1996 made between the Assignor, Simmonds
Capital Limited ("SCL") and Midland International Limited ("Midland"); and
WHEREAS Assignor is a party to that certain Pledge
Agreement dated as of April 11, 1996 made by Midland in favor of Assignor (the
"Pledge Agreement"); and
WHEREAS Assignor is a party to that certain Secured
Guarantee dated as of April 11, 1996 made by Midland in favor of Assignor (the
"Secured Guarantee"); and
WHEREAS Assignor is a party to that certain Security
Agreement dated as of April 11, 1996 made by Midland in favor of Assignor (the
"Security Agreement"); and
WHEREAS Assignor wishes to assign all of its right, title
and interest in and under each of the Loan Agreement, the Pledge Agreement, the
Secured Guaranty and the Security Agreement (collectively, the "Loan Documents")
to Assignee; and
WHEREAS pursuant to section 1.3(i) of the Loan Agreement,
SCL is obligated to deliver a Debenture of SCL (the "Debenture") in a principal
amount of U.S. $3,000,000 to Octagon or as Octagon may direct; and
WHEREAS Assignor wishes to authorize and direct SCL to
issue and deliver to the Assignee the Debenture issuable pursuant to section
1.3(i) of the Loan Agreement; and
WHEREAS Assignor wishes to assign all of its right, title
and interest in and to the Collateral (as defined in each of the Loan Documents)
and the Pledged Securities (as defined in the Loan Documents) (collectively, the
"Secured Property") to the Assignee; and
NOW THEREFORE, in consideration of the payment of the sum
of U.S. $3,000,000 by Assignee to Assignor and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged:
1. Assignor does hereby transfer and assign unto Assignee, its successors and
assigns forever, all of its right, title and interest in and to each of the Loan
Documents and the Secured Property.
<PAGE> 2
-2-
2. Assignor hereby authorizes and directs SCL to issue and deliver to the
Assignee the Debenture issuable pursuant to section 1.3(i) of the Loan Agreement
and this shall be SCL's good and sufficient authority for so doing.
3. Assignor, for itself and its successors and assigns, covenants and agrees
that in the event any of the Loan Documents and any of the Secured Property
cannot be transferred or assigned by it without the consent of or notice to a
third party and in respect of which any necessary consent or notice has not at
the date of delivery of this Assignment Agreement been given or obtained, the
beneficial interest in and to the same shall in any event pass hereby to
Assignee; and Assignor, for itself and its successors and assigns, consents and
agrees to: (a) hold each of the Loan Documents and all of the Secured Property
in trust for the benefit of Assignee, its successors and assigns; (b) use its
best efforts to obtain and secure a valid transfer of each of the Loan Documents
and all of the Secured Property; and (c) make or complete such transfer as soon
as reasonably possible.
4. Assignor, for itself and its successors and assigns, further covenants and
agrees without further expense to Assignee that it will, from time to time at
the request of Assignee, execute, acknowledge, seal and deliver all such other
instruments and documents, pay all legal and other fees, and do all such other
things necessary to effectuate the transfer and assignment of each of the Loan
Documents and the Secured Property to Assignee.
5. The Assignment Agreement and the covenants and agreements contained herein
shall be binding upon Assignor, its successors and assigns and shall inure to
the benefit of Assignee, its successors and assigns. The covenants of Assignor
contained herein will survive the execution and delivery of this Assignment
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 3
-3-
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment to be executed and delivered under seal by a duly-authorized officer
as of the date first above written.
OCTAGON CAPITAL CANADA
CORPORATION
By /s/ Paul Davis
---------------------------
Name:
Title:
AGREED AND ACCEPTED:
SIMMONDS CAPITAL LIMITED
By /s/ David C. O'Kell
-----------------------------
Name:
Title:
MIDLAND INTERNATIONAL CORPORATION
By /s/ David C. O'Kell
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT Y
DEBENTURE
---------
1. Simmonds Capital Limited (hereinafter called the "Company") for value
received, hereby acknowledges itself indebted and promises to pay to Mees
Pierson ICS Limited (hereinafter called the "Holder") on October 8, 1996 the
sum of THREE MILLION DOLLARS (US$3,000,000) in lawful money of the United
States of America (the "Principal Amount") and to pay interest thereon at the
rate of twelve and sixty-eight one hundredths per cent (12.68%) per annum
payable monthly in arrears on the last Business Day of each month as well after
as before maturity, default and judgment, in like money and to pay interest on
overdue interest at the said rate.
2. (a) As security for the payment of the Obligations, the Company hereby:
(i) grants a security interest in and pledges the Securities to and in
favour of the Holder; (ii) charges as and by way of a floating charge,
to and in favour of the Holder, its undertaking and all its property
and assets for the time being, both present and future, now owned or
hereafter acquired by the Company, of whatsoever nature and kind and
wheresoever situate (other than the last day of any lease, 1,000,000
common shares of Intek Diversified Corporation and the shares of the
SCL Subsidiaries held by the Company (including dividends,
distributions and proceeds thereof)), but without limiting the
generality of the foregoing, all substitutions and replacements
therefor, increases, additions and accessions thereto and any interest
of the Company therein and all property in any form (including money)
that indemnifies or compensates for all or part of the Mortgaged
Property or proceeds therefrom that is destroyed and damaged
(collectively, the "Mortgaged Property"); provided however that unless
the security hereby constituted has become enforceable and remains
enforceable, the Holder shall not hinder or prevent the Company at any
time and from time to time from selling, leasing, assigning or
otherwise disposing of or dealing with the subject matter of such
floating charge in the ordinary course of its business and for the
purpose of carrying on the same (the said security interest and pledge
of the Securities and the Mortgaged Property being hereinafter
referred to collectively as the "Security Interest"). The Holder
shall have no rights in the Collateral other than the Security
Interest and its rights hereunder.
(b) The Security Interest shall extend to the Proceeds.
(c) The Company acknowledges and agrees that the Security Interest is
intended to attach to the Collateral upon the date of execution of this
Debenture.
(d) To have and to hold the Collateral and all rights hereby conferred unto
the Holder forever for the uses and purposes and with the powers and
authority and subject to the terms and conditions herein set forth.
(e) The Company delivers herewith to the Holder, the certificates
representing the Securities (except certificates representing
$1,025,000(CDN) principal amount of Class A Debentures of Circuit World
Corporation which have been previously delivered to Octagon Capital
Canada Corporation) in accordance with the terms of this Debenture.
<PAGE> 2
- 2 -
(f) The Securities other than any restrictions on transfers required by
applicable U.S. securities laws shall be freely transferable by
delivery or shall be accompanied by any and all endorsements, powers of
attorney or instruments necessary to permit the transfer, disposition
and, if applicable, the re-registration of the Securities as may be
required as a result of the Holder exercising its remedies under
section 3 hereof, subject to the requirements of applicable securities
legislation.
(g) Unless and until an Event of Default shall have occurred and be
continuing, the Company shall be entitled to receive all interest,
dividends or other like payments or distributions (whether in cash,
securities (as such term is defined in subsection 1(1) of the Act) or
other property) at any time payable on or with respect to the
Securities and unless and until an Event of Default shall have occurred
and be continuing, all such interest, dividends or other like payments
or distributions at any time payable to the Company on or with respect
to the Securities received by the Holder shall forthwith be paid or
delivered by the Holder to the Company or as it may direct, free and
clear of the Security Interest.
(h) Unless and until an Event of Default shall have occurred and be
continuing, the Company shall be entitled to vote the Securities and to
give consents, waivers, notices and ratifications, and to take other
action in respect of the Securities, provided, however, that no vote
shall be cast or consent, waiver, notice or ratification given or
action taken which would impair the Securities or be inconsistent with
or violate any provision of this Debenture.
(i) Unless and until an Event of Default shall have occurred and be
continuing, the Company may possess, operate, collect, use and enjoy
and deal with the Inventory and the Accounts in the ordinary course of
the Company's business in any manner not inconsistent with the
provisions hereof; provided always that the Holder shall have the right
at any time and from time to time to verify the existence and state of
the Inventory and the Accounts and the Company agrees to furnish all
assistance and information and to perform all such acts as the Holder
may reasonably request in connection therewith and for such purpose to
grant the Holder or its agents access to all places where the Inventory
may be located and to all premises occupied by the Company where
records concerning the Accounts and the Inventory may be maintained by
the Company.
(j) It is understood and agreed that the Holder, at any time and from time
to time when an Event of Default shall have occurred and be continuing,
may enforce, subject to any applicable grace periods, any and all of
the rights of the Company with respect to the Collateral, including
those rights described in paragraph (g) of this section 2.
(k) It is understood and agreed that the Holder shall release its rights in
the Accounts and Inventory of the Midland division of SCL, in the event
of a sale of such assets to Intek Diversified Corporation, provided,
however, that the proceeds of the sale of such assets are applied to
the repayment of this Debenture.
<PAGE> 3
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(l) If at any time the Company acquires any securities of any corporation
that are listed and posted for trading on any stock exchange or quoted
on any over-the-counter market ("marketable securities"), such
marketable securities shall forthwith constitute part of the Collateral
hereunder and the Company covenants and agrees to deliver certificates
representing all such marketable securities to the Holder to be held by
the Holder in accordance with the terms of this Debenture.
3. (a) Each of the following events is herein sometimes referred to as an
"Event of Default";
(i) if default is made in the payment of the Principal Amount or
interest when the same becomes due under the provisions hereof;
or
(ii) if a decree or order of a court having jurisdiction is entered
adjudging the Company or any SCL Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization or winding-up of the Company under the Bankruptcy
and Insolvency Act (Canada) or any other bankruptcy, insolvency
or analogous laws, or issuing process of execution against any
substantial part of the property of the Company or any SCL
Subsidiary, or appointing a receiver, or ordering the winding-up
or liquidation of the affairs, of the Company or any SCL
Subsidiary; or
(iii) if a resolution is passed for the winding-up or liquidation of
the Company or any SCL Subsidiary (unless in respect of a
winding-up or liquidation of any SCL Subsidiary, the proceeds of
such winding-up or liquidation are disbursed to the direct
shareholders of such SCL Subsidiary) or if the Company or any SCL
Subsidiary institutes proceedings to be adjudicated a bankrupt or
insolvent, or consents to the institution of bankruptcy or
insolvency proceedings against it or makes a general assignment
for the benefit of its creditors or a proposal under the
Bankruptcy and Insolvency Act (Canada) or analogous laws, or
consents to the filing of a petition for any such proceedings or
for the appointment of a receiver of, or of any substantial part
of, its property, or admits in writing its inability to pay its
debts generally as they become due or takes action in furtherance
of any of the aforesaid purposes; or
(iv) if any event of default or any event which, with the passage of
time or the giving of notice or both, would constitute an event
of default, as defined in the indentures or instruments under
which the Company or any of its SCL Subsidiaries has at the date
hereof or shall hereafter have outstanding indebtedness for
borrowed money (which indebtedness, in accordance with generally
accepted accounting principles, would be classified as a
liability on a consolidated balance sheet) in an aggregate amount
equal to or greater than US$3,000,000, shall have occurred and be
continuing, and the trustees or holders of such indebtedness have
accelerated the maturity of such indebtedness; or
(v) any representation and warranty made by the Company or Midland
International Corporation ("Midland") in the loan agreement (the
"Loan Agreement") dated the date hereof among the Company,
Midland and the Holder or in any of the Guarantee Documents (as
such term is defined in the Loan Agreement), or in any
<PAGE> 4
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other certificate or other document at any time delivered to the
Holder shall prove to have been incorrect on and as of the date
of the Loan Agreement; or
(vi) the Company shall have revised or withdrawn the written
instructions to Heenan Blaikie referred to in section 3.1 of the
Loan Agreement; or
(vii) if the Company breaches any of its covenants or obligations
hereunder and such breach is not cured within ten (10) Business
Days of the Holder giving notice thereof to the Company, provided
that such breach is curable.
(b) In case any Event of Default has occurred and is continuing, the
Security Interest shall immediately become enforceable and the Holder
may, forthwith or at any time thereafter (but, in the event that the
Holder shall proceed under any of the remedies set forth in paragraphs
(iv) and (v) inclusive of this paragraph (b) only upon ten Business
Days' notice to the Company), except in the event such Event of Default
shall have been cured prior to any action by the Holder under this
paragraph (b) and except as provided by applicable law or this
Debenture, take any one or more of the following actions:
(i) declare any or all of the Obligations to be immediately due and
payable by giving notice in writing thereof to the Company and,
in such event, such Obligations shall be forthwith due and owing
by the Company to the Holder;
(ii) immediately take possession of the Mortgaged Property with power,
among other things to exclude the Company, to preserve and
maintain the Mortgaged Property to receive rents income and
profits of all kinds and enjoy and exercise all powers necessary
to the performance of all functions made necessary by such
possession;
(iii) commence legal action to enforce payment of the Obligations;
(iv) subject to any applicable law, dispose of the Collateral by
private sale, public sale or otherwise upon such terms and
conditions as the Holder may determine; provided that the Holder
may apply and allocate any proceeds arising from the realization
of the Collateral to the Obligations in such manner as the Holder
in its absolute discretion, shall deem appropriate;
(v) elect to retain the Collateral or any portion thereof irrevocably
in full and final satisfaction of the Obligations by giving
written notice of such election to the Company;
(vi) exercise any or all of the rights and privileges attaching to any
of the Collateral as if the Holder were the absolute owner
thereof;
(vii) by instrument in writing appoint any person to be a receiver of
the Mortgaged Property and to remove and replace any such
receiver, which shall have the power to exercise the powers of
the Holder hereunder;
(viii) file such proofs of claims or other documents as may be
necessary or desirable to have its claim lodged in any
bankruptcy, winding- up, liquidation,
<PAGE> 5
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arrangement, dissolution or other proceedings (voluntary or
otherwise) relating to the Company;
(ix) where the Collateral has been disposed of by the Holder as
provided herein, commence legal action against the Company for
the difference, if any, between (i) any damages suffered by the
Holder or its assigns resulting directly or indirectly from the
violation by the Company of this Debenture (including, without
limitation, the Obligations); and (ii) the proceeds received by
the Holder on a disposition of the Collateral or Proceeds
(hereinafter referred to as the "Deficiency"); or
(x) take any other action, suit, remedy or proceeding authorized or
permitted by this Debenture or by law or equity.
(c) The Company shall pay to the Holder on demand all costs and expenses of
the Holder (including legal fees) incurred in exercising its rights
hereunder, which costs and expenses shall form part of the Obligations,
and shall be paid by the Company to the Holder forthwith after demand
therefor shall have been made by the Holder to the Company together
with interest from and including the date of demand or, if the Holder
has taken steps to exercise its rights under paragraph (b)(v) of this
section 3, from and including the date upon which the cost or expense
is incurred at a rate of twelve and sixty-eight one hundredths percent
(12.68%) per annum, payable before and after demand, maturity, default
and judgment, with interest on amounts in default at the same rate.
All such interest shall be payable on demand, shall be determined daily
and shall be compounded and payable monthly in arrears on the last
Business Day of each month. Payment of such interest shall be secured
by the Security Interest.
(d) Where the Collateral has been disposed of by the Holder, the Deficiency
shall be paid by the Company to the Holder forthwith after demand
therefor shall have been made by the Holder to the Company together
with interest from and including the date upon which the Deficiency
arises at a rate of twelve and sixty-eight one hundredths percent
(12.68%) per annum payable before and after demand, maturity, default
and judgment, with interest on amounts in default at the same rate.
All such interest shall be payable on demand, shall be determined daily
and shall be compounded and payable monthly in arrears on the last
Business Day of each month. Payment of the Deficiency together with
such interest shall be secured by the Security Interest.
(e) The Holder shall not be under any obligation, or be liable or
accountable for any failure, to enforce payment or performance of the
Obligations or to exercise any of its rights and remedies hereunder and
shall not be under any obligation to institute proceedings for any of
such purposes.
<PAGE> 6
- 6 -
(f) At any time before the Holder has disposed of the Collateral as
provided for herein or before the Holder has elected, in the manner set
out in paragraph (b)(v) of this section 3, to retain all or part of the
Collateral irrevocably, the Company may redeem the Collateral by
satisfying all of its obligations and liabilities under this Debenture.
(g) The Company irrevocably constitutes and appoints the Holder and its
directors and officers holding office from time to time as the true and
lawful attorneys of the Company with full power of substitution in the
name of the Company to do any and all such acts or things or execute
and deliver all such agreements, documents and instruments as the
Holder, in its sole discretion, considers necessary or desirable to
carry out the provisions and purposes of this Debenture or to exercise
its rights and remedies hereunder, including without in any way
limiting the generality of the foregoing: (i) transferring any or all
of the Collateral into the name of the Holder or to any person who
acquires the same pursuant to the provisions of paragraph (b) of this
section 3; (ii) endorsing, negotiating or redeeming any Collateral;
(iii) exercising any voting rights associated with the Securities and
executing any proxies or similar instruments in furtherance thereof;
and (iv) realizing or collecting any Proceeds or any dividends,
principal, interest or other payments on the Securities or in respect
thereof. The Company hereby ratifies and agrees to ratify all acts of
any such attorney taken or done in accordance with this paragraph (g).
This power of attorney being coupled with an interest shall not be
revoked or terminated by any act or thing and shall remain in full
force and effect until this Debenture has been terminated.
(h) The Company will, from time to time at the request of the Holder, make
and do all such acts and things and execute and deliver all such
instruments, agreements and documents as the Holder shall reasonably
request by notice in writing given to the Holder in order to create,
preserve, perfect, validate or otherwise protect the Security Interest,
to enable the Holder to exercise and enforce any of its rights and
remedies hereunder and generally to carry out the provisions and
purposes of this Debenture.
4. The Company hereby covenants and agrees with the Holder that until all
monies owing hereunder are paid in full it will take or cause to be taken all
such steps and actions to ensure that an Event of Default shall not occur. The
Company agrees to deliver to the Holder, forthwith upon becoming aware of any
Event of Default, or any act, condition or occurrence which, with notice or the
lapse of time, or both, would become an Event of Default, a notice in writing
specifying such Event of Default or such act, condition or occurrence.
5. The Company shall not create, incur, assume or permit to exist any security
interests, charges, mortgages, liens, hypothecs, pledges, assignments or other
encumbrances which encumber the Collateral other than Permitted Encumbrances.
6. Notwithstanding any provision contained herein, the Company shall not be
obliged to make any payments of interest or other amounts payable to the Holder
hereunder in excess of the amount or rate which would be prohibited by
applicable law or would result in the receipt by the Holder of interest at a
criminal rate (as such terms are construed under the Criminal Code (Canada)).
7. Payments of the Principal Amount and interest thereon and any other amount
payable hereunder shall be made in lawful money of the United States of America
by wire transfer of immediately available
<PAGE> 7
- 7 -
funds to an account designated by the Holder or to such other account or in
such other manner as shall have been designated by the Holder by written notice
to the Company.
8. If the date on which any payment is required to be made pursuant to the
provisions of this Debenture occurs on a day which is not a Business Day, such
payment shall be due and payable on the immediately succeeding Business Day.
9. The Company may at any time at its option prepay without penalty the
Principal Amount together with all accrued and unpaid interest owing thereon.
10. Upon the satisfaction of the Obligations, the Holder shall at its own
expense deliver to the Company possession of all Collateral and make and do all
such acts and things and execute and deliver all such instruments, agreements
and documents as the Company shall consider reasonably necessary or desirable
to discharge the Security Interest, to release and discharge the Collateral
therefrom and to record such release and discharge in all appropriate offices
of public record.
11. In this Debenture and any amendments hereto, the following terms shall
have the following meanings, respectively:
(a) "ACCOUNTS" has the meaning ascribed to such term under the Personal
Property Security Act (Ontario);
(b) "ACT" means the Personal Property Security Act (Ontario), as now in
effect, or any legislation that may be substituted therefor, and as
the same may from time to time hereafter be amended;
(c) "BUSINESS DAY" means a day of the year other than a Saturday, a Sunday
or a day observed as a statutory holiday in Ontario;
(d) "COLLATERAL" means the Securities and any securities issued on the
exercise, conversion or exchange thereof or any other security or
property derived therefrom and the Mortgaged Property;
(e) "EVENT OF DEFAULT" has the meaning ascribed thereto in section 3
hereof;
(f) "INVENTORY" has the meaning ascribed to such term under the Personal
Property Security Act (Ontario);
(g) "OBLIGATIONS" means all liabilities and obligations of any kind or
nature now or at any time and from time to time owing by the Company
to the Holder pursuant to or by virtue of this Debenture including,
without limitation, the Principal Amount and any interest thereon;
(h) "PERMITTED ENCUMBRANCES" means:
(i) liens for taxes, assessments or governmental charges incurred in
the ordinary course of business that are not yet due and payable
or the validity of which is being actively and diligently
contested in good faith by the Company or Midland in respect of
which the Company or Midland has established on its books
<PAGE> 8
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reserves considered by it and its auditors to be adequate
therefor, all enforcement proceedings have been stayed and
provision for payment has been made in accordance with (xiii)
below;
(ii) rights reserved to or vested in any governmental body by the
terms of any lease, licence, franchise, grant or permit, or by
any statutory provision, to terminate the same, to take action
which results in an expropriation, to designate a purchaser of
any mortgaged property or to require annual or other payments as
a condition to the continuance thereof;
(iii) construction, mechanics', carriers', repairers', storers',
warehousemen's and materialmen's liens and liens in respect of
vacation pay, workers' compensation, unemployment insurance or
similar statutory obligations, provided the obligations secured
by such liens are not yet due and payable and, in the case of
construction liens, which have not yet been filed or for which
the Company or Midland has not received written notice of a
lien;
(iv) liens arising from court or arbitral proceedings, provided that
the claims secured thereby are being contested in good faith by
the Company or Midland; execution thereon has been stayed and
continues to be stayed; the Holder is furnished, at its request,
with sufficient security to protect its interest; and such liens
do not, in the aggregate, materially detract from the value of
the mortgaged property or materially impair the use thereof in
the business of the Company or Midland;
(v) good faith deposits made in the ordinary course of business to
secure the performance of bids, tenders, contracts (other than
for the repayment of borrowed money), leases, surety, customs,
performance bonds and other similar obligations;
(vi) deposits to secure public or statutory obligations or in
connection with any matter giving rise to a lien described in
(iii) above;
(vii) deposits of cash or securities in connection with any appeal,
review or contestation of any lien or any matter giving rise to
a lien described in (i) or (iv) above;
(viii) zoning restrictions, easements, rights of way, leases or
other similar encumbrances or privileges in respect of real
property which in the aggregate do not materially impair the use
of such property by the Company or Midland, as the case may be,
in the operation of its business, and which are not violated in
any material respect by existing or proposed structures or land
use;
(ix) purchase-money securities interests (as such term is defined
under the Personal Property Security Act (Ontario));
(x) security given by the Company or Midland, to a public utility or
any Governmental Body, when required by such utility or
Governmental Body in connection with the operations of the
Company or Midland, as the case may be, in the ordinary course
of its business, which singly or in the aggregate do not
<PAGE> 9
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materially detract from the value of the asset concerned or
materially impair its use in the operation of the business of
the Company or Midland, as the case may be;
(xi) the reservation in any original grants from the Crown of any
land or interest therein and statutory exceptions to title;
(xii) any lien in existence at the date hereof, other than a
construction lien, payment of which has been provided for by
deposit prior to the date hereof with a financial institution in
an amount in cash, or the obtaining of a surety bond or letter
of credit satisfactory to a financial institution, sufficient in
either case to pay or discharge such lien;
(xiii) any security of the Company granted to the Royal Bank of
Canada;
(xiv) any security of the Company granted to Quest Capital
Corporation pursuant to the Quest Security (as defined in
subsection 2.2(f) of the Loan Agreement); and
(xv) any other lien which the Holder approves in writing as a
Permitted Encumbrance;
(i) "PROCEEDS" means identifiable or traceable personal property in any
form (including money) derived, directly or indirectly, from any
dealing with the Collateral or proceeds therefrom and includes any
payment that indemnifies or compensates for loss or damage to the
Collateral or Proceeds therefrom;
(j) "SCL SUBSIDIARIES" means (i) A.C. Simmonds & Sons Limited, (ii) A.C.
Simmonds Components Ltd., (iii) SCL Plastics Inc., (iv) SCL
Technologies Inc., (v) Simmonds Technologies Inc. and (vi) any company
holding all of the shares in the capital stock of the foregoing
companies, which is a direct or indirect wholly owned subsidiary of
the Company, not less than 80% of the fair market value of the assets
of which shall consist of the shares of any such companies;
(k) "SECURITY INTEREST" has the meaning ascribed thereto in section 2
hereof; and
(l) "SECURITIES" means:
(i) $1,625,000(CDN) principal amount of Class A Debentures of
Circuit World Corporation ("Circuit World");
(ii) shares earned under a contractual obligation between the Company
and Circuit World of which 1,500,000 common shares of Circuit
World have been beneficially earned but as of the date hereof
unissued;
(iii) 150,000 common shares of Ventel, Inc.;
(iv) 400,000 shares of common stock of Intek Diversified Corporation
("Intek");
(v) the Company's rights under an option agreement with Roamer One
Holdings Inc. to exercise options for 1,000,000 common shares of
Intek (the right to exercise options for 600,000 common shares
of Intek shall be reserved for the Company); and
(vi) all other marketable securities referred to in section 2(l).
<PAGE> 10
- 10 -
12. All communications (including, without limitation, any demand for payment
hereunder) shall be effectively given if (i) delivered by hand, (ii) sent by
electronic or facsimile communication, or (iii) sent by prepaid courier service
addressed to the Company at 5255 Yonge Street, Willowdale, Ontario, M2N 6P4,
Attention: David O'Kell (Facsimile (416) 221-3800) or to the Holder at
Camomile Court, 23 Camomile, London, United Kingdon, EC3A7PP Attention:
Stephen Grimwood.
Any notice so given shall be deemed conclusively to have been given and
received when so delivered by hand or sent by electronic communication or
facsimile or on the second day following the sending thereof by courier. Any
other party may change any particulars of its address for notice to the other
in the manner aforesaid.
13. Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Debenture and, in case of any
such loss, theft or destruction of this Debenture, upon delivery of an
indemnity reasonably satisfactory to the Company in form and amount or, in the
case of any such mutilation, upon surrender of this Debenture for cancellation
at the offices of the Company, the Company at its expense will make and deliver
a new Debenture of like tenor in lieu of such lost, stolen, destroyed or
mutilated Debenture.
14. The Holder may compound, compromise, grant extension, take and give up
securities, accept compositions, grant releases and discharges and otherwise
deal with the Company and others and the Collateral as it sees fit without
prejudice to any of its rights hereunder. The Holder need not see to the
exercise of any option or right in connection with the Collateral and need not
protect or preserve it from, and is hereby released from all responsibility
for, depreciation in or loss of value of the Collateral and the Holder shall be
bound to exercise in the keeping of the Collateral only the same degree of care
as if it were the property of the Holder. No remedy hereby conferred upon or
reserved to the Holder for the realization of the Collateral, enforcement of
rights of the Holder or otherwise is intended to be exclusive of any other
remedy or remedies hereunder or any other security held hereto and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or under any other document or agreement in respect of
the amounts owing by the Company to the Holder. The taking of any action or
proceedings or refraining from doing so or any other dealings with any other
security for the money hereby secured, shall not release or affect the security
hereunder. This Debenture and the security hereunder are in addition to and
not in substitution for any other security held by the Holder and shall not
operate as a merger of any debt or suspend the fulfilment of or affect the
rights, remedies and powers of the Holder in respect of the Obligations or any
security held by the Holder for the fulfilment thereof.
15. Notwithstanding anything to the contrary contained herein, Holder agrees
upon receipt of this Debenture that it shall not sell, transfer, assign, pledge
or otherwise dispose of, or cause the sale, transfer, assignment, pledge or
other disposition of, the shares of Common Stock ("Common Stock") of Intek
Diversified Corporation ("Intek") constituting the Collateral unless such sale,
transfer, assignment, pledge or other disposition has been registered or is
exempt under the Securities Act of 1933 (the "Securities Act") and has been
registered or qualified or is exempt from registration or qualification under
applicable securities laws and Holder provides to Intek an opinion of counsel
satisfactory to Intek that a sale, transfer, assignment, pledge or other
disposition of such Common Stock may be made without registration.
<PAGE> 11
- 11 -
16. Holder represents upon receipt of this Debenture to the Company as
follows:
(a) The interest in the Common Stock and any Common Stock that may be
acquired by Holder will be acquired for Holder's own account and not
with a view to, or present intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities
laws and will not be disposed of in contravention of the Securities
Act or any applicable state securities laws;
(b) Holder is sophisticated in financial matters and is able to evaluate
the risks and benefits of any investment in the Common Stock;
(c) The executive officers of Holder had an opportunity to ask questions
and receive answers concerning the terms and conditions of the
acquisition of the interest in the Common Stock of Intek and have had
full access to such other information concerning Intek as Holder has
requested.
(d) Holder is able to bear the economic risk of any investment in the
Common Stock of Intek for an indefinite period of time because the
Common Stock of Intek has not been registered under the Securities Act
and, therefore, cannot be sold unless subsequently registered under
the Securities Act or an exemption from such registration is
available.
17. Holder acknowledges upon receipt of this Debenture that until such time as
the Common Stock has been registered for resale pursuant to the Securities Act
(or an opinion of counsel reasonably satisfactory to Intek is provided that a
public sale, transfer, or assignment of such Common Stock may be made without
registration under the Securities Act), each certificate representing the
Common Stock shall be endorsed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED, AT THE
EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY
SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN
OPTION OF COUNSEL SATISFACTORY TO THE CORPORATION).
18. Holder acknowledges upon receipt of this Debenture that Intek may place
stop transfer orders against the registration or transfer of any Common Stock
until such time as the requirements of the foregoing legend are satisfied.
19. This Debenture and any covenants and agreements of the Company herein
shall be binding upon and enforceable against the Company and its successors
and assigns and shall enure to the benefit of the Holder and its successors and
assigns, provided that this Debenture may not be assigned by the Holder except
in compliance with all applicable securities legislation.
<PAGE> 12
- 12 -
20. This Debenture shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
21. The Company covenants and agrees that, to the fullest extent permitted by
the law, it shall make all payments hereunder without regard to any defence,
counterclaim or right of set-off available to it other than under this
Debenture and that any permitted assignee of the Holder shall have all of the
Holder's rights and remedies under this Debenture.
IN WITNESS WHEREOF the Company caused its corporate seal to be hereunto
affixed and this Debenture to be duly executed this 11th day of April,1996.
SIMMONDS CAPITAL LIMITED
Per: /s/ David C. O'Kell c/s
-----------------------------------------
name: David C. O'Kell, Executive Vice President
-----------------------------------------
