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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
July 30, 1998
RESPONSE USA, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-20770 52-1441922
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
11-H Princess Road
Lawrenceville, New Jersey 08648
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(Address of principal executive offices)
Registrant's Telephone Number, including
area code: (609) 896-4500
Not Applicable
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(Former Address, if changed since last report)
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Item 5. OTHER EVENTS.
On July 30, 1998, United Security Systems, Inc. ("USS"), a wholly-owned
subsidiary of Response USA, Inc. (the "Company"), sold certain of its alarm
monitoring contracts (the "Purchased Contracts") to its newly created,
wholly-owned subsidiary, Response Acquisition Corp. ("RAC"), for aggregate
consideration of approximately $26 million pursuant to a Purchase Agreement
dated as of July 30, 1998 (the "Purchase Agreement"), between USS and RAC.
The Purchased Contracts generate approximately $700,000 in monthly recurring
revenue. Also on July 30, 1998, in a related transaction, RAC entered into a
Receivable Financing Agreement dated as of July 30, 1998 (the "Financing
Agreement"), among RAC, USS and McGinn, Smith Capital Holdings Corp.
("MSCH"). Pursuant to the terms of the Financing Agreement, RAC received
initial financing from MSCH in the amount of $26 million (the "Initial Loan")
and granted MSCH a first priority perfected security interest in the
receivables derived from the Purchased Contracts (the "Receivables"). KeyBank
National Association ("KeyBank") provided the funds utilized by MSCH to
provide the Initial Loan to RAC. The Initial Loan has a term of five years
and bears interest at a rate of 8% per annum. The Receivables are paid
directly into a lockbox administered by USS as Collection Agent under the
Financing Agreement for which USS will receive a monthly fee equal to $5.00
per Purchased Contract from RAC. Under the terms of the Financing Agreement,
all funds derived from the Receivables will be paid to the lockbox account
and MSCH will be paid its monthly payment of principal and interest under the
Loan out of such lockbox account prior to any payments to USS as Collection
Agent or any other funds being distributed to the Company or its
subsidiaries. RAC may finance, from time to time, up to an additional $24
million pursuant to the Financing Agreement by pledging additional Purchased
Contracts which it may purchase from USS pursuant to the Purchase Agreement
to MSCH, which funds will be provided to MSCH by KeyBank. A portion of the
proceeds form the Initial Loan was used to satisfy existing indebtedness of
the Company and the remaining amount will be used for acquisitions and
general working capital. In the event of a default under the Financing
Agreement, MSCH would be entitled to all amounts derived from the Receivables
necessary to satisfy all outstanding obligations to MSCH under the Financing
Agreement.
In consideration for providing the funds for the Initial Loan, KeyBank
received a fee from MSCH in cash of $2,730,000 out of the fees which were
received by MSCH from RAC of approximately $3,900,000, $3,120,000 of which was
paid in cash at the closing and $780,000 was paid in 119,632 shares of common
stock, par value $.008 per share, of the Company (the "Fee Shares") to be
issued to MSCH. The Company has agreed to file a registration statement to
register the sale of the Fee Shares by MSCH under the Securities Act of 1933,
as amended. The Company has agreed that in the event the proceeds to be derived
by MSCH from the sale of the Fee Shares is less than $780,000, the Company is
obligated to, at its option, pay cash or issue additional shares equal to the
amount of the shortfall, if any.
The above descriptions of the Purchase Agreement and Financing Agreement
are incomplete and are qualified in their entirety by reference to the copies of
such agreements filed as Exhibits 2.1 and 2.2 annexed hereto.
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Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(c) Exhibits:
2.1 Purchase Agreement dated as of July 30, 1998, between
RAC and USS (excluding all exhibits and schedules).
2.2 Receivable Financing Agreement dated as of July 30,
1998, among MSCH, RAC and USS (excluding all exhibits
and schedules).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
August 6, 1998
RESPONSE USA, INC.
By: /s/ Richard M. Brooks
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Richard M. Brooks, President
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INDEX TO EXHIBITS
Exhibit No. Description
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2.1. Purchase Agreement dated as of July 30, 1998, between Response
Acquisition Corp. and United Security Systems, Inc. (excluding
all exhibits and schedules).
2.2. Receivable Financing Agreement dated as of July 30, 1998, among
McGinn, Smith Capital Holdings Corp., Response Acquisition Corp.
and United Security Sytems, Inc. (excluding all exhibits and
schedules).
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EXHIBIT 2.1
PURCHASE AGREEMENT
Dated as of July 30, 1998
Between
UNITED SECURITY SYSTEMS, INC.
AS SELLER
and
RESPONSE ACQUISITION CORP.
AS PURCHASER
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PURCHASE AGREEMENT
Dated as of July 30, 1998
UNITED SECURITY SYSTEMS, INC., a New Jersey corporation (the "SELLER"), and
RESPONSE ACQUISITION CORP., a Delaware corporation (the "PURCHASER"), hereby
agree as follows:
PRELIMINARY STATEMENTS.
(a) Certain terms which are capitalized and used throughout this Agreement
(in addition to those defined above) are defined in Article I of this Agreement.
(b) The Seller has Receivables that it wishes to sell to the Purchaser,
and the Purchaser is prepared to purchase such Receivables on the terms set
forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADVERSE CLAIM" means a lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement.
"AFFILIATE" means, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person or is a director or officer of such Person.
"BUSINESS DAY" means any day on which banks are not authorized or
required to close in Cleveland, Ohio.
"CENTRAL STATION" means a central station monitoring company which the
Collection Agent may elect to utilize to provide monitoring services to Obligors
which is approved by the Purchaser. Initially, the Central Station shall be
Emergency Response Center, Inc. and the Collection Agent.
"CENTRAL STATION CONTRACT" means the agreement attached hereto as
Exhibit C between the Collection Agent and the Central Station.
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"CENTRAL STATION FEES" means, for any month, the fees due under the
Central Station Contract for such month; PROVIDED, that in no event shall the
Central Station Fees charged by the Collection Agent be greater than those
charged by any other Central Station hereunder.
"COLLECTION AGENT" means, at any time, the Person then authorized
pursuant to Section 6.01 to service, administer and collect Transferred
Receivables.
"COLLECTION AGENT FEE" has the meaning specified in Section 6.03.
"COLLECTIONS" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all cash proceeds of Related Security with respect to such
Receivable, and all funds deemed to have been received by the Seller or any
other Person as a Collection pursuant to Section 2.04.
"CONTRACT" means an agreement between the Seller or its
predecessor-in-interest and an Obligor, substantially in the form of one of the
written contracts approved by the Purchaser, pursuant to or under which such
Obligor shall be obligated to pay for central-station monitoring and other
similar services consistent with such Contract and past practice or as otherwise
may be approved by the Purchaser from time to time.
"CREDIT AND COLLECTION POLICY" means written receivables credit and
collection policies and practices of the Seller reasonably satisfactory to the
Purchaser in effect on the date of this Agreement applicable to the Contracts
and the Receivables and delivered by the Seller to the Purchaser within 30 days
following the date hereof, as modified in compliance with this Agreement.
"CREDIT SCORE" means, with respect to an Obligor, the credit score of
such Obligor, as determined pursuant to the generic risk scoring system
developed by Fair Isaac & Company based upon information regarding such Obligor
provided by Equifax Inc.
"DEBT" means, with respect to any Person, (a) indebtedness of such
Person for borrowed money, (b) any obligation of such Person evidenced by a
bond, debenture, note or other similar instrument, (c) any obligations of such
Person to pay the deferred purchase price of property or services, (d) any
obligation of such Person as lessee under a lease which shall have been or
should be, in accordance with generally accepted accounting principles, recorded
as a capital lease, (e) any obligation of such Person under a direct or indirect
guaranty in respect of, and any obligation of such Person (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, any indebtedness or obligations of others of the
kinds referred to in clauses (a) through (d) above and (f) any liability of such
Person in respect of unfunded vested benefits under a plan covered by Title IV
of ERISA.
"DEFAULTED RECEIVABLE" means a Receivable:
(a) as to which any payment, or part thereof, remains unpaid for 150 or
more days from the original due date for such payment;
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(b) as to which the Obligor thereof or any other Person obligated thereon
has taken any action, or suffered any event to occur, of the type described in
Section 7.01(g); or
(c) which, consistent with the Credit and Collection Policy, would be
written off as uncollectible.
"DEFERRED PURCHASE PRICE" means the portion of the Purchase Price of
Purchased Receivables purchased on any Purchase Date exceeding the amount of the
Purchase Price under Section 2.02 to be paid in cash, which portion, when added
to the cumulative amount of all previous Deferred Purchase Prices (after giving
effect to any payments made on account thereof), shall not exceed $10,000,000.
The obligations of the Purchaser in respect of the Deferred Purchase Price are
hereby subordinated to the payment by the Purchaser of all amounts due under the
Financing Agreement. The Deferred Purchase Price shall be evidenced by one or
more promissory notes in the form of Exhibit B.
"DELINQUENT RECEIVABLE" means a Receivable that is not a Defaulted
Receivable and:
(a) as to which any payment, or part thereof, remains unpaid for (i) 91 or
more days from the original due date for such payment with respect to
residential Contracts, (ii) 120 or more days from the original due date for such
payment with respect to commercial Contracts or (iii) 150 or more days from the
original due date for such payment with respect to Government Contracts or
(b) which, consistent with the Credit and Collection Policy, would be
classified as delinquent by the Seller.
"DILUTION" means, with respect to any Transferred Receivable, the
aggregate amount of any reductions or adjustments in the Outstanding Balance of
such Transferred Receivable as a result of any defective or rejected services
or any cash discount or other adjustment or setoff.
"ELIGIBLE RECEIVABLE" means a Receivable:
(a) the Obligor of which is a United States resident, is not an Affiliate
of any of the parties hereto;
(b) the Obligor of which is not the Obligor of any Defaulted Receivables;
(c) which, at the time of the transfer thereof to the Purchaser under this
Agreement, is not a Defaulted Receivable or a Delinquent Receivable;
(d) which, in according to the Contract related thereto, is required to be
paid by the Obligor thereof in equal monthly installments and which, upon any
termination by the Obligor thereof, must be paid in full;
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(e) which is an "account" within the meaning of Section 9-105 of the UCC
of the applicable jurisdictions;
(f) which is denominated and payable only in United States dollars in the
United States;
(g) which arises under a Contract which, together with such Receivable, is
in full force and effect and constitutes the legal, valid and binding obligation
of the Obligor of such Receivable and is not subject to any dispute, offset,
counterclaim or defense whatsoever (except the potential discharge in bankruptcy
of such Obligor);
(h) which, together with the Contract related thereto, does not contravene
in any material respect any law, rule or regulation applicable thereto
(including, without limitation, any law, rule or regulation relating to usury,
consumer protection, truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and privacy)
and with respect to which no party to the Contract related thereto is in
violation of any such law, rule or regulation in any material respect;
(i) the transfer, sale or assignment of which does not contravene any
applicable law, rule or regulation or any agreement to which the Seller is a
party or to which the related Contract is subject;
(j) the Obligor of which has a Credit Score of not less than 550;
(k) which arises under a Contract which (i) does not require the Obligor
thereunder to consent to the transfer, sale or assignment of the rights and
duties of the Seller under such Contract and (ii) does not contain a
confidentiality provision that purports to restrict the ability of the Purchaser
and its assigns to exercise their rights under this Agreement, including,
without limitation, their right to review the Contract; and
(l) which (i) satisfies all applicable requirements of the Credit and
Collection Policy and (ii) complies with such other criteria and requirements
(other than those relating to the collectibility of such Receivable) as the
Purchaser or its designee may from time to time specify to the Seller upon 30
days' notice.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"EVENT OF TERMINATION" has the meaning specified in Section 7.01.
"FACILITY TERMINATION DATE" means June 30, 2005.
"FINANCE AGREEMENT" means that certain Monitoring Receivables Finance
Agreement, dated as of the date hereof, among the Purchaser, as seller, McGinn,
Smith Capital Holdings Corp., as purchaser, and the Seller, as collection agent,
as amended or restated from time to time.
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"GOVERNMENTAL ENTITY" means the United States of America, any state,
any political subdivision of a state and any agency or instrumentality of the
United States of America or any state or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GOVERNMENT RECEIVABLE" means a Receivable payable by a Governmental
Entity.
"INCIPIENT EVENT OF TERMINATION" means an event that but for notice or
lapse of time or both would constitute an Event of Termination.
"INDEMNIFIED AMOUNTS" has the meaning specified in Section 8.01.
"INITIAL PURCHASE" means the Purchase occurring on the date hereof.
"LOCKBOX" means one or more accounts, under the exclusive ownership
and control of the Purchaser (or its assigns or designees), maintained for the
purpose of receiving Collections. The Lockbox initially shall be Post Office
Box ____, ____________, __ _____.
"MONTHLY REVENUE" means, with respect to any Contract on any Purchase
Date, the monthly revenue payable with respect to such Contract.
"OBLIGOR" means a Person obligated to make payments pursuant to a
Contract.
"OUTSTANDING BALANCE" of any Receivable at any time means the then
outstanding principal balance thereof.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"PURCHASE" means a purchase by the Purchaser of Receivables from the
Seller pursuant to Article II.
"PURCHASE DATE" has the meaning specified in Section 2.02(a).
"PURCHASE PRICE" means, for any Purchase of Receivables, an amount
equal to the aggregate Monthly Revenue of each Contract the Receivables under
which are the subject of such Purchase multiplied by 37.15 for the Initial
Purchase and 37.64 for each Subsequent Purchase.
"PURCHASED RECEIVABLE" means any Receivable which, pursuant to the
procedure described in Section 2.02(c), has been identified as a Purchased
Receivable.
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"PURCHASER ACCOUNT" means Account #8516700 at Mellon Bank, N.A. or
such other account under the exclusive control of the Purchaser (or its assigns)
as is specified from time to time by the Purchaser.
"PURCHASER LOAN" means a loan made by the Purchaser, at its option, to
the Seller, upon the Seller's request; PROVIDED, that no such loan may be made,
and all such loans shall become immediately due and payable, upon the occurrence
of any Event of Termination. The Purchaser Loans shall be evidenced by one or
more promissory notes in substantially the form of Exhibit A.
"RECEIVABLE" means the indebtedness of an Obligor under a Contract,
and includes any other obligations of such Obligor with respect thereto. Each
Purchase of a Contract hereunder shall be deemed to include any and all amounts
payable under such Contract, whether or not earned at the time of such Purchase.
"RECEIVABLES REPORT" means a report, in form and substance reasonably
satisfactory to the Purchaser, furnished by the Collection Agent to the
Purchaser pursuant to Section 6.02(b).
"RELATED SECURITY" means, with respect to any Transferred Receivable:
(a) all of the Seller's interest in any merchandise (including returned
merchandise) relating to any sale giving rise to such Receivable and in the
Central Station Contract related thereto to the extent that such Central Station
Contract relates to such Receivable;
(b) all security interests or liens and property subject thereto from time
to time purporting to secure payment of such Receivable, whether pursuant to the
Contract related to such Receivable or otherwise, together with all financing
statements signed by an Obligor describing any collateral securing such
Receivable;
(c) all guaranties, insurance and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise; and
(d) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch cards,
data processing software and related property and rights) relating to such
Receivable and the related Obligor.
"SETTLEMENT DATE" means the first day of each month (or if such day is
not a Business Day, the immediately succeeding Business Day).
"TRANSFERRED CONTRACT" means a Contract the Receivables arising under
which are Transferred Receivables.
"TRANSFERRED RECEIVABLE" means a Purchased Receivable.
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"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
SECTION 1.02 OTHER TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the UCC in the State of New York,
and not specifically defined herein, are used herein as defined in such Article
9.
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES
SECTION 2.01 FACILITY. On the terms and conditions hereinafter set forth
and without recourse to the Seller (except to the extent specifically provided
herein),(i) the Seller shall, on the date hereof, sell to the Purchaser the
Receivables described on the Receivables Report attached hereto as Schedule I
and the Purchaser shall purchase such Receivables and (ii) the Seller may, from
time to time hereafter, at its option, sell to the Purchaser such Receivables as
may be set forth on a Receivables Report delivered by the Seller to the
Purchaser.
SECTION 2.02 MAKING PURCHASES.
(a) INITIAL PURCHASE. The Seller shall sell the Receivables described on
Schedule I on the date hereof in exchange for payment by the Purchaser of the
Purchase Price for such Purchase. The Purchaser shall promptly notify the
Seller whether it has determined to make such Purchase.
(b) SUBSEQUENT PURCHASES. Upon notice from the Seller on a Business Day
following the Initial Purchase (each such day, including the date of the initial
purchase under Section 2.02(a), a "PURCHASE DATE"), the Seller may sell to the
Purchaser and the Purchaser shall purchase from the Seller any Receivables
listed on a Receivables Report delivered by the Seller to the Purchaser. On the
date of each such Purchase, the Purchaser shall, upon satisfaction of the
applicable conditions set forth in Article III, pay the Purchase Price for such
Purchase in the manner provided in Section 2.02(c).
(c) PAYMENT OF PURCHASE PRICE. The Purchase Price for the Initial
Purchase shall be paid by a deposit in same day funds to the Seller's account
designated by the Seller in the amount of $22,880,000 and the Deferred Purchase
Price in the amount of $3,120,000, or an aggregate of $26,000,000. The Purchase
Price for each Purchase following the Initial Purchase shall be paid on the
Purchase Date therefor, at the discretion of the Seller, by means of (i) a
deposit in same day funds to the Seller's account designated by the Seller, (ii)
an increase in the Deferred Purchase Price (subject at all times to the
limitations contained in the definition thereof) or (iii) a credit against
interest and/or principal owed by the Seller with respect to any Purchaser Loan.
The allocation of the Purchase Price as among such methods of payment shall be
subject in each instance to the sole discretion of the Purchaser.
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(d) OWNERSHIP OF RECEIVABLES AND RELATED SECURITY. On each Purchase
Date (including the date of the Initial Purchase), after giving effect to the
Purchase on such date, the Purchaser shall own all Transferred Receivables. The
Purchase of any Receivable shall include all Related Security with respect to
such Receivable.
SECTION 2.03 COLLECTIONS. All Collections on the Transferred
Receivables shall be directed to the Lockbox, except as otherwise directed by
the Purchaser. If the Seller believes that Collections which are not
Collections of Transferred Receivables have been deposited into an account of
the Purchaser, the Seller shall so advise the Purchaser and, on the Business Day
following such identification, the Purchaser shall remit, or shall cause to be
remitted, all Collections so deposited which are identified, to the Purchaser's
satisfaction, to be Collections of Receivables which are not Transferred
Receivables to the Seller.
SECTION 2.04 SETTLEMENT PROCEDURES.
(a) If on any day the Outstanding Balance of any Purchased Receivable is
reduced or adjusted as a result of any defective or rejected services, any cash
discount or other adjustment made by the Seller or any set-off or dispute in
respect of any claim by the Obligor thereof against the Seller (whether such
claim arises out of the same or a related transaction or an unrelated
transaction but EXCLUDING adjustments, reductions or cancellations in respect of
such Obligor's bankruptcy), the Seller shall be deemed to have received on such
day a Collection of such Purchased Receivable in the amount of such reduction or
adjustment. The Seller shall remit to the Purchaser Account on or prior to the
next Settlement Date all amounts deemed to have been received pursuant to this
subsection.
(b) Upon discovery by the Seller or the Purchaser of a breach of any of
the representations and warranties made by the Seller in Section 4.01 with
respect to any Transferred Receivable, such party shall give prompt written
notice thereof to the other party, as soon as practicable and in any event
within three Business Days following the date of such discovery. The Seller
shall (to the extent any such breach shall not have been remedied), upon not
less than two Business Days' notice from the Purchaser or its assign or
designee, repurchase all such Transferred Receivables under such Contract on the
next succeeding Settlement Date for a repurchase price equal to the Purchase
Price of such Transferred Receivable. Each repurchase of a Transferred
Receivable shall include the Related Security with respect to such Transferred
Receivable. The proceeds of any such repurchase shall be deemed to be a
Collection in respect of such Transferred Receivable. The Seller shall remit to
the Purchaser Account on or prior to the next Settlement Date the repurchase
price required to be paid pursuant to this subsection.
(c) Except as stated in subsection (a) or (b) of this Section 2.04 or as
otherwise required by law or the underlying Contract, all Collections of any
Transferred Receivable shall be applied to the Receivables of each Obligor in
the order of the age of such Receivables, starting with the oldest such
Receivable, unless such Obligor designates its payment for application to
specific Receivables.
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SECTION 2.05 PAYMENTS AND COMPUTATIONS, ETC. All amounts to be paid or
deposited by the Seller or the Collection Agent hereunder shall be paid or
deposited no later than 2:00 P.M. (Cleveland time) on the day when due in same
day funds to the Purchaser Account.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01 CONDITIONS PRECEDENT TO INITIAL PURCHASE. The Initial
Purchase of Receivables from the Seller hereunder is subject to the conditions
precedent that the Purchaser shall have received on or before the date of such
Purchase the following, each (unless otherwise indicated) dated such date, in
form and substance reasonably satisfactory to the Purchaser:
(a) Certified copies of the resolutions of the Board of Directors of the
Seller approving this Agreement and certified copies of all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Agreement.
(b) A certificate of the Secretary or Assistant Secretary of the Seller
certifying the names and true signatures of the officers of the Seller
authorized to sign this Agreement and the other documents to be delivered by it
hereunder.
(c) Acknowledgment copies or time-stamped receipt copies of proper
financing statements, duly filed on or before the date of the initial Purchase,
naming the Seller as the seller/debtor and the Purchaser as the
purchaser/secured party, or other similar instruments or documents, as the
Purchaser may deem necessary or desirable under the UCC of all appropriate
jurisdictions or other applicable law to perfect the Purchaser's ownership of
and security interest in the Transferred Receivables and Related Security and
Collections with respect thereto or such other evidence as is reasonably
satisfactory to the Purchaser.
(d) Acknowledgment copies or time-stamped receipt copies of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in the Transferred Receivables, Contracts or Related
Security previously granted by the Seller or such other evidence as is
reasonably satisfactory to the Purchaser.
(e) Completed requests for information, dated on or before the date of
such initial Purchase, listing the financing statements referred to in
subsection (c) above and all other effective financing statements filed in the
jurisdictions referred to in subsection (c) above that name the Seller as
debtor, together with copies of such other financing statements (none of which
shall cover any Transferred Receivables, Contracts or Related Security).
SECTION 3.02 CONDITIONS PRECEDENT TO ALL PURCHASES. Each Purchase
(including the initial Purchase) hereunder shall be subject to the further
conditions precedent that:
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(a) on or prior to the date of such Purchase, the Seller shall have
delivered to the Purchaser a written report identifying, among other things, the
Receivables (including the underlying Contracts) to be included in such Purchase
and the then outstanding Purchased Receivables and the aged balance thereof, in
each case correlated to Purchases;
(b) on or prior to the date of such Purchase, the Collection Agent shall
have delivered to the Purchaser, in form and substance reasonably satisfactory
to the Purchaser, a completed Receivables Report for the most recently ended
reporting period for which information is required pursuant to Section 6.02(b)
and containing such additional information as may reasonably be requested by the
Purchaser;
(c) the Seller shall have marked its master data processing records and,
at the request of the Purchaser, each Contract giving rise to Purchased
Receivables and all other relevant records evidencing the Receivables which are
the subject of such Purchase with a legend, acceptable to the Purchaser, stating
that such Receivables, the Related Security and Collections with respect
thereto, have been sold in accordance with this Agreement; and
(d) on the date of such Purchase the following statements shall be true
(and the Seller, by accepting the amount of such Purchase, shall be deemed to
have certified that):
a. the representations and warranties contained in Section 4.01 are
correct in all material respects on and as of the date of such Purchase as
though made on and as of such date,
b. no event has occurred and is continuing, or would result from
such Purchase, that constitutes an Event of Termination or would constitute
an Incipient Event of Termination and
c. the Purchaser shall not have delivered to the Seller a notice
that the Purchaser shall not make any further Purchases hereunder; and
(e) the Purchaser shall have received such other approvals, opinions or
documents as the Purchaser may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants as follows:
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(a) The Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of New Jersey, and is duly qualified
to do business, and is in good standing, in every jurisdiction where the nature
of its business requires it to be so qualified except where the failure to be
so qualified would not have a material adverse effect on the collectibility of
the Transferred Receivables or on the Seller.
(b) The execution, delivery and performance by the Seller of this
Agreement and the other documents to be delivered by it hereunder, including the
Seller's sale of Receivables hereunder and the Seller's use of the proceeds of
Purchases, (i) are within the Seller's corporate powers, (ii) have been duly
authorized by all necessary corporate action on the part of the Seller, (iii) do
not contravene (A) the Seller's charter or by-laws, (B) any law, rule or
regulation applicable to the Seller, (C) any contractual restriction binding on
or affecting the Seller or its property or (D) any order, writ, judgment, award,
injunction or decree binding on or affecting the Seller or its property and (iv)
do not result in or require the creation of any lien, security interest or other
charge or encumbrance upon or with respect to any of its properties (except for
the transfer of the Seller's interest in the Transferred Receivables pursuant to
this Agreement). This Agreement has been duly executed and delivered by the
Seller.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Seller of this Agreement or any
other document to be delivered thereunder.
(d) This Agreement constitutes the legal, valid and binding obligation of
the Seller, enforceable against the Seller in accordance with its terms subject
to bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and to general principles of equity (whether considered in a
proceeding in equity or at law).
(e) Each sale made pursuant to this Agreement will constitute a valid
sale, transfer and assignment of Transferred Receivables to Purchaser,
enforceable against creditors of, and purchasers from, the Seller. The Seller
shall have no remaining property interest in any Transferred Receivable.
(f) There is no pending or, to the knowledge of the Seller, threatened
action or proceeding affecting the Seller before any court, governmental agency
or arbitrator which may materially adversely affect the financial condition or
operations of the Seller or the ability of the Seller to perform its obligations
under this Agreement, or which purports to affect the legality, validity or
enforceability of this Agreement.
(g) No proceeds of any Purchase will be used to acquire any equity
security of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
(h) No transaction contemplated hereby requires compliance with any bulk
sales act or similar law.
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(i) Each Receivable purported to be sold by the Seller hereunder is an
Eligible Receivable, and each Transferred Receivable, together with the Related
Security, is owned (prior to its sale hereunder) by the Seller free and clear of
any Adverse Claim (other than any Adverse Claim arising solely as the result of
any action taken by the Purchaser). When the Purchaser makes a Purchase of
Receivables, it shall acquire valid and perfected first priority ownership of
each Transferred Receivable and the Related Security and Collections with
respect thereto, free and clear of any Adverse Claim (other than any Adverse
Claim arising solely as the result of any action taken by the Purchaser), and no
effective financing statement or other instrument similar in effect covering any
Transferred Receivable, any interest therein, the Related Security or
Collections with respect thereto is on file in any recording office except such
as may be filed in favor of the Purchaser in accordance with this Agreement or
in connection with any Adverse Claim arising solely as the result of any action
taken by the Purchaser.
(j) Each Receivable Report (if prepared by the Seller, or to the extent
that information contained therein is supplied by the Seller), exhibit,
financial statement or report furnished or to be furnished at any time by the
Seller to the Purchaser in connection with this Agreement is or will be accurate
in all material respects as of its date or as of the date so furnished, and no
such document contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which they
were made, not misleading.
(k) The principal place of business and chief executive office of the
Seller and the office where the Seller keeps its records concerning the
Transferred Receivables are located at the address referred to in Section
5.01(b).
(l) The Seller is not known by and does not use any tradename or
doing-business-as name other than Triple A Protection and Rampart Security
Systems.
(m) With respect to any program used by the Seller in the servicing of the
Receivables, no sublicensing agreement is necessary in connection with the
designation of a new Collection Agent pursuant to Section 6.01(b) so that such
new Collection Agent shall have the benefit of such programs.
(n) The transfers of Transferred Receivables by the Seller to the
Purchaser pursuant to this Agreement, and all other transactions between the
Seller and the Purchaser, have been and will be made in good faith and without
intent to hinder, delay or defraud creditors of the Seller.
(o) (i) The fair value of the property of the Seller is greater than the
total amount of liabilities, including contingent liabilities, of the Seller,
(ii) the present fair salable value of the assets of the Seller is not less than
the amount that will be required to pay all probable liabilities of the Seller
on its debts as they become absolute and matured, (iii) the Seller does not
intend to, and does not believe that it will, incur debts or liabilities beyond
its ability to pay such debts and liabilities as they mature and (iv) the Seller
is not engaged in a business or a transaction, and is not about to
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engage in a business or a transaction, for which its property would constitute
unreasonably small capital.
(p) (i) Each Transferred Contract (A) arose in connection with a bona
fide final sale and delivery of a security alarm system and/or related service
in the ordinary course of business; (B) is for a liquidated amount as stated in
such Contract; (C) is not subject to any defense, deduction, offset or
counterclaim; (D) constitutes the valid, legal and binding obligations of the
Originator or its predecessor-in-interest, enforceable in accordance with its
terms; (E) complies with all federal, state and local laws, rules and
regulations and (F) as of the date of its inclusion in a Receivable Report
hereunder, the Receivables thereunder are Eligible Receivables.
(ii) With respect to each Transferred Contract, (A) the Obligor
thereon has acknowledged that the security system dealer originally a party
thereto has completed all necessary work contracted for and has received a
notice of his rights of rescission under federal and state law with respect
thereto, (B) the Obligor has not exercised any such rescission rights
within five business days after the time such notice of rescission rights
was signed by such Obligor, (C) the Obligor thereon is obligated and liable
for payment of the amounts stated in such Contract, and has no known reason
to exercise any right of rejection, return, offset, defense, counterclaim,
discount or deduction.
(iii) Each Transferred Contract contains valid mandatory deferred
payment obligations for the mandatory monitoring of the security system
purchased, leased or owned by the Obligor, legally enforceable in
accordance with its terms, representing actual and bona fide agreements to
perform and accept residential monitoring services.
(iv) No payment under any Transferred Contract is, as of the relevant
Closing Date, delinquent, in default or subject to any dispute. All
statements made in any Financed Contract, including names and addresses,
locations and descriptions of property or services, down-payments and
unpaid balances, are in all respects true, complete and accurate. All
signatures and endorsements that appear on each Transferred Contract, or
any agreement or instrument relating thereto, are genuine and all
signatories and endorsers, if any, have full legal capacity to contract.
(v) All of the Seller's obligations to the Obligor on any Transferred
Contract, with the exception of future monitoring services and maintenance
or service obligations, have been completed and fulfilled in their
entirety. No Obligor on any Transferred Contract has been induced to enter
into such Contract by fraud or misrepresentation as to price, quality of
products or services.
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ARTICLE V
COVENANTS
SECTION 5.01 COVENANTS OF THE SELLER. From the date hereof until the
first day following the Facility Termination Date on which all of the
Transferred Receivables are either collected in full or become Defaulted
Receivables:
(a) COMPLIANCE WITH LAWS, ETC. The Seller will comply in all material
respects with all applicable laws, rules, regulations and orders and preserve
and maintain its corporate existence, rights, franchises, qualifications and
privileges except to the extent that the failure so to comply with any such law,
rule or regulation or the failure so to preserve and maintain such existence,
rights, franchises, qualifications, and privileges would not materially
adversely affect the collectibility of the Transferred Receivables or the
ability of the Seller to perform its obligations under this Agreement.
(b) OFFICES, RECORDS AND BOOKS OF ACCOUNT. The Seller will keep its
principal place of business and chief executive office and the office where it
keeps its records concerning the Transferred Receivables at the address of the
Seller set forth under its name on the signature page to this Agreement or, upon
30 days' prior written notice to the Purchaser, at any other locations in
jurisdictions where all actions required by Section 5.01(j) shall have been
taken and completed. The Seller also will maintain and implement administrative
and operating procedures (including, without limitation, an ability to recreate
records evidencing Transferred Receivables and related Contracts in the event of
the destruction of the originals thereof), and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Transferred Receivables (including, without limitation,
records adequate to permit the daily identification of each new Transferred
Receivable and all Collections of and adjustments to each existing Transferred
Receivable). The Seller shall make a notation in its books and records,
including its computer files, to indicate which Receivables have been sold to
the Purchaser hereunder.
(c) PERFORMANCE AND COMPLIANCE WITH CONTRACTS AND CREDIT AND COLLECTION
POLICY. The Seller will, at its expense, timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by it under the Transferred Contracts, and timely and fully comply in
all material respects with the Credit and Collection Policy in regard to each
Transferred Receivable and the related Contract.
(d) SALES, LIENS, ETC. Except for the sales of Receivables contemplated
herein, the Seller will not sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Transferred Receivable, Related Security, related Contract
or Collections, or upon or with respect to any account to which any Collections
of any Transferred Receivable are sent, or assign any right to receive income in
respect thereof.
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(e) EXTENSION OR AMENDMENT OF TRANSFERRED RECEIVABLES. Except as
provided in Section 6.02(c), the Seller will not extend, amend or otherwise
modify the terms of any Transferred Receivable, or amend, modify or waive any
term or condition of any Contract related thereto.
(f) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. The Seller will
not make any change in the character of its business or in the Credit and
Collection Policy that would, in either case, materially adversely affect the
collectibility of the Transferred Receivables or the ability of the Seller to
perform its obligations under this Agreement.
(g) AUDITS. The Seller will, from time to time during regular business
hours as requested by the Purchaser or its assigns, permit the Purchaser, or its
agents, representatives or assigns, (i) to examine and make copies of and
abstracts from all books, records and documents (including, without limitation,
computer tapes and disks) in the possession or under the control of the Seller
relating to Transferred Receivables and the Related Security, including, without
limitation, the related Contracts and (ii) to visit the offices and properties
of the Seller for the purpose of examining such materials described in clause
(i) above and to discuss matters relating to Transferred Receivables and the
Related Security or the Seller's performance hereunder or under the Contracts
with any of the officers or employees of the Seller having knowledge of such
matters; PROVIDED, that except during the continuance of an Event of
Termination, the Purchaser shall not be entitled to exercise the rights set
forth in clause (ii) more than once during any 12-month period.
(h) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The Seller will not
terminate the Lockbox or make any change in its instructions to Obligors
regarding payments to be made to the Lockbox.
(i) DEPOSITS TO LOCKBOX. Except as otherwise specified by the
Purchaser, the Seller will deposit, or cause to be deposited, all Collections of
Transferred Receivables into the Lockbox, and the Seller will not deposit or
otherwise credit, or cause or permit to be so deposited or credited, to the
Lockbox or the Purchaser Account cash or cash proceeds other than Collections of
Transferred Receivables.
(j) FURTHER ASSURANCES.
(i). The Seller will from time to time, at its expense, promptly
execute and deliver all further instruments and documents, and take all
further actions, that may be reasonably necessary or desirable, or that the
Purchaser or its assignee may reasonably request, to perfect, protect or
more fully evidence the sale of Receivables under this Agreement or to
enable the Purchaser or its assignee to exercise and enforce its respective
rights and remedies under this Agreement. Without limiting the foregoing,
the Seller will, upon the request of the Purchaser or its assign,
(A) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments and documents, that may be
reasonably necessary or desirable to perfect, protect or evidence such
Transferred Receivables and (B) deliver to the Purchaser or its assign the
original of each Contract relating to the Transferred Receivables and (on
each Settlement Date) copies of all records relating to such
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Contracts and the Transferred Receivables, whether in hard copy or in
magnetic tape or diskette format (which if in magnetic tape or diskette
format shall be compatible with the Purchaser's computer equipment).
(ii). The Seller authorizes the Purchaser or its assign to file
financing or continuation statements, and amendments thereto and
assignments thereof, relating to the Transferred Receivables and the
Related Security, the related Contracts and the Collections with respect
thereto without the signature of the Seller where permitted by law. A
photocopy or other reproduction of this Agreement shall be sufficient as a
financing statement where permitted by law.
(iii). The Seller shall provide for (i) the monitoring of the alarm
system of each Obligor under each Transferred Contract and (ii) the
servicing, repair, warranty service or replacement, and service calls
required by each Transferred Contract.
(k) REPORTING REQUIREMENTS. The Seller will provide to the Purchaser the
following:
(i). as soon as available and in any event within 45 days after the
end of the first three quarters of each fiscal year of the Seller, balance
sheets of the Seller as of the end of such quarter and statements of income
and retained earnings of the Seller for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, certified
by the chief financial officer of the Seller;
(ii). as soon as available and in any event within 105 days after the
end of each fiscal year of the Seller, financial statements for such year
audited by its independent public accountants;
(iii). as soon as possible and in any event within five days after the
occurrence of any Event of Termination or Incipient Event of Termination, a
statement of the chief financial officer of the Seller setting forth
details of such Event of Termination or Incipient Event of Termination and
the action that the Seller has taken and proposes to take with respect
thereto;
(iv). promptly after the filing or receipt thereof, copies of all
reports and notices that the Seller or any Affiliate files under ERISA with
the Internal Revenue Service, the Pension Benefit Guaranty Corporation or
the U.S. Department of Labor or that the Seller or any Affiliate receives
from any of the foregoing or from any multiemployer plan (within the
meaning of Section 4001(a)(3) of ERISA) to which the Seller or any
Affiliate is or was, within the preceding five years, a contributing
employer, in each case in respect of the assessment of withdrawal liability
or an event or condition which could, in the aggregate, result in the
imposition of liability on the Seller and/or any such Affiliate;
(v). at least ten Business Days prior to any change in the Seller's
name, a notice setting forth the new name and the effective date thereof;
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(vi). concurrently with the delivery of each Receivables Report by the
Collection Agent, a statement as to whether or not all of the Receivables
under all Contracts arising during the immediately preceding month have
been transferred by the Seller to the Purchaser and, if less than all of
such Receivables have been transferred, a summary of those Receivables not
transferred; and
(vii). such other information respecting the Transferred Receivables or
the condition or operations, financial or otherwise, of the Seller as the
Purchaser may from time to time reasonably request.
(1) SEPARATE CONDUCT OF BUSINESS. The Seller will: (i) maintain separate
corporate records and books of account from those of the Purchaser; (ii) conduct
its business from an office separate from that of the Purchaser; (iii) ensure
that all oral and written communications, including, without limitation,
letters, invoices, purchase orders, contracts, statements and applications, will
be made solely in its own name; (iv) have stationery and other business forms
and a mailing address and a telephone number separate from those of the
Purchaser; (v) not hold itself out as having agreed to pay, or as being liable
for, the obligations of the Purchaser; (vi) not engage in any transaction with
the Purchaser except as contemplated by this Agreement or as permitted by the
Finance Agreement; (vii) continuously maintain as official records the
resolutions, agreements and other instruments underlying the transactions
contemplated by this Agreement; and (viii) disclose on its annual financial
statements (A) the effects of the transactions contemplated by this Agreement in
accordance with generally accepted accounting principles and (B) that the assets
of the Purchaser are not available to pay the creditors of the Seller.
SECTION 5.02 COVENANT OF THE SELLER AND THE PURCHASER. The Seller and
the Purchaser have structured this Agreement with the intention that each
Purchase of Receivables hereunder be treated as a sale of such Receivables by
the Seller to the Purchaser for all purposes. The Seller and the Purchaser
shall record each Purchase as a sale or purchase, as the case may be, on its
books and records, and reflect each Purchase in its financial statements and tax
returns as a sale or purchase, as the case may be. If, contrary to the mutual
intent of the Seller and the Purchaser, any Purchase of Receivables hereunder is
not characterized as a sale, the Seller shall, effective as of the date hereof,
be deemed to have granted (and the Seller hereby does grant) to the Purchaser a
first priority security interest in and to any and all Receivables and the
proceeds thereof and all of the Seller's rights in any computer software, disks
and the like necessary or desirable for collection of the Contracts, all to
secure the repayment of all amounts advanced to the Seller hereunder with
accrued interest thereon, and this Agreement shall be deemed to be a security
agreement.
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ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01 DESIGNATION OF THE COLLECTION AGENT. The servicing,
administration and collection of the Transferred Receivables shall be conducted
by such Person (the "COLLECTION AGENT") so designated hereunder from time to
time. The Seller is hereby designated as, and hereby agrees to perform the
duties and obligations of, the Collection Agent pursuant to the terms hereof.
The Purchaser or its designee or assign at any time following the occurrence and
during the continuance of an Event of Termination may designate as Collection
Agent any other Person (including itself) to succeed the Seller or any successor
Collection Agent, if such Person shall consent and agree to the terms hereof.
Upon the Seller's receipt of such notice, the Seller agrees that it will
terminate its activities as Collection Agent hereunder in a manner which the
Purchaser (or its assign) believes will facilitate the transition of the
performance of such activities to the new Collection Agent, and the Seller shall
use its best efforts to assist the Purchaser (or its assign) to take over the
servicing, administration and collection of the Transferred Receivables,
including, without limitation, providing access to and copies of all computer
tapes or disks and other documents or instruments that evidence or relate to
Transferred Receivables maintained in its capacity as Collection Agent and
access to all employees and officers of the Seller responsible with respect
thereto. The Purchaser at any time after giving such notice may designate as
Collection Agent any Person (including itself) to succeed the Seller or any
successor Collection Agent, if such Person shall consent and agree to the terms
hereof. The Collection Agent may, with the prior consent of the Purchaser,
subcontract with any other Person for the servicing, administration or
collection of Transferred Receivables. Any such subcontract shall not affect
the Collection Agent's liability for performance of its duties and obligations
pursuant to the terms hereof.
SECTION 6.02 DUTIES OF THE COLLECTION AGENT.
(a) The Collection Agent shall take or cause to be taken all such actions
as may be necessary or advisable to collect each Transferred Receivable from
time to time, all in accordance with applicable Requirements of Law, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. The Purchaser hereby appoints the Collection Agent, from time to time
designated pursuant to Section 6.01, as agent to enforce its ownership and other
rights in the Transferred Receivables, the Related Security and the Collections
with respect thereto. In performing its duties as Collection Agent, the
Collection Agent shall exercise the same care and apply the same policies as it
would exercise and apply if it owned the Transferred Receivables and shall act
in the best interests of the Purchaser and its assignees.
(b) Prior to the tenth Business Day of each month, the Collection Agent
shall prepare and forward to the Purchaser (i) a Seller Report relating to all
then outstanding Transferred Receivables and the Related Security and
Collections with respect thereto, in each case, as of the close of business on
the last day of the immediately preceding month and (ii) a listing by Obligor of
all Transferred Receivables correlating Transferred Receivables and Purchases,
together with an aging report of such Transferred Receivables.
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(c) If no Event of Termination or Incipient Event of Termination shall
have occurred and be continuing, the Seller, while it is the Collection Agent,
may, in accordance with the Credit and Collection Policy, extend the maturity or
adjust the Outstanding Balance of any Transferred Receivable as the Seller deems
appropriate to maximize Collections thereof.
(d) The Seller shall deliver to the Collection Agent, and the Collection
Agent shall hold in trust for the Seller and the Purchaser in accordance with
their respective interests, all documents, instruments and records (including,
without limitation, computer tapes or disks) which evidence or relate to
Transferred Receivables other than those required to be transferred to and held
by another party pursuant to the Financing Agreement.
(e) The Collection Agent shall, as soon as practicable following receipt,
return to the Seller any cash collections or other cash proceeds received with
respect to Receivables not constituting Transferred Receivables, less, in the
event the Seller is not the Collection Agent, all reasonable and appropriate
out-of-pocket costs and expenses of the Collection Agent of servicing,
collecting and administering the Receivables to the extent not covered by the
Collection Agent Fee received by it.
(f) The Collection Agent also shall perform the other obligations of the
Collection Agent set forth in this Agreement with respect to the Transferred
Receivables.
(g) In addition to its other duties specified herein, the Collection Agent
shall, until its duties hereunder are terminated by the Purchaser, contract for
the performance of all monitoring services required under each Contract as if
such Contract had not been sold by the Purchaser hereunder.
SECTION 6.03 COLLECTION AGENT FEE. The Purchaser shall pay to the
Collection Agent, so long as it is acting as the Collection Agent hereunder, a
periodic collection fee (the "COLLECTION AGENT FEE") of $5.00 per month for each
Contract that is a Transferred Contract for such month (other than any Contract
related to a Transferred Receivable that is a Defaulted Receivable), payable on
each Settlement Date or such other day during each calendar month as the
Purchaser and the Collection Agent shall agree. The payment of the Collection
Agent Fee shall be made to the extent and in the manner provided in the
Financing Agreement.
SECTION 6.04 CERTAIN RIGHTS OF THE PURCHASER.
(a) The Purchaser may, at any time, give notice of ownership and/or direct
the Obligors of Transferred Receivables and any Person obligated on any Related
Security, or any of them, that payment of all amounts payable under any
Transferred Receivable shall be made directly to the Purchaser or its designee.
The Seller hereby transfers to the Purchaser (and its assigns) the exclusive
ownership and control of the Lockbox.
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(b) The Seller shall, at any time upon the Purchaser's request and at the
Seller's expense, give notice of its ownership of the Transferred Receivables to
each Obligor thereof and direct that payments of all amounts payable under such
Transferred Receivables be made directly to the Purchaser or its designee.
(c) At the Purchaser's request and at the Seller's expense, the Seller and
the Collection Agent shall (i) assemble all documents, instruments and other
records (including, without limitation, computer tapes and disks) that evidence
or relate to the Transferred Receivables and the related Contracts and Related
Security, or that are otherwise necessary or desirable to collect the
Transferred Receivables, and shall make the same available to the Purchaser at a
place selected by the Purchaser or its designee and (ii) segregate all cash,
checks and other instruments received by it from time to time constituting
Collections of Transferred Receivables in a manner acceptable to the Purchaser
and, promptly upon receipt, remit all such cash, checks and instruments, duly
indorsed or with duly executed instruments of transfer, to the Lockbox. The
Purchaser shall also have the right to make copies of all such documents,
instruments and other records at any time.
(d) The Seller authorizes the Purchaser to take any and all steps in the
Seller's name and on behalf of the Seller that are reasonably necessary or
desirable, in the determination of the Purchaser, to collect amounts due under
the Transferred Receivables, including, without limitation, endorsing the
Seller's name on checks and other instruments representing Collections of
Transferred Receivables and enforcing the Transferred Receivables and the
Related Security and related Contracts.
SECTION 6.05 RIGHTS AND REMEDIES.
(a) If the Seller or the Collection Agent fails to perform any of its
obligations under this Agreement, the Purchaser may (but shall not be required
to), if such failure continues more than five Business Days following receipt of
written notice from the Purchaser, itself perform, or cause performance of,
such obligation, and, if the Seller (as Collection Agent or otherwise) fails to
so perform, the costs and expenses of the Purchaser incurred in connection
therewith shall be payable by the Seller as provided in Section 8.01 or Section
9.04 as applicable.
(b) The Seller shall perform all of its obligations under the Contracts
related to the Transferred Receivables to the same extent as if the Seller had
not sold Receivables hereunder and the exercise by the Purchaser of its rights
hereunder shall not relieve the Seller from such obligations or its obligations
with respect to the Transferred Receivables. The Purchaser shall not have any
obligation or liability with respect to any Transferred Receivables or related
Contracts, nor shall the Purchaser be obligated to perform any of the
obligations of the Seller thereunder.
(c) The Seller shall cooperate with the Collection Agent in collecting
amounts due from Obligors in respect of the Transferred Receivables.
(d) The Seller hereby grants to the Collection Agent an irrevocable power
of attorney, with full power of substitution, coupled with an interest, to take
in the name of the Seller all steps
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necessary or advisable to endorse, negotiate or otherwise realize on any writing
or other right of any kind held or transmitted by the Seller or transmitted or
received by Purchaser (whether or not from the Seller) in connection with any
Transferred Receivable.
SECTION 6.06 TRANSFER OF RECORDS TO PURCHASER. Each Purchase of
Receivables hereunder shall include the transfer to the Purchaser of all of the
Seller's right and title to and interest in the records relating to such
Receivables and shall include an irrevocable non-exclusive license to the use of
the Seller's computer software system to access and create such records. Such
license shall be without royalty or payment of any kind, is coupled with an
interest, and shall be irrevocable until all of the Transferred Receivables are
either collected in full or become Defaulted Receivables. The Seller shall take
such action requested by the Purchaser, from time to time hereafter, that may be
necessary or appropriate to ensure that the Purchaser has an enforceable
ownership interest in the records relating to the Transferred Receivables and
rights (whether by ownership, license or sublicense) to the use of the Seller's
computer software system to access and create such records. In recognition of
the Seller's need to have access to the records transferred to the Purchaser
hereunder, the Purchaser hereby grants to the Seller an irrevocable license to
access such records in connection with any activity arising in the ordinary
course of the Seller's business or in performance of its duties as Collection
Agent, PROVIDED that (i) the Seller shall not disrupt or otherwise interfere
with the Purchaser's use of and access to such records during such license
period and (ii) the Seller consents to the assignment and delivery of the
records (including any information contained therein relating to the Seller or
its operations) to any assignees or transferees of the Purchaser provided they
agree to hold such records confidential.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01 EVENTS OF TERMINATION. If any of the following events
(each, an "EVENT OF TERMINATION") shall occur and be continuing:
(a) the Collection Agent (if the Seller or any of its Affiliates) shall
fail (i) to perform or observe any term, covenant or agreement under this
Agreement (other than as referred to in clause (ii) of this subsection (a) or
subsection (d) below) and such failure shall remain unremedied for the greater
of ten Business Days after actual knowledge thereof by a responsible officer of
the Collection Agent and five Business Days after written notice by the
Purchaser or its assign or (ii) to make when due any payment or deposit to be
made by it under this Agreement three Business Days after the same is due; or
(b) the Seller shall fail to make any payment required hereunder three
Business Days after the same is due; or
(c) any representation or warranty made or deemed made by the Seller in
this Agreement or any information or report delivered by the Seller pursuant to
this Agreement shall prove to have
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been incorrect or untrue in any material respect when made or deemed made or
delivered and, if, in the reasonable determination of the Purchaser or its
assign, such failure can be corrected within 15 days, either the Seller is not
making its best efforts to remedy the same or such failure shall continue
unremedied for 20 days after the earlier of actual knowledge by a responsible
officer of the Purchaser and written notice thereof by the Purchaser or its
assign; or
(d) the Seller shall fail to perform or observe any of the following
provisions of this Agreement: the first sentence of Section 5.01(b); Section
5.01(d); Section 5.01(h); Section 5.01(k)(iii)-(v); Section 5.01(l); or Section
6.02(b); or
(e) the Seller shall fail to pay any principal of or premium or interest
on any of its Debt which is outstanding in a principal amount of at least
$250,000 when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), redeemed, purchased
or defeased, or an offer to repay, redeem, purchase or defease such Debt shall
be required to be made, in each case prior to the stated maturity thereof; or
(f) any Purchase of Receivables, the Related Security and the Collections
with respect thereto hereunder shall for any reason cease to constitute valid
and perfected ownership of such Receivables, Related Security and Collections
free and clear of any Adverse Claim; or
(g) the Seller shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Seller seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 60 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Seller shall take any corporate action to
authorize any of the actions set forth above in this subsection (g); or
(h) an Event of Default shall have occurred under the Finance Agreement;
or
(i) there shall have occurred any material adverse change in the financial
condition or operations of the Seller since the date hereof; or there shall have
occurred any event which may
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materially adversely affect the collectibility of the Transferred Receivables or
the ability of the Seller to collect Transferred Receivables or otherwise
perform its obligations under this Agreement;
then, and in any such event, the Purchaser may, by notice to the Seller, take
either or both of the following actions: (x) declare the Facility Termination
Date to have occurred (in which case the Facility Termination Date shall be
deemed to have occurred) and (y) without limiting any right under this Agreement
to replace the Collection Agent, designate another Person to succeed the Seller
as Collection Agent; PROVIDED, that, automatically upon the occurrence of any
event (without any requirement for the passage of time or the giving of notice)
described in paragraph (g) of this Section 7.01, the Facility Termination Date
shall occur, the Seller (if it is then serving as the Collection Agent) shall
cease to be the Collection Agent, and the Purchaser (or its assigns or
designees) shall become the Collection Agent. Upon any such declaration or
designation or upon such automatic termination, the Purchaser shall have, in
addition to the rights and remedies under this Agreement, all other rights and
remedies with respect to the Receivables provided after default under the UCC
and under other applicable law, which rights and remedies shall be cumulative.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 INDEMNITIES BY THE SELLER. Without limiting any other
rights which the Purchaser may have hereunder or under applicable law, the
Seller hereby agrees to indemnify the Purchaser and its assigns and transferees
(each, an "INDEMNIFIED PARTY") from and against any and all damages, claims,
losses, liabilities and related costs and expenses, including reasonable
attorneys' fees and disbursements (all of the foregoing being collectively
referred to as "INDEMNIFIED AMOUNTS"), awarded against or incurred by any
Indemnified Party arising out of or as a result of:
(a) the inclusion, or purported inclusion, in any Purchase of any
Receivable that is not an Eligible Receivable on the date of such Purchase, or
the characterization in any Receivables Report or other statement made by the
Seller of any Transferred Receivable as an Eligible Receivable which is not an
Eligible Receivable as of the date of such Receivables Report or statement;
(b) any failure by the Purchaser to obtain full payment with respect to
any Government Receivable 180 days after the same becomes payable or any failure
by the Purchaser to obtain a perfected ownership interest in any Government
Receivable;
(c) any representation or warranty made or deemed made by the Seller under
this Agreement, which shall have been incorrect in any material respect when
made;
(d) the failure by the Seller to comply with any applicable law, rule or
regulation with respect to any Transferred Receivable or the related Contract;
or the failure of any Transferred Receivable or the related Contract to conform
to any such applicable law, rule or regulation;
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(e) the failure to vest in the Purchaser absolute ownership of the
Receivables that are, or that purport to be, the subject of a Purchase under
this Agreement and the Related Security and Collections in respect thereof, free
and clear of any Adverse Claim;
(f) the failure of the Seller to have filed, or any delay in filing,
financing statements or other similar instruments or documents under the UCC of
any applicable jurisdiction or other applicable law with respect to any
Receivable that is, or that purports to be, the subject of a Purchase under this
Agreement and the Related Security and Collections in respect thereof, whether
at the time of any Purchase or at any subsequent time;
(g) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable that
is, or that purports to be, the subject of a Purchase under this Agreement
(including, without limitation, a defense based on such Receivable or the
related Contract not being a legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms), or any other claim
resulting from the sale of the merchandise or services related to such
Receivable or the furnishing or failure to furnish such merchandise or services
or relating to collection activities with respect to such Receivable (if such
collection activities were performed by the Seller acting as Collection Agent)
except to the extent that such dispute, claim, offset or defense results solely
from actions or failures to act of the Purchaser or its assigns;
(h) any failure of the Seller, as Collection Agent or otherwise, to
perform its duties or obligations in accordance with the provisions hereof or to
perform its duties or obligations under any Contract related to a Transferred
Receivable;
(i) any products liability or other claim arising out of or in connection
with services which are the subject of any Contract;
(j) the commingling of Collections of Transferred Receivables by the
Seller or a designee of the Seller, as Collection Agent or otherwise, at any
time with other funds of the Seller or an Affiliate of the Seller;
(k) any investigation, litigation or proceeding related to this Agreement
or the use of proceeds of Purchases or the ownership of Receivables, the Related
Security or Collections with respect thereto or in respect of any Receivable,
Related Security or Contract, except to the extent any such investigation,
litigation or proceeding relates to a possible matter involving an Indemnified
Party for which neither the Seller nor any of its Affiliates is at fault;
(l) any failure of the Seller to comply with its covenants contained in
Section 5.01;
(m) any Collection Agent Fees or other costs and expenses payable to any
replacement Collection Agent, to the extent in excess of the Collection Agent
Fees payable to the Seller hereunder;
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(n) any claim brought by any Person other than an Indemnified Party
arising from any activity by the Seller or any Affiliate of the Seller in
servicing, administering or collecting any Transferred Receivable; or
(o) any Dilution with respect to any Transferred Receivable.
It is expressly agreed and understood by the parties hereto (i) that the
foregoing indemnification is not intended to, and shall not, constitute a
guarantee of the collectibility or payment of the Transferred Receivables and
(ii) that nothing in this Section 8.01 shall require the Seller to indemnify any
Person (A) for Receivables which are not collected, not paid or uncollectible on
account of the insolvency, bankruptcy, or financial inability to pay of the
applicable Obligor, (B) for damages, losses, claims or liabilities or related
costs or expenses resulting from such Person's gross negligence or willful
misconduct or (C) for any income taxes or franchise taxes incurred by such
Person arising out of or as a result of this Agreement or in respect of any
Transferred Receivable or any Contract.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement or consent to any departure by the Seller therefrom shall be
effective unless in a writing signed by the Purchaser and, in the case of any
amendment, also signed by the Seller, and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. No failure on the part of the Purchaser to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right.
SECTION 9.02 NOTICES, ETC. All notices and other communications
hereunder shall, unless otherwise stated herein, be in writing (which shall
include facsimile communication) and be faxed or delivered, to each party
hereto, at its address set forth under its name on the signature pages hereof or
at such other address as shall be designated by such party in a written notice
to the other parties hereto. Notices and communications by facsimile shall be
effective when sent (and shall be followed by hard copy sent by regular mail),
and notices and communications sent by other means shall be effective when
received.
SECTION 9.03 BINDING EFFECT; ASSIGNABILITY.
(a) This Agreement shall be binding upon and inure to the benefit of the
Seller, the Purchaser and their respective successors and assigns; PROVIDED,
HOWEVER, that the Seller may not assign its rights or obligations hereunder or
any interest herein without the prior written consent of
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the Purchaser. In connection with any sale or assignment by the Purchaser of
all or a portion of the Transferred Receivables, the buyer or assignee, as the
case may be, shall, to the extent of its purchase or assignment, have all rights
of the Purchaser under this Agreement (as if such buyer or assignee, as the case
may be, were the Purchaser hereunder) except to the extent specifically provided
in the agreement between the Purchaser and such buyer or assignee, as the case
may be.
(b) This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms, and shall remain in full
force and effect until such time, after the Facility Termination Date, when all
of the Transferred Receivables are either collected in full or become Defaulted
Receivables; PROVIDED, HOWEVER, that rights and remedies with respect to any
breach of any representation and warranty made by the Seller pursuant to Article
IV and the provisions of Article VIII and Sections 9.04, 9.05 and 9.06 shall be
continuing and shall survive any termination of this Agreement.
SECTION 9.04 COSTS, EXPENSES AND TAXES. In addition to the rights of
indemnification granted to the Purchaser pursuant to Article VIII, the Seller
agrees to pay on demand all reasonable costs and expenses, if any (including
reasonable counsel fees and expenses), in connection with the enforcement of
this Agreement and the other documents to be delivered hereunder EXCLUDING,
HOWEVER, any costs of enforcement or collection of Transferred Receivables.
SECTION 9.05 NO PROCEEDINGS. The Seller hereby agrees that it will
not institute against the Purchaser any proceeding of the type referred to in
Section 7.01(g) so long as there shall not have elapsed one year plus one day
since the later of (a) the Facility Termination Date and (b) the date on which
all of the Transferred Receivables are either collected in full or become
Defaulted Receivables.
SECTION 9.06 CONFIDENTIALITY. Unless otherwise required by applicable
law or the rules of any exchange on which the shares of Response USA, Inc. are
listed, each party hereto agrees to maintain the confidentiality of this
Agreement in communications with third parties and otherwise; PROVIDED that this
Agreement may be disclosed to (a) third parties to the extent such disclosure is
made pursuant to a written agreement of confidentiality in form and substance
reasonably satisfactory to the other party hereto and (b) such party's legal
counsel and auditors and the Purchaser's assignees, if they agree in each case
to hold it confidential.
SECTION 9.07 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to the conflict of laws principles thereof), except to the extent that
the perfection of the Purchaser's ownership of or security interest in the
receivables or remedies hereunder, in respect thereof, are governed by the laws
of a jurisdiction other than the State of New York.
SECTION 9.08 THIRD PARTY BENEFICIARY. Each party hereto hereby
acknowledges that the Purchaser may assign all or any portion of its rights
under this Agreement and that such assignees may (except as otherwise agreed to
by such assignees) further assign their rights under this
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Agreement, and the Seller hereby consents to any such assignments. All such
assignees, including parties to the Finance Agreement in the case of assignment
to such parties, shall be third party beneficiaries of, and shall be entitled to
enforce the Purchaser's rights and remedies under, this Agreement to the same
extent as if they were parties thereto, except to the extent specifically
limited under the terms of their assignment.
SECTION 9.09 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
SELLER: UNITED SECURITY SYSTEMS, INC.
By: /S/ Robert L. May
--------------------------------------
Title:
-----------------------------------
Address: 11-H Princess Road
Lawrenceville, NJ 08648
Attention: President
Facsimile No.: (609) 896-3535
PURCHASER: RESPONSE ACQUISITION CORP.
By: /s/ Richard M. Brooks
--------------------------------------
Title:
-----------------------------------
Address: 11-K Princess Road
Lawrenceville, NJ 08648
Attention: President
Facsimile No.: (609) 896-3535
<PAGE>
EXHIBIT 2.2
RECEIVABLE FINANCING AGREEMENT
by and among
McGINN, SMITH CAPITAL HOLDINGS CORP.
and
RESPONSE ACQUISITION CORP.
and
UNITED SECURITY SYSTEMS, INC.
As Originator and as Collection Agent
July 30, 1998
<PAGE>
THIS RECEIVABLE FINANCING AGREEMENT (this "AGREEMENT") is dated as of
this 30th day of July, 1998, by and among Response Acquisition Corp., a Delaware
corporation ("RSPN"), McGinn, Smith Capital Holdings Corp., a New York
corporation, its successors and assigns (the "AGENT"), and United Security
Systems, Inc., a New Jersey corporation, as Originator (the "ORIGINATOR") and as
Collection Agent (the "COLLECTION AGENT").
RECITALS
RSPN has acquired, and may continue to acquire, Contracts (as
hereinafter defined) and Receivables (as hereinafter defined) from the
Originator, either by purchase or contribution to the capital of RSPN, as
determined from time to time by RSPN and the Originator in accordance with the
terms of the Purchase Agreement (as hereinafter defined). RSPN has requested
the Agent to provide financing secured by the Receivables.
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADVERSE CLAIM" means a lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement.
"AFFILIATE" means, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person or is a director or officer of such Person.
"AGENT'S ACCOUNT" means account number 8516700 of the Agent maintained
at the office of Mellon Bank, __________, ________.
"BUSINESS DAY" means any day on which banks are not authorized or
required to close in Cleveland, Ohio.
"CENTRAL STATION" means a central station monitoring company which
RSPN may elect to utilize to provide monitoring services to Obligors which is
approved by the Agent. Initially, the Central Station shall be Emergency
Response Center, Inc. and the Originator.
"CENTRAL STATION CONTRACT" means the agreement attached hereto as
Schedule B between the Collection Agent and the Central Station.
<PAGE>
"CENTRAL STATION FEES" means, for any month, the fees due under the
Central Station Contract for such month; PROVIDED, that in no event shall the
Central Station Fees charged by the Originator be greater than those charged by
any other Central Station hereunder.
"CLOSING DATE" means a date on which the Agent provides RSPN with a
Financing under Section 2.01.
"COLLATERAL" has the meaning specified in Section 2.01.
"COLLATERAL COVERAGE RATIO" means, for any month with respect to any
Financing, the ratio of (a) Collections actually received during such month in
the Lockbox with respect to such Financing to (b) the Scheduled Amount for such
Financing for such month.
"COLLECTION AGENT" means at any time the Person then authorized
pursuant to Section 6.01 to administer and collect Financed Receivables.
"COLLECTION AGENT FEE" has the meaning specified in Section 2.03.
"COLLECTIONS" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all cash proceeds of Related Security with respect to such
Receivable. All Collections received with respect to Financed Contracts related
to a Financing shall be separately identified by the Collection Agent hereunder.
"COMMITMENT AMOUNT" means $24,000,000 (excluding the amount provided
in the Initial Financing).
"COMMITMENT TERMINATION DATE" means June 30, 2000.
"CONTRACT" means an agreement between the Originator or its
predecessor-in-interest and an Obligor, substantially in the form of one of the
written contracts approved by the Agent, pursuant to or under which such Obligor
shall be obligated to pay for central-station monitoring and other similar
services consistent with such Contract and past practice or as otherwise may be
approved by the Agent from time to time.
"CREDIT AND COLLECTION POLICY" means written receivables credit and
collection policies and practices of RSPN reasonably satisfactory to the Agent
in effect on the date of this Agreement applicable to the Contracts and the
Receivables and delivered by RSPN to the Agent within 30 days following the date
hereof, as modified in compliance with this Agreement.
"CREDIT SCORE" means, with request to an Obligor, the credit score of
such Obligor, as determined pursuant to the generic risk scoring system
developed by Fair Isaac & Company based upon information regarding such Obligor
provided by Equifax Inc.
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"DEBT" means, with respect to any Person, (a) indebtedness of such
Person for borrowed money, (b) any obligation of such Person evidenced by a
bond, debenture, note or other similar instrument, (c) any obligations of such
Person to pay the deferred purchase price of property or services, (d) any
obligation of such Person as lessee under a lease which shall have been or
should be, in accordance with generally accepted accounting principles, recorded
as a capital lease, (e) any obligation of such Person under a direct or indirect
guaranty in respect of, and any obligation of such Person (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, any indebtedness or obligations of others of the
kinds referred to in clauses (a) through (d) above and (f) any liability of such
Person in respect of unfunded vested benefits under a plan covered by Title IV
of ERISA.
"DEFAULTED RECEIVABLE" means a Receivable:
(a) as to which any payment, or part thereof, remains unpaid for 150
or more days from the original due date for such payment;
(b) as to which the Obligor thereof or any other Person obligated
thereon has taken any action, or suffered any event to occur, of the type
described in Section 7.01(g); or
(c) which, consistent with the Credit and Collection Policy, would be
written off as uncollectible.
"DELINQUENT RECEIVABLE" means a Receivable that is not a Defaulted
Receivable and:
(a) as to which any payment, or part thereof, remains unpaid for (i)
91 or more days from the original due date for such payment with respect to
residential Contracts, (ii) 120 or more days from the original due date for such
payment with respect to commercial Contracts or (iii) 150 or more days from the
original due date for such payment with respect to Government Contracts or
(b) which, consistent with the Credit and Collection Policy, would be
classified as delinquent by the Originator.
"ELIGIBLE RECEIVABLE" means a Receivable:
(a) the Obligor of which is a United States resident, is not an
Affiliate of any of the parties hereto;
(b) the Obligor of which is not the Obligor of any Defaulted
Receivables;
(c) which, at the time of the inclusion thereof as Collateral under
this Agreement, is not a Defaulted Receivable or a Delinquent Receivable;
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(d) which, in according to the Contract related thereto, is required
to be paid by the Obligor thereof in equal monthly, quarterly, semi-annual or
annual installments and which, upon any termination by the Obligor thereof, must
be paid in full;
(e) which is an "account" within the meaning of Section 9-106 of the
UCC of the applicable jurisdictions;
(f) which is denominated and payable only in United States dollars in
the United States;
(g) which arises under a Contract which, together with such
Receivable, is in full force and effect and constitutes the legal, valid and
binding obligation of the Obligor of such Receivable and is not subject to any
dispute, offset, counterclaim or defense whatsoever (except the potential
discharge in bankruptcy of such Obligor);
(h) which, together with the Contract related thereto, does not
contravene in any material respect any law, rule or regulation applicable
thereto (including, without limitation, any law, rule or regulation relating to
usury, consumer protection, truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and privacy)
and with respect to which no party to the Contract related thereto is in
violation of any such law, rule or regulation in any material respect;
(i) the transfer, sale or assignment of which hereunder or under the
Originator Purchase Agreement does not contravene any applicable law, rule or
regulation or any agreement to which the Originator or RSPN is a party or to
which the related Contract is subject;
(j) the Obligor of which has a Credit Score of not less than 550;
(k) which arises under a Contract which (i) does not require the
Obligor thereunder to consent to the transfer, sale or assignment of the rights
and duties of the Originator under such Contract and (ii) does not contain a
confidentiality provision that purports to restrict the ability of RSPN and its
assigns to exercise their rights under this Agreement, including, without
limitation, their right to review the Contract; and
(l) which (i) satisfies all applicable requirements of the Credit and
Collection Policy and (ii) complies with such other criteria and requirements
(other than those relating to the collectibility of such Receivable) as the
Agent may from time to time specify to RSPN upon 30 days' notice.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"EVENT OF DEFAULT" has the meaning specified in Section 7.01.
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"FINANCED CONTRACT" means a Contract the Receivables arising under
which are Financed Receivables.
"FINANCING" means a financing provided by the Agent to RSPN under
Section 2.01.
"FINANCED RECEIVABLE" means any Receivable listed on a Receivables
Report delivered by or on behalf of RSPN to the Agent from time to time as a
Financed Receivable.
"GOVERNMENTAL ENTITY" means the United States of America, any state,
any political subdivision of a state and any agency or instrumentality of the
United States of America or any state or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GOVERNMENT RECEIVABLE" means a Receivable payable by a Governmental
Entity.
"INITIAL FINANCING" has the meaning specified in Section 2.01.
"INCIPIENT EVENT OF DEFAULT" means an event that but for notice or
lapse of time or both would constitute an Event of Default.
"LOCKBOX" means the processing and data capture service selected by
the Agent after no less than 90 days' prior written notice to RSPN (except that
during the continuance of an Event of Default, no such notice shall be required)
to receive Collections on the Financed Contracts. Initially, the Lockbox shall
be Post Office Box ____, ___________, __ __________.
"MANDATORY PAYMENT DATE" means, with respect to any Financing, the
earlier of (a) the date on which all of the Scheduled Amounts in respect of such
Financing must be paid in full under Article II and (b) the date on which all of
the Scheduled Amounts must be paid in full pursuant to Section 7.01.
"MINIMUM MONTHLY REVENUE" means (a) with respect to the Initial
Financing, (i) for each month from August 1, 1998 through July 30, 2000,
$700,000 and (ii) thereafter, an amount equal to 165% of the Scheduled Amount
for the Initial Financing for such month and (b) for each Financing following
the Initial Financing, (i) for each of the first 24 months following the Closing
Date of such Financing, an amount equal to 200% of the Scheduled Amount for such
Financing for such month, and (ii) thereafter, an amount equal to 165% of the
Scheduled Amount for such Financing for such month.
"MONTHLY REVENUE" means, with respect to any Contract on any date of
determination thereof, the monthly revenue payable with respect to such
Contract. Notwithstanding the above, the Monthly Revenue for any Contract that
is a Defaulted Contract or a Delinquent Contract shall be 0 until the Obligor
thereunder shall have made payments with respect to three months in compliance
with the related Contract.
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"OBLIGOR" means a Person obligated to make payments pursuant to a
Contract.
"ORIGINATOR PURCHASE AGREEMENT" means the Purchase Agreement, dated
the date of this Agreement, between the Originator, as seller, and RSPN, as
purchaser, as the same may be amended, modified or restated from time to time in
accordance with the terms hereof.
"OUTSTANDING BALANCE" of any Receivable at any time means the
aggregate outstanding principal balance thereof.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"RECEIVABLE" means the indebtedness of an Obligor under a Contract,
and includes any other obligations of such Obligor with respect thereto.
"RECEIVABLES REPORT" means a report in substantially the form of
Schedule B hereto furnished by the Collection Agent to the Agent pursuant to
Section 6.02(g).
"RELATED SECURITY" means, with respect to any Receivable:
(a) all of the Originator's interest in any merchandise (including
returned merchandise) relating to any sale giving rise to such Receivable and in
the Central Station Contract related thereto to the extent that such Central
Station Contract relates to such Receivable;
(b) all security interests or liens and property subject thereto from
time to time purporting to secure payment of such Receivable, whether pursuant
to the Contract related to such Receivable or otherwise, together with all
financing statements signed by an Obligor describing any collateral securing
such Receivable;
(c) all guaranties, insurance and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise; and
(d) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch cards,
data processing software and related property and rights) relating to such
Receivable and the related Obligor.
"REQUIRED COLLATERAL COVERAGE RATIO" means 140%.
"SCHEDULED AMOUNT" means, for any month, (a) with respect to the
Initial Financing, the amounts described on Schedule A as the "Scheduled Amount"
for such month and (b) with respect to any subsequent Financing, (i) for the
first 59 months following the Closing Date of such Financing, the percentage of
the original principal amount of such Financing described on Schedule
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A-1 for such month and (ii) for the 60th month following the Closing Date for
such Financing, the remaining principal balance of such Financing as determined
in accordance with the following sentence. The remaining principal balance of
any Financing in the 60th month shall be determined by applying the Interest
Rate to the principal balance of the Financing from and after the Closing Date
therefor and allocating actual payments during the previous 59 months among
principal and interest. For purposes hereof, the "INTEREST RATE" for any
Financing shall be 2.5% per annum above the rate for five-year U.S. Treasury
Notes listed in the WALL STREET JOURNAL on the Tuesday preceding the applicable
Closing Date.
"TRANSACTION DOCUMENT" means any of this Agreement, the Originator
Purchase Agreement and all other agreements and documents delivered and/or
related hereto or thereto.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
SECTION 1.02. OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the UCC in the State of
New York, and not specifically defined herein, are used herein as defined in
such Article 9.
ARTICLE II
AMOUNTS AND TERMS OF THE FINANCINGS
SECTION 2.01. THE FINANCINGS.
(a) On the terms and conditions hereinafter set forth, the Agent
will, on the date hereof, provide to RSPN financing (the "INITIAL FINANCING") in
an amount equal to $26,000,000. Notwithstanding anything to the contrary set
forth herein, the parties hereto agree that each Financing constitutes a loan by
the Agent to RSPN secured by all of the Financed Receivables (including any
Contracts and Receivables which become Financed Receivables after the date
hereof pursuant to paragraph (d) below), and all Collections and Related
Security (together with the items described in clauses (a) through (c) of
Section 2.05, the "COLLATERAL"). To secure payment of all of RSPN's obligations
hereunder, RSPN hereby grants to the Agent a first priority perfected security
interest in and to all of the Collateral. In connection with the Financings
provided herein, and except as otherwise provided herein, the Agent shall,
except as provided herein, be entitled to all Collections of Financed
Receivables until such time as the Agent shall have received all Scheduled
Amounts.
(b) On the date hereof, the Agent shall, upon satisfaction of the
applicable conditions set forth in Article III, make available to RSPN the sum
of $26,000,000 in same day funds at such account at such financial institution
as RSPN may specify by written notice to the Agent;
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PROVIDED, that $3,120,000 shall be utilized by RSPN to satisfy RSPN's obligation
to the Agent for a fee in connection with the Initial Financing.
(c) The Agent agrees, on the terms and subject to the conditions set
forth herein, to provide to RSPN, from time to time following the date hereof to
but not including the Commitment Termination Date, further Financings in an
aggregate amount not to exceed the Commitment Amount. Each Financing following
the Initial Financing shall be made on not less than five Business Days' notice
from RSPN to the Agent. Each such notice shall specify the date of the proposed
Financing and the amount thereof (which shall be up to the Purchase Price (as
such term is defined in the Originator Purchase Agreement) of the Receivables
being pledged in connection with such Financing) and shall be accompanied by a
Receivables Report listing the Receivables and the related Contracts to be
pledged as Collateral hereunder in connection with such Financing and
demonstrating (to the Agent's reasonable satisfaction) that the Monthly Revenue
of such Receivables will be such that the Collateral Coverage Ratio with respect
to such Financing will equal or exceed the Required Collateral Coverage Ratio.
On the date of each such Financing, upon satisfaction of the applicable
conditions set forth in Article III, the Agent shall make available to RSPN an
amount equal to the requested Financing and transfer such funds as specified by
written notice from RSPN to the Agent. In connection with each Financing
following the Initial Financing, RSPN shall pay to the Agent a fee equal to 15%
of the initial amount of such Financing and shall be payable on the Closing Date
of such Financing
(d) Each Scheduled Amount with respect to each Financing shall be due
and payable as set forth in the definition of Scheduled Amounts or, if earlier,
on the Mandatory Payment Date. All Scheduled Amounts not paid during the month
in which they are due shall bear interest at a rate of interest equal to 15% per
annum.
(e) If, for any month, (i) the Collateral Coverage Ratio for any
Financing is less than the Required Collateral Coverage Ratio or (ii) the
Monthly Revenue with respect to any Financing is less than the Minimum Monthly
Revenue, then, in the case of clause (i) or (ii) above, RSPN shall include
additional Eligible Receivables as Collateral hereunder in an amount such that
the projected Collateral Coverage Ratio for each Financing (after giving effect
to the inclusion of such Receivables) is equal to or greater than the Required
Collateral Coverage Ratio and/or the projected Monthly Revenue for each
Financing (after giving effect to the inclusion of such Receivables) is equal to
or greater than the Minimum Monthly Revenue by, in either such case delivering
to the Agent a Receivables Report regarding such additional Receivables along
with the original related Contracts and such other information as the Agent
shall reasonably request with respect thereto.
SECTION 2.02. SETTLEMENT PROCEDURES.
(a) Collection of the Financed Receivables shall be administered by a
Collection Agent, in accordance with the terms of Article VI. RSPN shall
provide to the Collection Agent on a timely basis all information reasonably
necessary for such administration. Both RSPN and the Collection Agent shall
take all actions reasonably necessary to ensure that all Collections of the
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Financed Receivables are delivered to the Lockbox. After such Collections are
processed, they will be deposited into the Agent's Account.
(b) On the last Business Day of each calendar month, the Collection
Agent shall produce a report indicating the amount of Collections of Financed
Receivables with respect to each Financing which were deposited in the Agent's
Account since the last Business Day of the previous calendar month. All such
Collections with respect to each Financing will be paid as follows:
(i) to the Agent, in an amount equal to interest on Scheduled
Amounts in respect of such Financing not previously paid and Scheduled
Amounts in respect of such Financing not previously paid;
(ii) to the Agent, in an amount equal to the Scheduled Amount in
respect of such Financing due during such month;
(iii) to the Agent, in an amount equal to interest on Scheduled
Amounts in respect of any other Financing not previously paid and Scheduled
Amounts in respect of any other Financing not previously paid;
(iv) to the Agent, in an amount equal to the Scheduled Amount in
respect of any other Financing due during such month to the extent it would
not be paid from Collections from Financed Contracts related to such
Financing;
(v) to the Agent, in an amount equal to any other amount payable to
the Agent hereunder;
(vi) to the Central Station, in an amount equal to any Central
Station Fees then payable;
(vii) to the Collection Agent, in payment of the Collection Agent
Fee; and
(viii) to RSPN or its designee or such other Person as shall then be
legally entitled thereto.
Notwithstanding the above, if, as of any Business Day prior to the end of a
calendar month, the aggregate amount of Collections deposited in the Agent's
Account since the last Business Day of the previous calendar month exceeds the
aggregate amounts set forth in clauses (i) through (vii) above for all
Financings, upon request of RSPN, the remaining amounts will be distributed (but
not more frequently than weekly) as set forth in clause (vii) above.
SECTION 2.03. FEES. The Agent shall pay to the Collection Agent a
fee (the "COLLECTION AGENT FEE") of $5.00 per month for each Contract that is a
Financed Contract (other than any Contract related to a Financial Receivable
that is a Defaulted Receivables) for such month from the date hereof until all
Scheduled Amounts are paid in full. The Collection Agent shall, whether
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or not it actually receives such Collection Agent Fee for any month, be
responsible for paying any and all charges in relation to the Financed
Contracts, including any Central Station Fees and state sales taxes in respect
thereof. The Collection Agent Fee shall be payable only from Collections
pursuant to, and subject to the priority of payment set forth in, Section 2.02.
So long as the Originator or its Affiliate is acting as the Collection Agent
hereunder, amounts paid as the Collection Agent Fee pursuant to this Section
2.03 shall reduce, on a dollar-for-dollar basis, the obligation of RSPN to pay
the "Collection Agent Fee" pursuant to Section 6.03 of the Originator Purchase
Agreement.
SECTION 2.04. PAYMENTS AND COMPUTATIONS, ETC.
(a) All amounts to be paid or deposited by RSPN or the Collection
Agent hereunder shall be paid or deposited or wire initiated no later than 12:00
Noon (New York City time) on the day when due in same day funds to the Agent's
Account.
(b) RSPN shall, to the extent permitted by law, pay interest on any
amount not paid or deposited by RSPN when due hereunder (subject to any
applicable grace period), at an interest rate per annum equal to 15% per annum,
payable on demand.
(c) All computations of interest hereunder shall be made on the basis
of a year of 360 days for the actual number of days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
such payment or deposit.
SECTION 2.05. SECURITY INTEREST. As collateral security for the
performance by RSPN of all the terms, covenants and agreements on the part of
RSPN to be performed under this Agreement or any document delivered in
connection with this Agreement in accordance with the terms thereof, including
the punctual payment when due of all obligations of RSPN hereunder, whether for
indemnification payments, fees, expenses or otherwise, RSPN hereby assigns and
grants to the Agent a security interest in all of RSPN's right, title and
interest in and to (a) the Originator Purchase Agreement, including, without
limitation, (i) all rights of RSPN to receive moneys due or to become due under
or pursuant to the Originator Purchase Agreement, (ii) all security interests
and property subject thereto from time to time purporting to secure payment of
monies due or to become due under or pursuant to the Originator Purchase
Agreement, (iii) all rights of RSPN under any Purchaser Loan (as defined in the
Originator Purchase Agreement), (iv) claims of RSPN for damages arising out of
or for breach of or default under the Originator Purchase Agreement and (v) the
right of RSPN to compel performance and otherwise exercise all remedies
thereunder and (b) all Receivables at any time owed by RSPN, the Related
Security with respect thereto and the Collections and all other assets,
including, without limitation, accounts, instruments and general intangibles (as
those terms are defined in the UCC) owned by RSPN and (c) to the extent not
included in the foregoing, all proceeds of any and all of the foregoing.
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ARTICLE III
CONDITIONS OF FINANCING
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL FINANCING. The Initial
Financing under Section 2.01(a) is subject to the conditions precedent that the
Agent shall have received on or before the date of such Financing the following,
each (unless otherwise indicated) dated such date, in form and substance
reasonably satisfactory to the Agent:
(a) A certificate of the Secretary or Assistant Secretary of each of
RSPN and the Originator certifying (i) that all necessary corporate actions and
governmental approvals, if any, with respect to this Agreement and the
Originator Purchase Agreement have been taken or obtained and that copies of the
By-laws of RSPN and the Originator or any other documents evidencing such
actions or approvals have been delivered to the Agent and (ii) the names and
true signatures of the officers of RSPN and the Originator authorized to sign
the Originator Purchase Agreement and this Agreement and the other documents to
be delivered by it hereunder and thereunder.
(b) Acknowledgment copies or time-stamped receipt copies of proper
financing statements, duly filed on or before the date of such financing under
the UCC of each jurisdiction in which such filing is deemed by the Agent to be
desirable in order to perfect the ownership and security interests contemplated
by this Agreement and the Originator Purchase Agreement or such other evidence
as is reasonably satisfactory to the Agent.
(c) Acknowledgment copies or time-stamped receipt copies of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in (i) the Receivables, Contracts or Related Security
previously granted by RSPN or the Originator and (ii) the collateral security
referred to in Section 2.05 previously granted by RSPN or such other evidence as
is reasonably satisfactory to the Agent.
(d) Completed requests for information, dated on or before the date
of such initial purchase, listing the financing statements referred to in
subsection (c) above that name RSPN or the Originator as debtor, together with
copies of such other financing statements (none of which shall cover any
Receivables, Contracts, Related Security or Collateral.
(e) An executed copy of the Originator Purchase Agreement.
(f) A copy of the by-laws of each of RSPN and the Originator,
certified by the secretary of RSPN and the Originator, respectively.
(g) A copy of the certificate or articles of incorporation of each of
RSPN and the Originator, certified as of a recent date by the Secretary of State
or other appropriate official of the state of its organization, and a
certificate as to the good standing of RSPN and the Originator from such
Secretary of State or other official, dated as of a recent date.
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(h) An opinion of Messrs. Squadron, Ellenoff, Plesent & Sheinfeld,
LLP, counsel to the Originator and RSPN as to (i) true sale of Receivables under
the Originator Purchase Agreement, (ii) nonconsolidation of the Originator and
RSPN and (iii) such other matters as are reasonably required by the Agent or its
counsel.
SECTION 3.02. FURTHER CONDITIONS PRECEDENT TO FINANCINGS. Each
Financing under Section 2.01(a) shall be subject to the further conditions
precedent that (a) the Collection Agent shall have delivered to the Agent on or
prior to the date of such financing, in form and substance reasonably
satisfactory to the Agent, (i) a completed Receivables Report containing
information through a date reasonably close to the Closing Date for such
Financing, identifying each Financed Contract, each Financed Receivable and the
Monthly Revenues for each of the foregoing, (ii) each Contract that is a
Financed Contract and a written assignment thereof from the Originator to RSPN,
(iii) financing statements executed by the Originator identifying such Financed
Contracts as having been sold to RSPN and (iv) such additional information as
may reasonably be requested by the Agent, (b) on the date of such Financing the
following statements shall be true:
(i) the representations and warranties contained in Sections 4.01
and 4.02 are correct in all material respects on and as of the date of such
Financing as though made on and as of such date,
(ii) no event has occurred and is continuing, or would result from
such purchase or reinvestment, that constitutes an Event of Default or an
Incipient Event of Default,
(iii) the Originator shall have sold or contributed to the Seller,
pursuant to the Originator Purchase Agreement, all of the Financed
Receivables and Financed Contracts,
(iv) the aggregate Monthly Revenue for the Financed Contracts is not
less than the Minimum Monthly Revenue for such Financing and
(v) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF RSPN. RSPN hereby
represents and warrants as follows, which representations shall be deemed to be
remade and restated on each day on which RSPN receives Collections pursuant to
Section 2.03(b)(vi):
(a) RSPN is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, and is duly qualified to
do business, and is in good standing, in every jurisdiction in which it is
required to be so qualified and in good standing except
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where the failure to be so qualified would not have a material adverse effect on
the collectibility of the Financed Contracts or on RSPN.
(b) The execution, delivery and performance by RSPN of the
Transaction Documents and the other documents to be delivered by it hereunder,
including RSPN's use of the proceeds of the financing provided hereunder,
(i) are within RSPN's corporate powers, (ii) have been duly authorized by all
necessary corporate action on the part of RSPN, (iii) do not contravene
(A) RSPN's charter or by-laws, (B) any law, rule or regulation applicable to
RSPN, (C) any contractual restriction binding on or affecting RSPN or its
property or (D) any order, writ, judgment, award, injunction or decree binding
on or affecting RSPN or its property and (iv) do not result in or require the
creation of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties (except for the security interest created
pursuant to this Agreement). Each Transaction Document has been duly executed
and delivered by RSPN.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by RSPN of any Transaction Document
or any other document to be delivered thereunder, except for the filing of UCC
financing statements which are referred to therein.
(d) Each Transaction Document constitutes the legal, valid and
binding obligation of RSPN, enforceable against RSPN in accordance with its
terms subject to bankruptcy, insolvency or other similar laws affecting
creditors' rights generally and to general principles of equity (whether
considered in a proceeding in equity or at law).
(e) The most recent quarterly financial statement of the Originator
for the period then ended, copies of which have been furnished to the Agent,
fairly present in all material respects the financial condition of the
Originator as at such date and the results of the operations of the Originator
for the period ended on such date, all in accordance with generally accepted
accounting principles consistently applied, and since the end of such period
there has been no material adverse change in the financial condition of the
Originator. The opening pro forma balance sheet of RSPN as at July 28, 1998,
giving effect to the financing to be made under this Agreement, a copy of which
has been furnished to the Agent, fairly presents the financial condition of RSPN
as at such date, in accordance with generally accepted accounting principles,
and since July 28, 1998 there has been no material adverse change in the
business, operations, property or financial or other condition of RSPN.
(f) There is no pending or, to the knowledge of RSPN, threatened
action or proceeding affecting the Originator or RSPN before any court,
governmental agency or arbitrator which may materially adversely affect the
consolidated financial condition of the Originator or RSPN which has not been
disclosed to the Agent in writing prior to the date of this Agreement or which
may materially adversely affect the ability of the Originator or RSPN to perform
its obligations under any Transaction Document, or which purports to affect the
legality, validity or enforceability of any Transaction Document.
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(g) No proceeds of any Financing will be used to acquire any equity
security of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
(h) RSPN is the legal and beneficial owner of the Financed Contracts,
the Financed Receivables and the Related Security free and clear of any Adverse
Claim and the Agent has a valid and perfected first priority security interest
in all of the foregoing property. No effective financing statement or other
instrument similar in effect covering any Contract or any Receivable or the
Related Security or Collections with respect thereto is on file in any recording
office, except those filed in favor of the Agent relating to this Agreement and
those filed by RSPN pursuant to the Originator Purchase Agreement.
(i) Each Receivables Report, exhibit, financial statement or report
furnished or to be furnished at any time by or on behalf of RSPN to the Agent in
connection with this Agreement or any Transaction Document is or will be
accurate in all material respects as of its date or as of the date so furnished,
and no such document contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained therein, in the light of the circumstances under which
they were made, not misleading.
(j) The principal place of business and chief executive office of
RSPN and the office where RSPN keeps its records concerning the Receivables are
located at 11-K Princess Road, Lawrenceville, NJ 08648.
(k) RSPN is not known by and does not use any tradename or
doing-business-as name.
(l) RSPN was incorporated on July 28, 1998, and did not engage in any
business activities prior to the date of this Agreement. RSPN has no
subsidiaries.
(m) (i) The fair value of the property of RSPN is greater than the
total amount of liabilities, including contingent liabilities, of RSPN, (ii) the
present fair salable value of the assets of RSPN is not less than the amount
that will be required to pay all probable liabilities of RSPN on its debts as
they become absolute and matured, (iii) RSPN does not intend to, and does not
believe that it will, incur debts or liabilities beyond its ability to pay such
debts and liabilities as they mature and (iv) RSPN is not engaged in a business
or a transaction, and is not about to engage in a business or a transaction, for
which its property would constitute unreasonably small capital.
(n) With respect to each Financed Receivable, RSPN (i) has received
such Receivable as a contribution to its capital by the Originator or (ii) has
purchased such Receivable from the Originator in exchange for payment (made by
RSPN to the Originator in accordance with the provisions of the Originator
Purchase Agreement) of cash or Deferred Purchase Price (as defined in the
Originator Purchase Agreement), in an amount which constitutes fair
consideration and reasonably equivalent value. Each such sale referred to in
clause (ii) of the preceding sentence shall not have been made for or on account
of an antecedent debt owed by the Originator to RSPN and
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no such sale is or may be voidable or subject to avoidance under any section of
the Federal Bankruptcy Code.
(0) (i) Each Financed Contract (A) arose in connection with a
bona fide final sale and delivery of a security alarm system and/or related
services in the ordinary course of business; (B) is for a liquidated amount
as stated in such Contract; (C) is not subject to any defense, deduction,
offset or counterclaim; (D) constitutes the valid, legal and binding
obligations of the Originator or its predecessor-in-interest, enforceable
in accordance with its terms; (E) complies with all federal, state and
local laws, rules and regulations and (F) as of the date of its inclusion
in a Receivable Report hereunder, the Receivables thereunder are Eligible
Receivables.
(ii) With respect to each Financed Contract, (A) the Obligor thereon
has acknowledged that the security system dealer originally a party thereto
has completed all necessary work contracted for and has received a notice
of his rights of rescission under federal and state law with respect
thereto, (B) the Obligor has not exercised any such rescission rights
within five business days after the time such notice of rescission rights
was signed by such Obligor, (C) the Obligor thereon is obligated and liable
for payment of the amounts stated in such Contract, and has no known reason
to exercise any right of rejection, return, offset, defense, counterclaim,
discount or deduction.
(iii) Each Financed Contract contains valid mandatory deferred payment
obligations for the mandatory monitoring of the security system purchased,
leased or owned by the Obligor, legally enforceable in accordance with its
terms, representing actual and bona fide agreements to perform and accept
residential monitoring services.
(iv) No payment under any Financed Contract is, as of the relevant
Closing Date, delinquent, in default or subject to any dispute. All
statements made in any Financed Contract, including names and addresses,
locations and descriptions of property or services, down-payments and
unpaid balances, are in all respects true, complete and accurate. All
signatures and endorsements that appear on each Financed Contract, or any
agreement or instrument relating thereto, are genuine and all signatories
and endorsers, if any, have full legal capacity to contract.
(v) All of RSPN's obligations to the Obligor on any Financed
Contract, with the exception of future monitoring services and maintenance
or service obligations, have been completed and fulfilled in their
entirety. No Obligor on any Financed Contract has been induced to enter
into such Contract by fraud or misrepresentation as to price, quality of
products or services.
SECTION 4.02. REPRESENTATION AND WARRANTY OF THE COLLECTION AGENT.
The Originator, as the Collection Agent, hereby represents and warrants that the
consolidated balance sheet of the Originator as at March 31, 1998, and the
related consolidated statement of income and retained earnings of the Originator
for the fiscal year then ended, copies of which have been
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furnished to the Agent, fairly present in all material respects the consolidated
financial condition of the Originator as at such date and the results of the
operations of the Originator for the period ended on such date, all in
accordance with generally accepted accounting principles consistently applied,
and since March 31, 1998 there has been no material adverse change in the
consolidated financial condition of the Originator.
ARTICLE V
COVENANTS
SECTION 5.01 COVENANTS OF RSPN. Until the date all Scheduled
Amounts are paid in full:
(a) COMPLIANCE WITH LAWS, ETC. RSPN will comply in all material
respects with all applicable laws, rules, regulations and orders and preserve
and maintain its corporate existence, rights, franchises, qualifications and
privileges except to the extent that the failure so to comply with such laws,
rules and regulations or the failure so to preserve and maintain such existence,
rights, franchises, qualifications and privileges would not materially adversely
affect the collectibility of the Receivables or the ability of RSPN to perform
its obligations under the Transaction Documents.
(b) OFFICES, RECORDS AND BOOKS OF ACCOUNT. RSPN will keep its
principal place of business and chief executive office and the office where it
keeps its records concerning the Receivables at the address of the Seller set
forth in Section 4.01(j) or, upon 30 days' prior written notice to the Agent, at
any other locations in jurisdictions where all actions reasonably requested by
the Agent to protect and perfect the Agent's security interest in the
Receivables have been taken and completed. RSPN also will maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables and related
Contracts in the event of the destruction of the originals thereof), and keep
and maintain all documents, books, records and other information reasonably
necessary or advisable for the collection of all Receivables (including, without
limitation, records adequate to permit the daily identification of each
Receivable and all Collections of and adjustments to each existing Receivable).
(c) PERFORMANCE AND COMPLIANCE WITH CONTRACTS AND CREDIT AND
COLLECTION POLICY. RSPN will, at its expense, timely and fully perform and
comply with all material provisions, covenants and other promises required to be
observed by it under the Contracts related to the Receivables, and timely and
fully comply in all material respects with the Credit and Collection Policy in
regard to each Receivable and the related Contract.
(d) SALES, LIENS, ETC. RSPN will not sell, assign (by operation of
law or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon or with respect to, its undivided interest in any Receivable,
Related Security, related Contract or Collections, or any account to which any
Collections of any Receivable are sent, or assign any right to receive income in
respect thereof.
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(e) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as provided in
Section 6.02(c) and in Section 6.02(c) of the Originator Purchase Agreement,
RSPN will not extend, amend or otherwise modify the terms of any Receivable, or
amend, modify or waive any term or condition of any Contract related thereto.
(f) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. RSPN will
not make any change in the character of its business or in the Credit and
Collection Policy that would, in either case, materially adversely affect the
collectibility of the Receivables or its ability to perform its obligations
under this Agreement.
(g) DEPOSITS. At all times, (i) RSPN will deposit, or cause to be
deposited, all Collections of Financed Receivables to the Lockbox and (ii) RSPN
will not deposit or otherwise credit, or cause or permit to be so deposited or
credited, to the Lockbox or the Agent's Account cash or cash proceeds other than
Collections of Financed Receivables.
(h) MARKING OF RECORDS. At its expense, RSPN will mark, or cause to
be marked, its master data processing records evidencing Receivables and related
Contracts with a legend evidencing that such Receivables and Contracts are
subject to the lien of the Agent in accordance with this Agreement. Each
Financed Contract shall be delivered to the Agent or its designee at the time of
delivery of the related Receivables Report.
(i) AUDITS. RSPN will from time to time during regular business
hours as reasonably requested by the Agent, permit the Agent, or its agents or
representatives, (i) to examine and make copies of and abstracts from all books,
records and documents (including, without limitation, computer tapes and disks)
in the possession or under the control of RSPN relating to Receivables and the
Related Security, including, without limitation, the related Contracts and
(ii) to visit the offices and properties of RSPN for the purpose of examining
such materials described in clause (i) above, and to discuss matters relating to
Receivables and the Related Security or RSPN's performance hereunder or under
the Contracts with any of the officers or employees of RSPN having knowledge of
such matters; PROVIDED, that except during the continuance of an Event of
Default, the Agent shall not be entitled to exercise the rights set forth in
clause (ii) more than once during any 12-month period. In addition, within 120
days after the end of each fiscal year of RSPN, RSPN will, at its expense, cause
its independent public accountants to perform, and to deliver to the Agent a
written report describing, certain agreed upon procedures conducted by such
accountants with respect to the Receivables and the Credit and Collection Policy
on a scope and in a form reasonably requested by the Agent and agreed to by
RSPN.
(j) FURTHER ASSURANCES.
(i) RSPN agrees from time to time, at its expense, promptly to
execute and deliver all further instruments and documents, and to take all
further actions, that may be reasonably necessary or desirable, or that the
Agent may reasonably request, to perfect, protect or more fully evidence
the Collateral and to enable the Agent to exercise and enforce
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its rights and remedies under this Agreement. Without limiting the
foregoing, RSPN will, upon the request of the Agent, execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments and documents, that may be reasonably necessary or desirable,
or that the Agent may reasonably request, to perfect, protect or evidence
its rights hereunder.
(ii) RSPN authorizes the Agent to file financing or continuation
statements, and amendments thereto and assignments thereof, relating to the
Collateral without the signature of RSPN where permitted by law. A
photocopy or other reproduction of this Agreement shall be sufficient as a
financing statement where permitted by law.
(iii) RSPN shall provide for (i) the monitoring of the alarm system of
each Obligor under each Financed Contract and (ii) the servicing, repair,
warranty service or replacement, and service calls required by each
Financed Contract.
(iv) RSPN shall be responsible for the payment of any state and local
taxes due with respect to Financed Contracts.
(k) REPORTING REQUIREMENTS. RSPN will provide to the Agent the
following:
(i) as soon as available and in any event within 60 days after the
end of the first three quarters of each fiscal year of the Originator,
quarterly financial statements of the Originator prepared in accordance
with generally accepted accounting principles and certified by an officer
of the Originator and within 120 days after the end of each fiscal year of
the Originator, a copy of the annual report audited financial statements of
the Originator;
(ii) as soon as possible and in any event within five Business Days
after the occurrence of each Event of Default or Incipient Event of
Default, a statement of the chief financial officer of RSPN setting forth
details of such Event of Default or event and the action that RSPN has
taken and proposes to take with respect thereto;
(iii) promptly after the filing or receipt thereof, copies of all
reports and notices (x) that RSPN or any of its Affiliates files under
ERISA with the Internal Revenue Service, the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or (y) that RSPN or any of its
Affiliates receives from any of the foregoing;
(iv) at least ten Business Days prior to any change in the name of
the Originator or RSPN, a notice setting forth the new name and the
effective date thereof;
(v) promptly after RSPN obtains knowledge thereof, notice of any
"Event of Termination" or "Facility Termination Date" under the Originator
Purchase Agreement;
(vi) at the time of the delivery of the financial statements
provided for in clause (i) of this paragraph, a certificate of the chief
financial officer or the treasurer of RSPN to the
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effect that, to the best of such officer's knowledge, no Event of Default
has occurred and is continuing or, if any Event of Default has occurred and
is continuing, specifying the nature and extent thereof;
(vii) by no later than 30 days following the Closing Date, the Credit
and Collection Policy;
(viii) promptly after receipt thereof, copies of all notices received
by RSPN from the Originator under the Originator Purchase Agreement; and
(ix) such other information respecting the Receivables or the
condition or operations, financial or otherwise, of RSPN as the Agent may
from time to time reasonably request.
(l) CORPORATE SEPARATENESS.
(i) RSPN shall at all times maintain at least one independent
director who (x) is not currently and has not been during the five years
preceding the date of this Agreement an officer, director or employee of an
Affiliate of RSPN, (y) is not a current or former officer or employee of
the Originator and (z) is not a stockholder of an Affiliate of RSPN.
(ii) RSPN shall not direct or participate in the management of any
of the operations of any of its Affiliates.
(iii) RSPN shall conduct its business from an office separate from
that of its Affiliates (but which may be located in the same facility as
one or more such Affiliates). RSPN shall have stationery and other
business forms and a mailing address and a telephone number separate from
that of its Affiliates.
(iv) RSPN shall at all times be adequately capitalized in light of
its contemplated business.
(v) RSPN shall at all times provide for its own operating expenses
and liabilities from its own funds.
(vi) RSPN shall maintain its assets and transactions separately from
those of its Affiliates and reflect such assets and transactions in
financial statements separate and distinct from those of such Affiliates
and evidence such assets and transactions by appropriate entries in books
and records separate and distinct from those of its Affiliates. RSPN shall
hold itself out to the public under its own name as a legal entity separate
and distinct from its Affiliates. RSPN shall not hold itself out as having
agreed to pay, or as being liable, primarily or secondarily, for, any
obligations of its Affiliates.
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(vii) RSPN shall not maintain any joint account with any of its
Affiliates or become liable as a guarantor or otherwise with respect to any
Debt or contractual obligation of any of its Affiliates.
(viii) RSPN shall not make any payment or distribution of assets with
respect to any obligation of any of its Affiliates or grant an Adverse
Claim on any of its assets to secure any obligation of any of its
Affiliates.
(ix) RSPN shall not make loans, advances or otherwise extend credit
to any of its Affiliates.
(x) RSPN shall hold regular (and in any event not less than annual)
duly noticed meetings of its Board of Directors and make and retain minutes
of such meetings.
(xi) RSPN shall have bills of sale (or similar instruments of
assignment) and, if appropriate, UCC-1 financing statements, with respect
to all assets purchased from the Originator.
(xii) Except as otherwise expressly permitted under the Transaction
Documents, RSPN shall not engage in any transaction with any of its
Affiliates except as permitted by this Agreement and as contemplated by the
Originator Purchase Agreement.
(m) ORIGINATOR PURCHASE AGREEMENT. RSPN will not amend, waive or
modify any provision of the Originator Purchase Agreement or waive the
occurrence of any "Event of Termination" under the Originator Purchase
Agreement, without in each case the prior written consent of the Agent. RSPN
will perform all of its obligations under the Originator Purchase Agreement in
all material respects and will enforce the Originator Purchase Agreement in
accordance with its terms in all material respects.
(n) NATURE OF BUSINESS. RSPN will not engage in any business other
than the purchase of Receivables, Related Security and Collections from the
Originator and the transactions contemplated by this Agreement. RSPN will not
create or form any subsidiary.
(o) MERGERS, ETC. RSPN will not merge with or into or consolidate
with or into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions), all or substantially all of its
assets (whether now owned or hereafter acquired) to, or acquire all or
substantially all of the assets or capital stock or other ownership interest of,
or enter into any joint venture or partnership agreement with, any Person, other
than as contemplated by this Agreement and the Originator Purchase Agreement.
(p) DISTRIBUTIONS, ETC. Other than as expressly permitted hereunder,
RSPN will not declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock, or return any capital to its
shareholders as such, or purchase, retire, defease, redeem or otherwise acquire
for value
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or make any payment in respect of any shares of any class of its capital stock
or any warrants, rights or options to acquire any such shares, now or hereafter
outstanding; PROVIDED, HOWEVER, that RSPN may declare and pay cash dividends on
its capital stock to its shareholders so long as (i) no Event of Default shall
then exist or would occur as a result thereof, (ii) such dividends are in
compliance with all applicable law including the corporate law of the state of
RSPN's incorporation and (iii) such dividends have been approved by all
necessary and appropriate corporate action of RSPN.
(q) DEBT. RSPN will not incur any Debt, other than any Debt
incurred pursuant to this Agreement and other Debt to the Agent which is
cross-collateralized to the financings hereunder and the Deferred Purchase Price
under the Originator Purchase Agreement.
(r) CERTIFICATE OF INCORPORATION. RSPN will not amend its certificate
of incorporation.
(s) CENTRAL STATION. RSPN will, pursuant to a Cental Station
Agreement, utilize the services of a Central Station to perform the monitoring
services due to Obligors under the Financed Contracts. RSPN agrees that (a) the
Agent shall be a third-party beneficiary of each Central Station Agreement, (b)
it will ensure that the Central Station perform all monitoring services under
the Financed Contracts in accordance with generally accepted industry practices,
(c) it will, or will obtain the agreement of the Central Station to, in all
respects service, perform collection efforts and enforce the right to receive
payments due under each Financed Contract, (d) in the event of a material
uncured default of the Central Station under a Central Station Contract, it will
(at its own expense) transfer monitoring services to another central station, at
the sole direction and instruction of the Agent. In connection with the above
obligation, if for any reason any Central Station is unable to or does not
perform its monitoring duties and responsibilities to the Obligors under the
Financed Contracts, RSPN will promptly arrange for the orderly transfer of
monitoring services to a third-party alarm monitoring service company selected
in the sole discretion of the Agent. The Agent shall have the right to
unilaterally demand and effect the immediate transfer of monitoring services on
Financed Contracts from the Central Station to a third-party monitoring service
company, with the complete cooperation of RSPN and/or the Central Station, upon
the happening of any of the following events:
(i) The filing of a petition for bankruptcy protection with respect
to the Central Station, either voluntary or involuntary;
(ii) The Central Station or any of its officers being found guilty
of any felony or upon a finding of liability in any criminal or civil
action involving impropriety in business dealings or operations which, in
either case, materially affects the operation of the Central Station, or
its performance under the Financed Contracts;
(iii) The abandonment of monitoring service operations by the Central
Station. Abandonment shall be deemed to have occurred if the Central
Station fails to provide monitoring services to Obligors for a period of 72
hours or longer, unless such interruption
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in service has been caused by acts of force majeure beyond the control of
the Central Station; or
(iv) Upon the occurrence of a material default under the Central
Station Agreement which results in the inability of the Central Station to
substantially perform under or in accordance with this Agreement.
In addition, RSPN shall be responsible for ensuring that the Central Station
maintain comprehensive general liability insurance which cannot be canceled with
less than 30 days notice to the Agent, including errors and omissions coverage
on monitoring operations, in the minimum amount of $1,000,000.00 covering bodily
injury and property damage resulting from the performance of monitoring services
under the Financed Contracts and naming the Agent as loss payee thereon.
ARTICLE VI
ADMINISTRATION AND COLLECTION OF RECEIVABLES
SECTION 6.01. DESIGNATION OF COLLECTION AGENT. The servicing,
administration and collection of the Receivables shall be conducted by the
Collection Agent so designated hereunder from time to time. The Originator is
hereby designated as, and hereby agrees to perform the duties and obligations
of, the Collection Agent pursuant to the terms hereof. The Agent at any time
following the occurrence and during the continuance of an Event of Default may
designate as Collection Agent any other Person (including itself) to succeed the
Originator or any successor Collection Agent, if such Person shall consent and
agree to the terms hereof. The Collection Agent may, with the prior consent of
the Agent, subcontract with any other Person for the servicing, administration
or collection of the Receivables. Any such subcontract shall not (a) affect the
Collection Agent's liability for performance of its duties and obligations
pursuant to the terms hereof or (b) provide for payments thereunder to be made
directly out of Collections.
SECTION 6.02. DUTIES OF THE COLLECTION AGENT.
(a) The Collection Agent shall take or cause to be taken all such
actions as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. RSPN and the Agent hereby appoint the Collection Agent from time to
time designated pursuant to Section 6.01 as agent for themselves to enforce
their respective rights and interests in the Receivables, the Related Security
and the related Contracts.
(b) The Collection Agent shall administer the Collections in
accordance with the procedures described in Section 2.03.
(c) If no Event of Default or Incipient Event of Default shall have
occurred and be continuing, the Originator, while it is the Collection Agent,
may, in accordance with the Credit
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and Collection Policy, extend the maturity or adjust the Outstanding Balance of
any Receivable as the Originator deems appropriate to maximize Collections
thereof.
(d) The Collection Agent shall hold in trust for the Agent all
documents, instruments and records (including, without limitation, computer
tapes or disks) which evidence or relate to the Receivables. At the request of
the Agent, the Collection Agent shall mark conspicuously each invoice evidencing
each Receivable and the related Contract with a legend, acceptable to the Agent,
evidencing that such Receivables and Contracts have been sold to RSPN and are
subject to the lien of the Agent hereunder and shall mark RSPN's master data
processing records evidencing such Receivables and related Contracts with such a
legend.
(e) Prior to the tenth Business Day of each month, the Collection
Agent shall prepare and forward to the Agent a Receivables Report relating to
the Receivables outstanding on the last day of the immediately preceding month.
(f) The Collection Agent shall, promptly after becoming aware
thereof, notify the Agent of any dispute or claim asserted by any Obligor under
any Contract relating to Receivables where, in the aggregate, such disputes or
claims affect $10,000 or more of Monthly Revenue for any calendar month.
(g) Without in any way limiting the generality of the foregoing, the
Collection Agent shall design, prepare and mail Obligor billing statements which
provide for the proper disclosure of (i) the contractual payment due, (ii) any
amounts past due, (iii) applicable state and local tax on the services rendered,
for Obligors who reside in jurisdictions where such services are taxable, (iv)
late charges and (v) miscellaneous charges which may be charged under Financed
Contracts.
SECTION 6.03. CERTAIN RIGHTS OF THE AGENT.
(a) At any time following the designation of a Collection Agent other
than the Originator pursuant to Section 6.01 or during the continuance of an
Event of Default:
(i) The Agent may direct the Obligors that all payments thereunder
be made directly to the Agent or its designee.
(ii) At the Agent's request and at RSPN's expense, RSPN shall direct
that payments be made directly to the Agent or its designee.
(iii) At the Agent's request and at RSPN's expense, RSPN and the
Collection Agent shall (A) assemble all of the documents, instruments and
other records (including, without limitation, computer tapes and disks)
that evidence or relate to the Receivables and the related Contracts and
Related Security, or that are otherwise necessary or desirable to collect
the Receivables, and shall make the same available to the Agent at a place
selected by the Agent or its designee and (B) segregate all cash, checks
and other instruments
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received by it from time to time constituting Collections in a manner
acceptable to the Agent and, promptly upon receipt, remit all such cash,
checks and instruments, duly indorsed or with duly executed instruments of
transfer, to the Agent or its designee.
(iv) RSPN authorizes the Agent to take any and all steps in RSPN's
name and on behalf of RSPN that are necessary or desirable, in the
determination of the Agent, to collect amounts due under the Receivables,
including, without limitation, endorsing RSPN's name on checks and other
instruments representing Collections and enforcing the Receivables and the
Related Security and related Contracts.
SECTION 6.04. RIGHTS AND REMEDIES.
(a) If the Collection Agent fails to perform any of its obligations
under this Agreement, the Agent may (but shall not be required to), if such
failure continues more than five Business Days following receipt of written
notice from the Agent, itself perform, or cause performance of, such obligation;
and the Agent's costs and expenses incurred in connection therewith shall be
payable by RSPN.
(b) RSPN shall perform, and shall ensure that the Originator shall
perform, its obligations under the Contracts related to the Receivables to the
same extent as if the transactions contemplated hereby had not occurred and the
exercise by the Agent of its rights under this Agreement shall not release the
Originator or RSPN from any of its duties or obligations with respect to any
Receivable or related Contract. The Agent shall have no obligation or liability
with respect to any Receivable or related Contract, nor shall it be obligated to
perform the obligations of the Originator or RSPN thereunder.
(c) In the event of any conflict between the provisions of Article VI
of this Agreement and Article VI of the Originator Purchase Agreement, the
provisions of this Agreement shall control.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT. If any of the following events
(each, an "EVENT OF DEFAULT") shall occur and be continuing:
(a) the Collection Agent (i) shall fail to perform or observe any
term, covenant or agreement under this Agreement (other than as referred to in
clause (ii) of this subsection (a) and subsection (d) below) and such failure
shall remain unremedied for the greater of ten Business Days after actual
knowledge thereof by a responsible officer of the Collection Agent and five
Business Days after written notice from the Agent or (ii) shall fail to make
when due any payment or deposit to be made by it under this Agreement three
Business Days after the same is due; or
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(b) RSPN shall fail to make any payment required hereunder three
Business Days after the same is due; or
(c) any representation or warranty made or deemed made by RSPN in
this Agreement or any other Transaction Document or any information or report
delivered by RSPN pursuant to this Agreement or any other Transaction Document
shall prove to have been incorrect or untrue in any material respect when made
or deemed made or delivered and, if, in the reasonable determination of the
Agent, such failure can be corrected within 15 days, either RSPN is not making
its best efforts to remedy the same or such failure shall continue unremedied
for 20 days after the earlier of actual knowledge by a responsible officer of
RSPN and written notice thereof by the Agent; or
(d) RSPN shall fail to perform or observe any of the following
provisions of this Agreement: the first sentence of Section 5.01(b); Section
5.01(d); Section 5.01(k)(iii)-(vii); Section 5.01(l); Section 5.01(m); Section
5.01(p); Section 5.01(q); Section 5.01(r); or the last sentence of Section
5.01(s); or
(e) RSPN or the Originator shall fail to pay any principal of or
premium or interest on any of its Debt which is outstanding in a principal
amount of at least $50,000 in the aggregate when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such Debt shall be required to be made, in each case prior
to the stated maturity thereof; or
(f) the liens granted by RSPN to the Agent pursuant to this Agreement
shall for any reason cease to be valid and perfected first priority liens in the
collateral referred to herein; or
(g) RSPN or the Originator shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against RSPN or the
Originator seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of 60
days, or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a
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receiver, trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or RSPN or the Originator shall
take any corporate action to authorize any of the actions set forth above in
this subsection (g); or
(h) there shall have occurred any event which may materially
adversely affect the collectibility of the Receivables or the ability of the
Collection Agent to collect the Receivables or otherwise perform its obligations
under this Agreement; or
(i) an "Event of Termination" or "Facility Termination Date" shall
occur under the Originator Purchase Agreement, or the Originator Purchase
Agreement shall cease to be in full force and effect; or
(j) RSPN shall cease to be a direct wholly owned Affiliate of the
Originator or the Originator shall cease to be a direct wholly owned Affiliate
of Response USA, Inc.; or
(k) the Collateral Coverage Ratio for any two consecutive months
shall be less than the Required Collateral Coverage Ratio; or
(l) the Monthly Revenue for any two consecutive months shall be less
than the Required Monthly Revenue; or
(m) Richard M. Brooks shall no longer be the Chairman, Chief
Executive Officer and/or President of Response USA, Inc. or RSPN, Robert L. May
shall no longer be the Executive Vice President of Response USA, Inc. or RSPN or
Ronald A. Feldman shall no longer be the Vice President of Response USA, Inc. or
RSPN;
then, and in any such event, any or all of the following actions may be taken
without notice to RSPN: (x) the Agent may declare the Mandatory Payment Date to
have occurred (in which case the Mandatory Payment Date shall be deemed to have
occurred) and (y) without limiting any right under this Agreement to replace the
Collection Agent, the Agent may designate another Person to succeed the
Originator as the Collection Agent; PROVIDED, that, automatically upon the
occurrence of any event (without any requirement for the passage of time or the
giving of notice) described in paragraph (g) of this Section 7.01, the Mandatory
Payment Date shall occur, the Originator (if it is then serving as the
Collection Agent) shall cease to be the Collection Agent and the Agent or its
designee shall become the Collection Agent. Upon any such declaration or
designation or upon such automatic termination, the Agent shall have, in
addition to the rights and remedies which it may have under this Agreement, all
other rights and remedies provided after default under the UCC and under other
applicable law, which rights and remedies shall be cumulative.
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ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNITIES BY RSPN. Without limiting any other
rights that the Agent may have hereunder or under applicable law, RSPN hereby
agrees to indemnify the Agent and any of its assigns and any of their respective
officers, agents and Affiliates (each such Person, an "INDEMNIFIED PARTY") from
and against any and all claims, losses and liabilities (including reasonable
attorneys' fees) (all of the foregoing being collectively referred to as
"INDEMNIFIED AMOUNTS") arising out of or resulting from this Agreement or the
use of proceeds of the financing provided hereby or in respect of any Receivable
or any Contract, excluding, however, Indemnified Amounts to the extent resulting
from gross negligence or willful misconduct on the part of the Indemnified Party
or any income taxes incurred by an Indemnified Party arising out of or as a
result of this Agreement or the financing provided hereby or in respect of any
Receivable or any Contract. Without limiting or being limited by the foregoing,
RSPN shall pay on demand to the Agent any and all amounts necessary to indemnify
the Agent from and against any and all Indemnified Amounts relating to or
resulting from any of the following:
(i) the inclusion in the Collateral of any Receivable which is not
at the date of such inclusion an Eligible Receivable or which thereafter
ceases to be an Eligible Receivable;
(ii) any failure by the Obligor on any Government Receivable to pay
the amount thereof within 180 days after the same becomes payable or any
failure by the Agent to obtain a perfected ownership interest in any
Government Receivable;
(iii) any representation or warranty made or deemed made by RSPN
under or in connection with this Agreement and the other Transaction
Documents which shall have been incorrect in any material respect when
made;
(iv) the failure by RSPN or the Originator to comply with any
applicable law, rule or regulation with respect to any Receivable or the
related Contract; or the failure of any Receivable or the related Contract
to conform to any such applicable law, rule or regulation;
(v) the failure to vest in the Agent a perfected security interest
in all property in which a security interest is granted hereunder free and
clear of any Adverse Claim;
(vi) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables which are, or purport to be, the Receivables and the Related
Security and Collections in respect thereof, whether at the time of any
purchase or reinvestment or at any subsequent time;
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(vii) any dispute, claim, offset or defense of the Obligor to the
payment of any Receivable (including, without limitation, a defense based
on such Receivable or the related Contract not being a legal, valid and
binding obligation of such Obligor enforceable against it in accordance
with its terms);
(viii) any failure of RSPN to perform its duties or obligations in
accordance with the provisions hereof or to perform its duties or
obligations under the Contracts;
(ix) any product liability or other claim arising out of or in
connection with services which are the subject of any Contract;
(x) the commingling of Collections of Financed Receivables at any
time with other funds;
(xi) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of the financing provided hereby or in
respect of any Receivable or Related Security or Contract;
(xii) any failure of RSPN to comply with its covenants contained in
Section 5.01; or
(xiii) any claim brought by any Person other than the Agent arising
from any activity by RSPN or any of its Affiliates in servicing,
administering or collecting any Receivable.
Any amounts subject to the indemnification provisions of this Section 9.01 shall
be paid by RSPN to the Agent within five Business Days following the Agent's
demand in writing setting forth the calculations of amounts due therefor.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement or consent to any departure by RSPN therefrom shall
be effective unless in a writing signed by the Agent (and, in the case of any
amendment, also signed by RSPN), and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall,
unless in writing and signed by the Collection Agent in addition to the Agent,
affect the rights or duties of the Collection Agent under this Agreement. No
failure on the part of the Agent to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
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SECTION 9.02. NOTICES, ETC. All notices and other communications
hereunder shall, unless otherwise stated herein, be in writing (which shall
include facsimile communication) and faxed or delivered, to each party hereto,
at its address set forth under its name on the signature pages hereof or at such
other address as shall be designated by such party in a written notice to the
other parties hereto. Notices and communications by facsimile shall be
effective when sent (and shall be followed by hard copy sent by regular mail),
and notices and communications sent by other means shall be effective when
received.
SECTION 9.03. ASSIGNABILITY. This Agreement and the Agent's rights
and obligations herein shall be assignable by the Agent and its successors and
assigns. RSPN may not assign its rights or obligations hereunder or any
interest herein without the prior written consent of the Agent.
SECTION 9.04. COSTS, EXPENSES AND TAXES. RSPN agrees to pay on
demand all reasonable costs and expenses in connection with the enforcement of
this Agreement and the other documents and agreements to be delivered hereunder.
SECTION 9.05. CONFIDENTIALITY. Unless otherwise required by
applicable law (including the rules of any exchange upon which the securities of
Response USA, Inc. are listed) or generally accepted accounting principles,
RSPN, the Agent and the Collection Agent each agrees to maintain the
confidentiality of this Agreement in communications with third parties and
otherwise; PROVIDED that this Agreement may be disclosed to (a) third parties to
the extent such disclosure is made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to the other
parties hereto and (b) such party's legal counsel and auditors, if they agree to
hold it confidential.
SECTION 9.06. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York (without giving
effect to the conflict of laws principles thereof), except to the extent that
the perfection of the security interests of the Agent in the Collateral or its
remedies hereunder in respect thereof are governed by the laws of a jurisdiction
other than the State of New York.
SECTION 9.07. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall constitute
one and the same agreement. Delivery of an executed counterpart of a signature
page to this Agreement by telecopier shall be effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 9.08. WAIVER OF JURY TRIAL. RSPN and the Collection Agent
each hereby waives trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) to which RSPN or the Collection
Agent may be a party, arising out of, or in any way pertaining to, this
Agreement or the actions of RSPN or the Collateral Agent in the negotiation,
administration, performance or enforcement thereof. It is agreed that this
waiver constitutes a waiver
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of trial by jury of all claims against all parties to such actions or
proceedings. This waiver is knowingly, willingly and voluntarily made by RSPN
and the Collection Agent, and RSPN and the Collection Agent each hereby
represents that no representations of fact or opinion have been made by any
individual to induce this waiver of trial by jury or to in any way modify or
nullify its effect. RSPN and the Collection Agent each further represents that
it has had the opportunity to discuss this waiver with counsel.
SECTION 9.09. SURVIVAL UPON TERMINATION. The provisions of
Sections 8.01 and 9.04 shall survive any termination of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
SELLER: RESPONSE ACQUISITION CORP.
By: /s/ Richard M. Brooks
--------------------------------
Title:
Address: 11-K Princess Road
Lawrenceville, NJ 08648
Attention: President
Facsimile No. (609) 896-3535
COLLECTION AGENT: UNITED SECURITY SYSTEMS, INC.
By: /s/ Robert L. May
--------------------------------
Title:
Address: 11-H Princess Road
Lawrenceville, NJ 08648
Attention: President
Facsimile No. (609) 896-3535
AGENT: McGINN, SMITH CAPITAL HOLDINGS CORP.
By /s/ Timothy McGinn
--------------------------------
Title:
Address: One Capital Center
99 Pine Street, 5th Floor
Albany, New York 12207
Attention: Timothy McGinn
Facsimile No.: (518) 449-4894
