UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 18, 2016
QUEST SOLUTION, INC.
(Exact name of registrant as specified in charter)
Delaware | 000-09047 | 20-3454263 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
860 Conger Street, Eugene, OR 97402 |
(Address of Principal Executive Offices) (Zip Code) |
(714) 899-4800 |
(Registrant’s Telephone Number, Including Area Code)
Not Applicable (Former Name or Former Address, If Changed Since Last Report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01. Entry into a Material Definitive Agreement.
On July 18, 2016, Quest Solution, Inc., a Delaware corporation (the “Company”), three of the Company’s wholly-owned subsidiaries, Quest Solution Canada Inc., a Canadian Corporation (“Quest Solution Canada”), Quest Marketing, Inc., an Oregon corporation (“QMI”), and Bar Code Specialties, Inc., a California corporation (“BCS”), and an affiliated company, Quest Exchange Ltd., a Canadian corporation (“Quest Exchange”, and together with the Company, Quest Solution Canada, QMI and BCS, the “Debtors”), entered into a Movable Hypothec and General Security Agreement (the “Canadian Security Agreement”) in favor of ScanSource, Inc., a South Carolina corporation (“ScanSource”). Also, on July 18, 2016, the Debtors entered into a Universal Movable Hypothec and General Security Agreement (the “Canadian Universal Security Agreement”, and together with the Canadian Security Agreement, the “ScanSource Agreements”) in favor of ScanSource. The ScanSource Agreements contemplate that ScanSource has and may in the future (but is under no obligation to) extend credit to one or more of the Debtors, including the extension of credit in the form of sales of inventory, equipment and services on account. As a condition to the extensions of such credit, the Debtors have executed the ScanSource Agreements, pursuant to which each Debtor has granted to ScanSource a security interest in, and a hypothec on, all of such Debtor’s present and after-acquired undertaking and property, both real and personal, tangible and intangible, as set forth in the ScanSource Agreements.
The Canadian Security Agreement secures the payment and performance of all indebtedness, obligations and liabilities of any Debtor or any of their respective subsidiaries and affiliates to ScanSource existing as of and arising prior to the date of the Canadian Security Agreement, including amounts arising from the sale of goods and services prior to the date of the Canadian Security Agreement by ScanSource, all obligations under the CAD Note (as defined below) and the USD Note (as defined below) and all costs and expenses of ScanSource in collecting any such obligations or enforcing its rights or remedies under the Canadian Security Agreement. The Canadian Universal Security Agreement secures the payment and performance of all indebtedness, obligations and liabilities of any Debtor or any of their respective subsidiaries and affiliates to ScanSource arising on or after the date of the Canadian Universal Security Agreement, including amounts arising from the sale of goods and services by ScanSource and all costs and expenses of ScanSource in collecting any such obligations or enforcing its rights or remedies under the Canadian Universal Security Agreement. The hypothec created by each Debtor under the ScanSource Agreements is granted for the sum of $50,000,000 CAD, with interest thereon at the rate of 18% per annum from the date of the ScanSource Agreements.
The ScanSource Agreements contain inspection and report covenants, financial covenants and customary default provisions.
The foregoing description of the material terms of the ScanSource Agreements is not complete and is qualified in its entirety by reference to the full text of such agreements, which are filed as Exhibits 10.1 and 10.2 to this Current Report on Form 8-K and are incorporated by reference herein.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off- Balance Sheet Arrangement of a Registrant.
On July 18, 2016, the Debtors and ScanSource entered into that certain Secured Promissory Note, dated July 1, 2016, in the principal amount of $12,492,136.51 (the “USD Note”). The USD Note accrues interest at 12% per annum and is payable in six consecutive monthly installments of principal and accrued interest in a minimum principal amount of $250,000 each, with any remaining principal and accrued interest due and payable on December 31, 2016.
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On July 18, 2016, the Debtors and ScanSource also entered into that certain Secured Promissory Note, dated July 1, 2016, in the principal amount of $483,173.60 CAD (the “CAD Note,” and together with the USD Note, the “Notes”). The CAD Note accrues interest at 12% per annum and is payable in three consecutive monthly installments of principal and accrued interest in a minimum principal amount of $10,000 CAD each, with any remaining principal and accrued interest due and payable on September 30, 2016.
The Notes are secured by that certain Security Agreement, dated July 1, 2016, by and among the Debtors in favor of ScanSource, and the Canadian Security Agreement. The Notes contain customary acceleration provisions upon the occurrence of Events of Default, as defined in the Notes. The Notes also contain operational and reporting covenants.
To the extent required by Item 2.03 of Form 8-K, the information contained in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.
The foregoing description of the material terms of the Notes is not complete and is qualified in its entirety by reference to the full text of such notes, which are filed as Exhibits 4.1 and 4.2 to this Current Report on Form 8-K and are incorporated by reference herein.
Item 8.01. Other Events.
On July 18, 2016, the Debtors entered into a restated trade credit extension letter with ScanSource, pursuant to which ScanSource may extend trade credit to the Debtors in the amount of $20,000,000, which amount will be reduced to $18,500,000 upon the earlier of the payment of certain customer orders or August 15, 2016. The extension of trade credit is subject to certain conditions and ongoing covenants set forth in the restated trade credit extension letter.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number | Description | |
4.1 | $12,492,136.51 Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and their subsidiaries and/or affiliates, jointly and severally, to ScanSource, Inc. | |
4.2 | $483,173.60 CAD Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and their subsidiaries and/or affiliates, jointly and severally, to ScanSource, Inc. | |
10.1 | Movable Hypothec and General Security Agreement by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc. | |
10.2 | Universal Movable Hypothec and General Security Agreement by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc. |
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SIGNATURE
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.
Date: July 22, 2016
QUEST SOLUTION, INC. | ||
By: | /s/ Gilles Gaudreault | |
Gilles Gaudreault | ||
Chief Executive Officer |
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EXHIBIT INDEX
Exhibit Number |
Description | |
4.1 | $12,492,136.51 Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and their subsidiaries and/or affiliates, jointly and severally, to ScanSource, Inc. | |
4.2 | $483,173.60 CAD Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and their subsidiaries and/or affiliates, jointly and severally, to ScanSource, Inc. | |
10.1 | Movable Hypothec and General Security Agreement by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc. | |
10.2 | Universal Movable Hypothec and General Security Agreement by and among Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and ScanSource, Inc. |
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SECURED PROMISSORY NOTE
Greenville, South Carolina
$12,492,136.51 USD | July 1, 2016 |
For value received, Quest Solution, Inc., a Delaware corporation, Bar Code Specialties, Inc., a California corporation, Quest Marketing, Inc., an Oregon corporation, Quest Solution Canada Inc. a Canadian corporation, Quest Exchange Ltd., a Canadian corporation (individually, a “Debtor,” and collectively, “Debtors”) and their subsidiaries and/or affiliates, with principal offices at 860 Conger Street, Eugene, Oregon 97402, jointly and severally hereby promise to pay to the order of ScanSource, Inc., a South Carolina corporation (“ScanSource”), and its subsidiaries and/or affiliates, with principal offices at 6 Logue Court, Greenville, SC 29615, at ScanSource's address, or at such other place as ScanSource may designate, in lawful money of the United States of America and in immediately available funds, the principal amount of Twelve Million Four Hundred Ninety-Two Thousand One Hundred Thirty-Six and 51/100 Dollars ($12,492,136.51) (the “Principal”). Unless sooner paid, all outstanding Principal, outstanding interest, and accrued interest on this Secured Promissory Note (“Note”) shall be due and payable on December 31, 2016 (the “Maturity Date”).
This Note evidences obligations in respect of trade credit extended by ScanSource to Debtors prior to the date hereof. This Note is not a novation.
“ScanSource” as used herein shall include transferees, successors and assigns of ScanSource, and all rights of ScanSource hereunder shall inure to the benefit of its transferees, successors and assigns. All obligations of the Debtors hereunder shall bind Debtors successors and permitted assigns; provided, however, that Debtors may not assign or delegate its obligations under this Note or any other Transaction Documents, as defined in Section 2 herein.
1. Principal and Interest Payments
The Principal amount of the Note shall be repaid in Six (6) consecutive monthly installments of principal and accrued interest with any remaining Principal and accrued interest due and payable on the Maturity Date. The first such installment in the principal amount of a minimum of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00), plus all accrued interest on the Principal through such payment date, shall be due by July 19, 2016, and each remaining installment of Principal and interest shall be paid monthly and due by the fifteenth (15th) day of each succeeding month, in a minimum principal amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) each, plus all accrued interest on the Principal through such payment date. The remaining Principal balance of this Note and all accrued interest shall be due and payable in full on the Maturity Date. Interest shall be charged at the rate of Twelve percent (12.0%) per annum starting on July 1, 2016; provided, that following the occurrence and during the continuance of an Event of Default (as defined in Section 5 herein), interest on the Principal shall accrue at the Default Rate (as defined in Section 5 herein) and shall be due and payable on demand.
Each payment of Principal, interest or other amounts due under this Note shall be paid to ScanSource, in United States Dollars via wire transfer, to JP Morgan Chase Bank, NA, 270 Park Avenue, New York, New York 10017, Beneficiary: ScanSource, Inc., Routing Number: #########, Account Number: #########, SWIFT Code: ######## so that it is received by ScanSource on the date that is specified for payment under this Note. All payments or prepayments on this Note shall be applied, first, to fees, costs and expenses of ScanSource under this Note and the other agreements executed in connection herewith, second, to the interest accrued on this Note through the date of such payment or prepayment, and then to the outstanding Principal balance hereunder. All payments under this Note shall be made without any set-off, counterclaim or deduction whatsoever, and the Debtors hereby irrevocably waive all rights of set-off, counterclaim and deduction.
This Note may be prepaid in whole or in part any time without premium or penalty, but only together with all interest then accrued under this Note.
2. Representations and Warranties
Each Debtor hereby represents and warrants that: (a) it has the corporate power and authority, and all necessary actions have been taken, for the Debtors to execute and deliver this Note, to borrow and repay the Principal, interest, and other obligations hereunder, and to perform its other obligations hereunder and under the Security Agreement, dated July 1, 2016, by and among the Debtors in favor of ScanSource (as amended or modified from time to time, the “U.S. Security Agreement”), and that certain Movable Hypothec and General Security Agreement, dated July 1, 2016, by and among Debtors in favor of ScanSource (as amended or modified from time to time, the “Canadian Security Agreement” and, together with the U.S. Security Agreement, collectively, the “Security Agreements”), and each of the other documents, instruments, and agreements executed or delivered in connection herewith or therewith (collectively with this Note and the Security Agreements, the “Transaction Documents”); (b) the Debtors’ obligations under this Note and the other Transaction Documents are valid and binding obligations, enforceable against the Debtors in accordance with their terms (subject to applicable bankruptcy, insolvency and other similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application); (c) Debtors have good and marketable title to, or a valid leasehold interests in, the properties and assets used by it in the operation of its business or located on its premises, free and clear of all liens and encumbrances; (d) there exists no order, notice, claim, litigation, proceedings or investigation pending or threatened against or affecting Debtors, whether or not covered by insurance, that could reasonably be expected to materially and adversely affect Debtors’ operations, financial condition, property or business; (e) all information furnished to ScanSource or ScanSource’s counsel by or on behalf of the Debtors in connection with the transactions contemplated by this Note does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements herein or therein not misleading; and (f) each Debtor has had the advice of independent, experienced counsel of such Debtor’s own choosing in connection with the negotiation and execution of this Note and the other Transaction Documents and the transactions contemplated hereby and thereby. The representations and warranties set forth herein shall be cumulative and in addition to any and all other representations and warranties which Debtors shall now or hereafter give, or cause to be given, to ScanSource in any Transaction Documents or otherwise. Each Debtor acknowledges and agrees that this Note and the obligations evidenced hereby (i) represent the absolute, unconditional, legal, valid and binding obligations of such Debtors to ScanSource; (ii) are not subject to any defense, setoff or counterclaim; and (iii) are undisputed and payable by each Debtor to ScanSource on the terms and conditions contained herein and in the other Transaction Documents. To the extent that Debtors or any other entity claiming by, through, or under Debtors, together with their respective successors and assigns (collectively with Debtors, the “Debtor Affiliates”) may have any such defense, setoff or counterclaim or any other recoupments or claims, each Debtor, on behalf of itself and to the extent legally empowered to do so, the other Debtor Affiliates, releases and forever discharges each of ScanSource and its present and former affiliates and subsidiaries, predecessors in interest, present and former officers, agents, directors, attorneys and employees, and the respective heirs, executors, successors and assigns of all of the foregoing, whether past, present or future (collectively with ScanSource, the “ScanSource Affiliates”) of and from any and all manner of action and actions, cause and causes of action, suits, debts, torts, controversies, damages, judgments, executions, recoupments, claims and demands whatsoever, asserted or unasserted, in law or in equity which, against any ScanSource Affiliate, any Debtor Affiliate ever had or now has by reason of any matter, cause, causes or thing whatsoever, including, without limitation, any presently existing claim, recoupment, or defense, whether or not presently suspected, contemplated or anticipated.
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3. Co-Debtors.
(a) Each Debtor agrees that it is jointly and severally liable for the Principal, all accrued interest thereon, and all other obligations hereunder or evidenced hereby. ScanSource may bring an action against any Debtor, whether or not an action is brought against the other Debtors.
(b) Each Debtor agrees that any release which may be given by ScanSource to any other Debtor will not release such Debtor from its obligations under this Note or any of the other Transaction Documents.
(c) Each Debtor waives any right to assert against ScanSource any defense, setoff, counterclaim or claim that such Debtor may have against any other Debtor or any other party liable to ScanSource for the obligations of the Debtors under this Note or any of the other Transaction Documents.
(d) Each Debtor agrees that it is solely responsible for keeping itself informed as to the financial condition of the other Debtors and of all circumstances which bear upon the risk of nonpayment.
(e) Each Debtor waives any right it may have to require ScanSource to disclose to such Debtor any information that ScanSource may now or hereafter acquire concerning the financial condition of the other Debtors.
(f) Each Debtor waives all rights to notices of default or nonperformance by any other Debtors under this Note and the other Transaction Documents. Each Debtor further waives all rights to notices of the existence or the creation of new indebtedness by any other Debtors.
(g) Until the Principal, all accrued interest thereon, and all other obligations hereunder or evidenced hereby and by the other Transaction Documents have been paid or otherwise performed in full, each Debtor waives any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory or otherwise), including any claim or right of subrogation under the U.S. Bankruptcy Code or any other Debtors relief laws, those such Debtors may now or hereafter have against any other Debtors with respect to such obligations. Each Debtor waives any right to enforce any remedy which ScanSource now has or may hereafter have against any other Debtors, and waives any benefit of, and any right to participate in, any security now or hereafter held by ScanSource.
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4. Covenants
The Debtors hereby covenant and agree that from and after the date of this Note and for so long as any of the obligations under this Note are outstanding:
(a) Indebtedness. Each Debtor will not, and will not permit any of its subsidiaries and/or affiliates to, create, incur, assume or suffer to exist any secured indebtedness, except indebtedness arising hereunder and under the other Transaction Documents without the prior written consent of ScanSource’s Vice President, Worldwide Reseller Financial Services or Senior Vice President, Finance and Principal Accounting Officer (individually, “Authorized Representative”).
(b) Mergers, Acquisitions, Transfers of Assets, Liens, Etc. Each Debtor will not, and will not permit any of its subsidiaries and/or affiliates to merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) any of its assets (in each case, whether now owned or hereafter acquired) or any of the membership interests or other equity of any of their respective subsidiaries (in each case, whether now owned or hereafter acquired) or wind up, liquidate or dissolve (including any declaration of bankruptcy), or create, incur or suffer to exist any liens, security interests or other encumbrances on any of their respective assets (other than in favor of ScanSource), or enter into any other recapitalization, joint venture or business combination, or sell, transfer or acquire any assets without the prior written consent of ScanSource’s Authorized Representative.
“Person” as used herein means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust or other entity, or any government or any agency or political subdivision thereof.
(c) Organizational Documents. Each Debtor will not, and will not permit any of its subsidiaries and/or affiliates to amend, modify or restate, or permit the amendment, modification or restatement of, their respective organizational documents (including, without limitation, their respective certificates or articles of incorporation, by-laws, certificates of formation, and operating agreements) without the prior written consent of ScanSource’s Authorized Representative.
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(d) Investments. Each Debtor will not, nor will it permit any subsidiary and/or affiliates to, create, purchase, hold or acquire (including pursuant to any merger with any Person), any common stock, membership interests or other equity securities (including any option, warrant, or other right to acquire any of the foregoing) of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called “Investments”), or create or form any subsidiary, in each case other than as previously disclosed to ScanSource in writing without the prior written consent of ScanSource’s Authorized Representative.
(e) Restricted Payments. Each Debtor will not, and will not permit any subsidiary and/or affiliates to declare or make, or agree to pay or make, directly or indirectly, any dividend or distribution (including a distribution of cash or other property) on any class of their respective equity interests, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of, any class of their respective equity interests, whether now or hereafter outstanding (each, a “Restricted Payment”) without the prior written consent of ScanSource’s Authorized Representative.
(f) Affiliate Transactions. Each Debtor will not, and will not permit any subsidiary and/or affiliates to, make any payment to any shareholder, member, officer, director, manager or other affiliate, or enter into or amend any agreement, contract, commitment, arrangement, transaction or series of transactions that directly or indirectly benefits any shareholder, member, officer, director, manager or other affiliate without the prior written consent of ScanSource’s Authorized Representative.
(g) Compliance with Laws. Each Debtor shall, and shall cause its subsidiaries and affiliates to, comply, in all material respects, with all laws, statutes, rules, regulations, judgments, or orders which are applicable their respective business.
(h) Corporate Existence. Each Debtor and its subsidiaries and/or affiliates individually shall ensure, maintain, and preserve its corporate existence and its good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction and to maintain, in force all licenses, approvals and agreements.
(i) Notice of Events of Default. Each Debtor shall immediately provide written notice to ScanSource’s Authorized Representative of the occurrence of any Event of Default, or any event or condition which, with the passage of time or giving of notice or both, would constitute an Event of Default.
(j) Reporting. Debtors shall cause to be prepared and delivered the following to the ScanSource:
a. | Annual Monthly Budgeted Financial Statements |
Debtors shall deliver to ScanSource, within sixty (60) days after the end of each fiscal year, management prepared budgeted financial statements with respect to Quest Solution, Inc. and its subsidiaries and/or affiliates reflecting their consolidated projected monthly operations for the current fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with Generally Accepted Accounting Principles (“GAAP”) .
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b. | Annual Financial Statements |
Debtors shall deliver to ScanSource, within one hundred twenty (120) days after the end of each fiscal year, Certified Public Accountant prepared and audited financial statements reflecting its operations during such fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules and management notes, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer.
c. | Quarterly Financial Statements. |
Debtors shall deliver to ScanSource, within forty-five (45) days after the end of each fiscal quarter, management prepared and reviewed financial statements reflecting its operations during such fiscal quarter, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer.
d. | Monthly Financial Statements |
Debtors shall deliver to ScanSource, within thirty (30) days after the end of each fiscal month, management prepared and unaudited financial statements reflecting its operations during such fiscal month, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer.
e. | Rolling Twelve (12) Month Forecast |
Debtors shall deliver to ScanSource, on the first business day of each month, management prepared rolling twelve (12) month financial forecast with respect to Quest Solution, Inc. and its subsidiaries and/or affiliates reflecting their projected monthly operations for the upcoming twelve (12) month period, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP.
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f. | Rolling Six (6) Week Cash Receipts and Disbursement Schedule |
Debtors shall deliver via email to cleveland.mcbeth@scansource.com and gerry.lyons@scansource.com to ScanSource by 2:00PM United States (“US”) Eastern Standard Time on Monday of each week management prepared cash receipts and disbursement projections for the forthcoming six (6) weeks.
g. | Weekly Working Capital Reports |
Debtors shall deliver via email to cleveland.mcbeth@scansource.com and gerry.lyons@scansource.com to ScanSource by 2:00PM US Eastern Standard Time on Monday of each week management prepared consolidating summaries of its (i) accounts receivable, (ii) accounts payable, and (iii) inventory detail, certified to its correctness by the Debtors’ principal financial officer.
In addition, Debtors shall, at ScanSource’s request, promptly provide ScanSource with such records, reports and other information that ScanSource may reasonably request from time to time.
5. Events of Default and Remedies
The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder and under each of the other Transaction Documents: (i) any Debtor shall fail to pay when due any amount payable under this Note or otherwise fail to perform or breach a covenant contained in this Note or in any other Transaction Documents or there shall have otherwise occurred an Event of Default under any other Transaction Documents; (ii) any statement, representation, or warranty made by or on behalf of any Debtor or any guarantor of any such Debtor’s obligations hereunder, or other Person directly or indirectly liable for the repayment of this Note or who shall have executed and delivered a Security Agreement or any other Transaction Documents (collectively, an “Obligor”) in connection with this Note proves to have been untrue, incorrect, misleading or incomplete in any material respect as of the date made; (iii) any Debtor or any Obligor is in default under any other Transaction Documents; (iv) any Debtor shall fail to pay when due any other indebtedness for borrowed money owed by it to any other Person and such default shall continue beyond any applicable grace period; (v) any Debtor or any Obligor becomes insolvent or makes an assignment for the benefit of creditors, or an action is brought by any Debtor or any Obligor seeking such Person’s dissolution or liquidation of such Person’s assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of such Person’s property, or any Debtor or any Obligor commences a voluntary case under the United States Bankruptcy Code, or a reorganization or arrangement proceeding is instituted by any Debtor or any Obligor for the settlement, readjustment, composition or extension of any of such Person’s debts upon any terms, or an action or petition is otherwise brought by any Debtor or any Obligor seeking similar relief or alleging that such Person is insolvent or unable to pay such Person’s debts as they mature; (vi) an action is brought against any Debtor or any Obligor seeking such Person’s dissolution or liquidation of any of such Person’s assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of such Person’s property, and such action is consented to or acquiesced in by any Debtor or such Obligor or is not dismissed within sixty (60) days of the date upon which it was instituted, or a proceeding under the United States Bankruptcy Code is instituted against any Debtor or any Obligor and an order for relief is entered in such proceeding or such proceeding is consented to or acquiesced in by any Debtor or such Obligor or is not dismissed within sixty (60) days of the date upon which it was instituted, or a reorganization or arrangement proceeding is instituted against any Debtor or any Obligor for the settlement, readjustment, composition or extension of any of such Person’s debts upon any terms and such proceeding is consented to or acquiesced in by any Debtor or any Obligor or is not dismissed within sixty (60) days of the date upon which it was instituted, or an action or petition is otherwise brought against any Debtor or any Obligor seeking similar relief or alleging that such Person is insolvent, unable to pay its debts as they mature or generally not paying its debts as they become due and such action or petition is consented to or acquiesced in by any Debtor or such Obligor or is not dismissed within sixty (60) days of the date upon which it was brought; (vii) any material adverse change occurs in any Debtor’s or any Obligor’s financial condition or means or ability to pay this Note; (viii) the occurrence of any other event as a result of which ScanSource in good faith believes that the prospect of payment of this Note is impaired; or (ix) the occurrence of any of the following events: (A) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d) 5 under the Exchange Act), directly or indirectly, of more than 50% of the ordinary voting power for the election of directors of Quest Solution, Inc. (determined on a fully diluted basis); or (B) Quest Solution, Inc. shall cease to own and control, directly or indirectly, 100% of the outstanding equity interests of each of the other Debtors; or (C) any Debtor shall sell, assign, or otherwise transfer all or substantially all of its assets in any transaction or series of related transactions.
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Upon the occurrence of an Event of Default, ScanSource: (a) shall have all of the rights and remedies provided herein and in the other Transaction Documents and under applicable law; and (b) may at its option, without demand or notice of any kind, may declare this Note immediately due and payable, whereupon all outstanding principal and accrued interest shall become immediately due and payable; provided, however, that upon the occurrence of any Event of Default described in clause (v) or (vi) above, this Note, without demand, notice or declaration by ScanSource of any kind, shall automatically and immediately become due and payable. The Debtors acknowledge that there is no grace or cure period whatsoever with respect to any payment due hereunder or other Event of Default, except as expressly provided above in this Note.
In the event of the occurrence of an Event of Default hereunder or under any other Transaction Documents, the unpaid principal balance of this Note shall bear interest on each day until paid at the rate of the lower of eighteen percent (18%) per annum or the maximum rate permitted by law (the “Default Rate”), effective retroactive to July 1, 2016, and accruing at such rate even after entry of final judgment for payment of same. Moreover, Debtors shall, jointly and severally, pay all fees, costs and expenses (including, without limitation, ScanSource's reasonable attorneys’ fees and expenses) incurred in connection with the enforcement or collection of this Note.
Upon the occurrence of an Event of Default hereunder or whenever ScanSource in good faith believes that the prospect of payment of this Note is impaired, ScanSource, without notice or demand of any kind, may hold and set off, against any or all outstanding principal or interest owing under this Note as ScanSource may elect, any amount owed to Debtors by ScanSource.
6. No Usury
In no event shall the amount or rate of interest due and payable under this Note exceed the maximum amount or rate of interest allowed by applicable law and, in the event any such excess payment is made by Debtors or received by ScanSource, such excess sum shall be credited as a payment of Principal (or if no principal shall remain outstanding, shall be refunded to the Debtors). It is the express intent of the parties that Debtors not pay and ScanSource not receive, directly or indirectly or in any manner, interest in excess of that which may be lawfully paid under applicable law. All interest (including all charges, fees or other amounts deemed to be interest) which is paid or charged under this Note shall, to the maximum extent permitted by applicable law, be amortized, allocated and spread on a pro rata basis throughout the actual term of this Note and any extension or renewal hereof.
7. Miscellaneous
Time is of the essence of this Note. ScanSource shall not be deemed to waive any of its rights under this Note unless such waiver is in writing and signed by Authorized Representative of ScanSource. No delay or omission by ScanSource in exercising any of its rights under this Note shall operate as a waiver of such rights and a waiver in writing on one occasion shall not be construed as a consent to or a waiver of any right or remedy on any future occasion.
This Note shall be payable without right of setoff, any defense of want or failure of consideration, nonperformance of any condition precedent, nondelivery or delivery for a special purpose or any other defense of any nature whatsoever, each of which is waived by the Debtors.
This Note shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to conflicts of law principles that would apply the laws of a jurisdiction other than the State of New York to this Note. Whenever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.
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8. Guarantees and Security with respect to this Note
This Note and each Debtor’s indebtedness and other obligations hereunder are: (i) guaranteed by each of the other Debtors pursuant a Cross Guaranty Agreement, executed by Debtors in favor of ScanSource (as amended or modified from time to time, the “Guaranty”), and entitled to the benefit of the Guaranty; and (ii) secured by all or substantially all of the assets of the Debtors and, pursuant to the Security Agreements, and entitled to the benefit of the Security Agreements.
9. Waivers
Demand, presentment, notice, notice of demand, notice for payment, protest and notice of dishonor are hereby waived by each and every maker, guarantor, surety and other Person or entity primarily or secondarily liable on this Note. Additionally, each Debtor, without affecting its liability hereunder, consents to and waives the withdrawal or extension of credit or time to pay, the release of the whole or any part of the obligations of the Debtors under or in connection with this Note, renewal, indulgence, settlement, compromise or failure to exercise due diligence in collection, the acceptance or release of security, extension of the time to pay or perform for any period or periods whether or not longer than the original period, or any surrender, substitution or release of any other Person directly or indirectly liable for payment or performance of any of the obligations arising under or in connection with this Note or any collateral security for the obligations hereunder.
10. Notices and Communications
All notices, requests, demands, consents, instructions or other communications required or permitted hereunder or any of the other Transaction Documents shall be in writing mailed or delivered to each party as follows: (i) if to ScanSource, at ScanSource’s address set forth in the first paragraph hereof or at such other address as ScanSource shall have furnished the Debtors in writing, or (ii) if to any Debtor, at such Debtor’s address set forth on the signature page below. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being deposited with an overnight courier service of recognized standing, or (iv) four days after being deposited in the U.S. mail, first class with postage prepaid.
11. Waiver of Trial by Jury and Jurisdiction
The Debtors hereby waives, to the fullest extent permitted by applicable law, any right Debtors may have under any applicable law to a trial by jury with respect to any suit or legal action which may be commenced by or against ScanSource concerning the interpretation, construction, validity, enforcement or performance of this Note or any other agreement or instrument executed in connection herewith.
THE DEBTORS IRREVOCABLY CONSENT THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THEM, ARISING OUT OF, OR IN ANY MANNER RELATING TO THIS NOTE MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR ANY UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN, STATE OF NEW YORK. EACH DEBTOR, BY THEIR EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. THE DEBTORS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL AT ITS ADDRESS BELOW. THE DEBTORS HEREBY EXPRESSLY AND IRREVOCABLY WAIVE ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. NO DEBTOR SHALL BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF SCANSOURCE TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY DEBTOR IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Secured Promissory Note has been executed by the undersigned as of the day and year first above written.
Debtors:
Quest Solution, Inc. | Quest Exchange Ltd. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |
Chief Executive Officer | Chief Executive Officer | |||
Address: | 860 Conger Street | Address: | 860 Conger Street | |
Eugene, OR 97402 | Eugene, OR 97402 |
Quest Marketing, Inc. | Quest Solution Canada Inc. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |
Chief Executive Officer | Chief Executive Officer | |||
Address: | 860 Conger Street | Address: | 860 Conger Street | |
Eugene, OR 97402 | Eugene, OR 97402 |
Bar Code Specialties, Inc. | ||
By: | /s/ Gilles Normand Gaudreault | |
Name: | Gilles Normand Gaudreault | |
Chief Executive Officer | ||
Address: | 860 Conger Street | |
Eugene, OR 97402 |
Attest/Witness Signature: | /s/ Danis Kurdi | ||
Printed Name: | Danis Kurdi | ||
Date: | July 1, 2016 |
SECURED PROMISSORY NOTE
Greenville, South Carolina | |
$483,173.60 CAD | July 1, 2016 |
For value received, Quest Solution, Inc., a Delaware corporation, Bar Code Specialties, Inc., a California corporation, Quest Marketing, Inc., an Oregon corporation, Quest Solution Canada Inc., a Canadian corporation, Quest Exchange Ltd., a Canadian corporation (individually, a “Debtor,” and collectively, “Debtors”) and their subsidiaries and/or affiliates with principal offices at 860 Conger Street, Eugene, Oregon 97402, jointly and severally hereby promise to pay to the order of ScanSource, Inc., a South Carolina corporation, (“ScanSource”) and its subsidiaries and/or affiliates with principal offices at 6 Logue Court, Greenville, SC 29615, at ScanSource’s address, or at such other place as ScanSource may designate, in lawful money of Canada and in immediately available funds, the principal amount of Four Hundred Eighty-Three Thousand One Hundred Seventy-Three and 60/100 Canadian Dollars ($483,173.60) (the “Principal”). Unless sooner paid, all outstanding Principal, outstanding interest, and accrued interest on this Secured Promissory Note (“Note”) shall be due and payable on September 30, 2016 (the “Maturity Date”).
This Note evidences obligations in respect of trade credit extended by ScanSource to Debtors prior to the date hereof. This Note is not a novation.
“ScanSource” as used herein shall include transferees, successors and assigns of ScanSource, and all rights of ScanSource hereunder shall inure to the benefit of its transferees, successors and assigns. All obligations of the Debtors hereunder shall bind Debtors’ successors and permitted assigns; provided, however, that Debtors may not assign or delegate its obligations under this Note or any other Transaction Documents, as defined in Section 2 herein.
1. Principal and Interest Payments
The Principal amount of the Note shall be repaid in Three (3) consecutive monthly installments of principal and accrued interest with any remaining Principal and accrued interest due and payable on the Maturity Date. The first such installment in the principal amount of a minimum of Ten Thousand and 00/100 Canadian Dollars ($10,000.00), plus all accrued interest on the Principal through such payment date, shall be due by July 18, 2016, and each remaining installment of Principal and interest shall be paid monthly and due by the fifteenth (15th) day of each succeeding month, in a minimum principal amount of Ten Thousand and 00/100 Canadian Dollars ($10,000.00) each, plus all accrued interest on the Principal through such payment date. The remaining Principal balance of this Note and any accrued interest due is payable in full on the Maturity Date. Interest shall be charged at the rate of Twelve percent (12.0%) per annum starting on July 1, 2016; provided, that following the occurrence and during the continuance of an Event of Default (as defined in Section 5), interest on the Principal shall accrue at the Default Rate (as defined in Section 5) and shall be due and payable on demand.
Each payment of Principal, interest or other amounts due under this Note shall be paid to ScanSource, in Canadian Dollars via wire transfer, to TD Bank, 55 King Street W., Toronto, Ontario M5K 1A2, Beneficiary: ScanSource, Inc., Bank Number: ####, Branch/Transit Number: #####, Account Number: #######, ########### so that it is received by ScanSource on the date specified for payment under this Note. All payments or prepayments on this Note shall be applied, first, to fees, costs and expenses of ScanSource under this Note and the other agreements executed in connection herewith, second, to the interest accrued on this Note through the date of such payment or prepayment, and then to the outstanding principal balance hereunder. All payments under this Note shall be made without any set-off, counterclaim or deduction whatsoever, and the Debtors hereby irrevocably waive all rights of set-off, counterclaim and deduction.
This Note may be prepaid in whole or in part any time without premium or penalty, but together with all interest then accrued under this Note.
2. Representations and Warranties
Each Debtor hereby represents and warrants that: (a) it has the corporate power and authority, and all necessary actions have been taken, for the Debtors to execute and deliver this Note, to borrow and repay the Principal, interest, and other obligations hereunder, and to perform its other obligations hereunder and under the Security Agreement dated July 1, 2016, by and among the Debtors in favor of ScanSource (as amended or modified from time to time in the “U.S. Security Agreement”), and that certain Movable Hypothec and General Security Agreement, by and among Debtors in favor or ScanSource (as amended or modified from time to time, the “Canadian Security Agreement” and, together with the U.S. Security Agreement, collectively, the “Security Agreements”), and each of the documents, instruments and agreements executed or delivered in connection herewith or therewith (together with this Note and the Security Agreements collectively, the “Transaction Documents”); (b) the Debtors’ obligations under this Note and the other Transaction Documents are valid and binding obligations, enforceable against the Debtors in accordance with their terms (subject to applicable bankruptcy, insolvency and other similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application); (c) Debtors have good and marketable title to, or a valid leasehold interests in, the properties and assets used by it in the operation of its business or located on its premises, free and clear of all liens and encumbrances; (d) there exists no order, notice, claim, litigation, proceedings or investigation pending or threatened against or affecting Debtors, whether or not covered by insurance, that could reasonably be expected to materially and adversely affect Debtors’ operations, financial condition, property or business; (e) all information furnished to ScanSource or ScanSource’s counsel by or on behalf of the Debtors in connection with the transactions contemplated by this Note does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements herein or therein not misleading; and (f) each Debtor has had the advice of independent, experienced counsel of such Debtor’s own choosing in connection with the negotiation and execution of this Note and the other Transaction Documents and the transactions contemplated hereby and thereby. The representations and warranties set forth herein shall be cumulative and in addition to any and all other representations and warranties which Debtors shall now or hereafter give, or cause to be given, to ScanSource in any Transaction Documents or otherwise. Each Debtor acknowledges and agrees that this Note and the obligations evidenced hereby (i) represent the absolute, unconditional, legal, valid and binding obligations of such Debtors to ScanSource; (ii) are not subject to any defense, setoff or counterclaim; and (iii) are undisputed and payable by each Debtor to ScanSource on the terms and conditions contained herein and in the other Transaction Documents. To the extent that Debtors or any other entity claiming by, through, or under Debtors, together with their respective successors and assigns (collectively with Debtors, the “Debtor Affiliates”) may have any such defense, setoff or counterclaim or any other recoupments or claims, each Debtor, on behalf of itself and to the extent legally empowered to do so, the other Debtor Affiliates, releases and forever discharges each of ScanSource and its present and former affiliates and subsidiaries, predecessors in interest, present and former officers, agents, directors, attorneys and employees, and the respective heirs, executors, successors and assigns of all of the foregoing, whether past, present or future (collectively with ScanSource, the “ScanSource Affiliates”) of and from any and all manner of action and actions, cause and causes of action, suits, debts, torts, controversies, damages, judgments, executions, recoupments, claims and demands whatsoever, asserted or unasserted, in law or in equity which, against any ScanSource Affiliate, any Debtor Affiliate ever had or now has by reason of any matter, cause, causes or thing whatsoever, including, without limitation, any presently existing claim, recoupment, or defense, whether or not presently suspected, contemplated or anticipated.
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3. Co-Debtors.
Each Debtor agrees that it is jointly and severally liable for the Principal, all accrued interest thereon, and all other obligations hereunder or evidenced hereby. ScanSource may bring an action against any Debtor, whether or not an action is brought against the other Debtors.
Each Debtor agrees that any release which may be given by ScanSource to any other Debtor will not release such Debtor from its obligations under this Note or any of the other Transaction Documents.
Each Debtor waives any right to assert against ScanSource any defense, setoff, counterclaim or claim that such Debtor may have against any other Debtor or any other party liable to ScanSource for the obligations of the Debtors under this Note or any of the other Transaction Documents.
Each Debtor agrees that it is solely responsible for keeping itself informed as to the financial condition of the other Debtors and of all circumstances which bear upon the risk of nonpayment.
Each Debtor waives any right it may have to require ScanSource to disclose to such Debtor any information that ScanSource may now or hereafter acquire concerning the financial condition of the other Debtors.
Each Debtor waives all rights to notices of default or nonperformance by any other Debtors under this Note and the other Transaction Documents. Each Debtor further waives all rights to notices of the existence or the creation of new indebtedness by any other Debtors.
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Until the Principal, all accrued interest thereon, and all other obligations hereunder or evidenced hereby and by the other Transaction Documents have been paid or otherwise performed in full, each Debtor waives any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory or otherwise), including any claim or right of subrogation under the Bankruptcy and Insolvency Act (Canada), the United States Bankruptcy Code or any similar state or federal law or regulation relating to insolvency or debtor relief or the application by or against any Debtor or any other Obligor, those such Debtors may now or hereafter have against any other Debtors with respect to such obligations. Each Debtor waives any right to enforce any remedy which ScanSource now has or may hereafter have against any other Debtors, and waives any benefit of, and any right to participate in, any security now or hereafter held by ScanSource.
4. Covenants
The Debtors hereby covenant and agree that from and after the date of this Note and for so long as any of the obligations under this Note are outstanding:
(a) Indebtedness. Each Debtor will not, and will not permit any of its subsidiaries and/or affiliates to, create, incur, assume or suffer to exist any secured indebtedness, except indebtedness arising hereunder and under the other Transaction Documents without the prior written consent of ScanSource’s Vice President, Worldwide Reseller Financial Services or Senior Vice President of Finance and Principal Accounting Officer (individually, “Authorized Representative”).
(b) Mergers, Acquisitions, Transfers of Assets, Liens, Etc. Each Debtor will not, and will not permit any of its subsidiaries and/or affiliates to merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) any of its assets (in each case, whether now owned or hereafter acquired) or any of the membership interests or other equity of any of their respective subsidiaries (in each case, whether now owned or hereafter acquired) or wind up, liquidate or dissolve (including any declaration of bankruptcy), or create, incur or suffer to exist any liens, security interests or other encumbrances on any of their respective assets (other than in favor of ScanSource), or enter into any other recapitalization, joint venture or business combination, or sell, transfer or acquire any assets without the prior written consent of ScanSource’s Authorized Representative.
“Person” as used herein means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust or other entity, or any government or any agency or political subdivision thereof.
(c) Organizational Documents. Each Debtor will not, and will not permit any of its subsidiaries and/or affiliates to amend, modify or restate, or permit the amendment, modification or restatement of, their respective organizational documents (including, without limitation, their respective certificates or articles of incorporation, by-laws, certificates of formation, and operating agreements) without the prior written consent of ScanSource’s Authorized Representative.
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(d) Investments. Each Debtor will not, nor will it permit any subsidiary and/or affiliates to, create, purchase, hold or acquire (including pursuant to any merger with any Person), any common stock, membership interests or other equity securities (including any option, warrant, or other right to acquire any of the foregoing) of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called “Investments”), or create or form any subsidiary, in each case other than as previously disclosed to ScanSource in writing without the prior written consent of ScanSource’s Authorized Representative.
(e) Restricted Payments. Each Debtor will not, and will not permit any subsidiary and/or affiliates to declare or make, or agree to pay or make, directly or indirectly, any dividend or distribution (including a distribution of cash or other property) on any class of their respective equity interests, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of, any class of their respective equity interests, whether now or hereafter outstanding (each, a “Restricted Payment”) without the prior written consent of ScanSource’s Authorized Representative.
(f) Affiliate Transactions. Each Debtor will not, and will not permit any of its any subsidiary and/or affiliates to, make any payment to any shareholder, member, officer, director, manager or other affiliate, or enter into or amend any agreement, contract, commitment, arrangement, transaction or series of transactions that directly or indirectly benefits any shareholder, member, officer, director, manager or other affiliate without the prior written consent of ScanSource’s Authorized Representative.
(g) Compliance with Laws. Each Debtor shall, and shall cause its subsidiaries and affiliates to, comply, in all material respects, with all laws, statutes, rules, regulations, judgments, or orders which are applicable their respective business.
(h) Corporate Existence. Each Debtor and its subsidiaries and/or affiliates individually shall ensure, maintain, and preserve its corporate existence and its good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction and to maintain, in force all licenses, approvals and agreements.
(i) Notice of Events of Default. Each Debtor shall immediately provide written notice to ScanSource’s Authorized Representative of the occurrence of any Event of Default, or any event or condition which, with the passage of time or giving of notice or both, would constitute an Event of Default.
(j) Reporting. Debtors shall cause to be prepared and delivered the following to ScanSource:
a. Annual Monthly Budgeted Financial Statements
Debtors shall deliver to ScanSource, within sixty (60) days after the end of each fiscal year, management prepared budgeted financial statements with respect to Quest Solution, Inc. and its subsidiaries and/or affiliates reflecting their consolidated projected monthly operations for the current fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with Generally Accepted Accounting Principles (“GAAP”).
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b. Annual Financial Statements
Debtors shall deliver to ScanSource, within one hundred twenty (120) days after the end of each fiscal year, Certified Public Accountant prepared and audited financial statements reflecting its operations during such fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules and management notes, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer.
c. Quarterly Financial Statements
Debtors shall deliver to ScanSource, within forty-five (45) days after the end of each fiscal quarter, management prepared and reviewed financial statements reflecting its operations during such fiscal quarter, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer.
d. Monthly Financial Statements
Debtors shall deliver to ScanSource, within thirty (30) days after the end of each fiscal month, management prepared and unaudited financial statements reflecting its operations during such fiscal month, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer.
e. Rolling Twelve (12) Month Forecast
Debtors shall deliver to ScanSource, on the first business day of each month, management prepared rolling twelve (12) month financial forecast with respect to Quest Solution, Inc. and its subsidiaries and/or affiliates reflecting their projected monthly operations for the upcoming twelve (12) month period, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP.
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f. Rolling Six (6) Week Cash Receipts and Disbursement Schedule
Debtors shall deliver via email to cleveland.mcbeth@scansource.com and gerry.lyons@scansource.com to ScanSource by 2:00PM United States (“US”) Eastern Standard Time on Monday of each week management prepared cash receipts and disbursement projections for the forthcoming six (6) weeks.
g. Weekly Working Capital Reports
Debtors shall deliver via email to cleveland.mcbeth@scansource.com and gerry.lyons@scansource.com to ScanSource by 2:00PM US Eastern Standard Time on Monday of each week management prepared consolidating summaries of its (i) accounts receivable, (ii) accounts payable, and (iii) inventory detail, certified to its correctness by the Debtors’ principal financial officer.
In addition, Debtors shall, at ScanSource’s request, promptly provide ScanSource with such records, reports and other information that ScanSource may reasonably request from time to time.
5. Events of Default and Remedies
The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder and under each of the other Transaction Documents: (i) any Debtor fails to pay when due any amount payable under this Note or otherwise fails to perform or breaches a covenant contained in this Note or in any other Transaction Documents or there shall have otherwise occurred an Event of Default under any other Transaction Documents; (ii) any statement, representation, or warranty made by or on behalf of any Debtor or any guarantor of such Debtor’s obligations hereunder, or other Person directly or indirectly liable for the repayment of this Note or who shall have executed and delivered a security agreement or any other Transaction Documents (collectively, an “Obligor”) in connection with this Note proves to have been untrue, incorrect, misleading or incomplete in any material respect as of the date made; (iii) any Debtor or any Obligor is in default under any other Transaction Documents; (iv) any Debtor shall fail to pay when due any other indebtedness for borrowed money owed by it to any other Person and such default shall continue beyond any applicable grace period; (v) any Debtor or any Obligor becomes insolvent or makes an assignment for the benefit of creditors, or an action is brought by any Debtor or any Obligor seeking such Person’s dissolution or liquidation of such Person’s assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of such Person’s property, or any Debtor or any Obligor commences a voluntary case under the Bankruptcy and Insolvency Act (Canada), the United States Bankruptcy Code or any similar state or federal law or regulation relating to insolvency or debtor relief or the application by or against any Debtor or any other Obligor, or a reorganization or arrangement proceeding is instituted by any Debtor or any Obligor for the settlement, readjustment, composition or extension of any of such Person’s debts upon any terms, or an action or petition is otherwise brought by any Debtor or any Obligor seeking similar relief or alleging that such Person is insolvent or unable to pay such Person’s debts as they mature; (vi) an action is brought against any Debtor or any Obligor seeking such Person’s dissolution or liquidation of any of such Person’s assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of such Person’s property, and such action is consented to or acquiesced in by any Debtor or such Obligor or is not dismissed within sixty (60) days of the date upon which it was instituted, or a proceeding under the Bankruptcy and Insolvency Act (Canada), the United States Bankruptcy Code or any similar state or federal law or regulation relating to insolvency or debtor relief or the application by or against any Debtor or any other Obligor is instituted against any Debtor or any Obligor and an order for relief is entered in such proceeding or such proceeding is consented to or acquiesced in by any Debtor or such Obligor or is not dismissed within sixty (60) days of the date upon which it was instituted, or a reorganization or arrangement proceeding is instituted against any Debtor or any Obligor for the settlement, readjustment, composition or extension of any of such Person’s debts upon any terms and such proceeding is consented to or acquiesced in by any Debtor or such Obligor or is not dismissed within sixty (60) days of the date upon which it was instituted, or an action or petition is otherwise brought against any Debtor or any Obligor seeking similar relief or alleging that such Person is insolvent, unable to pay its debts as they mature or generally not paying its debts as they become due and such action or petition is consented to or acquiesced in by any Debtor or such Obligor or is not dismissed within sixty (60) days of the date upon which it was brought; (vii) any material adverse change occurs in any Debtor’s or any Obligor’s financial condition or means or ability to pay this Note; (viii) the occurrence of any other event as a result of which ScanSource in good faith believes that the prospect of payment of this Note is impaired; or (ix) the occurrence of any of the following events: (A) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d) 5 under the Exchange Act), directly or indirectly, of more than 50% of the ordinary voting power for the election of directors of Quest Solution, Inc. (determined on a fully diluted basis); or (B) Quest Solution, Inc. shall cease to own and control, directly or indirectly, 100% of the outstanding equity interests of each of the other Debtors; or (C) any Debtor shall sell, assign, or otherwise transfer all or substantially all of its assets in any transaction or series of related transactions.
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Upon the occurrence of an Event of Default, ScanSource: (a) shall have all of the rights and remedies provided herein and in the other Transaction Documents and under applicable law; and (b) may at its option, without demand or notice of any kind, may declare this Note immediately due and payable, whereupon all outstanding principal and accrued interest shall become immediately due and payable; provided, however, that upon the occurrence of any Event of Default described in clause (v) or (vi) above, this Note, without demand, notice or declaration by ScanSource of any kind, shall automatically and immediately become due and payable. The Debtors acknowledge that there is no grace or cure period whatsoever with respect to any payment due hereunder or other Event of Default, except as expressly provided above in this Note.
In the event of the occurrence of an Event of Default hereunder or under any other Transaction Documents, the unpaid principal balance of this Note shall bear interest on each day until paid at the rate of the lower of eighteen percent (18%) per annum or the maximum rate permitted by law from maturity (the “Default Rate”), accruing at such rate even after entry of final judgment for payment of same. Moreover, Debtors shall pay all fees, costs and expenses (including, without limitation, ScanSource’s reasonable attorneys’ fees and expenses) incurred in connection with the enforcement or collection of this Note.
Upon the occurrence of an Event of Default hereunder or whenever ScanSource in good faith believes that the prospect of payment of this Note is impaired, ScanSource, without notice or demand of any kind, may hold and set off, against any or all outstanding principal or interest owing under this Note as ScanSource may elect, any amount owed to Debtors by ScanSource.
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6. No Usury
In no event shall the amount or rate of interest due and payable under this Note exceed the maximum amount or rate of interest allowed by applicable law and, in the event any such excess payment is made by Debtors or received by ScanSource, such excess sum shall be credited as a payment of Principal (or if no principal shall remain outstanding, shall be refunded to the Debtors). It is the express intent of the parties that Debtors not pay and ScanSource not receive, directly or indirectly or in any manner, interest in excess of that which may be lawfully paid under applicable law. All interest (including all charges, fees or other amounts deemed to be interest) which is paid or charged under this Note shall, to the maximum extent permitted by applicable law, be amortized, allocated and spread on a pro rata basis throughout the actual term of this Note and any extension or renewal hereof.
7. Miscellaneous
Time is of the essence of this Note. ScanSource shall not be deemed to waive any of its rights under this Note unless such waiver is in writing and signed by Authorized Representative of ScanSource. No delay or omission by ScanSource in exercising any of its rights under this Note shall operate as a waiver of such rights and a waiver in writing on one occasion shall not be construed as a consent to or a waiver of any right or remedy on any future occasion.
This Note shall be payable without right of setoff, any defense of want or failure of consideration, nonperformance of any condition precedent, nondelivery or delivery for a special purpose or any other defense of any nature whatsoever, each of which is waived by the Debtors.
This Note shall be governed by and construed and enforced in accordance with the laws of the Province of Quebec and the applicable laws of Canada, without regard to conflicts of laws principles that would apply the laws of a jurisdiction other than the Province of Quebec to this Note. Whenever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.
8. Guarantees and Security with respect to this Note
This Note and each Debtor’s indebtedness and other obligations hereunder are: (i) guaranteed by each of the other Debtors pursuant a Cross Guaranty Agreement, executed by Debtors in favor of ScanSource (as amended or modified from time to time, the “Guaranty”), and entitled to the benefit of the Guaranty; and (ii) secured by all or substantially all of the assets of the Debtors and, pursuant to the Security Agreements, and entitled to the benefit of the Security Agreements
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9. Waivers
Demand, presentment, notice, notice of demand, notice for payment, protest and notice of dishonor are hereby waived by each and every maker, guarantor, surety and other Person or entity primarily or secondarily liable on this Note. Additionally, each Debtor, without affecting its liability hereunder, consents to and waives the withdrawal or extension of credit or time to pay, the release of the whole or any part of the obligations of the Debtors under or in connection with this Note, renewal, indulgence, settlement, compromise or failure to exercise due diligence in collection, the acceptance or release of security, extension of the time to pay or perform for any period or periods whether or not longer than the original period, or any surrender, substitution or release of any other Person directly or indirectly liable for payment or performance of any of the obligations arising under or in connection with this Note or any collateral security for the obligations hereunder.
10. Notices and Communications
All notices, requests, demands, consents, instructions or other communications required or permitted hereunder or any of the other Transaction Documents shall be in writing mailed or delivered to each party as follows: (i) if to ScanSource, at ScanSource’s address set forth in the first paragraph hereof or at such other address as ScanSource shall have furnished the Debtors in writing, or (ii) if to any Debtor, at such Debtor’s address set forth on the signature page below. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being deposited with an overnight courier service of recognized standing, or (iv) four days after being deposited in the U.S. mail, first class with postage prepaid.
11.Waiver of Trial by Jury and Jurisdiction
The Debtors hereby waives, to the fullest extent permitted by applicable law, any right Debtors may have under any applicable law to a trial by jury with respect to any suit or legal action which may be commenced by or against ScanSource concerning the interpretation, construction, validity, enforcement or performance of this Note or any other agreement or instrument executed in connection herewith.
THE DEBTORS IRREVOCABLY CONSENT THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THEM, ARISING OUT OF, OR IN ANY MANNER RELATING TO THIS NOTE MAY BE BROUGHT BEFORE THE SUPERIOR COURT OF QUEBEC, DISTRICT OF MONTREAL. THE DEBTORS, BY THEIR EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. THE DEBTORS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL AT ITS ADDRESS BELOW. THE DEBTORS HEREBY EXPRESSLY AND IRREVOCABLY WAIVE ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF SCANSOURCE TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY DEBTOR IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
[Signature Page Follows]
- 10 - |
IN WITNESS WHEREOF, this Secured Promissory Note has been executed by the undersigned as of the day and year first above written.
Sworn and executed before me | |
this __ day of July, 2016 | |
Notary Public | |
My commission Expires | |
(NOTARY SEAL) |
Debtors:
Quest Solution, Inc. | Quest Exchange Ltd. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |
Chief Executive Officer | Chief Executive Officer | |||
Address: | 860 Conger Street | Address: | 860 Conger Street | |
Eugene, OR 97402 | Eugene, OR 97402 |
Quest Marketing, Inc. | Quest Solution Canada Inc. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |
Chief Executive Officer | Chief Executive Officer | |||
Address: | 860 Conger Street | Address: | 860 Conger Street | |
Eugene, OR 97402 | Eugene, OR 97402 |
Bar Code Specialties, Inc. | ||
By: | /s/ Gilles Normand Gaudreault | |
Name: | Gilles Normand Gaudreault | |
Chief Executive Officer | ||
Address: | 860 Conger Street | |
Eugene, OR 97402 |
MOVABLE HYPOTHEC AND GENERAL SECURITY AGREEMENT
This Movable Hypothec and General Security Agreement (the “Agreement”), dated as of July 1, 2016, is entered into between Quest Solution Canada Inc., a Canadian corporation (“Quest Solution Canada”), Quest Exchange Ltd., a Canadian Corporation (“Quest Exchange”), Quest Solution, Inc., a Delaware corporation (“Quest Solution”), Bar Code Specialties, Inc., a California corporation (“Bar Code”), and Quest Marketing, Inc., an Oregon corporation (“Quest Marketing”) (each, a “Debtor” and collectively, the “Debtors”) in favor of ScanSource, Inc., a South Carolina Corporation (“Secured Party”).
RECITALS:
Secured Party and its subsidiaries and affiliates have and may in the future, from time to time, extend credit to one or more Debtors, including the extension of credit in the form of sales of inventory, equipment and services on account. As a condition to the extensions of such credit, Secured Party is requiring that the Debtors execute this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Security Interest and Hypothec. As general and continuing security for the payment and performance of all Obligations (as defined in Section 3 below), each Debtor hereby grants to Secured Party a security interest in, and a hypothec on, all of the Debtor’s present and after-acquired undertaking and property, both real and personal (movable), tangible (corporeal) and intangible (incorporeal) (collectively called the “Collateral”), and, as further general and continuing security for the payment and performance of the Obligations, the Debtor hereby also assigns the Collateral (other than trademarks) to Secured Party and mortgages and charges the Collateral as and by way of a fixed and specific mortgage and charge to Secured Party. Without limiting the generality of the foregoing, the Collateral includes all right, title and interest that each Debtor now has or may hereafter have or acquire in any manner whatsoever (including by way of amalgamation) in all property of the following kinds:
(a) | Receivables: all debts, accounts, claims and choses in action for monetary amounts (collectively, the “Receivables”); | |
(b) | Inventory: all inventory of whatever kind and wherever situated (collectively, the “Inventory”); | |
(c) | Equipment: all machinery, equipment, fixtures, furniture, plant, vehicles and other tangible personal property that are not Inventory (collectively, the “Equipment”); | |
(d) | Chattel Paper: all chattel paper; | |
(e) | Documents of Title: all warehouse receipts, bills of lading and other documents of title, whether negotiable or not; | |
(f) | Securities: all shares, bonds, debentures, and other securities (collectively, the “Securities”); |
(g) | Intangibles: all intangibles not otherwise described in this Section including, but not limited to, all goodwill, patents, trademarks, copyrights and other intellectual property; | |
(h) | Instruments and Money: all bills, notes, cheques and other instruments and all coins or bills or other medium of exchange adopted for use as part of the currency of Canada or of any foreign government; | |
(i) | Books, Records, Etc.: all books, invoices, documents and other records in any form evidencing or relating to the Collateral; | |
(j) | Real Property: all real and immovable property, both freehold and leasehold, together with all buildings and fixtures (collectively, the “Real Property”), and all rights under any lease or agreement relating to Real Property; | |
(k) | Substitutions, Etc.: all replacements of, substitutions for and increases, additions and accessions to any of the property described in this Section; and | |
(l) | Proceeds: all proceeds of any Collateral in any form derived directly or indirectly from any dealing with the Collateral or that indemnifies or compensates for the loss of or damage to the Collateral; |
provided, that the said grant of a security interest, hypothec, assignment, mortgage and charge will not render Secured Party liable to observe or perform any term, covenant or condition of any agreement, document or instrument to which each Debtor is a party or by which it is bound.
The hypothec created by each Debtor hereunder is granted for the sum of Fifty Million and 00/100 Dollars ($50,000,000.00) in lawful currency of Canada, with interest thereon at the rate of eighteen percent (18%) per annum from the date of this Agreement.
2. Attachment of Security Interest. Each Debtor acknowledges that value has been given and agrees that the security interest granted hereby attaches upon the execution of this Agreement by each Debtor (or, in the case of any after-acquired property, at the time of acquisition by each Debtor of any rights therein).
3. Obligations Secured. This Agreement secures the payment and performance of all indebtedness, liabilities and obligations of the Debtors or any of their respective subsidiaries and affiliates (collectively with the Debtors, the “Obligors”) to Secured Party, now existing and arising prior to the date hereof, including but not limited to amounts arising from the sale of goods and services prior to the date hereof by Secured Party to any Obligor and all obligations arising under or in connection with that certain Secured Promissory Note, dated of even date herewith, made by Debtors in favor of Secured Party in the original principal amount of Four Hundred Eighty-Three Thousand One Hundred Seventy-Three and 60/100 Canadian Dollars ($483,173.60) (as amended or modified from time to time, the “CAD Note”), and that certain Secured Promissory Note made by Debtors in favor of Secured Party in the original principal amount of Twelve Million Four Hundred Ninety-Two Thousand One Hundred Thirty-Six and 51/100 Dollars ($12,492,136.51) (as amended or modified from time to time, the “USD Note” and, together with the CAD Note, the “Notes”), and all costs and expenses of Secured Party in collecting any such obligations or enforcing its rights or remedies hereunder (collectively, the “Obligations”).
4. Nature of Hypothec. The hypothec granted herein does not constitute and shall not constitute nor be construed as a floating hypothec within the meaning of Article 2715 of the Civil Code of Quebec. The hypothec granted herein is continuing security and will subsist notwithstanding any fluctuation or repayment of the obligations hereby secured. Each Debtor shall be deemed to obligate itself again, as provided in Article 2797 of the Civil Code of Quebec, with respect to any future obligation hereby secured.
5. Exception for Contractual Rights. The security interest granted hereby does not and will not extend to, and Collateral will not include any agreement, right, franchise, licence or permit (the “contractual rights”) to which each Debtor is a party or of which each Debtor has the benefit, to the extent that the creation of the security interest herein would constitute a breach of the terms of or permit any person to terminate the contractual rights, but each Debtor must hold its interest therein in trust for Secured Party and will assign such contractual rights to Secured Party forthwith upon obtaining the consent of the other party thereto. Each Debtor agrees that it will, upon the request of Secured Party, use all commercially reasonable effort to obtain any consent required to permit any contractual rights to be subjected to the security interest.
6. Real Property. With respect to (and only to) Real Property, the security granted hereby is constituted by way of floating charge, but will become a fixed charge upon the earlier of (i) the Obligations becoming immediately payable, or (ii) the occurrence of any other event that by operation of law would result in such floating charge becoming a fixed charge. The assignment, mortgage and charge granted hereby will not extend to the last day of the term of any lease or agreement relating to Real Property, but each Debtor will hold such last day in trust for the Secured Party and, upon the enforcement by Secured Party of its security, will assign such last day as directed by Secured Party.
7. Representations and Warranties. Each Debtor hereby represents and warrants to Secured Party that:
(a) | the chief executive office and the registered office of each Debtor, and the office where such Debtor keeps its books & records relating to Receivables, are located at the addresses specified in Exhibit “A”; | |
(b) | the Inventory, Equipment and Securities of each Debtor are located in the provinces or states specified in Exhibit “A”, except for goods in transit or on lease or consignment; and | |
(c) | the Collateral of each Debtor is the sole property of such Debtor free from any liens, charges, hypothecs, security interests or other encumbrances. |
8. Change of Name/Status and Notice of Changes. Without the prior written consent of Secured Party’s Vice President of Worldwide Reseller Financial Services or Senior Vice President of Finance and Principal Accounting Officer (individually, “Authorized Representative”), no Debtor shall change its name, change its corporate form, status, chief executive office, registered office or domicile, use any trade name or engage in any business not reasonably related to its business as presently conducted. Each Debtor shall provide an advance notice of at least five (5) business days to Secured Party’s Authorized Representative of (i) any material change in the Collateral, (ii) the intent to change any Debtor’s name, trade name, corporate form, status, chief executive office, registered office, domicile, residence or location, (iii) a material change in any material matter warranted or represented by any Debtor in this Agreement, or in any of the loan documents furnished to Secured Party pursuant to or in connection with this Agreement, (iv) the relocation of any Inventory, Equipment or Securities of such Debtor from the provinces specified in Exhibit “A” with respect to such Debtor to provinces not mentioned in Exhibit “A” with respect to such Debtor, and (v) the occurrence of an Event of Default (hereinafter defined). Each Debtor agrees that from time to time, at the expense of Debtors, such Debtor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest and hypothec granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral.
9. Creation/Formation of New Entity. In the event that any of the Debtors create or form any new entity, whether a direct or indirect subsidiary, such new entity shall execute a joinder to become party to this Agreement.
10. Filing and Registration. Each Debtor authorizes Secured Party to prepare, file and register any financing statements, financing change statements, registration applications, other amendments and renewals covering the Collateral and any other necessary documents, whenever and wherever determined by Secured Party and each Debtor hereby ratifies any financing statement filed previously by Secured Party. Each Debtor will deliver such instruments of future assignment or assurance, and such other agreements, as Secured Party may from time to time request to carry out the intent of this Agreement, and will join with Secured Party in executing any documents in form satisfactory to Secured Party, and hereby authorizes Secured Party to sign for such Debtor, or to file without signature, any financing statements, amendments and other documents and instruments from time to time as Secured Party may deem advisable, and pay any cost of filing the same, including all recordation, transfer, indebtedness and other taxes and fees, deemed advisable by Secured Party.
11. Maintenance and Insurance. Each Debtor shall maintain the Collateral in good condition and repair and shall pay and timely discharge all taxes, levies, and other impositions levied thereon, and all rent due on premises where any of the Collateral may be located. Each Debtor shall maintain insurance on all Collateral against any loss damage in amounts which are commercially reasonable. All proceeds of such insurance shall be applied to reduce the Obligations secured hereunder. All insurance policies must name Secured Party as an additional insured and loss payee thereof, as Secured Party’s interests may appear, and must provide that the insurer will give Secured Party at least 15 days written notice of intended cancellation or non-renewal. At Secured Party’s request, each Debtor must furnish Secured Party with evidence satisfactory to Secured Party that the required insurance coverage is in effect.
12. Inspection and Reports. Upon five (5) days advance written notice, and at any time after any default under this Agreement, each Debtor shall allow Secured Party, by or through any of its agents, to examine and inspect the Collateral wherever located and all books, records and documentation with respect thereto, and to make copies or extracts from such books, records and documentation as Secured Party may deem to be advisable.
In addition to the above:
i. | Annual Financial Statements. Debtors shall deliver to Secured Party, within one hundred twenty (120) days after the end of each fiscal year, Certified Public Accountant prepared and audited financial statements reflecting its operations during such fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules and management notes, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with Generally Accepted Accounting Principles (“GAAP”) and certified to its correctness by the Debtors’ principal financial officer. | |
ii. | Annual Monthly Budgeted Financial Statements. Debtors shall deliver to Secured Party, within sixty (60) days after the end of each fiscal year, management prepared budgeted financial statements with respect to Debtors and their subsidiaries and/or affiliates reflecting their consolidated projected monthly operations for the current fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP. |
iii. | Quarterly Financial Statements. Debtors shall deliver to Secured Party, within forty-five (45) days after the end of each fiscal quarter, management prepared and reviewed financial statements reflecting its operations during such fiscal quarter, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer. | |
iv. | Monthly Financial Statements. Debtors shall deliver to Secured Party, within thirty (30) days after the end of each fiscal month, management prepared and unaudited financial statements reflecting its operations during such fiscal month, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer. | |
v. | Collateral Reports. Upon written request by Secured Party, Debtors shall submit to Secured Party an aged summary of its accounts receivable and inventory detail, certified by a principal financial officer of Debtors. | |
vi. | Collateral Base Certificate. Beginning October 1, 2016, Debtors shall submit to Secured Party, no later than the fifteenth (15th) day after the end of each fiscal month, and at such other times as requested by Secured Party, a certificate in the form of Exhibit “B” attached hereto, certified by a principal financial officer of Debtors. |
13. Financial Covenants. Until such time as the Obligations are paid in full:
i. | Tangible Net Worth. At all times, Debtors shall maintain a Tangible Net Worth of not less than negative Thirty-Seven Million and 00/100 Dollars ($37,000,000.00). | |
ii. | Total Liabilities. Debtors shall not create, incur, assume or suffer to exist or otherwise become liable in respect of any Liabilities in excess of Fifty-Six Million and 00/100 Dollars ($56,000,000.00) in the aggregate. As used herein, “Liabilities” means any and all obligations to pay an amount in money, goods, or services to any internal or external party, as reflected in the Debtors’ balance sheet, prepared on a consolidated and consolidating basis, in reasonable detail, including, without limitation, any and all liabilities (contingent or otherwise) and in conformity with GAAP. | |
iii. | Preservation of Existence. Each Debtor shall preserve its legal existence and shall not, in one transaction or a series of related transactions, merge into or consolidate with any other entity, or sell all or substantially all of its assets. | |
iv. | Collateral Base. Beginning October 1, 2016, if, at any time the amount of Credit Party Debt exceeds the Collateral Base, Debtor shall, on demand, repay the Credit Party Debt in an amount sufficient to reduce the Credit Party Debt by an amount equal to such excess. |
For purposes of this Section 13, Debtors’ rights and obligations in respect of Key Man life insurance policies shall be excluded from such covenant and Collateral Base calculations.
For purposes of this Section 13, the following terms are used with the meanings set forth below:
“Collateral Base” means an amount equal to: (i) Eighty-Five percent (85%) of Eligible Accounts plus (ii) Fifty percent (50%) of Eligible Inventory minus (iii) the aggregate amount of any indebtedness for borrowed money (including guarantees thereof) owed to any senior secured creditor approved by Secured Party.
“Eligible Accounts” means those accounts receivable of Debtors in which Secured Party, for the benefit of itself and the other Credit Parties, has a first priority security interest under the terms of this Agreement and that Secured Party, in its reasonable credit judgment, deems to be an Eligible Account. Without limiting the generality of the foregoing, no account receivable shall be an Eligible Account unless (i) the account receivable arose in the ordinary course of a Debtor’s business, (ii) the right to payment has been fully earned by completed performance and, if inventory is involved, such inventory has been shipped by a Debtor (or if not shipped by a Debtor, is held by a Debtor under a “bill and hold” arrangement approved in writing by Secured Party in its sole discretion), (iii) the account receivable includes only that portion which is not subject to any offset, defense, counterclaim, credit, allowance or adjustment, (iv) a Debtor’s title to the account receivable is absolute and is subject to no prior assignment, claim, lien or security interest, (v) the full amount reflected on a Debtor’s books and on any invoice or statement delivered to Secured Party related to the account receivable is owing to a Debtor and no partial payment has been made on the account receivable, (vi) the account receivable is due and payable not more than thirty (30) days from invoice date and no more than ninety (90) days (or such other period as Secured Party may by written notice from an Authorized Representative to a Debtor approve) have elapsed from invoice date, (vii) the account receivable did not arise out of a contract or purchase order containing provisions prohibiting assignment thereof or the creation of a security interest therein, and no Debtor has received a note, trade acceptance, draft or other instrument with respect to such receivable or in payment of such account, (viii) no Debtor has received notice of the death of the account debtor or of the dissolution, termination of existence, insolvency, bankruptcy, appointment of a receiver for any part of the property of, or assignment for the benefit of creditors made by, the account debtor, (ix) the account receivable is not payable by any foreign person (provided that persons present in possessions of the United States of America or Canada shall not be considered foreign persons), unless it is payable in the full amount of its face value in United States dollars or Canadian dollars and is supported by an irrevocable letter of credit in form and substance acceptable to Secured Party and issued by a bank satisfactory to Secured Party (and, if requested by Secured Party, such letter of credit or the proceeds thereof, as Secured Party shall require, have been assigned to Secured Party), (x) the account receivable is not payable by the United States of America or any political subdivision or agency thereof, unless Secured Party and the applicable Debtor have complied with the Assignment of Claims Act with respect to the account receivable, (xi) the account debtor is not located in the State of New Jersey unless the applicable Debtor has filed a Notice of Business Activities Report with the New Jersey Division of Taxation for the then current year, (xii) the account receivable is not payable by any person who is the account debtor for other accounts receivable and who is past due (as provided in (vi) above) with regard to fifty percent (50%) or more of the aggregate amount of such other accounts receivable, (xiii) the account receivable is not, at the discretion of Secured Party, deemed doubtful for collection for whatever reason, (xiv) the account receivable is not a contra account, (xv) the account receivable is not an account in dispute for any reason, (xvi) the account receivable does not represent a commission or expense receivable, (xvii) the account receivable does not represent a retainage associated with an account receivable, and (xviii) the account receivable does not represent an amount due for which Secured Party or any other Credit Party has advanced credit and which is subject to a joint purchase order or a lease.
“Eligible Inventory” means the inventory of Debtors, consisting of new, used and refurbished products as reflected in the most recent collateral report delivered to Secured Party pursuant to Section 12(v) hereof, that (i) is in a Debtor’s possession, (ii) is in good, saleable and new condition, (iii) is subject to Secured Party’s duly perfected, first priority security interest, and (iv) is deemed by Secured Party, in its reasonable credit judgment, to be Eligible Inventory.
“Credit Party Debt” means, at any time, all outstanding indebtedness for borrowed money (including outstanding principal and accrued but unpaid interest, and including all amounts constituting the deferred purchase price for the sale of goods) then owing by the Debtors and their subsidiaries and affiliates to the Credit Parties, or any of them.
“Tangible Net Worth” means the amount by which total assets, less goodwill and other intangible assets, exceed total liabilities as determined in accordance with generally accepted accounting principles in the United States, as in effect from time to time, applied on a consistent basis throughout the period involved.
14. Events of Default. Each Debtor shall be in default under this agreement if: (a) any Debtor or any other Obligor shall fail to pay, when due, any amount due from any Obligor to Secured Party; (b) there shall be any default under any covenant, term or condition of this Agreement or of any other contract or agreement between any Debtor or any other Obligor and Secured Party, including without limitation, the Notes; (c) any Debtor or any other Obligor breaches any representation or warranty in this Agreement or any other such contract or agreement; (d) there is a substantial change in any fact warranted or represented in this Agreement; (e) there is the filing of a petition either by or against any Debtor or any other Obligor under the Bankruptcy and Insolvency Act (Canada), the United States Bankruptcy Code or any similar state or federal law or regulation relating to insolvency or debtor relief or the application by or against any Debtor or any other Obligor for the appointment of a receiver, trustee or custodian for the Collateral or any other of the such Debtor’s or Obligor’s assets; (f) there is the dissolution or other termination of any Debtor’s or any other Obligor’s existence or business operations; (g) there is the merger or consolidation of any Debtor or any other Obligor with another; (h) there is substantial loss, theft, destruction, sale, reduction in value, encumbrance of, damage to, or change in the Collateral; (i) there is a material modification of, or breach of, any contract, the rights to which are part of the Collateral; (j) there is a levy on, seizure, or attachment of the Collateral; (k) there is a judgment against any Debtor or any other Obligor for the payment of money which is not covered by insurance or as to which the applicable insurer disputes coverage; (l) there is the filing or registration of any authorized financing statement or security with regard to the Collateral (other than in favor of Secured Party); (m) there is any seizure, vesting or intervention by or under authority of a government by which the management of any Debtor or any other Obligor is displaced or its authority in the control of its business is curtailed; (n) any Debtor or any other Obligor (or any of their subsidiaries or affiliates) defaults or otherwise fails to comply (beyond any applicable notice or cure periods) with any of the payment or other provisions of any other agreement under which any loan or other extension of credit is made by any other person or entity to such Debtor or other Obligor (or any of its subsidiaries or affiliates); (o) it is Secured Party’s reasonable and documented belief that the prospect of payment of any part of the Obligations balance or the performance of any part of this Agreement is impaired; or (p) (i) any subordination or intercreditor agreement in favor of Secured Party with respect to any of the Obligations shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect (other than in accordance with its terms), (ii) any Debtor or any other Obligor shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, (iii) the Collateral securing the Obligations, for any reason shall not have the priority contemplated by any such subordination or intercreditor agreement, or (iv) any other party (other than Secured Party) to any subordination or intercreditor agreement fails to perform or observe, in any material respect, any material term, covenant or agreement contained therein. Nothing herein shall prevent Secured Party from canceling or suspending further extensions of credit to any Debtor or any other Obligor pursuant to any contract, agreement or other arrangement in effect at any time between Secured Party, on one hand, and any Debtor or any other Obligor, on the other hand, in the event of a default by any Debtor under this Agreement (each such event being an “Event of Default”).
15. Remedies. If an Event of Default shall have occurred and be continuing, the security interest and hypothec hereby granted shall become immediately enforceable and Secured Party, without any other notice to or demand upon the Debtors (except as may be required by applicable law), shall, in addition to all other rights and remedies, be entitled to exercise any and all hypothecary rights prescribed by the Civil Code of Quebec, and any additional rights and remedies which may be provided to a secured party in any jurisdiction in which Collateral is located, including, without limitation:
(a) | Secured Party may take possession of the Collateral, and for that purpose Secured Party may, so far as any Debtor can give authority therefor, enter upon any premises on which the Collateral may be situated and remove the same therefrom. Secured Party may in its discretion require any Debtor to assemble all or any part of the Collateral at such location or locations within the jurisdiction(s) of such Debtor’s principal office(s) or at such other locations as Secured Party may reasonably designate; | |
(b) | Secured Party may sell, lease or otherwise dispose of the Collateral at public auction, by private tender, by private sale or otherwise, upon such terms and conditions as Secured Party may determine. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party’s Authorized Representative shall give to any Debtor at least ten (10) days prior written notice of the time and place of any public sale of Collateral or of the time after which any private sale or any other intended disposition is to be made. Each Debtor hereby acknowledges that ten (10) days prior written notice of such sale or sales shall be reasonable notice; | |
(c) | Secured Party may appoint by instrument in writing a receiver or receiver and manager (hereinafter referred to as the “Receiver”) of all or any part of the Collateral and remove or replace such Receiver from time to time or may institute proceedings in any court of competent jurisdiction for the appointment of such a Receiver. Where Secured Party is referred to in this agreement the term shall, where the context permits, include any Receiver so appointed and the officers, employees, servants or agents of such Receiver; | |
(d) | Secured Party may carry on, or concur in the carrying on of, all or any part of the business of any Debtors and may take such steps as it considers desirable to maintain, preserve or protect the Collateral; |
In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of Secured Party’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto. Each Debtor shall pay all expenses, including solicitors’ and Receivers’ fees and disbursements incurred by Secured Party or its agents (including any Receiver) in connection with the enforcement of this Agreement; all of which expenses shall be payable forthwith upon demand and shall form part of the Obligations secured hereby.
Secured Party may (a) grant extensions of time, (b) take and perfect or abstain from taking and perfecting security, (c) give up any security, (d) accept compositions or compromises, (e) grant releases and discharges, and (f) otherwise waive rights against any Debtor, debtors of the Debtors, guarantors and others and with respect to the Collateral and other security as Secured Party sees fit. No such action or omission will reduce the Obligations or affect the Secured Party’s rights hereunder.
16. Deficiency Claim. If the monies collected by or received by Secured Party in respect of any realization upon or sale of the Collateral are not sufficient to satisfy all obligations and liability of any Debtor to Secured Party, each Debtor shall remain responsible to the Secured Party for any deficiency, and Secured Party shall be entitled to claim such amount and all interest and costs associated therewith from any Debtor.
17. Remedies Cumulative. Secured Party shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder. No failure to exercise nor any delay in exercising on the part of Secured Party of any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. Except to the extent that Secured Party has specifically and expressly waived such remedies in writing, the rights and remedies of Secured Party hereunder and under any other agreement, contract, document or instrument, are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. Secured Party may resort to and realize on the Collateral simultaneously with any acts or proceedings initiated by Secured Party in its sole and conclusive discretion to resort to or realize upon any other sources of repayment of the Obligations, including, but not limited to, collateral granted by other security agreements and the liability of the Debtor. Secured Party shall be entitled to apply the proceeds of any Collateral to such of the Obligations and in such order as it may determine in their sole and absolute discretion.
18. Dealing with the Collateral by Debtor.
(a) | Each Debtor may collect its Receivables forming part of the Collateral until Secured Party withdraws such authorization to do so following the occurrence of an Event of Default. Upon such withdrawal, Secured Party may collect such Receivables and shall be reimbursed its reasonable costs and expenses incurred in connection therewith which it may deduct from amounts collected. | |
(b) | Following the occurrence of an Event of Default, Secured Party may give notice of this Agreement and the security granted hereby to any account debtor of the Debtors or to any other person liable to the Debtors and may give notice to any such account debtors or other person to make all further payments to Secured Party. Any payment or other proceeds of Collateral received by the Debtors from account debtors or from any other person liable to the Debtors after the occurrence of such Event of Default and exercise of such rights and remedies will be held by the Debtors in trust for Secured Party and must be held separate and apart from other money of the Debtors and paid over to Secured Party on request. | |
(c) | Subject to compliance with each Debtor’s covenants contained herein, each Debtor in the ordinary course of its business may, until the occurrence of an Event of Default, sell any Inventory included in the Collateral so that the purchaser thereof takes title clear of the security interest and hypothec hereby created, but if such sale results in an account or other proceeds, such account or other proceeds are subject to the security interest and hypothec hereby created. |
19. Expenses. Each Debtor will upon demand pay to Secured Party the amount of any and all costs and expenses, including the reasonable fees and expenses of its outside counsel and the reasonable fees and expenses of any experts and agents which Secured Party may incur in connection with (i) any action, suit or other proceeding affecting the Collateral or any part thereof commenced, in which action, suit or proceeding Secured Party is made a party or participates or in which the right to use the Collateral or any part thereof is threatened, or in which it becomes necessary in the judgment of Secured Party to defend or uphold the lien hereof, (ii) the collection of the Obligations, (iii) the enforcement and administration hereof, (iv) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (v) the exercise or enforcement of any of the rights of Secured Party, or (vi) the failure by any Debtor to perform or observe any of the provisions hereof. All amounts expended by Secured Party and payable by any Debtor under this Section 19 shall be due upon demand therefor and shall be part of the Obligations. Each Debtor’s obligations under this Section 19 shall survive the termination hereof and the discharge of such Debtor’s other obligations under this Agreement.
20. Waivers and Indemnity. Except as prohibited by applicable law, each Debtor unconditionally and irrevocably waives (i) all claims, damages and demands it may acquire against Secured Party arising out of the exercise by Secured Party or any Receiver of any rights or remedies under this Agreement or at law, and (ii) all of the rights, benefits and protections given by any present or future statute that imposes limitations on the rights, powers or remedies of a secured party or on the methods of, or procedures for, realization of security, including any “seize or sue” or “anti-deficiency” statute or any similar provision of any other statute. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Debtors and an Authorized Representative of Secured Party.
21. Release of Information. Each Debtor expressly authorizes Secured Party to provide any and all statements, copies and information as may be requested by a creditor, a sheriff or a person with an interest in the Collateral.
22. Governing Law. This Agreement shall be governed by and construed in accordance with the applicable laws of the Province of Quebec and the applicable laws of Canada, provided that to the extent that the laws of any jurisdiction in which any Collateral is situated govern the validity or perfection of the security constituted hereunder, the domestic laws of such jurisdiction will govern those issues. The provisions of and the terms used in this Agreement will also be interpreted in order to give effect to the intent of the parties that the security constituted hereunder be valid and enforceable in all jurisdictions where the Collateral may be situated and in all other jurisdictions where the rights and remedies of Secured Party may have to be exercised and also that the Secured Party shall be entitled to exercise all rights and remedies of a secured creditor under the laws of any such jurisdictions.
23. Successors and Assigns. This Agreement will ensure to the benefit of, and be binding on, each Debtor and its successors and permitted assigns, and will ensure to the benefit of, and be binding on, Secured Party and its successors and assigns. No Debtor shall assign this Agreement, or any of its rights or obligations under this Agreement, without the prior written consent of Secured Party’s Authorized Representative.
24. Acknowledgment/Waiver. Each Debtor acknowledges receipt of an executed copy of this Agreement and, to the extent permitted by applicable law, waives the right to receive a copy of any financing statement, financing change statement, registration application or verification statement in respect of any registered financing statement, registration application or financing change statement prepared, registered or issued in connection with this Agreement.
25. Counterparts. Delivery by any party or other signatory of an executed counterpart of this Agreement by facsimile or electronic mail or in PDF format shall be equally effective as delivery of an original executed counterpart of this Agreement.
26. Miscellaneous. (a) Any notice or communication given or required to be given to Secured Party or any Debtor hereunder shall be in writing and given to such Debtor and Secured Party at the address set forth below. Such written notices and communications shall be delivered by hand or overnight courier service, or mailed by first class mail, postage prepaid, addressed to the parties hereto at the addresses referred to herein or to such other addresses as either party may designate to the other party by a written notice given in accordance with the provisions of this Agreement. (b) The captions of the paragraphs of this Agreement are for convenience only and shall not be deemed to constitute a part hereof or used in construing the intent of the parties. (c) If any part of any provision of this Agreement shall be invalid or unenforceable under applicable law, such part shall be ineffective to the extent of such invalidity only, without in any way affecting the remaining parts of such provision or the remaining provisions of this Agreement.
27. Language. The parties hereto confirm that they have requested this Movable Hypothec and all related documents be drafted in English. Les parties aux présentes ont exigé que la présente hypothèque mobilière et tous les documents connexes soient rédigés en anglais.
Executed as of the day and year first above written.
[Signature Page to Follow]
SECURED PARTY: | ScanSource, Inc. | |||||
By: | /s/ Cleveland McBeth, Jr. | |||||
Name: | Cleveland McBeth, Jr. | |||||
Vice President, Worldwide Reseller Financial Services | ||||||
Address: | 6 Logue Court | |||||
Greenville, SC 29615 | ||||||
DEBTOR: | Quest Solution, Inc. | DEBTOR: | Quest Marketing, Inc. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |||
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |||
Chief Executive Officer | Chief Executive Officer | |||||
Address: | 860 Conger Street | Address: | 860 Conger Street | |||
Eugene, OR 97402 | Eugene, OR 97402 | |||||
DEBTOR: | Bar Code Specialties, Inc. | DEBTOR: | Quest Exchange Ltd. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |||
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |||
Chief Executive Officer | Chief Executive Officer | |||||
Address: | 860 Conger Street | Address: | 860 Conger Street | |||
Eugene, OR 97402 | Eugene, OR 97402 | |||||
DEBTOR: | Quest Solution Canada Inc. | |||||
By: | /s/ Gilles Normand Gaudreault | |||||
Name: | Gilles Normand Gaudreault | |||||
Chief Executive Officer | ||||||
Address: | 860 Conger Street | |||||
Eugene, OR 97402 |
EXHIBIT “A”
Quest Solution Canada Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |
● | Registered/head office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |
● | Other place(s) of business: |
8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |
651 Avenue Harwood Nord, Unite 1, Ajax (Ontario), Canada, L1Z0K4 | |
6 Shields Court, Suite 205, Markham, Ontario, L3R 4S1 | |
530 Berry Street, Unit 530, Winnipeg, Manitoba, Canada, R3H OR9 | |
101-1737 3rd Avenue West, Vancouver, British Columbia, Canada, V6J 1K7 |
● | Books & records relating to Receivables: |
8102 TransCanada Hwy, St-Laurent, Quebec, Canada, H4S 1M5
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5
651 Avenue Harwood Nord, Unite 1, Ajax (Ontario), Canada L1Z0K4
6 Shields Court, Suite 205, Markham, Ontario, Canada, L3R 4S1
530 Berry Street, Unit 530, Winnipeg, Manitoba, Canada, R3H OR9
101-1737 3rd Avenue West, Vancouver, British Columbia, Canada V6J 1K7
Quest Exchange Ltd.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |
● | Registered/head office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |
● | Other place(s) of business: None | |
● | Books & records relating to Receivables: |
8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
None
Quest Solution, Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 860 Conger Street, Eugene OR 97402 | |
● | Registered/head office: 380 Delaware Ave, Wilmington, DE 19801 | |
● | Other place(s) of business: None | |
● | Books & records relating to Receivables: 860 Conger Street, Eugene, OR 97402 |
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
None
Bar Code Specialties, Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 12272 Monarch Street, Garden Grove, CA 92841 | |
● | Registered/head office: 12272 Monarch Street, Garden Grove, CA 92841 | |
● | Other place(s) of business: None | |
● | Books & records relating to Receivables: 12272 Monarch Street, Garden Grove, CA 92841 |
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
12272 Monarch Street, Garden Grove, CA 92841
Quest Marketing, Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 860 Conger Street, Eugene, OR 97402 | |
● | Registered/head office: 860 Conger Street, Eugene, OR 97402 | |
● | Other place(s) of business: None |
Books & records relating to Receivables: 860 Conger Street, Eugene, OR 97402
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
860 Conger Street, Eugene OR 97402
EXHIBIT “B”
COLLATERAL BASE CERTIFICATE
Month:_________________
1. | Eligible Receivables (< 90 Days Old) |
CURRENT | 30 - 60 | 60 - 90 | TOTAL | ||||
2. | Percentage of Receivables Available for Collateral (85%) | 85% |
3. | Eligible Receivables Base for Collateral | |
(Line 1 X Line 2) | ||
4. | Total Inventory | |
5. | Percentage of Inventory Available for Collateral (50%) | 50% |
6. | Eligible Inventory Base for Collateral | |
(Line 4 X Line 5) | ||
7. | Total Collateral Base | |
8. | Balance on Bank Line of Credit / Senior debt | |
9. | Collateral Available to Secure Trade Credit Extension | |
(Line 7 - Line 8) |
This certificate is true, accurate and complete to the best of my knowledge.
Company Name / signature of | |||
Officer/ Date |
UNIVERSAL MOVABLE HYPOTHEC AND GENERAL SECURITY AGREEMENT
This Universal Movable Hypothec and General Security Agreement (the “Agreement”), dated as of July 1, 2016, is entered into between Quest Solution Canada Inc., a Canadian corporation (“Quest Solution Canada”), Quest Exchange Ltd., a Canadian Corporation (“Quest Exchange”), Quest Solution, Inc., a Delaware corporation (“Quest Solution”), Bar Code Specialties, Inc., a California corporation (“Bar Code”), and Quest Marketing, Inc., an Oregon corporation (“Quest Marketing”) (each, a “Debtor” and collectively, the “Debtors”) in favor of ScanSource, Inc., a South Carolina Corporation (“Secured Party”).
RECITALS:
Secured Party and its subsidiaries and affiliates have and may in the future, from time to time, extend credit to one or more Debtors, including the extension of credit in the form of sales of inventory, equipment and services on account. As a condition to the extensions of such credit, Secured Party is requiring that the Debtors execute this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Security Interest and Hypothec. As general and continuing security for the payment and performance of all Obligations (as defined in Section 3 below), each Debtor hereby grants to Secured Party a security interest in, and a hypothec on, all of the Debtor’s present and after-acquired undertaking and property, both real and personal (movable), tangible (corporeal) and intangible (incorporeal) (collectively called the “Collateral”), and, as further general and continuing security for the payment and performance of the Obligations, the Debtor hereby also assigns the Collateral (other than trademarks) to Secured Party and mortgages and charges the Collateral as and by way of a fixed and specific mortgage and charge to Secured Party. Without limiting the generality of the foregoing, the Collateral includes all right, title and interest that each Debtor now has or may hereafter have or acquire in any manner whatsoever (including by way of amalgamation) in all property of the following kinds:
(a) | Receivables: all debts, accounts, claims and choses in action for monetary amounts (collectively, the “Receivables”); | |
(b) | Inventory: all inventory of whatever kind and wherever situated (collectively, the “Inventory”); | |
(c) | Equipment: all machinery, equipment, fixtures, furniture, plant, vehicles and other tangible personal property that are not Inventory (collectively, the “Equipment”); | |
(d) | Chattel Paper: all chattel paper; | |
(e) | Documents of Title: all warehouse receipts, bills of lading and other documents of title, whether negotiable or not; | |
(f) | Securities: all shares, bonds, debentures, and other securities (collectively, the “Securities”); | |
(g) | Intangibles: all intangibles not otherwise described in this Section including, but not limited to, all goodwill, patents, trademarks, copyrights and other intellectual property; |
(h) | Instruments and Money: all bills, notes, cheques and other instruments and all coins or bills or other medium of exchange adopted for use as part of the currency of Canada or of any foreign government; | |
(i) | Books, Records, Etc.: all books, invoices, documents and other records in any form evidencing or relating to the Collateral; | |
(j) | Real Property: all real and immovable property, both freehold and leasehold, together with all buildings and fixtures (collectively, the “Real Property”), and all rights under any lease or agreement relating to Real Property; | |
(k) | Substitutions, Etc.: all replacements of, substitutions for and increases, additions and accessions to any of the property described in this Section; and | |
(l) | Proceeds: all proceeds of any Collateral in any form derived directly or indirectly from any dealing with the Collateral or that indemnifies or compensates for the loss of or damage to the Collateral; |
provided, that the said grant of a security interest, hypothec, assignment, mortgage and charge will not render Secured Party liable to observe or perform any term, covenant or condition of any agreement, document or instrument to which each Debtor is a party or by which it is bound.
The hypothec created by each Debtor hereunder is granted for the sum of Fifty Million and 00/100 Dollars ($50,000,000.00) in lawful currency of Canada, with interest thereon at the rate of eighteen percent (18%) per annum from the date of this Agreement.
2. Attachment of Security Interest. Each Debtor acknowledges that value has been given and agrees that the security interest granted hereby attaches upon the execution of this Agreement by each Debtor (or, in the case of any after-acquired property, at the time of acquisition by each Debtor of any rights therein).
3. Obligations Secured. This Agreement secures the payment and performance of all indebtedness, liabilities and obligations of the Debtors or any of their respective subsidiaries and affiliates (collectively with the Debtors, the “Obligors”) to Secured Party, arising on or after the date hereof (but not any such indebtedness, obligations and liabilities existing or arising prior to the date hereof), including but not limited to amounts arising from the sale of goods and services on or after the date hereof by Secured Party to any Obligor, and all costs and expenses of Secured Party in collecting any such obligations or enforcing its rights or remedies hereunder (collectively, the “Obligations”).
4. Nature of Hypothec. The hypothec granted herein does not constitute and shall not constitute nor be construed as a floating hypothec within the meaning of Article 2715 of the Civil Code of Quebec. The hypothec granted herein is continuing security and will subsist notwithstanding any fluctuation or repayment of the obligations hereby secured. Each Debtor shall be deemed to obligate itself again, as provided in Article 2797 of the Civil Code of Quebec, with respect to any future obligation hereby secured.
5. Exception for Contractual Rights. The security interest granted hereby does not and will not extend to, and Collateral will not include any agreement, right, franchise, licence or permit (the “contractual rights”) to which each Debtor is a party or of which each Debtor has the benefit, to the extent that the creation of the security interest herein would constitute a breach of the terms of or permit any person to terminate the contractual rights, but each Debtor must hold its interest therein in trust for Secured Party and will assign such contractual rights to Secured Party forthwith upon obtaining the consent of the other party thereto. Each Debtor agrees that it will, upon the request of Secured Party, use all commercially reasonable effort to obtain any consent required to permit any contractual rights to be subjected to the security interest.
6. Real Property. With respect to (and only to) Real Property, the security granted hereby is constituted by way of floating charge, but will become a fixed charge upon the earlier of (i) the Obligations becoming immediately payable, or (ii) the occurrence of any other event that by operation of law would result in such floating charge becoming a fixed charge. The assignment, mortgage and charge granted hereby will not extend to the last day of the term of any lease or agreement relating to Real Property, but each Debtor will hold such last day in trust for the Secured Party and, upon the enforcement by Secured Party of its security, will assign such last day as directed by Secured Party.
7. Representations and Warranties. Each Debtor hereby represents and warrants to Secured Party that:
(a) | the chief executive office and the registered office of each Debtor, and the office where such Debtor keeps its books & records relating to Receivables, are located at the addresses specified in Exhibit “A”; | |
(b) | the Inventory, Equipment and Securities of each Debtor are located in the provinces or states specified in Exhibit “A”, except for goods in transit or on lease or consignment; and | |
(c) | the Collateral of each Debtor is the sole property of such Debtor free from any liens, charges, hypothecs, security interests or other encumbrances. |
8. Change of Name/Status and Notice of Changes. Without the prior written consent of Secured Party’s Vice President of Worldwide Reseller Financial Services or Senior Vice President of Finance and Principal Accounting Officer (individually, “Authorized Representative”), no Debtor shall change its name, change its corporate form, status, chief executive office, registered office or domicile, use any trade name or engage in any business not reasonably related to its business as presently conducted. Each Debtor shall provide an advance notice of at least five (5) business days to Secured Party’s Authorized Representative of (i) any material change in the Collateral, (ii) the intent to change any Debtor’s name, trade name, corporate form, status, chief executive office, registered office, domicile, residence or location, (iii) a material change in any material matter warranted or represented by any Debtor in this Agreement, or in any of the loan documents furnished to Secured Party pursuant to or in connection with this Agreement, (iv) the relocation of any Inventory, Equipment or Securities of such Debtor from the provinces specified in Exhibit “A” with respect to such Debtor to provinces not mentioned in Exhibit “A” with respect to such Debtor, and (v) the occurrence of an Event of Default (hereinafter defined). Each Debtor agrees that from time to time, at the expense of Debtors, such Debtor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest and hypothec granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral.
9. Creation/Formation of New Entity. In the event that any of the Debtors creates or forms any new entity, whether a direct or indirect subsidiary, such new entity shall execute a joinder to become party to this Agreement.
10. Filing and Registration. Each Debtor authorizes Secured Party to prepare, file and register any financing statements, financing change statements, registration applications, other amendments and renewals covering the Collateral and any other necessary documents, whenever and wherever determined by Secured Party and each Debtor hereby ratifies any financing statement filed previously by Secured Party. Each Debtor will deliver such instruments of future assignment or assurance, and such other agreements, as Secured Party may from time to time request to carry out the intent of this Agreement, and will join with Secured Party in executing any documents in form satisfactory to Secured Party, and hereby authorizes Secured Party to sign for such Debtor, or to file without signature, any financing statements, amendments and other documents and instruments from time to time as Secured Party may deem advisable, and pay any cost of filing the same, including all recordation, transfer, indebtedness and other taxes and fees, deemed advisable by Secured Party.
11. Maintenance and Insurance. Each Debtor shall maintain the Collateral in good condition and repair and shall pay and timely discharge all taxes, levies, and other impositions levied thereon, and all rent due on premises where any of the Collateral may be located. Each Debtor shall maintain insurance on all Collateral against any loss damage in amounts which are commercially reasonable. All proceeds of such insurance shall be applied to reduce the Obligations secured hereunder. All insurance policies must name Secured Party as an additional insured and loss payee thereof, as Secured Party’s interests may appear, and must provide that the insurer will give Secured Party at least 15 days written notice of intended cancellation or non-renewal. At Secured Party’s request, each Debtor must furnish Secured Party with evidence satisfactory to Secured Party that the required insurance coverage is in effect.
12. Inspection and Reports. Upon five (5) days advance written notice, and at any time after any default under this Agreement, each Debtor shall allow Secured Party, by or through any of its agents, to examine and inspect the Collateral wherever located and all books, records and documentation with respect thereto, and to make copies or extracts from such books, records and documentation as Secured Party may deem to be advisable.
In addition to the above:
i. | Annual Financial Statements. Debtors shall deliver to Secured Party, within one hundred twenty (120) days after the end of each fiscal year, Certified Public Accountant prepared and audited financial statements reflecting its operations during such fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules and management notes, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with Generally Accepted Accounting Principles (“GAAP”) and certified to its correctness by the Debtors’ principal financial officer. | |
ii. | Annual Monthly Budgeted Financial Statements. Debtors shall deliver to Secured Party, within sixty (60) days after the end of each fiscal year, management prepared budgeted financial statements with respect to Debtors and their subsidiaries and/or affiliates reflecting their consolidated projected monthly operations for the current fiscal year, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP. | |
iii. | Quarterly Financial Statements. Debtors shall deliver to Secured Party, within forty-five (45) days after the end of each fiscal quarter, management prepared and reviewed financial statements reflecting its operations during such fiscal quarter, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer. | |
iv. | Monthly Financial Statements. Debtors shall deliver to Secured Party, within thirty (30) days after the end of each fiscal month, management prepared and unaudited financial statements reflecting its operations during such fiscal month, which shall include, without limitation, a balance sheet, profit and loss statement, and a statement of cash flow, with supporting schedules, all prepared on a consolidated and consolidating basis, in reasonable detail, and in conformity with GAAP and certified to its correctness by the Debtors’ principal financial officer. |
v. | Collateral Reports. Upon written request by Secured Party, Debtors shall submit to Secured Party an aged summary of its accounts receivable and inventory detail, certified by a principal financial officer of Debtors. | |
vi. | Collateral Base Certificate. Beginning October 1, 2016, Debtors shall submit to Secured Party, no later than the fifteenth (15th) day after the end of each fiscal month, and at such other times as requested by Secured Party, a certificate in the form of Exhibit “B” attached hereto, certified by a principal financial officer of Debtors. |
13. Financial Covenants. Until such time as the Obligations are paid in full:
i. | Tangible Net Worth. At all times, Debtors shall maintain a Tangible Net Worth of not less than negative Thirty-Seven Million and 00/100 Dollars ($37,000,000.00). | |
ii. | Total Liabilities. Debtors shall not create, incur, assume or suffer to exist or otherwise become liable in respect of any Liabilities in excess of Fifty-Six Million and 00/100 Dollars ($56,000,000.00) in the aggregate. As used herein, “Liabilities” means any and all obligations to pay an amount in money, goods, or services to any internal or external party, as reflected in the Debtors’ balance sheet, prepared on a consolidated and consolidating basis, in reasonable detail, including, without limitation, any and all liabilities (contingent or otherwise) and in conformity with GAAP. | |
iii. | Preservation of Existence. Each Debtor shall preserve its legal existence and shall not, in one transaction or a series of related transactions, merge into or consolidate with any other entity, or sell all or substantially all of its assets. | |
iv. | Collateral Base. Beginning October 1, 2016, if, at any time the amount of Credit Party Debt exceeds the Collateral Base, Debtor shall, on demand, repay the Credit Party Debt in an amount sufficient to reduce the Credit Party Debt by an amount equal to such excess. |
For purposes of this Section 13, Debtors’ rights and obligations in respect of Key Man life insurance policies shall be excluded from such covenant and Collateral Base calculations.
For purposes of this Section 13, the following terms are used with the meanings set forth below:
“Collateral Base” means an amount equal to: (i) Eighty-Five percent (85%) of Eligible Accounts plus (ii) Fifty percent (50%) of Eligible Inventory minus (iii) the aggregate amount of any indebtedness for borrowed money (including guarantees thereof) owed to any senior secured creditor approved by Secured Party.
“Eligible Accounts” means those accounts receivable of Debtors in which Secured Party, for the benefit of itself and the other Credit Parties, has a first priority security interest under the terms of this Agreement and that Secured Party, in its reasonable credit judgment, deems to be an Eligible Account. Without limiting the generality of the foregoing, no account receivable shall be an Eligible Account unless (i) the account receivable arose in the ordinary course of a Debtor’s business, (ii) the right to payment has been fully earned by completed performance and, if inventory is involved, such inventory has been shipped by a Debtor (or if not shipped by a Debtor, is held by a Debtor under a “bill and hold” arrangement approved in writing by Secured Party in its sole discretion), (iii) the account receivable includes only that portion which is not subject to any offset, defense, counterclaim, credit, allowance or adjustment, (iv) a Debtor’s title to the account receivable is absolute and is subject to no prior assignment, claim, lien or security interest, (v) the full amount reflected on a Debtor’s books and on any invoice or statement delivered to Secured Party related to the account receivable is owing to a Debtor and no partial payment has been made on the account receivable, (vi) the account receivable is due and payable not more than thirty (30) days from invoice date and no more than ninety (90) days (or such other period as Secured Party may by written notice from an Authorized Representative to a Debtor approve) have elapsed from invoice date, (vii) the account receivable did not arise out of a contract or purchase order containing provisions prohibiting assignment thereof or the creation of a security interest therein, and no Debtor has received a note, trade acceptance, draft or other instrument with respect to such receivable or in payment of such account, (viii) no Debtor has received notice of the death of the account debtor or of the dissolution, termination of existence, insolvency, bankruptcy, appointment of a receiver for any part of the property of, or assignment for the benefit of creditors made by, the account debtor, (ix) the account receivable is not payable by any foreign person (provided that persons present in possessions of the United States of America or Canada shall not be considered foreign persons), unless it is payable in the full amount of its face value in United States dollars or Canadian dollars and is supported by an irrevocable letter of credit in form and substance acceptable to Secured Party and issued by a bank satisfactory to Secured Party (and, if requested by Secured Party, such letter of credit or the proceeds thereof, as Secured Party shall require, have been assigned to Secured Party), (x) the account receivable is not payable by the United States of America or any political subdivision or agency thereof, unless Secured Party and the applicable Debtor have complied with the Assignment of Claims Act with respect to the account receivable, (xi) the account debtor is not located in the State of New Jersey unless the applicable Debtor has filed a Notice of Business Activities Report with the New Jersey Division of Taxation for the then current year, (xii) the account receivable is not payable by any person who is the account debtor for other accounts receivable and who is past due (as provided in (vi) above) with regard to fifty percent (50%) or more of the aggregate amount of such other accounts receivable, (xiii) the account receivable is not, at the discretion of Secured Party, deemed doubtful for collection for whatever reason, (xiv) the account receivable is not a contra account, (xv) the account receivable is not an account in dispute for any reason, (xvi) the account receivable does not represent a commission or expense receivable, (xvii) the account receivable does not represent a retainage associated with an account receivable, and (xviii) the account receivable does not represent an amount due for which Secured Party or any other Credit Party has advanced credit and which is subject to a joint purchase order or a lease.
“Eligible Inventory” means the inventory of Debtors, consisting of new, used and refurbished products as reflected in the most recent collateral report delivered to Secured Party pursuant to Section 12(v) hereof, that (i) is in a Debtor’s possession, (ii) is in good, saleable and new condition, (iii) is subject to Secured Party’s duly perfected, first priority security interest, and (iv) is deemed by Secured Party, in its reasonable credit judgment, to be Eligible Inventory.
“Credit Party Debt” means, at any time, all outstanding indebtedness for borrowed money (including outstanding principal and accrued but unpaid interest, and including all amounts constituting the deferred purchase price for the sale of goods) then owing by the Debtors and their subsidiaries and affiliates to the Credit Parties, or any of them.
“Tangible Net Worth” means the amount by which total assets, less goodwill and other intangible assets, exceed total liabilities as determined in accordance with generally accepted accounting principles in the United States, as in effect from time to time, applied on a consistent basis throughout the period involved.
14. Events of Default. Each Debtor shall be in default under this agreement if: (a) any Debtor or any other Obligor shall fail to pay, when due, any amount due from any Obligor to Secured Party; (b) there shall be any default under any covenant, term or condition of this Agreement or of any other contract or agreement between any Debtor or any other Obligor and Secured Party, including without limitation, the Notes; (c) any Debtor or any other Obligor breaches any representation or warranty in this Agreement or any other such contract or agreement; (d) there is a substantial change in any fact warranted or represented in this Agreement; (e) there is the filing of a petition either by or against any Debtor or any other Obligor under the Bankruptcy and Insolvency Act (Canada), the United States Bankruptcy Code or any similar state or federal law or regulation relating to insolvency or debtor relief or the application by or against any Debtor or any other Obligor for the appointment of a receiver, trustee or custodian for the Collateral or any other of the such Debtor’s or Obligor’s assets; (f) there is the dissolution or other termination of any Debtor’s or any other Obligor’s existence or business operations; (g) there is the merger or consolidation of any Debtor or any other Obligor with another; (h) there is substantial loss, theft, destruction, sale, reduction in value, encumbrance of, damage to, or change in the Collateral; (i) there is a material modification of, or breach of, any contract, the rights to which are part of the Collateral; (j) there is a levy on, seizure, or attachment of the Collateral; (k) there is a judgment against any Debtor or any other Obligor for the payment of money which is not covered by insurance or as to which the applicable insurer disputes coverage; (l) there is the filing or registration of any authorized financing statement or security with regard to the Collateral (other than in favor of Secured Party); (m) there is any seizure, vesting or intervention by or under authority of a government by which the management of any Debtor or any other Obligor is displaced or its authority in the control of its business is curtailed; (n) any Debtor or any other Obligor (or any of their subsidiaries or affiliates) defaults or otherwise fails to comply (beyond any applicable notice or cure periods) with any of the payment or other provisions of any other agreement under which any loan or other extension of credit is made by any other person or entity to such Debtor or other Obligor (or any of its subsidiaries or affiliates); (o) it is Secured Party’s reasonable and documented belief that the prospect of payment of any part of the Obligations balance or the performance of any part of this Agreement is impaired; or (p) (i) any subordination or intercreditor agreement in favor of Secured Party with respect to any of the Obligations shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect (other than in accordance with its terms), (ii) any Debtor or any other Obligor shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, (iii) the Collateral securing the Obligations, for any reason shall not have the priority contemplated by any such subordination or intercreditor agreement, or (iv) any other party (other than Secured Party) to any subordination or intercreditor agreement fails to perform or observe, in any material respect, any material term, covenant or agreement contained therein. Nothing herein shall prevent Secured Party from canceling or suspending further extensions of credit to any Debtor or any other Obligor pursuant to any contract, agreement or other arrangement in effect at any time between Secured Party, on one hand, and any Debtor or any other Obligor, on the other hand, in the event of a default by any Debtor under this Agreement (each such event being an “Event of Default”).
15. Remedies. If an Event of Default shall have occurred and be continuing, the security interest and hypothec hereby granted shall become immediately enforceable and Secured Party, without any other notice to or demand upon the Debtors (except as may be required by applicable law), shall, in addition to all other rights and remedies, be entitled to exercise any and all hypothecary rights prescribed by the Civil Code of Quebec, and any additional rights and remedies which may be provided to a secured party in any jurisdiction in which Collateral is located, including, without limitation:
(a) | Secured Party may take possession of the Collateral, and for that purpose Secured Party may, so far as any Debtor can give authority therefor, enter upon any premises on which the Collateral may be situated and remove the same therefrom. Secured Party may in its discretion require any Debtor to assemble all or any part of the Collateral at such location or locations within the jurisdiction(s) of such Debtor’s principal office(s) or at such other locations as Secured Party may reasonably designate; |
(b) | Secured Party may sell, lease or otherwise dispose of the Collateral at public auction, by private tender, by private sale or otherwise, upon such terms and conditions as Secured Party may determine. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party’s Authorized Representative shall give to any Debtor at least ten (10) days prior written notice of the time and place of any public sale of Collateral or of the time after which any private sale or any other intended disposition is to be made. Each Debtor hereby acknowledges that ten (10) days prior written notice of such sale or sales shall be reasonable notice; | |
(c) | Secured Party may appoint by instrument in writing a receiver or receiver and manager (hereinafter referred to as the “Receiver”) of all or any part of the Collateral and remove or replace such Receiver from time to time or may institute proceedings in any court of competent jurisdiction for the appointment of such a Receiver. Where Secured Party is referred to in this agreement the term shall, where the context permits, include any Receiver so appointed and the officers, employees, servants or agents of such Receiver; | |
(d) | Secured Party may carry on, or concur in the carrying on of, all or any part of the business of any Debtors and may take such steps as it considers desirable to maintain, preserve or protect the Collateral; |
In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of Secured Party’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto. Each Debtor shall pay all expenses, including solicitors’ and Receivers’ fees and disbursements incurred by Secured Party or its agents (including any Receiver) in connection with the enforcement of this Agreement; all of which expenses shall be payable forthwith upon demand and shall form part of the Obligations secured hereby.
Secured Party may (a) grant extensions of time, (b) take and perfect or abstain from taking and perfecting security, (c) give up any security, (d) accept compositions or compromises, (e) grant releases and discharges, and (f) otherwise waive rights against any Debtor, debtors of the Debtors, guarantors and others and with respect to the Collateral and other security as Secured Party sees fit. No such action or omission will reduce the Obligations or affect the Secured Party’s rights hereunder.
16. Deficiency Claim. If the monies collected by or received by Secured Party in respect of any realization upon or sale of the Collateral are not sufficient to satisfy all obligations and liability of any Debtor to Secured Party, each Debtor shall remain responsible to the Secured Party for any deficiency, and Secured Party shall be entitled to claim such amount and all interest and costs associated therewith from any Debtor.
17. Remedies Cumulative. Secured Party shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder. No failure to exercise nor any delay in exercising on the part of Secured Party of any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. Except to the extent that Secured Party has specifically and expressly waived such remedies in writing, the rights and remedies of Secured Party hereunder and under any other agreement, contract, document or instrument, are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. Secured Party may resort to and realize on the Collateral simultaneously with any acts or proceedings initiated by Secured Party in its sole and conclusive discretion to resort to or realize upon any other sources of repayment of the Obligations, including, but not limited to, collateral granted by other security agreements and the liability of the Debtor. Secured Party shall be entitled to apply the proceeds of any Collateral to such of the Obligations and in such order as it may determine in their sole and absolute discretion.
18. Dealing with the Collateral by Debtor.
(a) | Each Debtor may collect its Receivables forming part of the Collateral until Secured Party withdraws such authorization to do so following the occurrence of an Event of Default. Upon such withdrawal, Secured Party may collect such Receivables and shall be reimbursed its reasonable costs and expenses incurred in connection therewith which it may deduct from amounts collected. | |
(b) | Following the occurrence of an Event of Default, Secured Party may give notice of this Agreement and the security granted hereby to any account debtor of the Debtors or to any other person liable to the Debtors and may give notice to any such account debtors or other person to make all further payments to Secured Party. Any payment or other proceeds of Collateral received by the Debtors from account debtors or from any other person liable to the Debtors after the occurrence of such Event of Default and exercise of such rights and remedies will be held by the Debtors in trust for Secured Party and must be held separate and apart from other money of the Debtors and paid over to Secured Party on request. | |
(c) | Subject to compliance with each Debtor’s covenants contained herein, each Debtor in the ordinary course of its business may, until the occurrence of an Event of Default, sell any Inventory included in the Collateral so that the purchaser thereof takes title clear of the security interest and hypothec hereby created, but if such sale results in an account or other proceeds, such account or other proceeds are subject to the security interest and hypothec hereby created. |
19. Expenses. Each Debtor will upon demand pay to Secured Party the amount of any and all costs and expenses, including the reasonable fees and expenses of its outside counsel and the reasonable fees and expenses of any experts and agents which Secured Party may incur in connection with (i) any action, suit or other proceeding affecting the Collateral or any part thereof commenced, in which action, suit or proceeding Secured Party is made a party or participates or in which the right to use the Collateral or any part thereof is threatened, or in which it becomes necessary in the judgment of Secured Party to defend or uphold the lien hereof, (ii) the collection of the Obligations, (iii) the enforcement and administration hereof, (iv) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (v) the exercise or enforcement of any of the rights of Secured Party, or (vi) the failure by any Debtor to perform or observe any of the provisions hereof. All amounts expended by Secured Party and payable by any Debtor under this Section 19 shall be due upon demand therefor and shall be part of the Obligations. Each Debtor’s obligations under this Section 19 shall survive the termination hereof and the discharge of such Debtor’s other obligations under this Agreement.
20. Waivers and Indemnity. Except as prohibited by applicable law, each Debtor unconditionally and irrevocably waives (i) all claims, damages and demands it may acquire against Secured Party arising out of the exercise by Secured Party or any Receiver of any rights or remedies under this Agreement or at law, and (ii) all of the rights, benefits and protections given by any present or future statute that imposes limitations on the rights, powers or remedies of a secured party or on the methods of, or procedures for, realization of security, including any “seize or sue” or “anti-deficiency” statute or any similar provision of any other statute. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Debtors and an Authorized Representative of Secured Party.
21. Release of Information. Each Debtor expressly authorizes Secured Party to provide any and all statements, copies and information as may be requested by a creditor, a sheriff or a person with an interest in the Collateral.
22. Governing Law. This Agreement shall be governed by and construed in accordance with the applicable laws of the Province of Quebec and the applicable laws of Canada, provided that to the extent that the laws of any jurisdiction in which any Collateral is situated govern the validity or perfection of the security constituted hereunder, the domestic laws of such jurisdiction will govern those issues. The provisions of and the terms used in this Agreement will also be interpreted in order to give effect to the intent of the parties that the security constituted hereunder be valid and enforceable in all jurisdictions where the Collateral may be situated and in all other jurisdictions where the rights and remedies of Secured Party may have to be exercised and also that the Secured Party shall be entitled to exercise all rights and remedies of a secured creditor under the laws of any such jurisdictions.
23. Successors and Assigns. This Agreement will ensure to the benefit of, and be binding on, each Debtor and its successors and permitted assigns, and will ensure to the benefit of, and be binding on, Secured Party and its successors and assigns. No Debtor shall assign this Agreement, or any of its rights or obligations under this Agreement, without the prior written consent of Secured Party’s Authorized Representative.
24. Acknowledgment/Waiver. Each Debtor acknowledges receipt of an executed copy of this Agreement and, to the extent permitted by applicable law, waives the right to receive a copy of any financing statement, financing change statement, registration application or verification statement in respect of any registered financing statement, registration application or financing change statement prepared, registered or issued in connection with this Agreement.
25. Counterparts. Delivery by any party or other signatory of an executed counterpart of this Agreement by facsimile or electronic mail or in PDF format shall be equally effective as delivery of an original executed counterpart of this Agreement.
26. Miscellaneous. (a) Any notice or communication given or required to be given to Secured Party or any Debtor hereunder shall be in writing and given to such Debtor and Secured Party at the address set forth below. Such written notices and communications shall be delivered by hand or overnight courier service, or mailed by first class mail, postage prepaid, addressed to the parties hereto at the addresses referred to herein or to such other addresses as either party may designate to the other party by a written notice given in accordance with the provisions of this Agreement. (b) The captions of the paragraphs of this Agreement are for convenience only and shall not be deemed to constitute a part hereof or used in construing the intent of the parties. (c) If any part of any provision of this Agreement shall be invalid or unenforceable under applicable law, such part shall be ineffective to the extent of such invalidity only, without in any way affecting the remaining parts of such provision or the remaining provisions of this Agreement.
27. Language. The parties hereto confirm that they have requested this Movable Hypothec and all related documents be drafted in English. Les parties aux présentes ont exigé que la présente hypothèque mobilière et tous les documents connexes soient rédigés en anglais.
Executed as of the day and year first above written.
[Signature Page to Follow]
SECURED PARTY: | ScanSource, Inc. | |||||
By: | /s/ Cleveland McBeth, Jr. | |||||
Name: | Cleveland McBeth, Jr. | |||||
Vice President, Worldwide Reseller Financial Services | ||||||
Address: | 6 Logue Court | |||||
Greenville, SC 29615 | ||||||
DEBTOR: | Quest Solution, Inc. | DEBTOR: | Quest Marketing, Inc. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |||
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |||
Chief Executive Officer | Chief Executive Officer | |||||
Address: | 860 Conger Street | Address: | 860 Conger Street | |||
Eugene, OR 97402 | Eugene, OR 97402 | |||||
DEBTOR: | Bar Code Specialties, Inc. | DEBTOR: | Quest Exchange Ltd. | |||
By: | /s/ Gilles Normand Gaudreault | By: | /s/ Gilles Normand Gaudreault | |||
Name: | Gilles Normand Gaudreault | Name: | Gilles Normand Gaudreault | |||
Chief Executive Officer | Chief Executive Officer | |||||
Address: | 860 Conger Street | Address: | 860 Conger Street | |||
Eugene, OR 97402 | Eugene, OR 97402 | |||||
DEBTOR: | Quest Solution Canada Inc. | |||||
By: | /s/ Gilles Normand Gaudreault | |||||
Name: | Gilles Normand Gaudreault | |||||
Chief Executive Officer | ||||||
Address: | 860 Conger Street | |||||
Eugene, OR 97402 |
EXHIBIT “A”
Quest Solution Canada Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | ||
● | Registered/head office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | ||
● | Other place(s) of business: | ||
8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |||
651 Avenue Harwood Nord, Unite 1, Ajax (Ontario), Canada, L1Z0K4 | |||
6 Shields Court, Suite 205, Markham, Ontario, L3R 4S1 | |||
530 Berry Street, Unit 530, Winnipeg, Manitoba, Canada, R3H OR9 | |||
101-1737 3rd Avenue West, Vancouver, British Columbia, Canada, V6J 1K7 | |||
● | Books & records relating to Receivables: | ||
8102 TransCanada Hwy, St-Laurent, Quebec, Canada, H4S 1M5 |
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5
651 Avenue Harwood Nord, Unite 1, Ajax (Ontario), Canada L1Z0K4
6 Shields Court, Suite 205, Markham, Ontario, Canada, L3R 4S1
530 Berry Street, Unit 530, Winnipeg, Manitoba, Canada, R3H OR9
101-1737 3rd Avenue West, Vancouver, British Columbia, Canada V6J 1K7
Quest Exchange Ltd.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |
● | Registered/head office: 8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 | |
● | Other place(s) of business: None | |
● | Books & records relating to Receivables: | |
8102 TransCanada Hwy, St-Laurent, Quebec, Canada H4S 1M5 |
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
None
Quest Solution, Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 860 Conger Street, Eugene OR 97402 | |
● | Registered/head office: 380 Delaware Ave, Wilmington, DE 19801 | |
● | Other place(s) of business: None | |
● | Books & records relating to Receivables: 860 Conger Street, Eugene, OR 97402 |
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
None
Bar Code Specialties, Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 12272 Monarch Street, Garden Grove, CA 92841 | |
● | Registered/head office: 12272 Monarch Street, Garden Grove, CA 92841 | |
● | Other place(s) of business: None | |
● | Books & records relating to Receivables: 12272 Monarch Street, Garden Grove, CA 92841 |
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
12272 Monarch Street, Garden Grove, CA 92841
Quest Marketing, Inc.
ADDRESS(ES) OF PLACE(S) OF BUSINESS , LOCATION OF BOOKS AND RECORDS RELATING TO RECEIVABLES
● | Chief executive office: 860 Conger Street, Eugene, OR 97402 | |
● | Registered/head office: 860 Conger Street, Eugene, OR 97402 | |
● | Other place(s) of business: None |
Books & records relating to Receivables: 860 Conger Street, Eugene, OR 97402
PROVINCE OR STATE OF INVENTORY, EQUIPMENT AND SECURITIES:
860 Conger Street, Eugene OR 97402
EXHIBIT “B”
COLLATERAL BASE CERTIFICATE
Month:_________________
1. | Eligible Receivables (< 90 Days Old) |
CURRENT | 30 - 60 | 60 - 90 | TOTAL | ||||
2. | Percentage of Receivables Available for Collateral (85%) | 85% |
3. | Eligible Receivables Base for Collateral | |
(Line 1 X Line 2) | ||
4. | Total Inventory | |
5. | Percentage of Inventory Available for Collateral (50%) | 50% |
6. | Eligible Inventory Base for Collateral | |
(Line 4 X Line 5) | ||
7. | Total Collateral Base | |
8. | Balance on Bank Line of Credit / Senior debt | |
9. | Collateral Available to Secure Trade Credit Extension | |
(Line 7 - Line 8) |
This certificate is true, accurate and complete to the best of my knowledge.
Company Name / signature of | |||
Officer/ Date |