SECURITY AGREEMENT

SECURITY AGREEMENT
Dated as of May 4, 2023
Among
CASCADE RETAIL HOLDINGS INC., a Delaware corporation,
CASCADE RETAIL OPERATING COMPANY LLC, a Delaware limited liability company,
CASCADE DIGITAL COMMERCE INC., a Delaware corporation,
CASCADE OUTLET STORES LLC, a Washington limited liability company,
and
CASCADE FULFILLMENT SERVICES INC., a Delaware corporation,
each as a Grantor,
in favor of
CRESCENT HARBOR BANK, NATIONAL ASSOCIATION, as Collateral Agent for the benefit of the Secured Parties
$300,000,000 Senior Secured Asset-Based Revolving Credit Facility
CONFIDENTIAL — EXECUTION VERSION
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This SECURITY AGREEMENT (this "Agreement" or this "Security Agreement"), dated as of May 4, 2023, is entered into by and among CASCADE RETAIL HOLDINGS INC., a Delaware corporation ("CRH"), CASCADE RETAIL OPERATING COMPANY LLC, a Delaware limited liability company ("CROC"), CASCADE DIGITAL COMMERCE INC., a Delaware corporation ("CDC"), CASCADE OUTLET STORES LLC, a Washington limited liability company ("COS"), and CASCADE FULFILLMENT SERVICES INC., a Delaware corporation ("CFS" and, together with CRH, CROC, CDC, and COS, each individually a "Grantor" and collectively, the "Grantors"), in favor of CRESCENT HARBOR BANK, NATIONAL ASSOCIATION, a national banking association, in its capacity as Collateral Agent (in such capacity, together with its successors and assigns in such capacity, the "Collateral Agent") for the benefit of the Secured Parties (as defined herein).
RECITALS
WHEREAS, CRH and CROC, as borrowers (the "Borrowers"), CDC, COS, and CFS, as guarantors (the "Guarantors"), the lenders from time to time party thereto (the "Lenders"), and Crescent Harbor Bank, National Association, as administrative agent (in such capacity, the "Administrative Agent") and as collateral agent (in such capacity, the "Collateral Agent"), have entered into that certain Credit Agreement dated as of May 4, 2023 (effective May 19, 2023) (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), pursuant to which the Lenders have agreed to make available to the Borrowers a senior secured asset-based revolving credit facility in an aggregate principal amount of up to $300,000,000, subject to the terms and conditions set forth therein (the "Facility");
WHEREAS, each Grantor has agreed, as a condition precedent to the closing of the Credit Agreement and the extensions of credit thereunder, to grant a first-priority security interest in all of its right, title, and interest in and to the Collateral (as defined herein) to the Collateral Agent for the ratable benefit of the Secured Parties, to secure the prompt and complete payment and performance when due of all Obligations (as defined in the Credit Agreement), whether at stated maturity, by acceleration, or otherwise;
WHEREAS, CRH is the sole member of CROC, and CROC is the sole shareholder or sole member, as applicable, of each of CDC, COS, and CFS. The proceeds of the extensions of credit under the Credit Agreement will be used by the Borrowers to finance working capital, capital expenditures, and other general corporate purposes of the Borrowers and their subsidiaries, and each Grantor will derive substantial direct and indirect benefit from the availability and extensions of credit under the Credit Agreement; and
WHEREAS, this Security Agreement is entered into pursuant to Section 4.01(a)(iv) of the Credit Agreement and the requirement that the Grantors execute and deliver this Security Agreement as a condition precedent to the initial extension of credit on the Closing Date (May 19, 2023), as more fully set forth in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.1 — Defined Terms
As used in this Security Agreement, the following terms shall have the meanings set forth below:
"Account" shall have the meaning assigned to such term in Article 9 of the UCC; the term shall include, without limitation, all accounts receivable of each Grantor, including all rights to payment for goods sold, leased, or licensed, or for services rendered, whether or not earned by performance, and all rights associated therewith, including the right to receive payment therefor.
"Borrowing Base" shall have the meaning assigned to such term in the Credit Agreement. As of the date hereof, the Borrowing Base is calculated as the sum of (a) 85% of Eligible Receivables plus (b) the lesser of (i) 65% of the Net Orderly Liquidation Value ("NOLV") of Eligible Inventory and (ii) the Inventory Sublimit, minus (c) Availability Reserves, in each case as more specifically set forth in the Credit Agreement.
"Chattel Paper" shall have the meaning assigned to such term in Article 9 of the UCC, including both electronic chattel paper and tangible chattel paper, in each case as defined in Article 9 of the UCC.
"Collateral" shall mean all property and assets of each Grantor of the type and description set forth in Section 2.1 of this Security Agreement, including, without limitation, all Accounts, Inventory, Deposit Accounts, Supporting Obligations, Chattel Paper, Instruments, Letter-of-Credit Rights, Commercial Tort Claims, General Intangibles, Fixtures, Equipment, books and records, and all Proceeds of any of the foregoing; but in each case excluding the Excluded Assets as defined in Section 2.2.
"Collateral Agent" shall mean Crescent Harbor Bank, National Association, a national banking association, in its capacity as collateral agent under the Credit Agreement, and its successors and assigns in such capacity. The principal office of the Collateral Agent for purposes of this Security Agreement is located at 780 Park Avenue, 30th Floor, New York, New York 10021.
"Commercial Tort Claims" shall have the meaning assigned to such term in Article 9 of the UCC. As of the date hereof, the known Commercial Tort Claims of the Grantors are listed on Schedule 5 hereto.
"Credit Agreement" shall mean that certain Credit Agreement dated as of May 4, 2023 (effective May 19, 2023), among CRH and CROC, as Borrowers, CDC, COS, and CFS, as Guarantors, the Lenders from time to time party thereto, and Crescent Harbor Bank, National Association, as Administrative Agent and Collateral Agent, as the same may be amended, restated, supplemented, replaced, refinanced, or otherwise modified from time to time in accordance with the terms thereof.
"Deposit Accounts" shall have the meaning assigned to such term in Article 9 of the UCC. The term shall include, without limitation, all deposit accounts of each Grantor, whether maintained at the Collateral Agent or at any other depository institution, including those deposit accounts subject to Deposit Account Control Agreements. As of the date hereof, the Grantors maintain four (4) Deposit Accounts that constitute Collateral, consisting of two (2) accounts at Crescent Harbor Bank, National Association, one (1) account at Northgate Capital Bank, and one (1) account at Meridian Trust Company, N.A., as more specifically set forth on Schedule 4 hereto.
"Equipment" shall have the meaning assigned to such term in Article 9 of the UCC, and shall include all machinery, apparatus, fittings, furniture, fixtures (to the extent constituting equipment), vehicles, and other tangible personal property (other than Inventory) of whatever kind and nature, now owned or hereafter acquired by any Grantor, wherever located, and all replacements, parts, fittings, accessions, and accessories incorporated therein, affixed thereto, or used in connection therewith.
"Excluded Assets" shall have the meaning assigned to such term in Section 2.2 of this Security Agreement.
"Fixtures" shall have the meaning assigned to such term in Article 9 of the UCC, and shall include all fixtures of each Grantor, whether now owned or hereafter acquired and wherever located.
"General Intangibles" shall have the meaning assigned to such term in Article 9 of the UCC, including, without limitation, all payment intangibles, software, customer lists, supplier lists, licenses, permits, franchises, goodwill, trade secrets, contractual rights, tax refunds, and all other intangible personal property of whatever kind or nature; but in each case excluding the Excluded Assets.
"Grantor" shall mean each of CRH, CROC, CDC, COS, and CFS, and any Additional Grantor that may become a party hereto from time to time, and "Grantors" shall mean all of them collectively.
"Instruments" shall have the meaning assigned to such term in Article 9 of the UCC, including, without limitation, all promissory notes, drafts, and other negotiable and non-negotiable instruments, whether now held or hereafter acquired by any Grantor.
"Inventory" shall have the meaning assigned to such term in Article 9 of the UCC. Without limiting the generality of the foregoing, the term shall include all goods of each Grantor held for sale or lease, or furnished or to be furnished under contracts of service, and all raw materials, work in process, finished goods, goods in transit (including inventory in transit from suppliers and between distribution centers), goods held at distribution centers located at 18700 72nd Avenue South, Kent, Washington 98032, 4500 Logistics Parkway, Reno, Nevada 89506, and 7200 Alum Creek Drive, Columbus, Ohio 43217, goods held at the sixty-four (64) outlet retail locations operated by COS, e-commerce fulfillment inventory, returned and repossessed goods, and all documents of title evidencing any of the foregoing, in each case whether now owned or hereafter acquired and wherever located.
"Letter-of-Credit Rights" shall have the meaning assigned to such term in Article 9 of the UCC, and shall include all rights of each Grantor to payment or performance under any letter of credit.
"Obligations" shall have the meaning assigned to such term in the Credit Agreement. Without limiting the generality of the foregoing, the term shall include all present and future indebtedness, obligations, and liabilities (whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred) of the Borrowers and the Guarantors to the Secured Parties under or in connection with the Credit Agreement, the Guaranty Agreement, this Security Agreement, the Notes, and all other Loan Documents, including, without limitation, all principal, interest (including interest accruing after the commencement of any proceeding under any Debtor Relief Law, whether or not such interest is an allowed claim in such proceeding), fees, commissions, charges, expenses, reimbursement obligations, indemnification obligations, and all other amounts payable by or on behalf of the Borrowers or any Guarantor thereunder or in connection therewith.
"Perfection Certificate" shall mean that certain Perfection Certificate dated as of May 4, 2023, delivered by the Grantors to the Collateral Agent pursuant to Section 4.2 of this Security Agreement, as updated, supplemented, or amended from time to time in accordance with the terms of this Security Agreement.
"Permitted Liens" shall have the meaning assigned to such term in the Credit Agreement.
"Proceeds" shall have the meaning assigned to such term in Article 9 of the UCC, and shall include, without limitation, whatever is acquired upon the sale, lease, license, exchange, collection, or other disposition of Collateral or Proceeds, including all claims of any Grantor against third parties for loss of, damage to, or destruction of any Collateral, all rights to payment or other consideration received in connection with any of the foregoing, and any and all insurance payable by reason of the loss or nonconformity of, defects or infirmities in, or damage to or destruction of any Collateral.
"Secured Parties" shall mean, collectively, (a) the Collateral Agent, (b) the Administrative Agent, (c) the Lenders from time to time party to the Credit Agreement (which, as of the date hereof, consist of Crescent Harbor Bank, National Association, Northgate Capital Bank, and Bridgevale Financial Corporation), and (d) each other holder of Obligations from time to time, and each of their respective successors and assigns.
"Security Interest" shall mean the security interest granted by each Grantor to the Collateral Agent pursuant to Section 2.1 of this Security Agreement.
"Supporting Obligations" shall have the meaning assigned to such term in Article 9 of the UCC, and shall include all supporting obligations of whatever kind that support or relate to any other Collateral.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided, that, when the laws of any other jurisdiction govern the method or manner of the perfection or the effect of perfection or non-perfection of the Security Interest in any Collateral, the term "UCC" shall mean the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection.
Section 1.2 — UCC Definitions
Terms defined in Article 9 of the UCC (as in effect in the State of New York on the date hereof) and used but not otherwise defined herein shall have the meanings assigned to them in Article 9 of the UCC. In the event that the UCC is hereafter amended so as to redefine any term defined herein, such term as used herein shall have the meaning so assigned to such term under the UCC as so amended.
Section 1.3 — Credit Agreement Definitions
Capitalized terms used but not otherwise defined in this Security Agreement shall have the respective meanings assigned to them in the Credit Agreement.
Section 1.4 — Rules of Interpretation
(a) Unless the context otherwise requires, references herein to "Articles," "Sections," "Exhibits," and "Schedules" are to articles, sections, exhibits, and schedules of and to this Security Agreement.
(b) The words "hereof," "herein," "hereunder," and words of similar import, when used in this Security Agreement, shall refer to this Security Agreement as a whole and not to any particular provision of this Security Agreement.
(c) The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa.
(d) The word "including" (and with correlative meaning "include" and "includes") shall mean including without limiting the generality of any description preceding or following such word.
(e) References to any statute, law, or regulation shall be deemed to refer to such statute, law, or regulation as amended, modified, supplemented, or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under such statutes), and references to any section of any statute shall be deemed to include any successor to such section.
(f) References to any Person shall include such Person's successors and permitted assigns.
(g) This Security Agreement shall be construed and interpreted in accordance with the laws of the State of New York, as provided in Section 7.5 hereof, without regard to the conflicts of laws principles thereof (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).
ARTICLE II — GRANT OF SECURITY INTEREST
Section 2.1 — Grant
As security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration, or otherwise) of all Obligations, each Grantor hereby grants to the Collateral Agent, for the ratable benefit of the Secured Parties, a continuing first-priority security interest in and lien upon all of such Grantor's right, title, and interest in and to the following property, wherever located and whether now owned or existing or hereafter acquired or arising, and all Proceeds and products thereof (all of such property, rights, and interests being collectively referred to herein as the "Collateral"):
(a) Accounts. All Accounts, including, without limitation, all rights to payment for goods sold, leased, or licensed or services rendered by such Grantor, whether or not such rights to payment have been earned by performance, and all rights associated therewith, including the right to receive payment of any interest or finance charges with respect thereto.
(b) Inventory. All Inventory, including, without limitation:
(i) all goods held for sale or lease or to be furnished under contracts of service;
(ii) all raw materials and components;
(iii) all work in process;
(iv) all finished goods;
(v) all goods in transit, including inventory in transit from suppliers and between distribution centers;
(vi) all inventory held at the distribution centers located at 18700 72nd Avenue South, Kent, Washington 98032; 4500 Logistics Parkway, Reno, Nevada 89506; and 7200 Alum Creek Drive, Columbus, Ohio 43217;
(vii) all inventory held at the sixty-four (64) outlet retail locations operated by COS;
(viii) all e-commerce fulfillment inventory;
(ix) all returned and repossessed goods; and
(x) all documents of title (including warehouse receipts, bills of lading, and similar documents) evidencing any of the foregoing Inventory.
(c) Deposit Accounts. All Deposit Accounts, including, without limitation, all deposit accounts subject to Deposit Account Control Agreements, and all funds, cash, cash equivalents, financial assets, and other property on deposit therein or credited thereto from time to time.
(d) Supporting Obligations. All Supporting Obligations, including all letters of credit, guaranties, insurance policies, and other supporting obligations relating to any other Collateral.
(e) Chattel Paper. All Chattel Paper, including, without limitation, all electronic chattel paper and all tangible chattel paper.
(f) Instruments. All Instruments, including, without limitation, all promissory notes, drafts, checks, and other negotiable and non-negotiable instruments.
(g) Letter-of-Credit Rights. All Letter-of-Credit Rights, including all rights to payment or performance under any letter of credit.
(h) Commercial Tort Claims. All Commercial Tort Claims identified on Schedule 5 hereto and any Commercial Tort Claims arising after the date hereof to the extent required to be reported and pledged pursuant to Section 4.15 hereof.
(i) General Intangibles. All General Intangibles, including, without limitation, all payment intangibles, software, customer lists, supplier lists, databases, licenses, permits, franchises, goodwill, and all other intangible personal property of whatever kind or nature (but excluding Excluded Assets as described in Section 2.2).
(j) Fixtures. All Fixtures.
(k) Books and Records. All books, records, ledger cards, files, correspondence, customer lists, blueprints, technical data, computer programs, computer data, computer tapes, computer disks, and other property and general intangibles at any time evidencing or relating to any of the foregoing Collateral.
(l) Proceeds. All Proceeds of any and all of the foregoing Collateral (including Proceeds that constitute property of the types described in clauses (a) through (k) above), in each case whether now existing or hereafter arising, and all accessions to, substitutions and replacements for, and products of any and all of the foregoing Collateral, including, without limitation, all insurance payable by reason of the loss or nonconformity of, defects or infirmities in, or damage to or destruction of any of the foregoing Collateral.
Section 2.2 — Excluded Assets
Notwithstanding the breadth of the grant set forth in Section 2.1, the Collateral shall not include any of the following property or assets (collectively, the "Excluded Assets"):
(a) Real Property. All real property and interests in real property (including fee interests, leasehold interests, and easements), other than Fixtures as defined in Article 9 of the UCC to the extent such Fixtures are affixed to real property leased by a Grantor.
(b) Foreign Subsidiary Equity Interests. Equity interests in any Foreign Subsidiary in excess of sixty-five percent (65%) of the total outstanding voting equity interests of such Foreign Subsidiary. For the avoidance of doubt, the equity interests in Cascade Retail Canada ULC in excess of sixty-five percent (65%) of the outstanding voting equity interests thereof are excluded from the Collateral; provided that sixty-five percent (65%) of such voting equity interests are pledged to the Collateral Agent pursuant to the Pledge Agreement dated as of May 4, 2023.
(c) Registered intellectual Property. Any and all intellectual property registered with the United States Patent and Trademark Office ("USPTO") or the United States Copyright Office ("USCO"); provided, however, that such registered intellectual property shall be subject to the negative pledge covenant set forth in Section 4.14 of this Security Agreement, and the exclusion of such intellectual property from the Collateral shall not diminish or otherwise affect the enforceability of such negative pledge.
(d) Excluded Deposit Accounts. Payroll accounts, tax withholding accounts, employee benefit plan accounts, and zero-balance accounts, in each case to the extent used exclusively for such purpose and identified as such on the Perfection Certificate.
(e) Property Subject to Restrictions. Any lease, license, contract, or agreement (or any of such Grantor's rights or interests thereunder) to the extent that the grant of a security interest therein would (i) violate or invalidate such lease, license, contract, or agreement, (ii) create a right of termination in favor of any other party thereto (other than such Grantor or any other Grantor), or (iii) otherwise give rise to an enforceable breach, termination right, or default under such lease, license, contract, or agreement, in each case after giving effect to the applicable provisions of the UCC (including Sections 9-406, 9-407, 9-408, and 9-409 thereof) and other applicable law; provided, however, that upon the cessation of any such restriction, the Collateral shall include, and the Security Interest shall attach immediately to, such Grantor's rights and interests in and to such lease, license, contract, or agreement.
(f) Intent-to-Use Trademark Applications. Any intent-to-use trademark application filed pursuant to Section 1(b) of the Lanham Act (15 U.S.C. § 1051(b)) to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such application under applicable federal law; provided that upon the filing of a statement of use or amendment to allege use with respect to such application, such application shall automatically become part of the Collateral.
For the avoidance of doubt, the term "Collateral" shall include Proceeds of Excluded Assets to the extent such Proceeds would otherwise constitute Collateral.
Section 2.3 — Security Interest Secures Obligations
The Security Interest granted herein secures the prompt and complete payment and performance when due (whether at stated maturity, by acceleration, or otherwise) of all Obligations, as defined in the Credit Agreement, including, without limitation, all principal, interest (including post-petition interest, whether or not allowed as a claim in any proceeding under any Debtor Relief Law), fees, indemnities, costs, expenses, and other amounts payable under or in connection with the Credit Agreement, this Security Agreement, the Guaranty Agreement, the Notes, and all other Loan Documents.
ARTICLE III — PERFECTION OF SECURITY INTEREST
Section 3.1 — UCC Financing Statements
(a) Each Grantor hereby authorizes the Collateral Agent to file, and each Grantor shall execute and deliver to the Collateral Agent (to the extent necessary), one or more UCC-1 financing statements (and continuation statements and amendments thereto) in such form and in such filing offices as the Collateral Agent may determine to be necessary or advisable to perfect the Security Interest in the Collateral. Without limiting the foregoing, each Grantor authorizes the Collateral Agent to file financing statements that describe the Collateral as "all personal property" or "all assets" of such Grantor, or words of similar effect, without the signature of such Grantor to the extent permitted by applicable law.
(b) As of the Closing Date, the following UCC-1 financing statements have been or will be filed to perfect the Security Interest:
(i) UCC-1 financing statement filed with the Delaware Secretary of State naming Cascade Retail Holdings Inc. as Debtor and Crescent Harbor Bank, National Association, as Collateral Agent, as Secured Party — Filing No. 2023-1947291;
(ii) UCC-1 financing statement filed with the Delaware Secretary of State naming Cascade Retail Operating Company LLC as Debtor and Crescent Harbor Bank, National Association, as Collateral Agent, as Secured Party — Filing No. 2023-1947283;
(iii) UCC-1 financing statement filed with the Washington Secretary of State naming Cascade Outlet Stores LLC as Debtor and Crescent Harbor Bank, National Association, as Collateral Agent, as Secured Party — Filing No. 2023-204-8176; and
(iv) Additional UCC-1 financing statements filed with the Delaware Secretary of State naming Cascade Digital Commerce Inc. and Cascade Fulfillment Services Inc., respectively, as Debtors and Crescent Harbor Bank, National Association, as Collateral Agent, as Secured Party, filing numbers to be confirmed upon receipt from the filing office.
(c) Each Grantor shall promptly notify the Collateral Agent of any change in such Grantor's name, identity, jurisdiction of organization, or organizational identification number, and shall execute and deliver such additional financing statements and amendments as the Collateral Agent may reasonably request to maintain the perfection and priority of the Security Interest.
Section 3.2 — Deposit Account Control Agreements
(a) Each Grantor shall maintain in full force and effect deposit account control agreements ("Deposit Account Control Agreements" or "DACAs") in form and substance satisfactory to the Collateral Agent with respect to all Deposit Accounts that constitute Collateral. As of the Closing Date, the following Deposit Account Control Agreements have been or will be executed and delivered:
(i) Deposit Account Control Agreement dated as of May 19, 2023, among CRH, Meridian Trust Company, N.A. (1001 Fourth Avenue, Suite 500, Seattle, Washington 98154), and the Collateral Agent, with respect to the CRH operating account maintained at Meridian Trust Company, N.A.;
(ii) Deposit Account Control Agreement dated as of May 19, 2023, among CROC, Crescent Harbor Bank, National Association, and the Collateral Agent, with respect to the CROC collections account maintained at Crescent Harbor Bank, N.A.;
(iii) Deposit Account Control Agreement dated as of May 19, 2023, among CRH, Crescent Harbor Bank, National Association, and the Collateral Agent, with respect to the CRH concentration account maintained at Crescent Harbor Bank, N.A.; and
(iv) Deposit Account Control Agreement dated as of May 19, 2023, among CDC, Northgate Capital Bank, and the Collateral Agent, with respect to the CDC collections account maintained at Northgate Capital Bank.
(b) Each Deposit Account Control Agreement shall provide, among other things, that (i) the applicable depository institution shall comply with instructions originated by the Collateral Agent directing the disposition of funds in the applicable Deposit Account, without further consent of the applicable Grantor, upon activation of cash dominion as described in Section 5.5 hereof or upon the occurrence and during the continuance of an Event of Default, and (ii) the applicable depository institution shall not comply with instructions originated by the applicable Grantor to the extent such instructions are inconsistent with instructions originated by the Collateral Agent following activation of cash dominion or during the continuance of an Event of Default.
(c) Cash dominion provisions under the Deposit Account Control Agreements shall be activated when Availability (as defined in the Credit Agreement) falls below $37,500,000 (which represents 12.5% of the Aggregate Commitments of $300,000,000) or during the continuance of an Event of Default. Once activated, cash dominion shall remain in effect until Availability has exceeded such threshold for a period of thirty (30) consecutive days and no Event of Default is continuing.
(d) If any Grantor opens a new Deposit Account (other than an Excluded Deposit Account) after the date hereof, such Grantor shall, within thirty (30) days after the opening of such account, deliver to the Collateral Agent a Deposit Account Control Agreement with respect to such account in form and substance reasonably satisfactory to the Collateral Agent.
Section 3.3 — Instruments and Chattel Paper
If at any time any Grantor shall hold or acquire any Instrument or tangible Chattel Paper with a face amount in excess of $250,000 (individually or in the aggregate with respect to any single obligor), such Grantor shall promptly (and in any event within ten (10) Business Days of acquiring such Instrument or tangible Chattel Paper) deliver the original thereof to the Collateral Agent, duly endorsed in blank or accompanied by an endorsement or assignment duly executed in blank, in each case in form and substance satisfactory to the Collateral Agent.
Section 3.4 — Letter-of-Credit Rights
If at any time any Grantor is or becomes the beneficiary under any letter of credit with a stated amount in excess of $250,000, such Grantor shall promptly (and in any event within ten (10) Business Days of becoming aware of such status) notify the Collateral Agent thereof and shall use commercially reasonable efforts to cause the issuer of such letter of credit and any confirmer thereof to consent to an assignment of the proceeds of such letter of credit to the Collateral Agent, for the benefit of the Secured Parties, in form and substance satisfactory to the Collateral Agent.
Section 3.5 — Commercial Tort Claims
Each Grantor shall promptly (and in any event within thirty (30) days) notify the Collateral Agent in writing of any Commercial Tort Claim acquired by such Grantor after the date hereof having a value reasonably estimated by such Grantor to exceed $500,000, and shall, upon the Collateral Agent's request, execute and deliver a supplement to this Security Agreement (or such other documents as the Collateral Agent may reasonably request) granting a first-priority security interest therein to the Collateral Agent, for the benefit of the Secured Parties, in a manner consistent with the terms of this Security Agreement. Each such supplement shall describe the applicable Commercial Tort Claim in sufficient detail to satisfy the requirements of Section 9-108(e) of the UCC.
Section 3.6 — Termination of Existing Liens
(a) The Grantors represent and warrant that, prior to the date hereof, CROC was a borrower under that certain Credit Agreement dated as of June 12, 2019, among CROC, as borrower, the other loan parties party thereto, and Harborview Lending Group, LLC, as administrative agent and collateral agent, providing for a senior secured asset-based revolving credit facility in an aggregate principal amount of up to $175,000,000 (the "Existing ABL Facility"). As of the date hereof, the outstanding balance under the Existing ABL Facility is approximately $112,450,000.
(b) On the Closing Date (May 19, 2023), the Grantors shall cause the Existing ABL Facility to be repaid in full from the initial borrowing under the Credit Agreement and from other available funds, and shall cause Harborview Lending Group, LLC to deliver payoff letters and lien release documentation satisfactory to the Collateral Agent, including, without limitation, UCC-3 termination statements terminating all UCC financing statements filed by or on behalf of Harborview Lending Group, LLC against any Grantor in the Delaware Secretary of State and the Washington Secretary of State. Upon such repayment and filing of UCC-3 termination statements, all liens and security interests of Harborview Lending Group, LLC in the Collateral shall be terminated and released in their entirety.
(c) The Collateral Agent shall have received, on or prior to the Closing Date, evidence satisfactory to it that all actions necessary to terminate and release the liens and security interests of Harborview Lending Group, LLC have been taken or will be taken substantially contemporaneously with the initial extension of credit under the Credit Agreement.
ARTICLE IV — REPRESENTATIONS, WARRANTIES, AND COVENANTS
Section 4.1 — Title and Authority
Each Grantor represents and warrants, as of the date hereof and as of each date on which credit is extended under the Credit Agreement, that:
(a) Such Grantor is the legal and beneficial owner of its Collateral, free and clear of all Liens other than Permitted Liens and the Security Interest created by this Security Agreement.
(b) Such Grantor has full corporate, limited liability company, or other organizational power and authority to grant the Security Interest in the Collateral pursuant to this Security Agreement and to execute, deliver, and perform its obligations hereunder.
(c) The execution, delivery, and performance of this Security Agreement have been duly authorized by all necessary corporate, limited liability company, or other organizational action on the part of such Grantor.
(d) This Security Agreement has been duly executed and delivered by such Grantor and constitutes a legal, valid, and binding obligation of such Grantor, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors' rights generally and to general principles of equity.
Section 4.2 — Organizational Information and Perfection Certificate
(a) Each Grantor represents and warrants that the information set forth in the Perfection Certificate dated May 4, 2023, delivered by the Grantors to the Collateral Agent in connection with the execution and delivery of this Security Agreement, is true, correct, and complete in all material respects as of the date hereof. Without limiting the foregoing, each Grantor represents and warrants that:
(i) The legal names, prior names (within the five (5) years preceding the date hereof), organizational identification numbers, jurisdictions of organization, Employer Identification Numbers, types of organization, and chief executive offices of the Grantors are as follows:
(ii) No Grantor has changed its legal name, identity, jurisdiction of organization, or organizational structure within the five (5) years preceding the date hereof, except as disclosed in the Perfection Certificate.
(iii) The locations of all Inventory and Equipment of the Grantors are set forth on Schedule 3 hereto and in the Perfection Certificate.
(iv) The registered agent for CRH in the State of Delaware is Northwest Registered Agents, Inc., 1209 Orange Street, Wilmington, Delaware 19801.
(b) Each Grantor covenants that it shall promptly (and in any event within fifteen (15) days) notify the Collateral Agent in writing of any change in the information set forth in the Perfection Certificate, and shall deliver to the Collateral Agent a supplement or update to the Perfection Certificate reflecting any such change.
Section 4.3 — Accounts
Each Grantor represents and warrants that:
(a) Each Account of such Grantor arises from a bona fide transaction in the ordinary course of such Grantor's business, and represents a genuine obligation of the applicable Account debtor for goods sold, leased, or licensed, or services rendered.
(b) To the knowledge of such Grantor, no Account debtor has any valid defense, setoff, claim, or counterclaim against such Grantor that could reduce the amount owing on any Account that is included in the Borrowing Base, except as reflected in the applicable Borrowing Base Certificate.
(c) All information regarding the Accounts provided to the Collateral Agent (including information contained in any Borrowing Base Certificate) is true, correct, and complete in all material respects as of the date provided.
(d) No Account that is included in the Borrowing Base has been compromised, adjusted, extended, renewed, assigned, or satisfied, except in the ordinary course of business.
Section 4.4 — Inventory
Each Grantor represents and warrants that:
(a) All Inventory of such Grantor is of good and merchantable quality, free from any material defects, and suitable for the purposes for which it is intended.
(b) All Inventory is located at the locations set forth in the Perfection Certificate and on Schedule 3 hereto, including, without limitation:
(i) The CFS distribution centers located at: (A) 18700 72nd Avenue South, Kent, Washington 98032 (the "Kent Distribution Center"); (B) 4500 Logistics Parkway, Reno, Nevada 89506 (the "Reno Distribution Center"); and (C) 7200 Alum Creek Drive, Columbus, Ohio 43217 (the "Columbus Distribution Center");
(ii) The sixty-four (64) outlet retail locations operated by COS;
(iii) In-transit inventory, consisting of goods in transit between distribution centers and from suppliers; and
(iv) E-commerce fulfillment inventory stored at the Kent Distribution Center and the Reno Distribution Center.
(c) No Inventory is stored with any bailee, warehouseman, or other third party except as disclosed on Schedule 3 hereto, and with respect to any such Inventory, such Grantor has delivered (or shall deliver within thirty (30) days of the date hereof) to the Collateral Agent a bailee letter or acknowledgment in form and substance satisfactory to the Collateral Agent.
(d) All Inventory included in the Borrowing Base constitutes "Eligible Inventory" as defined in the Credit Agreement.
Section 4.5 — Deposit Accounts
Each Grantor represents and warrants that:
(a) Schedule 4 hereto sets forth a true, correct, and complete list of all deposit accounts maintained by the Grantors as of the date hereof, including the account number (or the last four digits thereof), the name of the depository institution, the name of the account holder, and the purpose of each account.
(b) All Deposit Accounts that constitute Collateral are subject to Deposit Account Control Agreements in favor of the Collateral Agent, duly executed and delivered by the applicable Grantor, the applicable depository institution, and the Collateral Agent, as described in Section 3.2 hereof.
(c) No Grantor maintains any deposit account that is not listed on Schedule 4, except for Excluded Deposit Accounts specifically identified as such in the Perfection Certificate.
Section 4.6 — No Other Liens
Each Grantor represents and warrants that no effective UCC financing statement, security agreement, assignment, or other instrument or document similar in effect covering all or any part of the Collateral is on file or of record in any filing office or registry, except (a) UCC financing statements filed in favor of the Collateral Agent pursuant to this Security Agreement (as identified in Section 3.1 and on Schedule 2 hereto), (b) financing statements or other instruments filed in connection with Permitted Liens, and (c) UCC financing statements filed by or on behalf of Harborview Lending Group, LLC that are being terminated in connection with the repayment of the Existing ABL Facility as described in Section 3.6 hereof.
Section 4.7 — No Conflicts
Each Grantor represents and warrants that the execution, delivery, and performance of this Security Agreement and the grant of the Security Interest contemplated hereby do not and will not (a) violate or conflict with the certificate of incorporation, certificate of formation, bylaws, operating agreement, or other organizational documents of such Grantor, (b) violate any applicable law, statute, regulation, rule, order, judgment, injunction, or decree of any governmental authority having jurisdiction over such Grantor or any of its properties, or (c) result in a breach of, constitute a default under, or give rise to any right of termination, cancellation, or acceleration under any material agreement, instrument, or other document to which such Grantor is a party or by which any of its properties may be bound or affected, except where such violation, conflict, breach, default, or right would not reasonably be expected to have a Material Adverse Effect.
Section 4.8 — Maintenance of Collateral
Each Grantor covenants and agrees that it shall:
(a) Maintain the Collateral in good condition and repair, ordinary wear and tear excepted, and shall make all repairs, renewals, and replacements thereof as are necessary or desirable to maintain the Collateral in such condition;
(b) Not use or permit the Collateral to be used in violation of any applicable law, statute, regulation, rule, order, judgment, or decree;
(c) Not use or permit the Collateral to be used in any manner that would render any insurance coverage with respect thereto void or voidable or would increase the cost of such insurance coverage beyond commercially reasonable levels; and
(d) Pay promptly when due all taxes, assessments, and governmental charges levied or assessed upon the Collateral or upon any part thereof, except to the extent contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP.
Section 4.9 — Insurance
(a) Each Grantor covenants and agrees that it shall maintain, with financially sound and reputable insurance companies, insurance on the Collateral in such amounts, with such deductibles, and against such risks as are required pursuant to the Credit Agreement and as are customary for companies of similar size engaged in similar businesses.
(b) Each Grantor shall cause the Collateral Agent to be named as loss payee (or, as applicable, additional insured) on all insurance policies covering the Collateral, and shall cause such insurance policies to contain a provision requiring that coverage shall not be cancelled, reduced, or materially modified without at least thirty (30) days' prior written notice to the Collateral Agent.
(c) As of the date hereof, the Grantors' insurance program includes, without limitation:
(i) Property and casualty insurance provided by Pinnacle Assurance Company, covering all Inventory, Equipment, and other tangible personal property constituting Collateral, with the Collateral Agent named as loss payee; and
(ii) Umbrella liability and business interruption insurance provided by Kelvantis Mutual Insurance Group, with the Collateral Agent named as additional insured.
(d) The Grantors' insurance broker is Strathmore Corporation Greaves & Co., and all insurance certificates, endorsements, and other evidence of insurance shall be delivered to the Collateral Agent (i) on or before the Closing Date with respect to existing policies and (ii) annually thereafter (and promptly upon any material change, renewal, or replacement of any policy) for the duration of this Security Agreement.
(e) In the event of any loss or damage to the Collateral, each Grantor shall promptly notify the Collateral Agent thereof and shall diligently pursue all insurance claims relating thereto. All insurance proceeds received with respect to any loss or damage to the Collateral shall be applied in accordance with the terms of the Credit Agreement.
Section 4.10 — Location of Collateral; Change of Name or Location
Each Grantor covenants and agrees that, without providing at least thirty (30) days' prior written notice to the Collateral Agent and taking all actions reasonably requested by the Collateral Agent to maintain the perfection and priority of the Security Interest (including the filing of any necessary amendments to UCC financing statements), no Grantor shall:
(a) Change its legal name, identity, or organizational structure (whether by merger, consolidation, conversion, or otherwise);
(b) Change its jurisdiction of organization;
(c) Change the location of its chief executive office or principal place of business; or
(d) Move, relocate, or permit the removal of any material portion of the Collateral (including Inventory with an aggregate book value in excess of $1,000,000) to a location not previously disclosed to the Collateral Agent on Schedule 3 hereto or in the Perfection Certificate.
Each Grantor shall execute and deliver such additional financing statements, amendments, and other documents as may be necessary to maintain the perfection and first-priority status of the Security Interest following any such change.
Section 4.11 — Protection of Collateral Agent's Security Interest
Each Grantor shall take all actions necessary and reasonably requested by the Collateral Agent to maintain the first-priority perfected Security Interest of the Collateral Agent in the Collateral, including, without limitation:
(a) Executing and delivering financing statements, amendments, continuation statements, and other documents as the Collateral Agent may reasonably request from time to time;
(b) Defending the Collateral against the claims and demands of all Persons at any time claiming any interest in the Collateral adverse to the interests of the Collateral Agent or any other Secured Party;
(c) Promptly notifying the Collateral Agent of any Lien (other than Permitted Liens) on the Collateral of which such Grantor has knowledge and taking all actions necessary to cause such Lien to be discharged and released; and
(d) Paying all filing and recording fees and taxes in connection with the filing and recording of financing statements, amendments, continuation statements, and other instruments pursuant to this Security Agreement.
Section 4.12 — No Disposition of Collateral
No Grantor shall sell, lease, license, exchange, assign, transfer, or otherwise dispose of any Collateral, or attempt or contract to do so, except as expressly permitted under the Credit Agreement, including, without limitation:
(a) Sales of Inventory in the ordinary course of business;
(b) Dispositions of obsolete, worn-out, or surplus Inventory and Equipment in the ordinary course of business;
(c) Non-exclusive licenses of intellectual property in the ordinary course of business;
(d) Permitted dispositions not to exceed $10,000,000 in the aggregate during any fiscal year, as provided in the Credit Agreement; and
(e) Other dispositions expressly permitted by the Credit Agreement.
Any Proceeds received by any Grantor from any permitted disposition of Collateral shall constitute Collateral hereunder.
Section 4.13 — Collection of Accounts
(a) Each Grantor shall diligently collect and enforce payment of its Accounts in the ordinary course of its business, consistent with past practices and sound business judgment.
(b) Upon the occurrence and during the continuance of an Event of Default (or upon the activation of cash dominion when Availability falls below $37,500,000 as described in Sections 3.2 and 5.5 hereof), the Collateral Agent shall have the right, at any time and from time to time, to:
(i) Notify any or all Account debtors directly that the Accounts have been assigned to the Collateral Agent and that all payments thereon shall be made directly to the Collateral Agent or to the concentration account designated by the Collateral Agent;
(ii) Direct any or all Account debtors to make payment directly to the Collateral Agent or to the concentration account;
(iii) Collect, receive, and receipt for any and all amounts due on the Accounts;
(iv) Compromise, extend, settle, or adjust any Account, and take any action with respect thereto that the Collateral Agent may deem advisable; and
(v) Endorse any Grantor's name on any check, draft, or other instrument of payment received in respect of any Account and deposit the same in the concentration account for application to the Obligations.
Section 4.14 — Negative Pledge on intellectual Property
(a) Each Grantor acknowledges that its registered intellectual property (including trademarks, copyrights, and patents registered with the USPTO or USCO) constitutes Excluded Assets and is not subject to the Security Interest created by this Security Agreement. Notwithstanding such exclusion, each Grantor covenants and agrees that it shall not, without the prior written consent of the Collateral Agent (which consent shall not be unreasonably withheld, conditioned, or delayed):
(i) Sell, assign, transfer, or exclusively license any intellectual property registered with the USPTO or USCO;
(ii) Grant any Lien on or security interest in any such registered intellectual property to any third party; or
(iii) Permit any such registered intellectual property to lapse, become abandoned, or become dedicated to the public, except where the applicable Grantor has determined in good faith that the maintenance of such intellectual property is no longer commercially reasonable.
(b) The foregoing restrictions shall not apply to non-exclusive licenses of registered intellectual property granted by any Grantor in the ordinary course of business on arm's-length terms.
(c) Each Grantor shall maintain and protect all of its registered intellectual property in all material respects, including by (i) filing all necessary renewal applications and maintenance documents, (ii) prosecuting all pending applications with diligence, and (iii) taking all commercially reasonable actions to prevent infringement, misappropriation, or dilution thereof.
(d) A description of the registered intellectual property subject to this Section 4.14 is set forth on Schedule 6 hereto.
Section 4.15 — Further Assurances; After-Acquired Collateral
(a) Each Grantor shall, promptly upon the request of the Collateral Agent, execute and deliver such further instruments, agreements, certificates, and documents and take such further actions as the Collateral Agent may reasonably request in order to carry out the purposes of this Security Agreement and to establish, maintain, protect, and perfect the first-priority Security Interest of the Collateral Agent in the Collateral, including, without limitation, the execution and delivery of supplements to this Security Agreement, additional financing statements, amendments, control agreements, and other documents.
(b) The Security Interest granted herein shall attach automatically to all Collateral acquired by any Grantor after the date hereof, without the necessity of any further grant, act, or filing by any Grantor, subject to the requirement that the Grantors execute and deliver such additional documents as may be reasonably necessary to perfect the Security Interest in such after-acquired Collateral.
(c) Without limiting the generality of the foregoing, each Grantor shall:
(i) Promptly (and in any event within thirty (30) days) notify the Collateral Agent of any new Commercial Tort Claim acquired by such Grantor having a value reasonably estimated to exceed $500,000 and execute and deliver such supplements to this Security Agreement as are necessary to grant a security interest therein;
(ii) Promptly (and in any event within thirty (30) days) notify the Collateral Agent of any new Deposit Account (other than an Excluded Deposit Account) opened by such Grantor and deliver a Deposit Account Control Agreement with respect thereto; and
(iii) Promptly (and in any event within thirty (30) days) notify the Collateral Agent of any Instrument or tangible Chattel Paper acquired by such Grantor with a face amount in excess of $250,000 and deliver the originals thereof to the Collateral Agent, duly endorsed.
Section 4.16 — Inspection and Field Examination Rights
(a) Each Grantor shall permit the Collateral Agent and its authorized agents, representatives, and designees (including Ridgeline Asset Advisors LLC or any successor engagement firm retained by the Collateral Agent) to visit and inspect the Collateral and the properties, books, and records of such Grantor, to examine and make copies of the books and records of such Grantor relating to the Collateral, and to discuss the affairs, finances, and condition of such Grantor with officers, directors, employees, and independent certified public accountants of such Grantor, all at such reasonable times during normal business hours and as often as the Collateral Agent may reasonably request, subject to the following:
(i) So long as no Event of Default has occurred and is continuing and Availability is equal to or greater than $60,000,000, one (1) field examination and one (1) inventory appraisal per calendar year, at the expense of the Borrowers;
(ii) If Availability falls below $60,000,000 but no Event of Default has occurred and is continuing, two (2) field examinations and two (2) inventory appraisals per calendar year, at the expense of the Borrowers; and
(iii) If an Event of Default has occurred and is continuing, such field examinations and inventory appraisals as the Collateral Agent may request in its sole discretion, at the expense of the Borrowers.
(b) The Grantors acknowledge that the initial field examination of the Grantors was conducted by Ridgeline Asset Advisors LLC, with Patricia Holbrook serving as the Engagement Lead for such examination. The report of such initial field examination is dated March 31, 2023, and has been delivered to and accepted by the Collateral Agent.
Section 4.17 — Borrowing Base Reporting
Each Grantor acknowledges and agrees that it is obligated, pursuant to the Credit Agreement, to deliver Borrowing Base Certificates to the Administrative Agent and the Collateral Agent in accordance with the following schedule:
(a) On or before the fifteenth (15th) day of each calendar month (or, if such day is not a Business Day, the next succeeding Business Day), a Borrowing Base Certificate as of the last day of the immediately preceding calendar month; and
(b) If at any time Availability falls below $45,000,000, on or before the second (2nd) Business Day of each week, a Borrowing Base Certificate as of the last day of the immediately preceding week,
in each case certified by a Responsible Officer of CRH and in the form required by the Credit Agreement. Each Borrowing Base Certificate shall set forth a calculation of the Borrowing Base in reasonable detail, including the amount of Eligible Receivables, Eligible Inventory (valued at the lower of cost or market, with NOLV adjustment), and Availability Reserves, together with such supporting documentation as the Collateral Agent may reasonably request.
ARTICLE V — REMEDIES
Section 5.1 — Remedies Upon Event of Default
Upon the occurrence and during the continuance of an Event of Default (as defined in the Credit Agreement), the Collateral Agent may, and at the direction of the Required Lenders shall, exercise any and all rights and remedies available to a secured party under:
(a) This Security Agreement;
(b) The Credit Agreement and the other Loan Documents;
(c) The UCC (including Article 9 thereof) as in effect in the State of New York and in each other applicable jurisdiction; and
(d) Any other applicable law, statute, or regulation.
Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent shall have the right, subject to any mandatory requirements of applicable law then in effect, to do any one or more of the following:
(i) Require each Grantor to assemble the Collateral, or any portion thereof, and make it available to the Collateral Agent at a place or places to be designated by the Collateral Agent that is reasonably convenient to both the Collateral Agent and the applicable Grantor;
(ii) Enter upon any premises on which any of the Collateral may be located and take possession of the Collateral, without demand, judicial process, or other legal proceedings, to the extent permitted by applicable law, and each Grantor hereby waives any and all claims for damages, loss, or injury arising from the exercise of such rights except to the extent caused by the gross negligence or willful misconduct of the Collateral Agent;
(iii) Sell, lease, or otherwise dispose of any or all of the Collateral, in its then-present condition or following any commercially reasonable preparation or processing, at one or more public or private sales, at any exchange, broker's board, or office of the Collateral Agent, or elsewhere, for cash, credit, or future delivery, and upon such terms and in such manner as the Collateral Agent may determine, upon at least ten (10) days' prior written notice to the applicable Grantor (which notice period the parties agree is commercially reasonable), and at any such sale it shall not be necessary to exhibit the Collateral;
(iv) Exercise all rights under the Deposit Account Control Agreements to direct the disposition of all funds on deposit in the Deposit Accounts, including the right to withdraw, transfer, or otherwise apply such funds to the outstanding Obligations;
(v) Direct that interest on the Obligations accrue at the Default Rate, being an additional two hundred (200) basis points per annum above the otherwise applicable interest rate, as provided in the Credit Agreement;
(vi) Exercise all rights and powers of each Grantor with respect to the Collateral, including the right to collect, receive, and receipt for any and all sums due or to become due on account of the Collateral;
(vii) Settle, compromise, adjust, or bring suit to enforce any Account, and generally deal with the Collateral as though the Collateral Agent were the outright owner thereof; and
(viii) Exercise any and all other rights and remedies available to the Collateral Agent under applicable law or in equity.
Section 5.2 — Notice of Sale
(a) The Collateral Agent shall give the Grantors at least ten (10) days' prior written notice of the time and place of any public sale of the Collateral, or the time after which any private sale or other disposition of the Collateral is to be made. The parties hereto agree that ten (10) days' prior written notice of any such sale or other disposition shall constitute commercially reasonable notification for all purposes of the UCC and any other applicable law.
(b) Each Grantor acknowledges that the Collateral Agent may not be able to effect a public sale of all or any portion of the Collateral by reason of certain restrictions in applicable law, and for that reason the Collateral Agent may, to the extent permitted by law, resort to one or more private sales to a restricted group of purchasers who will be obligated to agree, among other things, to acquire the Collateral for their own account and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sale may be at prices and other terms less favorable to the seller than if sold at public sale and agrees that such private sale shall be deemed to have been made in a commercially reasonable manner, and the Collateral Agent shall have no obligation to delay sale of any Collateral to permit the issuer thereof to register it for public sale under any applicable securities laws.
Section 5.3 — Application of Proceeds
The Proceeds of any sale, collection, or other realization upon any Collateral upon the exercise of remedies following an Event of Default shall be applied by the Collateral Agent in the following order of priority:
First, to the payment of all costs, expenses, liabilities, and advances incurred or made by the Collateral Agent in connection with the exercise of remedies hereunder, including, without limitation, all reasonable attorneys' fees, court costs, collection charges, accountants' fees, appr