SECURITY AGREEMENT (SECOND LIEN)
Dated as of April 22, 2021
among
CRESTLINE PACKAGING SOLUTIONS LLC, an Ohio limited liability company,
CRESTLINE COATINGS INC., an Ohio corporation,
as Grantors,
and
IRONWOOD CAPITAL FINANCE LLC, a Delaware limited liability company,
as Secured Party
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SECURITY AGREEMENT (SECOND LIEN)
This Security Agreement (Second Lien) (this "Agreement") is made and entered into as of April 22, 2021, by and among:
GRANTORS:
(1) Crestline Packaging Solutions LLC, an Ohio limited liability company ("CPS"), with its principal place of business at 4510 Harshman Road, Dayton, OH 45424, Employer Identification Number 31-1784562, Ohio Secretary of State Filing No. 4217835; and
(2) Crestline Coatings Inc., an Ohio corporation ("CCI" and, together with CPS, each a "Grantor" and collectively, the "Grantors"), with its registered address at 4510 Harshman Road, Dayton, OH 45424, Employer Identification Number 31-2093417, Ohio Secretary of State Filing No. 4389201;
SECURED PARTY:
Ironwood Capital Finance LLC, a Delaware limited liability company (the "Secured Party" or "Mezzanine Lender"), with its principal office at 600 Lexington Avenue, 22nd Floor, New York, NY 10022.
RECITALS
WHEREAS, CPS (in such capacity, the "Borrower") has entered into that certain Mezzanine Credit Agreement dated as of April 22, 2021 (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the "Mezzanine Credit Agreement"), between CPS, as Borrower, and Ironwood Capital Finance LLC, as Lender, pursuant to which the Mezzanine Lender has agreed to extend to the Borrower a subordinated secured mezzanine term loan in the original principal amount of Twenty Million Dollars ($20,000,000) (the "Mezzanine Term Loan");
WHEREAS, the Mezzanine Term Loan is evidenced by that certain Mezzanine Promissory Note dated as of April 22, 2021 in the original principal amount of Twenty Million Dollars ($20,000,000) (the "Mezzanine Promissory Note"), bearing interest at the rate of ten and one-half percent (10.50%) per annum (1,050 basis points), consisting of eight percent (8.00%) payable in cash on a current basis and two and one-half percent (2.50%) payable in kind ("PIK"), and maturing on May 7, 2026;
WHEREAS, CCI is a wholly owned subsidiary of CPS and operates the specialty chemical coatings division of the Grantors' business, providing proprietary coating formulations and services for food and beverage packaging applications;
WHEREAS, CPS's equity is seventy-eight percent (78%) owned by Ridgeway Capital Partners Fund III, L.P., a Delaware limited partnership, and twenty-two percent (22%) is held by management and founders;
WHEREAS, the Grantors are required to execute and deliver this Security Agreement as a condition precedent to the closing of the transactions contemplated by the Mezzanine Credit Agreement, and each Grantor will derive substantial direct and indirect benefits from the extension of the Mezzanine Term Loan;
WHEREAS, the security interests granted hereunder are second-priority liens, expressly subordinated to the first-priority liens and security interests of Pinnacle Commercial Bank, N.A., a national banking association (in its capacity as administrative agent and lender, the "Senior Lender" or "Senior Agent"), under that certain Senior Credit Agreement dated as of September 12, 2019 (as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms and the Intercreditor Agreement (as defined below), the "Senior Credit Agreement"), among CPS and Pinnacle Commercial Bank, N.A., providing for a revolving credit facility in the aggregate principal amount of Thirty-Five Million Dollars ($35,000,000) (the "Revolving Facility") and a term loan A in the original principal amount of Twenty-Five Million Dollars ($25,000,000) (the "Term Loan A");
WHEREAS, the relative rights and priorities of the Senior Lender and the Secured Party with respect to the Collateral (as defined herein) are governed by that certain Intercreditor Agreement dated as of April 22, 2021 (the "Intercreditor Agreement"), among Pinnacle Commercial Bank, N.A. (as Senior Agent), Ironwood Capital Finance LLC (as Mezzanine Lender), and CPS (as Borrower), which establishes, among other things, the payment waterfall, standstill provisions, and turnover obligations applicable to the Secured Party;
WHEREAS, CPS has also entered into that certain Pledge Agreement dated as of April 22, 2021 (the "Pledge Agreement") in favor of the Secured Party, pledging one hundred percent (100%) of the membership interests in CCI as additional collateral for the Secured Obligations (as defined herein); and
WHEREAS, the proceeds of the Mezzanine Term Loan will be used to fund capital expenditures related to the Dayton plant expansion project, including a new 62,000 square foot coating line build-out and packaging automation equipment;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms.
As used in this Agreement, the following terms shall have the following meanings:
"Accounts" means all accounts, accounts receivable, and rights to payment of a monetary obligation, whether or not earned by performance, including all rights to payment for goods sold, leased, licensed, assigned, or otherwise disposed of, or for services rendered or to be rendered, and all rights associated therewith, including all rights of enforcement and collection, all credits due from account debtors, and all guarantees and security for any of the foregoing.
"Borrower" means Crestline Packaging Solutions LLC, an Ohio limited liability company, in its capacity as borrower under the Mezzanine Credit Agreement.
"Chattel Paper" means all chattel paper (whether tangible or electronic), as such term is defined in the UCC, including all writings or records that evidence both a monetary obligation and a security interest in or a lease of specific goods.
"Collateral" has the meaning set forth in Section 2.1 of this Agreement.
"Copyrights" means all copyrights, copyright registrations, and copyright applications, whether registered or unregistered, and all extensions, renewals, and restorations thereof, together with all copyright licenses granted by or to any Grantor.
"Deposit Accounts" means all deposit accounts (as such term is defined in the UCC) maintained by any Grantor with any financial institution, including all checking accounts, savings accounts, money market accounts, and time deposit accounts, whether general or special, and all funds and amounts deposited therein or credited thereto.
"Documents" means all documents (as such term is defined in the UCC), including all warehouse receipts, bills of lading, dock warrants, dock receipts, and other documents of title, whether negotiable or non-negotiable.
"Equipment" means all equipment, machinery, fixtures, furniture, tools, and other tangible personal property (excluding Inventory), whether now owned or hereafter acquired by any Grantor, including all packaging automation equipment, coating line equipment, presses, mixers, reactors, conveyors, storage tanks, testing apparatus, computer hardware, vehicles, and all parts, accessories, attachments, accessions, additions, components, and replacements thereof, together with all additions, substitutions, and replacements thereof, and all insurance and condemnation proceeds relating thereto, including specifically all equipment located at, or to be installed at, the Dayton facility located at 4510 Harshman Road, Dayton, OH 45424.
"Event of Default" has the meaning given to such term in the Mezzanine Credit Agreement.
"General Intangibles" means all general intangibles (as such term is defined in the UCC), choses in action, causes of action, and all other intangible personal property of every kind and nature, other than Accounts, Chattel Paper, Deposit Accounts, Documents, Goods, Instruments, Investment Property, Letter-of-Credit Rights, money, and oil, gas, and other minerals before extraction, including all payment intangibles, contract rights (including rights under operating agreements, supply agreements, customer contracts, and distribution agreements), rights to tax refunds, rights to indemnification, goodwill, and going concern value.
"Grantors" means CPS and CCI, collectively, and "Grantor" means either of them, individually.
"Instruments" means all instruments (as such term is defined in the UCC), including all promissory notes, drafts, bills of exchange, and all other negotiable and non-negotiable instruments.
"intellectual Property" means all Trademarks, Trade Secrets, Patents, Copyrights, and IP Licenses.
"Intercreditor Agreement" means that certain Intercreditor Agreement dated as of April 22, 2021, among Pinnacle Commercial Bank, N.A. (as Senior Agent), Ironwood Capital Finance LLC (as Mezzanine Lender), and CPS (as Borrower), as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Inventory" means all inventory (as such term is defined in the UCC), including all raw materials, work in process, finished goods, packaging materials, supplies, chemicals, resins, solvents, pigments, and all other materials and goods held for sale, lease, or to be furnished under contracts of service, or so leased or furnished, and all documents of title representing any of the foregoing, together with all additions, substitutions, and replacements thereof, and all insurance and condemnation proceeds relating thereto.
"Investment Property" means all investment property (as such term is defined in the UCC), including all securities (whether certificated or uncertificated), securities accounts, securities entitlements, commodity accounts, commodity contracts, and financial assets held in any securities account.
"IP Licenses" means all rights under any license, sublicense, or other agreement granting rights in or to any intellectual Property, whether as licensor or licensee, including all rights to use, practice, make, have made, sell, or otherwise exploit intellectual Property pursuant to any such agreement.
"Letter-of-Credit Rights" means all letter-of-credit rights (as such term is defined in the UCC), including all rights to payment and performance under any letter of credit, whether or not the beneficiary has demanded or is entitled to demand payment or performance.
"Loan Documents" means the Mezzanine Credit Agreement, the Mezzanine Promissory Note, this Agreement, the Pledge Agreement, the Warrant Agreement (if any), and all other agreements, instruments, documents, and certificates executed or delivered in connection therewith, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Material Adverse Effect" has the meaning given to such term in the Mezzanine Credit Agreement.
"Mezzanine Credit Agreement" means that certain Mezzanine Credit Agreement dated as of April 22, 2021, between CPS, as Borrower, and Ironwood Capital Finance LLC, as Lender, providing for a subordinated secured mezzanine term loan in the original principal amount of Twenty Million Dollars ($20,000,000), as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms and the Intercreditor Agreement.
"Mezzanine Promissory Note" means that certain Mezzanine Promissory Note dated as of April 22, 2021 in the original principal amount of Twenty Million Dollars ($20,000,000), made by CPS in favor of Ironwood Capital Finance LLC.
"Obligations" or "Secured Obligations" means all obligations, liabilities, and indebtedness of the Borrower and the Grantors to the Secured Party under the Mezzanine Credit Agreement, the Mezzanine Promissory Note, this Agreement, the Pledge Agreement, the Warrant Agreement (if any), and all other Loan Documents, of every kind, nature, and description, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, joint or several, due or to become due, primary or secondary, including (a) all principal in the amount of Twenty Million Dollars ($20,000,000), (b) all interest thereon, whether accruing at the cash pay rate of eight percent (8.00%) per annum, the PIK rate of two and one-half percent (2.50%) per annum, or the default rate, (c) all fees (including the origination fee of Four Hundred Thousand Dollars ($400,000)), (d) all premiums (including any applicable prepayment premiums), (e) all expenses (including attorneys' fees and disbursements), (f) all indemnification obligations, and (g) all other amounts payable by the Borrower or any Grantor under any Loan Document.
"Patents" means all patents, patent applications, and patentable inventions, including all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and re-examinations thereof, together with all patent licenses granted by or to any Grantor.
"Permitted Liens" means liens permitted under Section [●] of the Mezzanine Credit Agreement, including (a) first-priority liens in favor of the Senior Lender under the Senior Credit Agreement and the Senior Loan Documents, (b) liens for taxes, assessments, or governmental charges not yet delinquent or being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (c) statutory liens of mechanics, materialmen, suppliers, warehousemen, carriers, landlords, and other like liens arising in the ordinary course of business and securing obligations not yet delinquent or being contested in good faith, (d) purchase money security interests in equipment acquired after the date hereof, to the extent permitted under the Mezzanine Credit Agreement, (e) liens arising by operation of law in the ordinary course of business, and (f) other customary exceptions as set forth in the Mezzanine Credit Agreement.
"Pledge Agreement" means that certain Pledge Agreement dated as of April 22, 2021, by CPS in favor of Ironwood Capital Finance LLC, pledging one hundred percent (100%) of the membership interests in CCI as collateral for the Secured Obligations.
"Proceeds" means all proceeds (as such term is defined in the UCC) of the Collateral, in whatever form, including (a) all cash proceeds and non-cash proceeds, (b) all insurance proceeds payable by reason of loss or damage to the Collateral, (c) all condemnation awards and payments and settlements in lieu thereof, (d) all proceeds of proceeds, (e) all amounts received upon the sale, exchange, collection, or other disposition of the Collateral, and (f) all rents, revenues, issues, profits, royalties, income, and benefits of and from the Collateral.
"Senior Credit Agreement" means that certain Senior Credit Agreement dated as of September 12, 2019, among CPS and Pinnacle Commercial Bank, N.A., providing for a revolving credit facility in the aggregate principal amount of Thirty-Five Million Dollars ($35,000,000) and a term loan A in the original principal amount of Twenty-Five Million Dollars ($25,000,000), as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms and the Intercreditor Agreement.
"Senior Liens" means the first-priority liens and security interests granted to, or held by, Pinnacle Commercial Bank, N.A. under the Senior Credit Agreement and the Senior Loan Documents.
"Senior Loan Documents" means the Senior Credit Agreement and all other agreements, instruments, documents, and certificates executed or delivered in connection therewith, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Supporting Obligations" means all supporting obligations (as such term is defined in the UCC), including all letters of credit, guarantees, suretyship agreements, and other arrangements supporting payment or performance of any of the Collateral.
"Trade Secrets" means all trade secrets, know-how, proprietary formulations, processes, techniques, methods, compositions, recipes, and confidential business information, including specialty chemical coating formulations for food and beverage packaging applications and all documentation relating thereto, in each case owned by any Grantor.
"Trademarks" means all trademarks, trade names, corporate names, business names, brand names, service marks, logos, insignia, trade dress, designs, and other source identifiers, whether registered or unregistered, together with all trademark registrations and applications for registration thereof (including all renewals and extensions thereof), and together with all goodwill associated therewith or symbolized thereby.
"UCC" means the Uniform Commercial Code as in effect from time to time in the State of Ohio or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any item or items of the Collateral, the Uniform Commercial Code as in effect in such state, including without limitation the Uniform Commercial Code as in effect in the State of New York, as applicable.
"Warrant Agreement" means any warrant agreement entered into on or about the date hereof by CPS in favor of the Secured Party or its affiliates in connection with the Mezzanine Term Loan, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
Section 1.2 — Incorporation of Mezzanine Credit Agreement Definitions.
All capitalized terms used in this Agreement and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Mezzanine Credit Agreement. The rules of interpretation and construction set forth in the Mezzanine Credit Agreement shall apply to this Agreement, mutatis mutandis.
Section 1.3 — UCC Terms.
Terms defined in the UCC that are used but not otherwise defined in this Agreement (including, without limitation, "account," "chattel paper," "commercial tort claim," "deposit account," "document," "electronic chattel paper," "equipment," "farm products," "fixture," "general intangible," "goods," "health-care-insurance receivable," "instrument," "inventory," "investment property," "letter-of-credit right," "manufactured home," "payment intangible," "proceeds," "software," and "supporting obligation") shall have the meanings given to such terms under Article 9 of the UCC (or, with respect to terms defined in other Articles of the UCC, the meanings given therein). To the extent the definition of any category of Collateral is modified by any amendment to the UCC after the date hereof, such modified definition shall automatically apply to this Agreement, unless such modification would impair the rights of the Secured Party or the validity, perfection, or priority of the security interests granted hereunder.
ARTICLE II — GRANT OF SECURITY INTEREST
Section 2.1 — Grant.
As collateral security for the prompt and complete payment, performance, and observance of all Secured Obligations, each Grantor hereby grants to the Secured Party a continuing second-priority security interest in and lien upon all of the following property of such Grantor, whether now owned or existing or hereafter acquired or arising and wherever located (collectively, the "Collateral"):
(a) Accounts. All Accounts and accounts receivable, including all rights to payment for goods sold, leased, licensed, assigned, or otherwise disposed of, or for services rendered or to be rendered, and all rights associated therewith, including all guarantees and security for any of the foregoing;
(b) Inventory. All Inventory, including all raw materials, work in process, finished goods, packaging materials, and supplies, whether held at the Dayton facility or in transit, and all documents of title representing any of the foregoing;
(c) Equipment. All Equipment, including all machinery, tools, fixtures, furniture, vehicles, computers, and other tangible personal property (excluding Inventory), specifically including all coating line equipment, packaging automation equipment, presses, mixers, reactors, conveyors, and testing apparatus, and all accessions and additions thereto, together with all replacements, substitutions, parts, components, and attachments;
(d) intellectual Property. All intellectual Property, including:
(i) All Trademarks, trademark registrations, and applications for trademark registration, together with the goodwill of the business connected with the use of and symbolized by each such Trademark, all as more particularly described on Schedule II-A attached hereto;
(ii) All Trade Secrets, proprietary know-how, and confidential information, including all specialty chemical coating formulations used in the food and beverage sector, all as more particularly described on Schedule II-B attached hereto;
(iii) All Patents and patent applications, if any, including all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and re-examinations thereof;
(iv) All Copyrights and copyright registrations, if any, including all extensions and renewals thereof;
(v) All IP Licenses, including all rights under any license, sublicense, or other agreement granting rights in or to any Trademarks, Trade Secrets, Patents, or Copyrights;
(e) General Intangibles. All General Intangibles, including all payment intangibles, contract rights, rights under customer agreements and supply agreements, goodwill, and going concern value;
(f) Chattel Paper. All Chattel Paper (whether tangible or electronic), including all writings or records that evidence both a monetary obligation and a security interest in or a lease of specific goods;
(g) Documents. All Documents, including all warehouse receipts, bills of lading, dock warrants, dock receipts, and other documents of title, whether negotiable or non-negotiable;
(h) Instruments. All Instruments, including all promissory notes, drafts, and other negotiable and non-negotiable instruments;
(i) Investment Property. All Investment Property, including all securities (whether certificated or uncertificated), securities accounts, securities entitlements, commodity accounts, commodity contracts, and financial assets;
(j) Deposit Accounts. All Deposit Accounts, including all checking accounts, savings accounts, money market accounts, and time deposit accounts maintained by any Grantor (subject to deposit account control agreements as described in Section 5.3 hereof);
(k) Letter-of-Credit Rights. All Letter-of-Credit Rights, including all rights to payment and performance under any letter of credit;
(l) Supporting Obligations. All Supporting Obligations, including all letters of credit, guarantees, and suretyship agreements supporting payment or performance of any of the foregoing;
(m) Books and Records. All books and records, files, ledger cards, correspondence, and other documents and instruments relating to any of the foregoing, whether in written, electronic, magnetic, or other form;
(n) Proceeds and Products. All Proceeds and products of any and all of the foregoing Collateral, in whatever form, including all cash proceeds, non-cash proceeds, insurance proceeds, and condemnation awards, and all additions, accessions, and substitutions relating to any of the foregoing; and
(o) Commercial Tort Claims. All commercial tort claims described on Schedule II-C attached hereto, if any, together with all Proceeds thereof.
Section 2.2 — Second-Priority Nature; Subordination.
The security interests granted pursuant to this Article II are expressly second-priority security interests, and are in all respects subject and subordinate to the first-priority liens and security interests of Pinnacle Commercial Bank, N.A. under the Senior Credit Agreement dated as of September 12, 2019, and the related Senior Loan Documents. The rights and remedies of the Secured Party with respect to the Collateral, including without limitation the right to exercise any remedy or to take any enforcement action, are subject in all respects to the terms, conditions, and restrictions set forth in the Intercreditor Agreement dated as of April 22, 2021. Without limiting the generality of the foregoing, the Secured Party acknowledges that the Intercreditor Agreement provides for, among other things, a one hundred eighty (180)-day standstill period during which the Secured Party may not exercise remedies against the Collateral following the giving of notice to the Senior Lender of an Event of Default under the Mezzanine Credit Agreement. In the event of any conflict or inconsistency between any provision of this Agreement and any provision of the Intercreditor Agreement, the terms and provisions of the Intercreditor Agreement shall control and govern, and the conflicting or inconsistent provision of this Agreement shall be deemed modified to the extent necessary to eliminate such conflict or inconsistency.
Section 2.3 — Obligations Secured.
The security interests granted herein secure the prompt and complete payment, performance, and observance of all Secured Obligations, including but not limited to the following:
(a) The principal amount of Twenty Million Dollars ($20,000,000) under the Mezzanine Credit Agreement and the Mezzanine Promissory Note;
(b) All interest on the Mezzanine Term Loan at the rate of ten and one-half percent (10.50%) per annum (consisting of eight percent (8.00%) cash pay and two and one-half percent (2.50%) PIK), payable quarterly in arrears, and any default interest;
(c) The origination fee of Four Hundred Thousand Dollars ($400,000), payable in accordance with the terms of the Mezzanine Credit Agreement;
(d) All prepayment premiums, if applicable, calculated as follows: (i) one hundred three percent (103%) of the principal amount prepaid if such prepayment occurs during the first year following the closing date, (ii) one hundred two percent (102%) of the principal amount prepaid if such prepayment occurs during the second year following the closing date, (iii) one hundred one percent (101%) of the principal amount prepaid if such prepayment occurs during the third year following the closing date, and (iv) par (100%) if such prepayment occurs during the fourth or fifth year following the closing date; and
(e) All other fees, costs, expenses (including reasonable attorneys' fees and disbursements), and indemnification obligations under the Mezzanine Credit Agreement, the Mezzanine Promissory Note, this Agreement, the Pledge Agreement, and all other Loan Documents.
Section 2.4 — Real Property.
In addition to the personal property Collateral described in Section 2.1 above, CPS shall grant a second-lien mortgage (the "Second Lien Mortgage") on the real property located at 4510 Harshman Road, Dayton, OH 45424 (the "Dayton Facility"), together with all buildings, improvements, fixtures, and appurtenances thereon, to be executed and delivered as a post-closing deliverable and recorded with the Montgomery County, Ohio Recorder's Office within thirty (30) days following the closing date. The Second Lien Mortgage shall be a separate instrument from this Agreement and shall be subject in all respects to the terms of the Intercreditor Agreement, including the subordination of the second-lien mortgage to the first-lien mortgage held by Pinnacle Commercial Bank, N.A. on the Dayton Facility. The Grantors acknowledge that the Secured Party's real property lien on the Dayton Facility is not governed by the UCC and that the perfection and enforcement of such lien shall be governed by applicable Ohio real property law.
ARTICLE III — REPRESENTATIONS AND WARRANTIES
Each Grantor hereby represents and warrants to the Secured Party as of the date hereof and as of each date on which the representations and warranties are required to be reaffirmed under the Mezzanine Credit Agreement, as follows:
Section 3.1 — Organization and Good Standing.
(a) CPS is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Ohio, with Ohio Secretary of State Filing No. 4217835. CPS has the requisite power and authority to own, lease, and operate its properties and to carry on its business as presently conducted and as proposed to be conducted.
(b) CCI is a corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio, with Ohio Secretary of State Filing No. 4389201. CCI has the requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as presently conducted and as proposed to be conducted.
(c) Each Grantor is duly qualified and authorized to do business and is in good standing in each jurisdiction where the nature of its business or the ownership, leasing, or operation of its properties requires such qualification, except where the failure to be so qualified or in good standing would not reasonably be expected to have a Material Adverse Effect.
Section 3.2 — Authorization; No Conflict.
(a) Each Grantor has full power and authority to execute, deliver, and perform its obligations under this Agreement. The execution, delivery, and performance of this Agreement by each Grantor has been duly authorized by all necessary action on the part of such Grantor, including all necessary member action (in the case of CPS) and all necessary shareholder and board of directors action (in the case of CCI), and no further approval, consent, or authorization of any person or entity is required in connection therewith.
(b) The execution, delivery, and performance of this Agreement by each Grantor do not and will not (i) violate or conflict with the certificate or articles of organization, operating agreement, certificate or articles of incorporation, bylaws, or other organizational documents of such Grantor, (ii) violate or conflict with any law, statute, regulation, rule, order, judgment, decree, or injunction applicable to such Grantor, (iii) result in a breach of, or constitute a default (or an event that, with the giving of notice or lapse of time or both, would constitute a default) under, any contractual obligation of such Grantor, including any material agreement, indenture, or instrument to which such Grantor is a party or by which any of its property is bound, other than the Senior Credit Agreement as modified by that certain consent letter issued by Pinnacle Commercial Bank, N.A. dated March 15, 2021 (the "Pinnacle Consent Letter") and the Intercreditor Agreement, or (iv) result in the creation or imposition of any lien on any property of any Grantor, other than the second-priority security interests created hereby, the Senior Liens, and Permitted Liens.
Section 3.3 — Title to Collateral; Liens.
(a) Each Grantor has good and marketable title to, or valid leasehold interests in, all of its Collateral, in each case free and clear of all liens, claims, security interests, encumbrances, and other charges or restrictions of any kind whatsoever, other than (i) Permitted Liens, (ii) the Senior Liens in favor of Pinnacle Commercial Bank, N.A., and (iii) the second-priority security interests granted herein.
(b) No Grantor has previously granted, and no Grantor is a party to any agreement pursuant to which it has agreed to grant, any security interest in any of the Collateral to any person or entity, other than (i) the Senior Liens in favor of Pinnacle Commercial Bank, N.A. under the Senior Credit Agreement and the Senior Loan Documents, and (ii) the second-priority security interests granted in favor of the Secured Party under this Agreement.
(c) The security interests granted herein, when properly perfected as contemplated by Article V hereof, will constitute valid and enforceable second-priority security interests in the Collateral, subject only to the Senior Liens, Permitted Liens, and any lien that may have priority by operation of law.
Section 3.4 — Location of Collateral.
(a) All tangible Collateral of each Grantor, including all Equipment and Inventory, is located at 4510 Harshman Road, Dayton, OH 45424 (the Dayton Facility), except as otherwise described on Schedule III-A attached hereto.
(b) Each Grantor's principal place of business and chief executive office is located at 4510 Harshman Road, Dayton, OH 45424. No Grantor has any other places of business other than such address, except as disclosed on Schedule III-A.
Section 3.5 — Legal Name; Organizational Information.
(a) The exact legal name, Employer Identification Number, state of organization, type of organization, and organizational identification number of each Grantor are as set forth on Schedule III-B attached hereto. No Grantor has changed its legal name, state of organization, organizational structure, or identity within the five (5) years preceding the date hereof, except as disclosed on Schedule III-B.
(b) CPS's exact legal name as it appears on its organizational filings with the Ohio Secretary of State is "Crestline Packaging Solutions LLC," Employer Identification Number 31-1784562, organized as an Ohio limited liability company, Ohio Secretary of State Filing No. 4217835.
(c) CCI's exact legal name as it appears on its organizational filings with the Ohio Secretary of State is "Crestline Coatings Inc.," Employer Identification Number 31-2093417, organized as an Ohio corporation, Ohio Secretary of State Filing No. 4389201.
Section 3.6 — Accounts Receivable.
(a) All Accounts of each Grantor represent bona fide obligations of the respective account debtors arising in the ordinary course of such Grantor's business for goods sold, leased, or licensed or services rendered or to be rendered by such Grantor. All statements made and all unpaid balances and other matters appearing in any invoice, account statement, or other writing delivered to the Secured Party relating to any Account are true and correct in all material respects and are in accordance with such Grantor's books and records.
(b) No Grantor has knowledge of any fact, event, or circumstance that would impair the validity or collectability of any Account that is material to such Grantor's business or financial condition, and no Grantor is aware of any dispute, claim, counterclaim, or set-off right with respect to any material Account.
Section 3.7 — Intellectual Property.
(a) Schedule II-A attached hereto sets forth a complete and accurate list of all registered Trademarks, trademark applications, and material unregistered trademarks and trade names owned by each Grantor as of the date hereof, together with all applicable registration and application numbers, registration dates, and filing jurisdictions.
(b) Schedule II-B attached hereto sets forth a complete and accurate description of all material Trade Secrets owned by each Grantor as of the date hereof, including, without limitation, specialty chemical coating formulations used in industrial chemical coatings for the food and beverage sector, which are owned by CCI.
(c) Each Grantor owns or has the valid right to use all intellectual Property necessary for the conduct of its business as currently conducted. To each Grantor's knowledge, no Grantor's use of its intellectual Property infringes upon or misappropriates the intellectual property rights of any third party. No Grantor has received any notice, claim, or demand from any third party alleging infringement, misappropriation, or violation of any intellectual property right with respect to any material intellectual Property owned by or licensed to such Grantor.
(d) Each Grantor has taken commercially reasonable steps to maintain and protect the confidentiality and proprietary nature of its Trade Secrets, including requiring employees, contractors, and other persons with access to such Trade Secrets to execute confidentiality and non-disclosure agreements.
Section 3.8 — Subsidiaries.
(a) CPS owns one hundred percent (100%) of the outstanding equity interests (consisting of all issued and outstanding shares of capital stock) of CCI. CCI has no subsidiaries and does not own any equity interests in any other person or entity.
(b) The equity interests in CCI are subject to the Pledge Agreement dated as of April 22, 2021, pursuant to which CPS has pledged one hundred percent (100%) of such equity interests to the Secured Party as additional collateral for the Secured Obligations.
Section 3.9 — No Material Adverse Effect.
Since December 31, 2020, there has been no event, change, circumstance, condition, development, or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise), or prospects of any Grantor, (b) the ability of any Grantor to perform its obligations under this Agreement or any other Loan Document, (c) the legality, validity, binding effect, or enforceability of this Agreement or any other Loan Document, or (d) the value, perfection, priority, or enforceability of the security interests in the Collateral granted hereunder.
ARTICLE IV — COVENANTS
Each Grantor covenants and agrees with the Secured Party that, from and after the date hereof until the termination of this Agreement in accordance with Section 8.4 hereof, such Grantor shall comply with the following covenants:
Section 4.1 — Maintenance of Collateral.
Each Grantor shall maintain and preserve the Collateral in good condition and repair, ordinary wear and tear excepted, and shall make all necessary repairs, replacements, and improvements thereto that are necessary or appropriate to preserve the value and utility of the Collateral. Without limiting the generality of the foregoing, each Grantor shall maintain its Equipment in proper working order and condition, and shall not commit or permit waste, destruction, or material impairment of any Collateral, except for (a) the sale, lease, or other disposition of Inventory in the ordinary course of business, (b) the disposition of worn-out or obsolete Equipment that has been replaced by Equipment of equal or greater value and utility, or (c) other dispositions expressly permitted under the Mezzanine Credit Agreement.
Section 4.2 — Defense of Title.
Each Grantor shall defend its title to and interest in the Collateral against the claims and demands of all persons and entities, other than the holders of Permitted Liens and Senior Liens. Each Grantor shall promptly notify the Secured Party in writing of any event, claim, proceeding, or circumstance that could reasonably be expected to adversely affect the value of the Collateral or the Secured Party's security interest therein.
Section 4.3 — Insurance.
(a) Each Grantor shall maintain insurance on the Collateral with financially sound and reputable insurance companies or underwriters, in such amounts, with such deductibles, and covering such risks (including fire, theft, explosion, vandalism, casualty, and such other risks as are customarily insured against by companies engaged in the same or similar businesses) as are customary for similarly situated companies and as are satisfactory to the Secured Party. Without limiting the foregoing, each Grantor shall maintain property insurance (including business interruption insurance) covering the Collateral in an amount not less than the full replacement value of such Collateral.
(b) All insurance policies maintained pursuant to this Section 4.3 shall name the Secured Party as additional insured and loss payee (or mortgagee, as applicable), subject to the prior rights of the Senior Lender under the Intercreditor Agreement and any existing insurance arrangements with Pinnacle Commercial Bank, N.A. The Secured Party acknowledges that the Senior Lender is entitled to be named as first loss payee on all such insurance policies, and the Secured Party's rights as additional insured and loss payee shall be subordinate to the rights of the Senior Lender in accordance with the Intercreditor Agreement.
(c) The delivery of updated insurance certificates and endorsements naming Ironwood Capital Finance LLC as additional insured and second loss payee shall be a post-closing deliverable, due on or before May 7, 2021. Each Grantor shall deliver to the Secured Party, promptly upon request, copies of all insurance policies and evidence of the insurance required by this Section 4.3.
Section 4.4 — Restrictions on Disposition.
No Grantor shall sell, lease, transfer, assign, convey, or otherwise dispose of any Collateral, or agree to do any of the foregoing, except for the following: (a) sales of Inventory in the ordinary course of business for fair value on commercially reasonable terms, (b) dispositions of worn-out, damaged, or obsolete Equipment in the ordinary course of business where such Equipment has been replaced by Equipment of equal or greater value and utility, (c) the collection of Accounts in the ordinary course of business, and (d) other dispositions expressly permitted under the Mezzanine Credit Agreement. Any proceeds received by any Grantor from any permitted disposition shall be applied as required by the Mezzanine Credit Agreement.
Section 4.5 — Restrictions on Liens.
No Grantor shall create, assume, incur, or permit to exist any lien, security interest, charge, or encumbrance on or with respect to any Collateral, other than (a) Permitted Liens, (b) Senior Liens in favor of Pinnacle Commercial Bank, N.A. under the Senior Credit Agreement, and (c) the second-priority security interests granted in favor of the Secured Party under this Agreement. Each Grantor shall promptly notify the Secured Party in writing of the creation, assumption, or incurrence of any lien on any Collateral that is not a Permitted Lien, a Senior Lien, or a lien granted hereunder.
Section 4.6 — Changes in Name, Location, or Structure.
No Grantor shall (a) change its legal name, trade name, or any name under which it does business, (b) change its state of organization or jurisdiction of formation, (c) change its organizational structure or type of entity (including by merger, consolidation, conversion, or reorganization), (d) change its Employer Identification Number, or (e) change the location of its chief executive office or principal place of business, in each case, without providing at least thirty (30) days' prior written notice to the Secured Party, together with all information and documentation required by the Secured Party to maintain the perfection and priority of the security interests granted herein, including the filing of any necessary UCC amendments or continuation statements. Each Grantor shall cooperate with the Secured Party in connection with the filing of any such amendments or statements.
Section 4.7 — Books and Records; Inspection.
(a) Each Grantor shall keep and maintain at its chief executive office accurate and complete books and records relating to the Collateral, including records of all Accounts, Inventory, Equipment, and intellectual Property, in form and substance satisfactory to the Secured Party.
(b) The Secured Party (and its agents, representatives, and advisors) shall have the right, upon reasonable prior notice and at reasonable times during normal business hours, to inspect, audit, and examine the Collateral and all related books, records, ledger cards, correspondence, and other documents and instruments, and to make copies and extracts therefrom; provided, however, that such inspection rights shall be subject to the terms and conditions of the Intercreditor Agreement, including any provisions governing the coordination of inspections and audits with the Senior Lender. Prior to the occurrence of an Event of Default, the Secured Party may conduct one (1) inspection per calendar year at the Grantors' expense. Upon and after the occurrence and during the continuance of an Event of Default, the Secured Party may conduct inspections and audits at any time and from time to time, at the Grantors' expense, subject to the Intercreditor Agreement.
Section 4.8 — Collection of Accounts.
(a) Until the occurrence and during the continuance of an Event of Default, each Grantor may, in the ordinary course of business and in accordance with prudent business practices, collect, compromise, and settle its Accounts, and may grant extensions, modifications, and adjustments with respect thereto, in each case on commercially reasonable terms.
(b) Upon and after the occurrence and during the continuance of an Event of Default (and subject to the standstill provisions of the Intercreditor Agreement, including the one hundred eighty (180)-day standstill period), the Secured Party may, at its option, (i) notify any or all account debtors obligated on any Accounts of the assignment of such Accounts to the Secured Party and direct such account debtors to make all payments due on such Accounts directly to the Secured Party, (ii) demand, collect, and receive all amounts due on any Accounts, (iii) enforce payment of any Accounts by legal proceedings or otherwise, (iv) exercise all of such Grantor's rights and remedies with respect to the collection of its Accounts, (v) settle, adjust, compromise, extend, or renew any Accounts, and (vi) discharge and release any Accounts. Each Grantor hereby irrevocably appoints the Secured Party as its attorney-in-fact, which appointment is coupled with an interest, to take any and all actions contemplated by this Section 4.8(b) upon and after the occurrence and during the continuance of an Event of Default.
Section 4.9 — Intellectual Property Covenants.
Each Grantor shall:
(a) maintain, preserve, and protect all material intellectual Property and take all actions reasonably necessary to maintain the validity, enforceability, and value of such intellectual Property, including paying all maintenance fees and filing all necessary renewals and extensions;
(b) not abandon, cancel, or permit to lapse any material Trademark, Trade Secret, Patent, or Copyright without the prior written consent of the Secured Party, unless such Grantor determines in good faith that the continued maintenance of such intellectual Property is not material to the conduct of such Grantor's business;
(c) promptly notify the Secured Party in writing of (i) any infringement, misappropriation, dilution, or other violation of any material intellectual Property owned by such Grantor of which such Grantor becomes aware, (ii) any claim, demand, or proceeding brought or threatened against such Grantor alleging that such Grantor's activities, products, or services infringe upon or misappropriate the intellectual property rights of any third party, and (iii) any other event or circumstance that could reasonably be expected to adversely affect the value or enforceability of any material intellectual Property;
(d) take all steps reasonably necessary to maintain the confidentiality and proprietary nature of its Trade Secrets, including its proprietary coating formulations for food and beverage packaging applications, by requiring all employees, contractors, consultants, and other persons with access to such Trade Secrets to execute written confidentiality and non-disclosure agreements, by limiting access to Trade Secrets on a need-to-know basis, and by implementing and maintaining reasonable physical and electronic security measures; and
(e) not grant any exclusive license of any material intellectual Property to any third party without the prior written consent of the Secured Party.
Section 4.10 — Further Assurances.
Each Grantor shall, at its own expense, execute and deliver to the Secured Party such further instruments, documents, and agreements, and take such further actions (including the filing of UCC financing statements, continuation statements, amendments, and termination statements, the execution and delivery of control agreements, and the making of appropriate entries in books and records), as the Secured Party may from time to time reasonably request to (a) create, perfect, maintain, and protect the validity, perfection, and priority of the security interests granted herein, (b) enable the Secured Party to exercise and enforce its rights and remedies under this Agreement with respect to any Collateral, and (c) otherwise effectuate the purposes and intent of this Agreement. Without limiting the foregoing, each Grantor shall promptly provide the Secured Party with all information, documentation, and access necessary for the Secured Party to complete any filings or registrations contemplated by Article V hereof.
Section 4.11 — Use of Proceeds.
Proceeds of the Mezzanine Term Loan shall be used exclusively for capital expenditures related to the Dayton plant expansion project, consisting of the construction and build-out of a new approximately sixty-two thousand (62,000) square foot coating line facility and the acquisition and installation of packaging automation equipment, all as more particularly described in the Mezzanine Credit Agreement. No proceeds of the Mezzanine Term Loan shall be used for any purpose other than as set forth in the Mezzanine Credit Agreement, including without limitation for working capital, debt repayment (other than as expressly permitted), dividends, distributions, or any other purpose not authorized by the Mezzanine Credit Agreement.
ARTICLE V — PERFECTION
Section 5.1 — UCC Financing Statements.
(a) Each Grantor hereby authorizes the Secured Party to prepare, execute (to the extent required by applicable law), and file UCC-1 financing statements (and any continuation statements, amendments, and assignments thereof) with the Ohio Secretary of State, naming such Grantor as debtor and the Secured Party as secured party, and describing the Collateral, in order to perfect the security interests granted herein. Each Grantor further authorizes the Secured Party to file any such financing statements and amendments thereto without the signature of such Grantor to the extent permitted by applicable law.
(b) UCC-1 financing statements shall be filed with the Ohio Secretary of State within ten (10) business days following the closing date (i.e., on or before May 6, 2021) as a post-closing deliverable under the Mezzanine Credit Agreement. The filing jurisdiction for all UCC financing statements with respect to each Grantor shall be the Office of the Secretary of State of the State of Ohio.
(c) Each Grantor agrees to pay all filing fees and other costs and expenses associated with the filing of any UCC financing statements, continuation statements, and amendments. Each Grantor shall promptly provide the Secured Party with copies of all filed financing statements, together with evidence of the filing and any applicable filing numbers.
Section 5.2 — Real Property Filings.
CPS shall execute and deliver a recordable second-lien mortgage on the Dayton Facility (4510 Harshman Road, Dayton, OH 45424) in form and substance reasonably satisfactory to the Secured Party, to be recorded with the Montgomery County, Ohio Recorder's Office within thirty (30) days following the closing date (i.e., on or before May 22, 2021). CPS shall also deliver to the Secured Party, as a post-closing deliverable, a mortgagee title insurance policy (or a marked-up title insurance commitment) in an amount and form satisfactory to the Secured Party, insuring the second-lien priority of the Second Lien Mortgage, subject only to the first-lien mortgage in favor of Pinnacle Commercial Bank, N.A. and other Permitted Liens. CPS shall be responsible for all recording fees, title insurance premiums, and related costs and expenses.
Section 5.3 — Control Agreements.
(a) With respect to all Deposit Accounts maintained by any Grantor, such Grantor shall, within thirty (30) days following the closing date (or such longer period as the Secured Party may agree in writing), enter into deposit account control agreements in favor of the Secured Party with each financial institution at which such Deposit Accounts are maintained, in form and substance reasonably satisfactory to the Secured Party, in order to perfect the Secured Party's security interest in such Deposit Accounts.
(b) With respect to all Investment Property (including securities accounts) maintained by any Grantor, such Grantor shall, within thirty (30) days following the closing date (or such longer period as the Secured Party may agree in writing), enter into securities account control agreements in favor of the Secured Party with each securities intermediary at which such securities accounts are maintained, in form and substance reasonably satisfactory to the Secured Party.
(c) Each Grantor acknowledges that any deposit account control agreements or securities account control agreements in favor of the Secured Party shall be subject to the prior control agreements, if any, in favor of the Senior Lender, and that the respective rights and priorities of the Senior Lender and the Secured Party with respect to such Deposit Accounts and Investment Property shall be governed by the terms of the Intercreditor Agreement. Each Grantor shall cooperate with the Secured Party and the Senior Lender to enter into tri-party control agreements or other arrangements acceptable to the Senior Lender, the Secured Party, and the relevant depository institution or securities intermediary.
Section 5.4 — Intellectual Property Filings.
To the extent applicable and permitted by law, the Secured Party may file notices of security interest, assignments, or other documents with the United States Patent and Trademark Office and the United States Copyright Office (and any applicable state or foreign intellectual property registry) in order to perfect or provide notice of the security interests granted herein with respect to any Patents, Trademarks, or Copyrights included in the Collateral. Each Grantor shall execute and deliver to the Secured Party such short-form security agreements, assignments, and other documents as the Secured Party may reasonably request for recording with the United States Patent and Trademark Office, the United States Copyright Office, or any other applicable intellectual property registry.
Section 5.5 — Delivery of Instruments and Chattel Paper.
Each Grantor shall, promptly upon the request of the Secured Party, deliver to the Secured Party (or its designee) all Instruments and tangible Chattel Paper constituting Collateral, in each case endorsed in blank or to the order of the Secured Party, together with any necessary allonges or other endorsements, to the extent required for perfection by possession under Article 9 of the UCC. Each Grantor shall hold in trust for the Secured Party, and promptly deliver to the Secured Party upon request, any Instruments or tangible Chattel Paper received by such Grantor after the date hereof.
ARTICLE VI — RIGHTS AND REMEDIES
Section 6.1 — Rights upon Event of Default.
Upon the occurrence and during the continuance of an Event of Default (as defined in the Mezzanine Credit Agreement), the Secured Party shall have, in addition to all other rights and remedies granted to it under this Agreement and the other Loan Documents, all of the rights and remedies of a secured party under Article 9 of the UCC and under other applicable law, subject in all cases to the terms and conditions of the Intercreditor Agreement, including without limitation the standstill provisions set forth in Section 7.3 hereof. Without limiting the generality of the foregoing, the Secured Party shall have the right (subject to the Intercreditor Agreement) to:
(a) Foreclose on or otherwise realize upon the Collateral, by judicial or non-judicial process, or take any other action permitted by applicable law to enforce the security interests granted herein;
(b) Take possession of the Collateral, with or without judicial process, and enter upon any premises where any Collateral is located for the purpose of taking possession of or removing such Collateral, and each Grantor hereby consents to such entry and taking of possession;
(c) Sell, lease, or otherwise dispose of the Collateral, or any part thereof, at one or more public or private sales or other dispositions, for cash, on credit, or for future delivery, upon such terms and conditions as the Secured Party may deem commercially reasonable;
(d) Collect Accounts directly from account debtors and apply the proceeds thereof to the Secured Obligations in such order as the Secured Party may determine;
(e) Exercise voting rights and other rights with respect to any pledged equity interests in CCI, in accordance with and subject to the terms of the Pledge Agreement dated as of April 22, 2021; and
(f) Use, license, or sublicense any intellectual Property included in the Collateral, without charge or royalty, to the extent necessary or appropriate in connection with the sale, lease, or other disposition of any Collateral, or to otherwise realize upon the Collateral.
Section 6.2 — Sale of Collateral.
(a) The Secured Party may sell the Collateral, or any part thereof, at one or more public or private sales, for cash, credit, or any combination thereof, and upon such other terms as the Secured Party may deem commercially reasonable. The Secured Party shall give each Grantor not less than ten (10) days' prior written notice of the time and place of any public sale or of the time after which any private sale or other intended disposition is to be made, and each Grantor agrees that such notice constitutes "commercially reasonable notice" for all purposes of the UCC. The Secured Party may purchase any or all of the Collateral at any public sale, and, to the extent permitted by applicable law, at any private sale, and the Secured Party may credit the purchase price against the Secured Obligations.
(b) Each Grantor acknowledges that the Secured Party may be unable to effect a public sale of all or a part of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, and that the Secured Party may be compelled to resort to one or more private sales to a restricted group of purchasers. Each Grantor agrees that any such private sale may be at prices and on other terms less favorable to the Grantors than if such Collateral were sold at a public sale, and that such private sale shall not, by reason thereof alone, be deemed not to have been made in a commercially reasonable manner. The Secured Party shall have no obligation to delay sale of any Collateral to permit any Grantor to register or qualify such Collateral for public sale under any applicable securities laws.
(c) All rights and remedies of the Secured Party under this Section 6.2 are subject in all respects to the Intercreditor Agreement, including without limitation the one hundred eighty (180)-day standstill period described in Section 7.3 hereof and the turnover provisions described in Section 7.4 hereof.
Section 6.3 — Application of Proceeds.
(a) The Proceeds of any sale, collection, or other realization of the Collateral, or any part thereof, shall be applied by the Secured Party in the following order of priority: