Collateral Agreement

EXHIBIT 10.6
EXECUTION COPY


COLLATERAL AGREEMENT (this "Agreement"), dated as of August 12, 2003, by and among ARMOR HOLDINGS, INC., a Delaware corporation (the "Borrower"), certain of its Subsidiaries as identified on the signature pages hereto and any Additional Grantor (as defined below) who may become party to this Agreement (such Subsidiaries and Additional Grantors, collectively, with the Borrower, the "Grantors"), in favor of BANK OF AMERICA, N.A., as Administrative Agent (in such capacity, the "Administrative Agent") for the ratable benefit of the banks and other financial institutions (the "Lenders") from time to time parties to the Credit Agreement, dated as of August 12, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and among the Borrower, the Lenders, the Administrative Agent, Wachovia Bank, National Association, as Syndication Agent, and KeyBank National Association, as Documentation Agent.


STATEMENT OF PURPOSE


Pursuant to the Credit Agreement, the Lenders have agreed to make certain Credit Extensions to the Borrower upon the terms and subject to the conditions set forth therein.


Pursuant to the terms of a Subsidiary Guaranty Agreement of even date, certain Subsidiaries of the Borrower who are parties hereto have guaranteed payment and performance of the Obligations of the Borrower.


It is a condition precedent to the obligation of the Lenders to make their respective Credit Extensions to the Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent, for the ratable benefit of itself and the Lenders.


NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective Credit Extensions to the Borrower thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of itself and the Lenders, as follows:


ARTICLE I.
DEFINED TERMS


1.01 TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE.


(a) The following terms when used in this Agreement shall have the meanings assigned to them in the UCC (as defined in Section 1.02 below) as in effect from time to time: "Account", "Account Debtor", "Authenticate", "Certificated Security", "Chattel Paper", "Commercial Tort Claim", "Deposit Account", "Documents", "Electronic Chattel Paper", "Equipment", "Farm Products", "Fixture", "General Intangible", "Instrument", "Inventory", "Investment Company Security", "Investment Property", "Issuer", "Letter of Credit Rights", "Proceeds", "Record", "Registered Organization", "Security", "Securities Account", "Securities


Entitlement", "Securities Intermediary", "Supporting Obligation", "Tangible Chattel Paper", and "Uncertificated Security".


(b) Terms defined in the UCC and not otherwise defined herein or in the Credit Agreement shall have the meaning assigned in the UCC as in effect from time to time.


1.02 DEFINITIONS. The following terms when used in this Agreement shall have the meanings assigned to them below:


"Additional Grantor" means each Subsidiary of the Borrower which hereafter becomes a Grantor pursuant to Section 7.15 hereof and Section 6.09 of the Credit Agreement.


"Agreement" means this Collateral Agreement, as amended, restated, supplemented or otherwise modified from time to time.


"Applicable Insolvency Laws" means all applicable Laws governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws (including, without limitation, 11 U.S.C. Sections 547, 548 and 550 and other "avoidance" provisions of Title 11 of the United States Code).


"Assignment Agreement" means each Assignment Agreement executed by any Grantor with respect to any Material Government Contract to which such Grantor is a party, substantially in the form of Exhibit A-1 attached hereto.


"Assignment of Claims Act" means the Assignment of Claims Act of 1940 (41 U.S.C. Section 15, 31 U.S.C. Section 3737, and 31 U.S.C. Section 3727), including all amendments thereto and regulations promulgated thereunder.


"Collateral" has the meaning assigned thereto in Section 2.01.


"Collateral Account" means any collateral account established by the Administrative Agent as provided in Section 5.02.


"Control" means the manner in which "control" is achieved under the UCC with respect, to any Collateral for which the UCC specifies a method of achieving "control".


"Controlled Depository" has the meaning assigned thereto in Section 4.06.


"Controlled Intermediary" has the meaning assigned thereto in Section 4.06.


"Copyrights" means collectively, all of the following of any Grantor: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations and copyright applications anywhere in the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all reissues, extensions, continuations (in whole or in part) and renewals of any of the foregoing, (c) all income, royalties, damages and payments now or


2


hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing, (d) the right to sue for past, present and future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing throughout the world.


"Copyright Licenses" means any written agreement naming any Grantor as licensor or licensee (other than any such agreement that by its terms prohibits the granting of a security interest therein), including, without limitation, those listed in Schedule 3.11, granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.


"Effective Endorsement and Assignment" means, with respect to any specific type of Collateral, all such endorsements, assignments and other instruments of transfer reasonably requested by the Administrative Agent with respect to the Security Interest granted in such Collateral, and in each case, in form and substance satisfactory to the Administrative Agent.


"Government Contract" means a contract between any Grantor and an agency, department or instrumentality of the United States or any state, municipal or local Governmental Authority located in the United States or all obligations of any such Governmental Authority arising under any Account now or hereafter owing by any such Governmental Authority, as account debtor, to any Grantor.


"Grantors" has the meaning set forth in the Preamble of this Agreement.


"Guarantors" means the collective reference to each Person executing a Subsidiary Guaranty Agreement.


"Intellectual Property" means collectively, all of the following of any Grantor: (a) all systems software, applications software and internet rights, including, without limitation, screen displays and formats, internet domain names, web sites (including web links), program structures, sequence and organization, all documentation for such software, including, without limitation, user manuals, flowcharts, programmer's notes, functional specifications, and operations manuals, all formulas, processes, ideas and know-how embodied in any of the foregoing, and all program materials, flowcharts, notes and outlines created in connection with any of the foregoing, whether or not patentable or copyrightable, (b) concepts, discoveries, improvements and ideas, (c) any useful information relating to the items described in clause (a) or (b), including know-how, technology, engineering drawings, reports, design information, trade secrets, practices, laboratory notebooks, specifications, test procedures, maintenance manuals, research, development, manufacturing, marketing, merchandising, selling, purchasing and accounting, (d) Patents and Patent Licenses, Copyrights and Copyright Licenses, Trademarks and Trademark Licenses, and (e) other licenses to use any of the items described in the foregoing clauses (a), (b), (c) and (d) or any other similar items of such Grantor necessary for the conduct of its business.


"Issuer" means any issuer of any Investment Property or Partnership/LLC Interests (including, without limitation, any Issuer as defined in the UCC).


3


"Material Government Contracts" means each Government Contract which produces revenues to the Borrower or any Subsidiary in an amount in excess of $1,000,000 per annum.


"Notice of Assignment" means each Notice of Assignment executed by any Grantor with respect to any Material Government Contract to which such Grantor is a party, substantially in the form of Exhibit A-2.


"Obligations" means with respect to the Borrower, the meaning assigned thereto in the Credit Agreement, and with respect to each Guarantor, the obligations of such Guarantor under the Subsidiary Guaranty Agreement executed by such Guarantor and with respect to all Grantors, all liabilities and obligations of the Grantors hereunder and all liabilities and obligations of the Grantors with respect to overdrafts, returned items and related liabilities and all indemnification obligations now or hereafter owing by any Grantor to Bank of America, N.A., any Affiliate thereof or the Administrative Agent arising from or in connection with treasury, depositary or cash management services or in connection with any automated clearinghouse transfer of funds for the benefit of such Grantor.


"Partnership/LLC Interests" means, with respect to any Grantor, the entire partnership, membership interest or limited liability company interest, as applicable, of such Grantor in each partnership, limited partnership or limited liability company owned thereby, including, without limitation, such Grantor's capital account, its interest as a partner or member, as applicable, in the net cash flow, net profit and net loss, and items of income, gain, loss, deduction and credit of any such partnership, limited partnership or limited liability company, as applicable, such Grantor's interest in all distributions made or to be made by any such partnership, limited partnership or limited liability company, as applicable, to such Grantor and all of the other economic rights, titles and interests of such Grantor as a partner or member, as applicable, of any such partnership, limited partnership or limited liability company, as applicable, whether set forth in the partnership agreement or membership agreement, as applicable, of such partnership, limited partnership or limited liability company, as applicable, by separate agreement or otherwise.


"Patents" means collectively, all of the following of any Grantor: (a) all patents, rights and interests in patents, patentable inventions and patent applications anywhere in the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all reissues, extensions, continuations (in whole or in part) and renewals of any of the foregoing, (c) all income, royalties, damages or payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing, (d) the right to sue for past, present and future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing throughout the world.


"Patent License" means any agreement now or hereafter in existence, whether written, implied or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent (other than any such agreement that by


4


its terms prohibits the granting of a security interest therein), including, without limitation, any of the foregoing referred to in Schedule 3.11 hereto.


"Perfection Certificate" means the perfection certificate dated as of even date herewith, substantially in the form of Exhibit B attached hereto, and otherwise in form and substance satisfactory to the Administrative Agent, and duly certified by an officer, partner or member, as applicable, of each Grantor.


"Permitted Liens" means Liens permitted pursuant to Section 7.03 of the Credit Agreement.


"Securities Act" means the Securities Act of 1933, including all amendments thereto and regulations promulgated thereunder.


"Security Interests" means the security interests granted pursuant to Article II, as well as all other security interests created or assigned as additional security for the Obligations pursuant to the provisions of the Credit Agreement.


"Subsidiary Guaranty Agreement" has the meaning assigned thereto in the Credit Agreement.


"Subsidiary Issuer" means any Issuer of Investment Property or any Partnership/LLC Interests, which is a direct or indirect Subsidiary of the Borrower.


"Trademarks" means, collectively, all of the following of any Grantor: (a) all trademarks, rights and interests in trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, whether registered or unregistered, all registrations and recordings thereof, and all applications in connection therewith (other than each application to register any trademark or service mark prior to the filing under applicable Law of a verified statement of use for such mark) anywhere in the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all reissues, extensions, continuations (in whole or in part) and renewals of any of the foregoing, (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing, (d) the right to sue for past, present and future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing (including the goodwill) throughout the world.


"Trademark License" means any agreement now or hereafter in existence, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark (other than any such agreement that by its terms prohibits the granting of a security interest therein), including, without limitation, any of the foregoing referred to in Schedule 3.11.


"UCC" means the Uniform Commercial Code as in effect in the State of New York, as amended or modified from time to time.


5


"Vehicles" means all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title under the laws of any state, and all tires all other appurtenances to any of the foregoing.


1.03 OTHER DEFINITIONAL PROVISIONS. Terms defined in the Credit Agreement and not otherwise defined herein shall have the meaning assigned thereto in the Credit Agreement. The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof.


ARTICLE II.
SECURITY INTEREST


2.01 GRANT OF SECURITY INTEREST. Each Grantor hereby grants, pledges and collaterally assigns to the Administrative Agent, for the ratable benefit of itself and the Lenders, a security interest in, all of such Grantor's right, title and interest in the following property, now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest, and wherever located or deemed located (collectively, the "Collateral"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations:


(a) all Accounts;


(b) all cash and currency;


(c) all Chattel Paper;


(d) all Deposit Accounts;


(e) all Documents;


(f) all Equipment;


(g) all Fixtures;


(h) all General Intangibles;


(i) all Instruments;


(j) all Intellectual Property;


6


(k) all Inventory;


(l) all Investment Property;


(m) all Letter of Credit Rights;


(n) all Vehicles;


(o) all other personal property not otherwise described above;


(p) all books and records pertaining to the Collateral; and


(q) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and Supporting Obligations (as now or hereafter defined in the UCC) given by any Person with respect to any of the foregoing;


provided that


(a) any Security Interest on any Capital Stock issued by any "first-tier" Foreign Subsidiary of any Grantor shall be limited to (i) 65% of the outstanding voting Capital Stock of such Foreign Subsidiary and 100% of the outstanding nonvoting Capital Stock of such Foreign Subsidiary, if a Responsible Officer shall have certified to the Administrative Agent and the Lenders that the pledge of greater than 66-2/3% of the Capital Stock of such Foreign Subsidiary would materially and adversely affect the tax position of such Subsidiary and of the Borrower, or (ii) all of the Capital Stock of such Subsidiary, otherwise,


(b) the Grantors shall not be required to perfect the Security Interest on any Capital Stock issued by any "first-tier" Foreign Subsidiary of any Grantor pursuant to this Section 2.01 until March 31, 2004, and


(b) the Security Interest granted herein shall not extend to, and the term "Collateral" shall not include, any rights under any lease, contract or agreement (including, without limitation, any license for Intellectual Property) to the extent that the granting of a security interest therein is specifically prohibited in writing by, or would constitute an event of default under, any agreement governing such right unless (i) such prohibition is not enforceable or is otherwise ineffective under applicable Law or (ii) with respect to any Government Contract, such prohibition is conditioned upon compliance with the Assignment of Claims Act (or analogous state Applicable Law).


Notwithstanding any of the foregoing, such proviso shall not affect, limit, restrict or impair the grant by any Grantor of a Security Interest in any Account or any money or other amounts due and payable to any Grantor or to become due and payable to any Grantor under any such lease, contract or agreement.


7


2.02 GRANTORS REMAIN LIABLE. Anything herein to the contrary notwithstanding: (a) each Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Administrative Agent of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, (c) neither the Administrative Agent nor any Lender shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Administrative Agent or any Lender be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder, and (d) neither the Administrative Agent nor any Lender shall have any liability in contract or tort for any Grantor's acts or omissions.


ARTICLE III.
REPRESENTATIONS AND WARRANTIES


To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective Credit Extensions to the Borrower thereunder, each Grantor hereby represents and warrants to the Administrative Agent and each Lender that:


3.01 EXISTENCE. Except as set forth on Schedule 5.03 to the Credit Agreement, each Grantor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has the requisite power and authority to own, lease and operate its properties and to carry on its business as now being and hereafter proposed to be conducted and is duly qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization.


3.02 AUTHORIZATION OF AGREEMENT; NO CONFLICT. Each Grantor has the right, power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of, this Agreement. This Agreement has been duly executed and delivered by the duly authorized officers of each Grantor and this Agreement constitutes the legal, valid and binding obligation of the Grantors enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal debtor relief laws from time to time in effect which affect the enforcement of creditors' rights in general and the availability of equitable remedies. The execution, delivery and performance by the Grantors of this Agreement will not, by the passage of time, the giving of notice or otherwise, violate any material provision of any applicable Law or Contractual Obligation and will not result in the creation or imposition of any Lien, other than the Security Interests, upon or with respect to any property or revenues of any Grantor.


3.03 CONSENTS. No approval, consent, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against any Grantor or any Subsidiary Issuer of this Agreement, except (a) as may be required by laws affecting the offering and sale of securities generally, (b) filings with the United States Copyright Office and/or the United States Patent and Trademark Office and (c) filings under the UCC and/or the Assignment of Claims Act.


8


3.04 PERFECTED FIRST PRIORITY LIENS. Each financing statement naming any Grantor as a debtor is in appropriate form for filing in the appropriate filing offices of the states specified on Schedule 3.06. Except as set forth in Section 2.01, the Security Interests granted pursuant to this Agreement (a) constitute valid perfected security interests in all of the Collateral in favor of the Administrative Agent, for the ratable benefit of itself and the Lenders, as collateral security for the Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Liens.


3.05 TITLE, NO OTHER LIENS. Except for the Security Interests, each Grantor owns each item of the Collateral free and clear of any and all Liens or claims other than Permitted Liens. No financing statement under the UCC of any state which names a Grantor as debtor or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of itself and the Lenders, pursuant to this Agreement or in connection with Permitted Liens. No Collateral is in the possession or Control of any Person asserting any claim thereto or security interest therein, except that (a) the Administrative Agent or its designee may have possession or Control of Collateral as contemplated hereby, (b) a depositary bank may have Control of a Deposit Account owned by a Grantor at such depositary bank and a Securities Intermediary may have Control over a Securities Account owned by a Grantor at such Securities Intermediary, in each case subject to the terms of any Deposit Account control agreement or Securities Account control agreement, as applicable and to the extent required by Section 4.06, in favor of the Administrative Agent, and (c) a bailee, consignee or other Person may have possession of the Collateral as contemplated by, and so long as, the applicable Grantors have complied to the satisfaction of the Administrative Agent with the applicable provisions of Section 4.06(c).


3.06 STATE OF ORGANIZATION; LOCATION OF INVENTORY, EQUIPMENT AND FIXTURES; OTHER INFORMATION.


(a) The exact legal name of each Grantor is set forth on Schedule 3.06.


(b) Each Grantor is a Registered Organization organized under the laws of the state identified on Schedule 3.06 under such Grantor's name. The taxpayer identification number and Registered Organization number of each Grantor is set forth on Schedule 3.06 under such Grantor's name.


(c) All Collateral consisting of Inventory, Equipment and Fixtures (whether now owned of hereafter acquired) is (or will be) located at the locations specified on Schedule 3.06, except as otherwise permitted hereunder.


(d) The mailing address, chief place of business, chief executive office and office where each Grantor keeps its books and records relating to the Accounts, Documents, General Intangibles, Instruments and Investment Property in which it has any interest is located at the locations specified on Schedule 3.06 under such Grantor's name. No Grantor has any other


9


places of business except those separately set forth on Schedule 3.06 under such Grantor's name. No Grantor does business nor has done business during the past five years under any trade name or fictitious business name except as disclosed on Schedule 3.06 under such Grantor's name. Except as disclosed on Schedule 3.06 under such Grantors name, no Grantor has acquired assets from any Person, other than assets acquired in the ordinary course of such Grantor's business, during the past five years.


3.07 ACCOUNTS.


(a) Each existing Account constitutes, and each hereafter arising Account will constitute, the legally valid and binding obligation of the applicable Account Debtor. The amount represented by each Grantor to the Administrative Agent as owing by each Account Debtor is, or will be, the correct amount actually and unconditionally owing, except for normal cash discounts and allowances where applicable. No Account Debtor has any defense, set-off, claim or counterclaim against any Grantor that can be asserted against the Administrative Agent, whether in any proceeding to enforce Administrative Agent's rights in th ...