EXHIBIT 10.2
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SECURITY AGREEMENT
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THIS SECURITY AGREEMENT (the "Agreement") dated as of October 16, 2001
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between ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, a Nevada corporation (the "Debtor"), and ▇▇▇▇
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Capital Growth Fund II, L.P. (the "Secured Party").
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R E C I T A L S:
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WHEREAS, the Debtor and the Secured Party are entering into that
certain Securities Purchase Agreement dated of even date herewith (such
agreement as it may be amended, renewed, extended, restated, replaced,
substituted, supplemented, or otherwise modified from time to time is referred
to herein as the "Purchase Agreement"); and
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WHEREAS, execution and delivery of this Agreement is a condition to the
Secured Party entering into the Purchase Agreement and the purchase of the
Convertible Note pursuant thereto;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the adequacy, receipt, and sufficiency of which are
hereby acknowledged, and in order to induce the Secured Party to make the loan
under the Purchase Agreement, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
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Section 1.01. Definitions. As used in this Agreement, the following
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terms have the following meanings:
"Account" means any "account," as such term is defined in Article or
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Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor and, in any
event, shall include, without limitation, each of the following, whether now
owned or hereafter acquired by the Debtor: (a) all rights of the Debtor to
payment for goods sold or leased or services rendered, whether or not earned by
performance, (b) all accounts receivable of the Debtor, (c) all rights of the
Debtor to receive any payment of money or other form of consideration, (d) all
security pledged, assigned, or granted to or held by the Debtor to secure any of
the foregoing, (e) all guaranties of, or indemnifications with respect to, any
of the foregoing, and (f) all rights of the Debtor as an unpaid seller of goods
or services, including, but not limited to, all rights of stoppage in transit,
replevin, reclamation and resale.
"Borrower" means the Debtor.
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"Broker" means any "broker," as such term is defined in Article or
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Chapter 8 of the UCC, and in any event shall include, but not be limited to, any
Person defined as a broker or dealer under the federal securities laws, but
without excluding a bank acting in that capacity.
"Chattel Paper" means any "chattel paper," as such term is defined in
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Article or Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor.
"Clearing Corporation" means any "clearing corporation," as such term
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is defined in Article or Chapter 8 of the UCC, and in any event shall include,
but not be limited to, any (a) Person that is registered as a "clearing agency"
under the federal securities laws, (b) federal reserve bank, or (c) other Person
that provides clearance or settlement services with respect to Financial Assets
that would require it to register as a clearing agency under the federal
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securities laws but for an exclusion or exemption from the registration
requirement, if its activities as a clearing corporation, including promulgation
of rules, are subject to regulation by a federal or state governmental
authority.
"Collateral" has the meaning specified in Section 2.01 of this
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Agreement.
"Commodity Account" means any commodity account, now owned or hereafter
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acquired by the Debtor, including, without limitation, all accounts maintained
by a Commodity Intermediary in which a Commodity Contract is carried for the
Debtor.
"Commodity Contract" means any commodity contract, and includes,
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without limitation, a commodity futures contract, a commodity option, or other
contract that, in each case, is (a) traded on or subject to the rules of a board
of trade that has been designated as a contract market for such a contract
pursuant to the federal commodities laws, or (b) traded on a foreign commodity
board of trade, exchange, or market, and is carried on the books of a Commodity
Intermediary for a Commodity Customer.
"Commodity Customer" means any Person for whom a Commodity Intermediary
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carries a Commodity Contract on its books.
"Commodity Intermediary" means (a) a Person who is registered as a
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futures commission merchant under the federal commodities laws, or (b) a Person
who in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been designated as a contract market
pursuant to the federal commodities laws.
"Deposit Accounts" means any and all deposit accounts, bank accounts or
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investment accounts now owned or hereafter acquired or opened by the Debtor, and
any account which is a replacement or substitute for any of such accounts,
together with all monies, Instruments and other property deposited therein and
all balances therein and all investments made with funds deposited therein or
otherwise held in connection therewith including, without limitation,
indebtedness (howsoever evidenced) and/or securities issued or guaranteed by the
government of the United States of America, certificates of deposit and all
contract rights, General Intangibles, contracts, Instruments, Investment
Property, Security Entitlements, Financial Assets, Commodity Contracts and other
Documents now or hereafter existing with respect thereto, including, but not
limited to, any and all renewals, extensions, reissuances and replacements and
substitutions therefor with all earnings, profits or other Proceeds therefrom in
the form of interest or otherwise.
"Document" means any "document," as such term is defined in Article or
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Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor, including,
without limitation, all documents of title and all receipts covering, evidencing
or representing goods now owned or hereafter acquired by the Debtor.
"Entitlement Holder" means any Person identified in the records of a
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Securities Intermediary as the Person having a Security Entitlement against the
Securities Intermediary.
"Equipment" means any "equipment," as such term is defined in Article
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or Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor and, in
any event, shall include, without limitation, all machinery, equipment,
furniture, fixtures, trade fixtures, trailers, rolling stock, vessels, aircraft
and vehicles now owned or hereafter acquired by the Debtor and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
"Financial Asset" means any financial asset, and in any event shall
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include, but not be limited to, any (a) Security, (b) obligation of a Person or
a share, participation or other interest in a Person or in property or an
enterprise of a Person, which is, or is of a type, dealt in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment, and (c) any property that is held by a
Securities
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Intermediary for another Person in a Securities Account if the Securities
Intermediary has expressly agreed with the other Person that the property is to
be treated as a Financial Asset under Article or Chapter 8 of the UCC.
"General Intangibles" means any "general intangibles," as such term is
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defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by
the Debtor and, in any event, shall include, without limitation, each of the
following, whether now owned or hereafter acquired by the Debtor: (a) all of the
Debtor's service marks, trade names, trade secrets, registrations, goodwill,
franchises, licenses, permits, proprietary information, customer lists, designs
and inventions; (b) all of the Debtor's books, records, data, plans, manuals,
computer software, computer tapes, computer disks, computer programs, source
codes, object codes and all rights of the Debtor to retrieve data and other
information from third parties; (c) all of the Debtor's contract rights,
partnership interests, joint venture interests, securities, deposit accounts,
investment accounts and certificates of deposit; (d) all rights of the Debtor to
payment under letters of credit and similar agreements; (e) all tax refunds and
tax refund claims of the Debtor; (f) all choses in action and causes of action
of the Debtor (whether arising in contract, tort or otherwise and whether or not
currently in litigation) and all judgments in favor of the Debtor; (g) all
rights and claims of the Debtor under warranties and indemnities; and (h) all
rights of the Debtor under any insurance, surety or similar contract or
arrangement.
"Instrument" means any "instrument," as such term is defined in Article
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or Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor, and, in
any event, shall include all promissory notes, drafts, bills of exchange and
trade acceptances of the Debtor, whether now owned or hereafter acquired.
"Intellectual Property" means (a) all copyrights, copyright licenses,
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patents, patent licenses, trademarks and trademark licenses of Debtor; (b) all
renewals, extensions and modifications thereof; (c) all income, royalties,
damages, profits and payments relating to or payable under any of the foregoing;
(d) the right to ▇▇▇ for past, present or future infringements of any of the
foregoing; (e) all other rights and benefits relating to any of the foregoing
throughout the world; and (f) all goodwill associated with and symbolized by any
of the foregoing; in each case, whether now owned or hereafter acquired by the
Debtor.
"Inventory" means any "inventory," as such term is defined in Article
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or Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor, and, in
any event, shall include, without limitation, each of the following, whether now
owned or hereafter acquired by the Debtor: (a) all goods and other personal
property of the Debtor that are held for sale or lease or to be furnished under
any contract of service; (b) all raw materials, work-in-process, finished goods,
inventory, supplies and materials of the Debtor; (c) all wrapping, packaging,
advertising and shipping materials of the Debtor; (d) all goods that have been
returned to, repossessed by or stopped in transit by the Debtor; and (e) all
Documents evidencing any of the foregoing.
"Investment Property" means any investment property, now owned or
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hereafter acquired by the Debtor, and, in any event, shall include, without
limitation, each of the following, whether now owned or hereafter acquired by
the Debtor: (a) any Security, whether certificated or uncertificated; (b) any
Security Entitlement; (c) any Securities Account; (d) any Commodity Contract;
and (e) any Commodity Account.
"Issuer" means any "issuer," as such term is defined in Article or
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Chapter 8 of the UCC, and in any event shall include, but not be limited to, any
Person that, with respect to an obligation on or a defense to a Security, (a)
places or authorizes the placing of its name on a Security Certificate, other
than as authenticating trustee, registrar, transfer agent, or the like, to
evidence a share, participation, or other interest in its property or in an
enterprise, or to evidence its duty to perform an obligation represented by the
certificate; (b) creates a share, participation, or other interest in its
property or in an enterprise, or undertakes an obligation, that is an
Uncertificated Security; (c) directly or indirectly creates a fractional
interest in its rights or property, if the fractional interest is represented by
a Security Certificate; or (d) becomes responsible for, or in the place of,
another Issuer.
"Obligations" means all indebtedness, liabilities and obligations of
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Debtor under the Convertible Note, under the Purchase Agreement and under this
Agreement.
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"Permitted Liens" means Liens and security interests (a) permitted
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under Section 7.4 of the Purchase Agreement or (b) in favor of Secured Party.
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"Pledged Collateral" has the meaning specified in Section 4.13(b)(i) of
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this Agreement.
"Pledged Shares" means the shares of capital stock or other equity,
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partnership or membership interests described on Schedule 3 attached hereto and
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incorporated herein by reference.
"Proceeds" means any "proceeds," as such term is defined in Article or
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Chapter 9 of the UCC and, in any event, shall include, but not be limited to,
(a) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to the Debtor from time to time with respect to any of the Collateral,
(b) any and all payments (in any form whatsoever) made or due and payable to the
Debtor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental authority (or any Person acting, or purporting to act, for or on
behalf of any governmental authority), and (c) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.
"Securities Account" means any account to which a Financial Asset is or
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may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise the rights that comprise the Financial Asset.
"Securities Intermediary" means any (a) Clearing Corporation, or (b)
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Person, including a bank or Broker, that in the ordinary course of its business
maintains Securities Accounts for others and is acting in that capacity.
"Security" means any "security," as such term is defined in Article or
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Chapter 8 of the UCC and, in an event, shall include, but not be limited to, any
obligation of an Issuer or a share, participation, or other interest in an
issuer or in property or an enterprise or an Issuer: (a) which is represented by
a Security Certificate in bearer or registered form, or the transfer of which
may be registered upon books maintained for that purpose by or on behalf of the
Issuer; (b) which is one of a class or series or by its terms is divisible into
a class or series of shares, participations, interests, or obligations; and (c)
which (i) is, or is of a type, dealt in or traded on securities exchanges or
securities markets; or (ii) is a medium for investment and by its terms
expressly provides that it is a security governed by Article or Chapter 8 of the
UCC.
"Security Certificate" means any certificate representing a Security.
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"Security Entitlement" means any the rights and property interest of an
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Entitlement Holder with respect to a Financial Asset.
"UCC" means the Uniform Commercial Code as in effect in the State of
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Texas; provided, that if, by applicable law, the perfection or effect of
perfection or non-perfection of the security interest created hereunder in any
Collateral is governed by the Uniform Commercial Code as in effect on or after
the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or the effect of perfection or
non-perfection.
"Uncertificated Security" means any "uncertificated security," as such
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term is defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any Security that is not represented by a
certificate.
Section 1.02. Other Definitional Provisions. Terms used herein
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that are defined in the Purchase Agreement and are not otherwise defined herein
shall have the meanings therefor specified in the Purchase Agreement. References
to "Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections,
subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement are
equally applicable to the singular and plural forms of the terms defined. All
references to statutes and regulations shall include any amendments of the same
and any successor statutes and regulations. References to
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particular sections of the UCC should be read to refer also to parallel sections
of the Uniform Commercial Code as enacted in each state or other jurisdiction
where any portion of the Collateral is or may be located.
ARTICLE II
Security Interest
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Section 2.01. Security Interest. As collateral security for the prompt
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payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration or otherwise), the Debtor hereby pledges and assigns
(as collateral) to the Secured Party, and grants to the Secured Party a
continuing lien on and security interest in, all of the Debtor's right, title
and interest in and to the following, whether now owned or hereafter arising or
acquired and wherever located (collectively, the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Instruments;
(d) all General Intangibles;
(e) all Documents;
(f) all Equipment;
(g) all Inventory;
(h) all Intellectual Property;
(i) all Investment Property;
(j) all Deposit Accounts of the Debtor and all funds,
certificates, Documents, Instruments, checks, drafts, wire
transfer receipts and other earnings, profits or other
Proceeds from time to time representing, evidencing, deposited
into or held in the Deposit Accounts (including, without
limitation, in the form of interest);
(k) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed or distributable in respect of or in exchange for
any or all of the Pledged Shares;
(l) all additional shares of stock of the Subsidiaries of the
Debtor from time to time owned or acquired by the Debtor in
any manner, and the certificates and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed or distributable in
respect of or in exchange for any or all of such shares;
(m) all indebtedness from time to time owed to the Debtor by the
Subsidiaries of the Debtor and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other
property from time to time received, receivable or otherwise
distributed or distributable in respect of or in exchange
for any or all of such indebtedness;
(n) the proceeds, in cash or otherwise, of any of the property
described in the foregoing clauses (a) through (m) and all
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liens, security, rights, remedies and claims of the Debtor
with respect thereto;
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(o) all other goods and personal property of the Debtor of any
kind or character, whether tangible or intangible, including,
without limitation, any and all rights in and claims under
insurance policies, judgments and rights thereunder, and tort
claims; and
(p) all Proceeds and products of any or all of the foregoing.
Section 2.02. Debtor Remains Liable. Notwithstanding anything to the
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contrary contained herein, (a) the Debtor shall remain liable under the
contracts, agreements, documents and instruments 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 the Secured Party of any of its rights or remedies hereunder
shall not release the Debtor from any of its duties or obligations under the
contracts, agreements, documents and instruments included in the Collateral, and
(c) the Secured Party shall not have any indebtedness, liability or obligation
under any of the contracts, agreements, documents and instruments included in
the Collateral by reason of this Agreement, and the Secured Party shall not be
obligated to perform any of the obligations or duties of the Debtor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
Section 2.03. Delivery of Collateral. All certificates or instruments
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representing or evidencing the Pledged Shares, any Instruments or Chattel Paper
or any other Collateral including, without limitation, any Investment Property,
promptly upon the Debtor gaining any rights therein, shall be delivered to and
held by or on behalf of the Secured Party pursuant hereto in suitable form for
transfer by delivery, or accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Secured Party. After the occurrence and during the continuation of an Event of
Default, the Secured Party shall have the right at any time to exchange
certificates or instruments representing or evidencing any Pledged Collateral in
its possession for certificates or instruments of smaller or larger
denominations.
ARTICLE III
Representations and Warranties
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To induce the Secured Party to enter into this Agreement and the
Purchase Agreement, the Debtor represents and warrants to the Secured Party
that:
Section 3.01. Title. The Debtor is, and with respect to Collateral
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acquired after the date hereof the Debtor will be, the legal and beneficial
owner of the Collateral free and clear of any Lien or other encumbrance, except
for Permitted Liens.
Section 3.02. Accounts. Unless the Debtor has given the Secured Party
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written notice to the contrary, whenever the security interest granted hereunder
attaches to an Account, the Debtor shall be deemed to have represented and
warranted to the Secured Party as to each of its Accounts that (a) each Account
is genuine and in all respects what it purports to be, (b) each Account
represents the legal, valid and binding obligation of the account debtor
evidencing indebtedness unpaid and owed by such account debtor, (c) except for
defenses and business disputes arising in the ordinary course of business which
in the aggregate are not material, the amount of each Account represented as
owing is the correct amount actually and unconditionally owing except for normal
trade discounts granted in the ordinary course of business, and (d) except for
defenses and business disputes arising in the ordinary course of business which
in the aggregate are not material, no Account is subject to any offset,
counterclaim, or other defense.
Section 3.03. Financing Statements. No financing statement, security
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agreement or other Lien instrument covering all or any part of the Collateral is
on file in any public office, except as may have been filed in favor of the
Secured Party pursuant to this Agreement and except for financing statements
evidencing Permitted Liens in favor of the Secured Party. Except as otherwise
disclosed on Schedule 4 hereto, the Debtor does not do business and has not done
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business within the past five (5) years under a trade name or any name other
than its legal name set forth at the beginning of this Agreement.
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Section 3.04. Principal Place of Business. The principal place of
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business and chief executive office of the Debtor, and the office where the
Debtor keeps its books and records, is located at the address of the Debtor
shown on the signature pages of this Agreement.
Section 3.05. Location of Collateral. All Inventory (except Inventory
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in transit) and Equipment (other than vehicles) of the Debtor are located at the
places specified on Schedule 1 hereto. If any such location is leased by the
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Debtor, the name and address of the landlord leasing such location is identified
on Schedule 1 hereto. The Debtor has exclusive possession and control of its
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Inventory and Equipment. None of the Inventory or Equipment of the Debtor is
evidenced by a Document (including, without limitation, a negotiable document of
title). All Instruments, Chattel Paper and Security Certificates of the Debtor
have been delivered to the Secured Party.
Section 3.06. Perfection. Upon the filing of Uniform Commercial Code
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financing statements in the jurisdictions listed on Schedule 2 attached hereto,
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and upon the Secured Party's obtaining possession of the Pledged Shares and all
other Instruments, Chattel Paper and Security Certificates of the Debtor, the
security interest in favor of the Secured Party created herein will constitute a
valid and perfected Lien upon and security interest in the Collateral, subject
to no equal or prior Liens except for those (if any) which constitute Permitted
Liens in favor of the Secured Party.
Section 3.07. Inventory. All Inventory has been produced in
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compliance with all requirements of the Fair Labor Standards Act.
Section 3.08. Pledged Shares.
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(a) The Pledged Shares that are shares of a corporation have been duly
authorized and validly issued and are fully paid and nonassessable, and the
Pledged Shares that are membership or partnership interests (if any) have been
validly granted, under the laws of the jurisdiction of organization of the
issuers thereof.
(b) The Debtor is the legal and beneficial owner of the Pledged Shares,
free and clear of any Lien (other than the Lien created by this Agreement), and
the Debtor has not sold, granted any option with respect to, assigned,
transferred or otherwise disposed of any of its rights or interest in or to the
Pledged Shares.
(c) On the date hereof, the Pledged Shares constitute the percentage of
the issued and outstanding shares of stock, partnership interests or membership
interests of the issuers thereof indicated on Schedule 3, as such Schedule 3 may
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from time to time be supplemented, amended or modified.
ARTICLE IV
Covenants
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The Debtor covenants and agrees with the Secured Party that until the
Obligations are paid and performed in full:
Section 4.01. Encumbrances. The Debtor shall not create, permit or
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suffer to exist, and shall defend the Collateral against, any Lien or other
encumbrance on the Collateral except for Permitted Liens, and shall defend the
Debtor's rights in the Collateral and the Secured Party's pledge and collateral
assignment of and security interest in the Collateral against the claims and
demands of all Persons. The Debtor shall do nothing to impair the rights of the
Secured Party in the Collateral.
Section 4.02. Modification of Accounts. The Debtor shall, in accordance
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with prudent business practices, endeavor to collect or cause to be collected
from each account debtor under its Accounts, as and when due, any and all
amounts owing under such Accounts. Without the prior written consent of the
Secured Party the Debtor shall not (a) grant any extension of time for any
payment with respect to any of the Accounts, (b) compromise, compound or
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settle any of the Accounts for less than the full amount thereof, (c) release,
in whole or in part, any Person liable for payment of any of the Accounts, (d)
allow any credit or discount for payment with respect to any Account other than
trade discounts granted in the ordinary course of business, or (e) release any
Lien or guaranty securing any Account.
Section 4.03. Disposition of Collateral. Except as expressly permitted
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by the terms of the Purchase Agreement and sales of Inventory in the ordinary
course of the Debtor's business, the Debtor shall not sell, lease, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, the Collateral or any part thereof without the prior written consent
of the Secured Party.
Section 4.04. Further Assurances. At any time and from time to time,
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upon the request of the Secured Party, and at the sole expense of the Debtor,
the Debtor shall promptly execute and deliver all such further agreements,
documents and instruments and take such further action as the Secured Party may
reasonably deem necessary or appropriate to preserve and perfect its security
interest in and pledge and collateral assignment of the Collateral and carry out
the provisions and purposes of this Agreement or to enable the Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any of
the Collateral, and, to the extent any of the Collateral is at any time in the
custody of a Clearing Corporation or of a "custodian bank" or a nominee of
either, as defined in the UCC, or any other Securities Intermediary, then the
Debtor shall cause the Secured Party to obtain "control," as defined in Article
or Chapter 8 of the UCC, of such Collateral in one of the manners prescribed in
Article or Chapter 8.106 of the UCC. Except as otherwise expressly permitted by
the terms of the Purchase Agreement relating to disposition of assets and except
for Permitted Liens, the Debtor agrees to defend the title to the Collateral and
the Lien thereon of the Secured Party against the claim of any other Person and
to maintain and preserve such Lien. Without limiting the generality of the
foregoing, the Debtor shall (a) execute and deliver to the Secured Party such
financing statements as the Secured Party may from time to time require; (b)
deliver and pledge to the Secured Party all Documents (including, without
limitation, documents of title) evidencing Inventory or Equipment and cause the
Secured Party to be named as lienholder on all Documents of title; (c) deliver
and pledge to the Secured Party all Instruments and Chattel Paper of the Debtor
with any necessary endorsements; and (d) execute and deliver to the Secured
Party such other agreements, documents and instruments as the Secured Party may
require to perfect and maintain the validity, effectiveness and priority of the
Liens intended to be created by the Transaction Agreements. The Debtor
authorizes the Secured Party to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the signature of the Debtor where permitted by law. A carbon,
photographic or other reproduction of this Agreement or of any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement and may be filed as a financing statement.
Section 4.05. Insurance. The Debtor will, at its own expense, maintain
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insurance with respect to all Collateral which constitutes goods in such amounts
and against such risks as is provided in the Purchase Agreement.
Section 4.06. Bailees. If any of the Collateral is at any time in
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the possession or control of any warehouseman, bailee or any of the Debtor's
agents or processors, the Debtor shall, at the request of the Secured Party,
notify such warehouseman, bailee, agent or processor of the security interest
created hereunder and shall instruct such Person to hold such Collateral for the
Secured Party's account subject to the Secured Party's instructions.
Section 4.07. Inspection Rights. The Debtor shall permit the Secured
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Party and its representatives to examine, inspect and audit the Collateral and
to examine, inspect and audit the Debtor's books and records at any reasonable
time and after notice, and as the Secured Party may desire. The Secured Party
may at any time and from time to time contact account debtors to verify the
existence, amounts and terms of the Accounts.
Section 4.08. Mortgagee and Landlord Waivers. The Debtor shall cause
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each mortgagee of real property owned by the Debtor and each landlord of real
property leased by the Debtor to execute and deliver instruments satisfactory in
form and substance to the Secured Party by which such mortgagee or landlord
waives its rights, if any, in the Collateral.
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Section 4.09. Legal Changes. The Debtor shall not change its name,
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identity or legal structure in any manner that might make any financing
statement filed in connection with this Agreement seriously misleading unless
the Debtor shall have given the Secured Party thirty (30) days prior written
notice thereof and shall have taken all action deemed necessary or desirable by
the Secured Party to protect its Liens and the perfection and priority thereof.
The Debtor shall not change its principal place of business, chief executive
office or the place where it keeps its books and records unless it shall have
given the Secured Party thirty (30) days prior written notice thereof and shall
have taken all action deemed necessary or desirable by the Secured Party to
cause its security interest in the Collateral to be perfected with the priority
required by this Agreement.
Section 4.10. Books and Records; Information. The Debtor shall keep
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accurate and complete books and records of the Collateral and the Debtor's
business and financial condition in accordance with generally accepted
accounting principles consistently applied. The Debtor shall from time to time
at the request of the Secured Party deliver to the Secured Party such
information regarding the Collateral and the Debtor as the Secured Party may
request, including, without limitation, lists and descriptions of the Collateral
and evidence of the identity and existence of the Collateral. To the extent
required by Section 4.04 of this Agreement, the Debtor shall ▇▇▇▇ its books and
------------
records to reflect the security interest of the Secured Party under this
Agreement.
Section 4.11. Equipment and Inventory.
-----------------------
(a) The Debtor shall keep the Equipment (other than vehicles) and
Inventory (other than Inventory in transit) at the locations specified on
Schedule 1 hereto or, upon thirty (30) days prior written notice to the Secured
----------
Party, at such other places within the United States of America where all action
required to perfect the Secured Party's security interest in the Equipment and
Inventory with the priority required by this Agreement shall have been taken.
(b) The Debtor shall maintain the Equipment and Inventory in good
condition and repair (ordinary wear and tear excepted) and in accordance with
any manufacturer's manual. The Debtor shall not permit any waste or destruction
of the Equipment or Inventory or any part thereof. The Debtor shall not permit
the Equipment or Inventory to be used in violation of any law, rule or
regulation or the terms of any policy of insurance. The Debtor shall not use or
permit any of the Equipment or Inventory to be used in any manner or for any
purpose that would impair its value or expose it to unusual risk.
(c) In producing Inventory, the Debtor shall comply with all
requirements of the Fair Labor Standards Act.
Section 4.12. Warehouse Receipts Non-Negotiable. The Debtor agrees that
---------------------------------
if any warehouse receipt or receipt in the nature of a warehouse receipt is
issued in respect of any of the Collateral, such warehouse receipt or receipt in
the nature thereof shall not be "negotiable" (as such term is used in Section
7.104 of the UCC) unless such warehouse receipt or receipt in the nature thereof
is delivered to the Secured Party.
Section 4.13. Notification. The Debtor shall promptly notify the
------------
Secured Party of (a) any Lien, encumbrance or claim that has attached to or been
made or asserted against any of the Collateral, (b) any material change in any
of the Collateral, including, without limitation any material damage to or loss
of Collateral, and (c) the occurrence of any other event or condition
(including, without limitation, matters as to Lien priority) that could have a
material adverse effect on the Collateral or the security interest created
hereunder.
Section 4.14. Collection of Accounts. So long as no Event of Default
----------------------
has occurred and is continuing and except as otherwise provided in this
Section 4.12 and in Section 5.01, the Debtor shall have the right to collect and
------------ ------------
receive payments on the Accounts. In connection with such collections, the
Debtor may take (and, at the Secured Party's direction, shall take) such actions
as the Debtor or the Secured Party may deem necessary or advisable to enforce
collection of the Accounts. Upon the request of the Secured Party, the Debtor
shall cause all account debtors and other Persons obligated in respect of the
Accounts to make all payments on the Accounts directly to any collection or
collateral account established by the Secured Party and the Debtor shall cause
all other Proceeds of
Page 9
Collateral to be deposited directly to such account. Until such Proceeds are
delivered to such account, such Proceeds shall be held in trust by the Debtor
for the benefit of the Secured Party and shall not be commingled with any other
funds or property of the Debtor. All Proceeds of Collateral received by the
Secured Party pursuant to this Section 4.12 will be applied by the Secured Party
------------
to the Obligations at such time and in such order as the Secured Party shall
determine from time to time in its sole judgment.
Section 4.15. Intellectual Property.
---------------------
(a) The Debtor shall prosecute diligently all applications in respect
of Intellectual Property, now or hereafter pending.
(b) The Debtor shall make federal applications on all of its unpatented
but patentable inventions and all of its registrable but unregistered Copyrights
and Trademarks.
(c) The Debtor shall preserve and maintain all of its rights in the
Intellectual Property and shall protect the Intellectual Property from
infringement, unfair competition, cancellation or dilution by all appropriate
action, including the commencement and prosecution of legal proceedings to
recover damages for infringement and to defend and preserve its rights in the
Intellectual Property.
(d) The Debtor shall not abandon any of the Intellectual Property.
(e) The Debtor shall not sell or assign any of its interest in, or
grant any license under (except as permitted by Section 5.05 hereof), any of the
------------
Intellectual Property without the prior written consent of the Secured Party and
shall maintain the quality of any and all products and services with respect to
which the Intellectual Property is used. The Debtor shall not enter into any
agreement regarding Intellectual Property, including, but not limited to any
licensing agreement not permitted by Section 5.05 hereof, that is or may be
------------
inconsistent with the Debtor's obligations under this Agreement or any of the
other Transaction Agreements.
(f) If the Debtor shall obtain rights to or become entitled to the
benefit of any Intellectual Property, the Debtor shall give the Secured Party
prompt written notice thereof and the provisions of this Agreement shall
automatically apply thereto.
(g) If an Event of Default shall have occurred and be continuing, the
Debtor shall use its best efforts to obtain any consents, waivers or agreements
necessary to enable the Secured Party to exercise its rights and remedies with
respect to the Intellectual Property.
(h) The Debtor shall, at the request of the Secured Party, execute and
deliver to the Secured Party a copyright security agreement, a patent security
agreement, and a trademark security agreement and all other documents,
instruments, and other items as may be necessary for the Secured Party to file
such agreements with the United States Copyright Office, the United States
Patent and Trademark Office, and any similar domestic or foreign office,
department, or agency. The Debtor will, at any time and from time to time upon
the request of the Secured Party, execute and deliver to the Secured Party all
such other agreements, documents, instruments and other items as may be
necessary or appropriate for the Secured Party to create and perfect its
security interest in the Intellectual Property and to make all appropriate
filings with respect thereto.
Section 4.16. Voting Rights; Distributions, etc.
----------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) The Debtor shall be entitled to exercise any and all
voting and other consensual rights (including, without limitation, the right to
give consents, waivers and notifications in respect of any of the Pledged
Collateral) pertaining to any of the Pledged Collateral or any part thereof;
provided; however, that without the prior written consent of the Secured Party,
no vote shall be cast or consent, waiver or ratification given or action taken
Page 10
which would (x) be inconsistent with or violate any provision of this Agreement
or any other Loan Paper or (y) amend, modify or waive any term, provision or
condition of the certificate of incorporation, by-laws, certificate of formation
or other charter document or other agreement relating to, evidencing, providing
for the issuance of or securing any Collateral; and provided further that the
Debtor shall give the Secured Party at least five (5) Business Days' prior
written notice in the form of an officer's certificate of the manner in which it
intends to exercise, or the reasons for refraining from exercising, any voting
or other consensual rights pertaining to the Collateral or any part thereof
which might have a material adverse effect on the value of the Collateral or any
part thereof; and
(ii) Unless a Event of Default shall have occurred and be
continuing, the Debtor shall be entitled to receive and retain any and all
dividends and interest paid in respect to any of the Collateral to the extent,
if any, permitted by the Purchase Agreement; provided, however, that any and all
-----------------
(A) dividends, interest or other distributions paid or payable
in violation of the Purchase Agreement,
(B) dividends, interest or other distributions paid or
payable other than in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or in exchange for,
any Collateral,
(C) dividends, interest or other distributions hereafter
paid or payable in cash in respect of any Collateral in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(D) cash paid, payable or otherwise distributed in redemption
of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to the Secured Party to hold as,
Collateral and shall, if received by the Debtor, be received in trust for the
benefit of the Secured Party, be segregated from the other property or funds of
the Debtor and be forthwith delivered to the Secured Party as Collateral in the
same form as so received (with any necessary endorsement). All amounts (other
than amounts described in clauses (ii) (A)-(D) above) received by the Secured
--------------------
Party in respect of any Pledged Collateral shall be either (1) promptly released
to the Debtor, so long as no Event of Default shall have occurred and be
continuing or (2) if any Event of Default shall have occurred and be continuing,
held by the Secured Party and applied to the Obligations. During the continuance
of any Event of Default, any dividends, interest or other distributions (whether
in cash, securities, property or otherwise) received by the Debtor with respect
to any Pledged Collateral shall be held by the Debtor in trust for the benefit
of the Secured Party and, upon the request of the Secured Party, shall be
delivered promptly to the Secured Party to hold as Collateral. If such Event of
Default is waived or cured to the satisfaction of the Secured Party, any such
distributions (except those of the types described in clauses (ii)(A)-(D) above)
-------------------
shall be returned promptly to the Debtor (provided that no other Event of
Default exists).
(b) Upon the occurrence and during the continuance of a Event of
Default:
(i) The Secured Party may, without notice to the Debtor,
transfer or register in the name of the Secured Party or any of its nominees any
or all of the Collateral described in Section 2.01(i) through (m) of this
--------------- ---
Agreement, the proceeds thereof (in cash or otherwise) and all liens, security,
rights, remedies and claims of the Debtor with respect thereto (collectively,
the "Pledged Collateral") held by the Secured Party hereunder, and the Secured
------------------
Party or its nominee may thereafter, after delivery of notice to the Debtor,
exercise all voting and corporate rights at any meeting of any corporation,
partnership or other business entity issuing any of the Pledged Collateral and
any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Collateral as if it were
the absolute owner thereof, including, without limitation, the right to exchange
at its discretion any and all of the Pledged Collateral upon the merger,
consolidation, reorganization, recapitalization or other readjustment of any
corporation, partnership or other business entity issuing any of such Pledged
Collateral or upon the exercise by any such issuer or the Secured Party of any
right, privilege or option
Page 11
pertaining to any of the Pledged Collateral, and in connection therewith, to
deposit and deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as it may determine, all without liability except to account for
property actually received by it but the Secured Party shall have no duty to
exercise any of the aforesaid rights, privileges or options, and the Secured
Party shall not be responsible for any failure to do so or delay in so doing.
(ii) All rights of the Debtor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Subsection 4.13(a)(i) and to receive the dividends, interest and other
---------------------
distributions which it would otherwise be authorized to receive and retain
pursuant to Subsection 4.13(a)(ii) shall be suspended until such Event of
----------------------
Default shall no longer exist, and all such rights shall, until such Event of
Default shall no longer exist, thereupon become vested in the Secured Party
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends,
interest and other distributions.
(iii) All dividends, interest and other distributions which
are received by the Debtor contrary to the provisions of this Subsection 4.13(b)
------------------
shall be received in trust for the benefit of the Secured Party, shall be
segregated from other funds of the Debtor and shall be forthwith paid over to
the Secured Party as Collateral in the same form as so received (with any
necessary endorsement).
(iv) The Debtor shall execute and deliver (or cause to be
executed and delivered) to the Secured Party all such proxies and other
instruments as the Secured Party may reasonably request for the purpose of
enabling the Secured Party to exercise the voting and other rights which it is
entitled to exercise pursuant to this Subsection 4.13(b) and to receive the
------------------
dividends, interest and other distributions which it is entitled to receive and
retain pursuant to this Subsection 4.13(b). The foregoing shall not in any way
------------------
limit the Secured Party's power and authority granted pursuant to Section 5.01.
------------
Section 4.17. Transfers and Other Liens; Additional Investments.
-------------------------------------------------
(a) Except as may be expressly permitted by the terms of the Purchase
Agreement, the Debtor shall not grant any option with respect to, exchange, sell
or otherwise dispose of any of the Collateral, except for the sales of inventory
in the ordinary course of its business, or create or permit to exist any Lien
upon or with respect to any of the Collateral except for the Liens created
hereby.
(b) The Debtor agrees that it will (i) cause each issuer of any of the
Collateral not to issue any shares of stock, notes or other securities or
instruments in addition to or in substitution for any of the Collateral, except,
with the written consent of the Secured Party, to the Debtor, (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all such shares of stock, membership interests, partnership interests,
notes or instruments, and (iii) promptly (and in any event within three Business
Days) deliver to the Secured Party an Amendment, duly executed by the Debtor, in
substantially the form of Exhibit A hereto (an "Amendment"), in respect of such
---------
shares of stock, membership interests, partnership interests, notes or
instruments, together with all certificates, notes or other instruments
representing or evidencing the same. The Debtor hereby (i) authorizes the
Secured Party to attach each Amendment to this Agreement, (ii) agrees that all
such shares of stock, membership interests, partnership interests, notes or
instruments listed on any Amendment delivered to the Secured Party shall for all
purposes hereunder constitute Collateral, and (iii) is deemed to have made, upon
such delivery, the representations and warranties contained in Article III with
-----------
respect to such Collateral.
Section 4.18. Possession; Reasonable Care. Regardless of whether a
---------------------------
Event of Default has occurred or is continuing, the Secured Party shall have the
right to hold in its possession all Pledged Collateral pledged, assigned or
transferred hereunder and from time to time constituting a portion of the
Collateral. The Secured Party may, from time to time, in its sole discretion,
appoint one or more agents (which in no case shall be the Debtor or an affiliate
of the Debtor) to hold physical custody, for the account of the Secured Party,
of any or all of the Collateral. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Secured Party accords its
Page 12
own property, it being understood that the Secured Party shall not have any
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Secured Party has or is deemed to have knowledge
of such matters, or (b) taking any necessary steps to preserve rights against
any parties with respect to any Collateral. Following the occurrence of a Event
of Default, the Secured Party shall be entitled to take possession of the
Collateral.
Section 4.19. Acknowledgment of Pledge. The Debtor shall deliver to the
------------------------
Secured Party, concurrently with the execution hereof, acknowledgment by each
financial institution in which any Deposit Account is held or maintained that
the pledge of such Deposit Account has been recorded in the books and records of
the financial institution, and that the Secured Party shall have dominion and
control over such Deposit Account, such acknowledgment to be in form and
substance satisfactory to the Secured Party.
ARTICLE V
Rights of the Secured Party
---------------------------
Section 5.01. Power of Attorney. The Debtor hereby irrevocably
-----------------
constitutes and appoints the Secured Party and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the name of the Debtor or in its own
name, to take after the occurrence and during the continuance of a Event of
Default and from time to time thereafter, any and all action and to execute any
and all documents and instruments which the Secured Party at any time and from
time to time deems necessary or desirable to accomplish the purposes of this
Agreement and, without limiting the generality of the foregoing, the Debtor
hereby gives the Secured Party the power and right on behalf of the Debtor and
in its own name to do any of the following after the occurrence and during the
continuance of a Event of Default and from time to time thereafter, without
notice to or the consent of the Debtor:
(a) to demand, ▇▇▇ for, collect or receive, in the name of the
Debtor or in its own name, any money or property at any time payable
or receivable on account of or in exchange for any of the Collateral
and, in connection therewith, endorse checks, notes, drafts,
acceptances, money orders, documents of title or any other instruments
for the payment of money under the Collateral or any policy of
insurance;
(b) to pay or discharge taxes, Liens or other encumbrances
levied or placed on or threatened against the Collateral;
(c) to notify post office authorities to change the address
for delivery of mail of the Debtor to an address designated by the
Secured Party and to receive, open and dispose of mail addressed to the
Debtor;
(d) (i) to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and
all monies due and to become due thereunder directly to the Secured
Party or as the Secured Party shall direct; (ii) to receive payment of
and receipt for any and all monies, claims and other amounts due and to
become due at any time in respect of or arising out of any Collateral;
(iii) to sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, proxies, stock powers, verifications and notices in
connection with accounts and other documents relating to the
Collateral; (iv) to commence and prosecute any suit, action or
proceeding at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of any Collateral; (v) to defend any suit, action or
proceeding brought against the Debtor with respect to any Collateral;
(vi) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges
or releases as the Secured Party may deem appropriate; (vii) to
exchange any of the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization or other readjustment
of the issuer thereof and, in connection therewith, deposit any of the
Collateral with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms as the Secured Party may
determine; (viii) to
Page 13
add or release any guarantor, indorser, surety or other party to any
of the Collateral; (ix) to renew, extend or otherwise change the terms
and conditions of any of the Collateral; (x) to grant or issue any
exclusive or nonexclusive license under or with respect to any of the
Intellectual Property; (xi) to endorse the Debtor's name on all
applications, documents, papers and instruments necessary or desirable
in order for the Secured Party to use any of the Intellectual
Property; (xii) to make, settle, compromise or adjust any claims under
or pertaining to any of the Collateral (including claims under any
policy of insurance); and (xiii) to sell, transfer, pledge, convey,
make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Secured Party were
the absolute owner thereof for all purposes, and to do, at the Secured
Party's option and the Debtor's expense, at any time, or from time to
time, all acts and things which the Secured Party deems necessary to
protect, preserve, maintain, or realize upon the Collateral and the
Secured Party's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. The Secured Party shall be under no duty to exercise or withhold
the exercise of any of the rights, powers, privileges and options expressly or
implicitly granted to the Secured Party in this Agreement, and shall not be
liable for any failure to do so or any delay in doing so. Neither the Secured
Party nor any Person designated by the Secured Party shall be liable for any act
or omission or for any error of judgment or any mistake of fact or law. This
power of attorney is conferred on the Secured Party solely to protect, preserve,
maintain and realize upon its security interest in the Collateral. The Secured
Party shall not be responsible for any decline in the value of the Collateral
and shall not be required to take any steps to preserve rights against prior
parties or to protect, preserve or maintain any Lien given to secure the
Collateral.
Section 5.02. Setoff. The Secured Party shall have the right to set off
------
and apply against the Obligations, at any time and without notice to the Debtor,
any and all deposits (general, time or demand, provisional or final) or other
sums at any time credited by or owing from the Secured Party to the Debtor
whether or not the Obligations are then due. The rights and remedies of the
Secured Party hereunder are in addition to other rights and remedies (including,
without limitation, other rights of setoff) that the Secured Party may have.
Section 5.03. Assignment by the Secured Party. The Secured Party may at
-------------------------------
any time assign or otherwise transfer all or any portion of its rights and
obligations under this Agreement and the other Transaction Agreements, in
connection with an assignment of the Obligations, to any other Person, and such
Person shall thereupon become vested with all the benefits thereof granted to
the Secured Party herein or otherwise.
Section 5.04. Performance by the Secured Party. If the Debtor shall
--------------------------------
fail to perform any covenant or agreement contained in this Agreement, the
Secured Party may perform or attempt to perform such covenant or agreement on
behalf of the Debtor. In such event, the Debtor shall, at the request of the
Secured Party, promptly pay any amount expended by the Secured Party in
connection with such performance or attempted performance to the Secured Party,
together with interest thereon at the applicable rate of interest set forth in
the Note from and including the date of such expenditure to but excluding the
date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that the Secured Party shall not have any liability or
responsibility for the performance of any obligation of the Debtor under this
Agreement.
Section 5.05. License. If no Event of Default shall have occurred and
-------
be continuing, the Debtor shall have the exclusive, non-transferable right and
license to use the Intellectual Property in the ordinary course of business and
the exclusive right to grant to other Persons licenses and sublicenses with
respect to the Intellectual Property for full and fair consideration. The Debtor
agrees not to sell or assign its interest in, or grant any sublicense under, the
license granted under this Section 5.05 without the prior written consent of the
------------
Secured Party.
Section 5.06. Change of Depository. In the event of the termination by
--------------------
any financial institution in which any Deposit Account is maintained of any
agreement with or for the benefit of the Secured Party, or if any such financial
institution shall fail to comply with any provisions of any such agreement or
any instructions of the Secured Party in accordance with any such agreement or
this Agreement, or if the Secured Party determines in its sole discretion that
the financial condition of any such financial institution has materially
deteriorated, the Debtor agrees
Page 14
to transfer the affected Deposit Account(s) to another financial institution
acceptable to the Secured Party and cause such substitute financial institution
to execute such agreements as the Secured Party may require, in form and
substance reasonably acceptable to the Secured Party, to ensure that the Secured
Party has a perfected, first priority security interest in the Deposit
Account(s) held with such substitute financial institution. If any affected
Deposit Account is a lockbox account, the Debtor agrees to notify its account
debtors promptly to remit all payments which were being sent to the terminated
Deposit Account directly to the substitute Deposit Account.
Section 5.07. Collection of Deposit Accounts. Upon written demand from
------------------------------
the Secured Party to any financial institution in which any of the Deposit
Accounts are maintained, each such financial institution is hereby authorized
and directed by the Debtor to make payment directly to the Secured Party of the
funds in or credited to the Deposit Accounts, or such part thereof as the
Secured Party may request, and each such financial institution shall be fully
protected in relying upon the written statement of the Secured Party that the
Deposit Accounts are at the time of such demand assigned hereunder and that the
Secured Party is entitled to payment of the Obligations therefrom. The Secured
Party's receipt for sums paid it pursuant to such demand shall be a full and
complete release, discharge and acquittance to the Depository or other financial
institution making such payment to the extent of the amount so paid. The Debtor
hereby authorizes the Secured Party upon the occurrence and during the
continuation of a Event of Default and so long as any part of the Obligations
remain unpaid, (i) to withdraw, collect and receipt for any and all funds,
securities or other investments on deposit in or payable on the Deposit
Accounts; (ii) on behalf of the Debtor to endorse the name of the Debtor upon
any checks, drafts or other instruments payable to the Debtor evidencing payment
on the Deposit Accounts; and (iii) to surrender or present for notation of
withdrawal the passbook, certificate or other documents issued to the Debtor in
connection with the Deposit Accounts. No power granted herein to the Secured
Party by the Debtor shall terminate upon any disability of the Debtor.
ARTICLE VI
Event of Default
----------------
Section 6.01. Rights and Remedies. If a Event of Default shall have
--------------------
occurred and be continuing, the Secured Party shall have the following rights
and remedies:
(i) In addition to all other rights and remedies granted to
the Secured Party in this Agreement or in any other Loan Paper or by applicable
law, the Secured Party shall have all of the rights and remedies of a secured
party under the UCC (whether or not the UCC applies to the affected Collateral)
and the Secured Party may also, without notice except as specified below, sell
or otherwise dispose of the Collateral or any part thereof in one or more
parcels by means of a public or private disposition, at any exchange, broker's
board or at any of the Secured Party's offices or elsewhere, for cash, on credit
or for future delivery, and upon such other terms as the Secured Party may deem
commercially reasonable or otherwise as may be permitted by law. Without
limiting the generality of the foregoing, the Secured Party may (A) without
demand or notice to the Debtor, collect, receive or take possession of the
Collateral or any part thereof and for that purpose the Secured Party may enter
upon any premises on which the Collateral is located and remove the Collateral
therefrom or render it inoperable, and/or (B) sell, lease or otherwise dispose
of the Collateral, or any part thereof, in one or more parcels by means of a
public or private disposition or dispositions, at the Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other terms
as the Secured Party may deem commercially reasonable or otherwise as may be
permitted by law. The Secured Party shall have the right at any public
disposition or dispositions, and, to the extent permitted by applicable law, at
any private disposition or dispositions, to bid (which bid may be, in whole or
in part, in the form of cancellation of indebtedness) and become a purchaser of
the Collateral or any part thereof free of any right or equity of redemption on
the part of the Debtor, which right or equity of redemption is hereby expressly
waived and released by the Debtor. Upon the request of the Secured Party, the
Debtor shall assemble the Collateral and make it available to the Secured Party
at any place designated by the Secured Party that is reasonably convenient to
the Debtor and the Secured Party. The Debtor agrees that the Secured Party shall
not be obligated to give more than ten (10) days prior written notice of the
time and place of any public sale or disposition or of the time after which any
private sale or disposition may take place and that such notice shall constitute
reasonable notice of such matters. The Secured Party shall not be obligated to
make any sale or other disposition of Collateral if it shall determine not to do
so, regardless
Page 15
of the fact that notice of sale or disposition of Collateral may have been
given. The Secured Party may, without notice or publication, adjourn any public
or private sale or disposition or cause the same to be adjourned from time to
time by announcement at the time and place fixed for sale or disposition, and
such disposition may, without further notice, be made at the time and place to
which the same was so adjourned. The Debtor shall be liable for all expenses of
retaking, holding, preparing for sale or other disposition or the like, and all
attorneys' fees, legal expenses and other costs and expenses incurred by the
Secured Party in connection with the collection of the Obligations and the
enforcement of the Secured Party's rights under this Agreement. The Debtor shall
remain liable for any deficiency if the Proceeds of any sale or other
disposition of the Collateral applied to the Obligations are insufficient to pay
the Obligations in full. The Secured Party may apply the Collateral against the
Obligations in such order and manner as the Secured Party may elect in its sole
discretion. The Debtor waives all rights of marshaling, valuation and appraisal
in respect of the Collateral. Any cash held by the Secured Party as Collateral
and all cash proceeds received by the Secured Party in respect of any
disposition of, collection from or other realization upon all or any part of the
Collateral may, in the discretion of the Secured Party, be held by the Secured
Party as collateral for, and then or at any time thereafter applied in whole or
in part by the Secured Party against, the Obligations in such order as the
Secured Party shall select. Any surplus of such cash or cash proceeds and
interest accrued thereon, if any, held by the Secured Party and remaining after
payment in full of all the Obligations shall be paid over to the Debtor or to
whomsoever may be lawfully entitled to receive such surplus; provided that the
Secured Party shall have no obligation to invest or otherwise pay interest on
any amounts held by it in connection with or pursuant to this Agreement.
(ii) The Secured Party may cause any or all of the Collateral
held by it to be transferred into the name of the Secured Party or the name or
names of the Secured Party's nominee or nominees.
(iii) The Secured Party may exercise any and all rights and
remedies of the Debtor under or in respect of the Collateral, including, without
limitation, any and all rights of the Debtor to demand or otherwise require
payment of any amount under, or performance of any provision of, any of the
Collateral and any and all voting rights and legal powers in respect of the
Collateral.
(iv) The Secured Party may collect or receive all money or
property at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so.
(v) On any sale or other disposition of the Collateral, the
Secured Party is hereby authorized to comply with any limitation or restriction
with which compliance is necessary, in the view of the Secured Party's counsel,
in order to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable governmental
authority.
(vi) For purposes of enabling the Secured Party to exercise
its rights and remedies under this Section 6.01 and enabling the Secured Party
------------
and its successors and assigns to enjoy the full benefits of the Collateral, the
Debtor hereby grants to the Secured Party an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to the Debtor) to
use, assign, license or sublicense any of the Intellectual Property, including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and all computer programs used for the
completion or printout thereof. This license shall also inure to the benefit of
all successors, assigns and transferees of the Secured Party.
(vii) The Secured Party may require that the Debtor assign all
of its right, title and interest in and to the Intellectual Property or any part
thereof to the Secured Party or such other Person as the Secured Party may
designate pursuant to documents satisfactory to the Secured Party.
6.02. Registration Rights, Private Dispositions, etc.
-----------------------------------------------
(a) If the Secured Party shall determine to exercise its right to sell
or otherwise dispose of all or any of the Collateral pursuant to Section 6.01,
-------------
the Debtor agrees that, upon the reasonable request of the Secured Party (which
request may be made by the Secured Party in its sole discretion), the Debtor
will, at its own expense:
Page 16
(i) execute and deliver, and cause each issuer of any of the
Collateral contemplated to be sold or otherwise disposed of and the directors
and officers thereof to execute and deliver, all such agreements, documents and
instruments, and do or cause to be done all such other acts and things, as may
be necessary or, in the opinion of the Secured Party, advisable to register such
Collateral under the provisions of the Securities Act (as hereinafter defined)
and to cause the registration statement relating thereto to become effective and
to remain effective for such period as prospectuses are required by law to be
furnished and to make all amendments and supplements thereto and to the related
prospectus which, in the opinion of the Secured Party, are necessary or
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission applicable
thereto;
(ii) use its best efforts to qualify such Collateral under all
applicable state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale or other disposition of such Collateral, as
requested by the Secured Party;
(iii) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement which will satisfy the
provisions of Section 11(a) of the Securities Act;
(iv) do or cause to be done all such other acts and things as
may be reasonably necessary to make such sale or other disposition of the
Collateral or any part thereof valid and binding and in compliance with
applicable law; and
(v) bear all reasonable costs and expenses, including
reasonable attorneys' fees, of carrying out its obligations under this
Section 6.02.
------------
(b) The Debtor recognizes that the Secured Party may be unable to
effect a public sale or other disposition of any or all of the Collateral by
reason of certain prohibitions contained in the laws of any jurisdiction
outside the United States or in the Securities Act of 1933, as amended from time
to time (the "Securities Act"), and applicable state securities laws but may be
--------------
compelled to resort to one or more private dispositions thereof to a restricted
group of purchasers who will be obliged to agree, among other things, to acquire
such Collateral for their own account for investment and not with a view to the
distribution or resale thereof. The Debtor acknowledges and agrees that any such
private sale or other disposition may result in prices and other terms less
favorable to the seller than if such disposition were a public sale or other
disposition and, notwithstanding such circumstances, agrees that any such
private sale or other disposition shall, to the extent permitted by law, be
deemed to have been made in a commercially reasonable manner. The Secured Party
shall not be under any obligation to delay a disposition of any of the
Collateral for the period of time necessary to permit the issuer of such
securities to register such securities under the laws of any jurisdiction
outside the United States, under the Securities Act or under any applicable
state securities laws, even if such issuer would agree to do so.
(c) The Debtor further agrees to do or cause to be done, to the extent
that the Debtor may do so under applicable law, all such other acts and things
as may be necessary to make such sales or resales of any portion or all of the
Collateral valid and binding and in compliance with any and all applicable laws,
regulations, orders, writs, injunctions, decrees or awards of any and all
courts, arbitrators or governmental instrumentalities, domestic or foreign,
having jurisdiction over any such sale or sales, all at the Debtor's expense.
The Debtor further agrees that a breach of any of the covenants contained in
this Section 6.02 will cause irreparable injury to the Secured Party and that
------------
the Secured Party has no adequate remedy at law in respect of such breach and,
as a consequence, agrees that each and every covenant contained in this
Section 6.02 shall be specifically enforceable against the Debtor, and the
------------
Debtor hereby waives and agrees, to the fullest extent permitted by law, not to
assert as a defense against an action for specific performance of such covenants
that (i) the Debtor's failure to perform such covenants will not cause
irreparable injury to the Secured Party or (ii) the Secured Party has an
adequate remedy at law in respect of such breach. The Debtor further
acknowledges the impossibility of ascertaining the amount of damages which would
be suffered by the Secured Party by reason of a breach of any of the covenants
contained in this Section 6.02 and, consequently, agrees that, if the Debtor
------------
shall breach any of such covenants and the Secured Party shall ▇▇▇ for
Page 17
damages for such breach, the Debtor shall pay to the Secured Party, as
liquidated damages and not as a penalty, an aggregate amount equal to the value
of the Collateral on the date the Secured Party shall demand compliance with
this Section 6.02.
------------
(d) THE DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS
THE SECURED PARTY AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS
AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE
SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY
APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER
APPLICABLE LAW IN CONNECTION WITH THE AFORESAID REGISTRATION, INSOFAR AS SUCH
LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON,
ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN
ANY REGISTRATION STATEMENT RELATING TO ANY PART OF THE COLLATERAL, OR SUCH
REGISTRATION STATEMENT AS AMENDED OR SUPPLEMENTED, OR ARISES OUT OF, OR IS BASED
UPON, THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT REQUIRED
TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING;
PROVIDED, HOWEVER, THAT THE DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE
EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT
OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR
OMISSION OR ALLEGED OMISSION MADE IN THE AFORESAID REGISTRATION STATEMENT OR THE
AFORESAID REGISTRATION STATEMENT AS AMENDED OR SUPPLEMENTED, IN RELIANCE UPON
AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE DEBTOR BY THE
SECURED PARTY SPECIFICALLY FOR INCLUSION THEREIN. THE FOREGOING INDEMNITY
AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT THE
DEBTOR MAY OTHERWISE HAVE TO THE SECURED PARTY OR ANY SUCH CONTROLLING PERSON.
ARTICLE VII
Miscellaneous
-------------
Section 7.01. No Waiver; Cumulative Remedies. No failure on the part of
------------------------------
the Secured Party to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 7.02. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the Debtor and the Secured Party and their
respective heirs, successors and assigns, except that the Debtor may not assign
any of its rights or obligations under this Agreement without the prior written
consent of the Secured Party.
Section 7.03. Amendment; Entire Agreement. This Agreement embodies the
---------------------------
final, entire agreement among the parties hereto and supersedes any and all
prior commitments, agreements, representations and understandings, whether
written or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no unwritten oral
agreements among the parties hereto. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto,
except as provided in Section 4.15(g).
---------------
Section 7.04. Notices. All notices and other communications provided
-------
for in this Agreement shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested, or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof, or, as to any party, at such other address as shall
be designated by such party in a notice to the other party given in accordance
Page 18
with this Section 7.04. Except as otherwise provided in this Agreement, all such
------------
communications shall be deemed to have been duly given when transmitted by
telecopy or when personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid; provided, however, that
-----------------
notices to the Secured Party shall be deemed given when received by the Secured
Party.
Section 7.05. Governing Law; Submission to Jurisdiction; Service of
-----------------------------------------------------
Process. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
-------
THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES)
AND APPLICABLE LAWS OF THE UNITED STATES.
Section 7.06. Headings. The headings, captions, and arrangements used
--------
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 7.07. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by the Secured Party shall affect the
representations and warranties or the right of the Secured Party to rely upon
them.
Section 7.08. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 7.09. Waiver of Bond. In the event the Secured Party seeks to
--------------
take possession of any or all of the Collateral by judicial process, the Debtor
hereby irrevocably waives any bonds and any surety or security relating thereto
that may be required by applicable law as an incident to such possession, and
waives any demand for possession prior to the commencement of any such suit or
action
Section 7.10. Severability. Any provision of this Agreement which is
------------
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 7.11. Construction. The Debtor and the Secured Party
------------
acknowledge that each of them has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement with its
legal counsel and that this Agreement shall be construed as if jointly drafted
by the Debtor and the Secured Party.
Section 7.12. Termination. If all of the Obligations shall have been
-----------
paid and performed in full, the Secured Party shall, upon the written request of
the Debtor, execute and deliver to the Debtor a proper instrument or instruments
acknowledging the release and termination of the security interests created by
this Agreement, and shall duly assign and deliver to the Debtor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Secured Party and has not previously been sold
or otherwise applied pursuant to this Agreement.
(Signature page follows)
Page 19
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
By:
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
Address for Notices:
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax No.: ▇▇▇.▇▇▇.▇▇▇▇
Telephone No.: ▇▇▇.▇▇▇.▇▇▇▇
Attention: Chief Executive Officer
SECURED PARTY:
▇▇▇▇ CAPITAL GROWTH FUND II, L.P.
By: ▇▇▇▇ CAPITAL GROWTH, L.P.
its general partner
By: ▇▇▇▇ CAPITAL
MANAGEMENT, L.L.C., its
general partner
By:
----------------------------------
Name: J.R. Holland, Jr.
Title: President
Address: ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Page 20
Schedule 1
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Locations of Equipment and Inventory
------------------------------------
====================================================================================================================
EQUIPMENT AND INVENTORY
====================================================================================================================
----------------------------------------------------------- --------------------------------------------------------
Location Name and Address of Landlord
of Premises (if any)
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
=========================================================== ========================================================
Schedule 2
----------
Jurisdictions for Filing
UCC-1 Financing Statements
--------------------------
[Secretary of State of Texas]
Schedule 3
----------
================= ================ ========================== =========== ================== =====================
Stock Issuer Class of Stock Stock Certificate No(s). Par Value Number of Shares Percentage of
Outstanding Shares
================= ================ ========================== =========== ================== =====================
----------------- ---------------- -------------------------- ----------- ------------------ ---------------------
----------------- ---------------- -------------------------- ----------- ------------------ ---------------------
----------------- ---------------- -------------------------- ----------- ------------------ ---------------------
----------------- ---------------- -------------------------- ----------- ------------------ ---------------------
----------------- ---------------- -------------------------- ----------- ------------------ ---------------------
================= ================ ========================== =========== ================== =====================
Schedule 4
-----------
Trade and other Names
EXHIBIT A
FORM OF AMENDMENT
This Amendment, dated __________________, 20__, is delivered pursuant
to Section 4.14 of the Security Agreement (as herein defined) referred to below.
------------
The undersigned hereby agrees that this Amendment may be attached to the
Security Agreement dated as of October 16, 2001, between the undersigned (the
"Security Agreement") and that the shares of stock, membership interests,
------------------
partnership interests, notes or other instruments listed on Schedule 1 annexed
----------
hereto shall be and become part of the Collateral referred to in the Security
Agreement and shall secure payment and performance of all Obligations as
provided in the Security Agreement.
Capitalized terms used herein but not defined herein shall have the
meanings therefor provided in the Security Agreement.
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Address:
-------
Tax I.D. No. _______________
▇▇▇▇ CAPITAL GROWTH FUND II, L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Address:
-------
Schedule 1
----------
Stock
Certificate Number Percentage of
Stock Issuer Class of Stock No(s). Par Value of Shares Outstanding Shares
----------------- --------------- ---------------- -------------- --------- ------------------