SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made and entered into as
of the 24th day of October, 1996, by THREE-FIVE SYSTEMS, INC., a Delaware
corporation (hereinafter called "Debtor"), whose chief executive office is
located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, in favor of ▇▇▇▇▇
FARGO BANK, NATIONAL ASSOCIATION, and its successors and assigns (hereinafter
called "Secured Party"), whose address is ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
1. SECURITY INTEREST
Debtor hereby grants to Secured Party a security interest (hereinafter
called the "Security Interest") in all of Debtor's right, title and interest in
and to the personal property (the "Collateral") described on Schedule A attached
hereto and by this reference incorporated herein.
2. OBLIGATION SECURED
The Security Interest shall secure, in such order of priority as
Secured Party may elect:
(a) Payment of the sum of $5,000,000.00 with interest thereon,
extension and other fees, late charges, prepayment premiums and
attorneys' fees, according to the terms of that Promissory Note dated
of even date herewith, made by Debtor, payable to the order of Secured
Party, and all extensions, modifications, renewals or replacements
thereof (hereinafter called the "Note");
(b) Payment, performance and observance by Debtor of each
covenant, condition, provision and agreement contained herein and of
all monies expended or advanced by Secured Party pursuant to the terms
hereof, or to preserve any right of Secured Party hereunder, or to
protect or preserve the Collateral or any part thereof; and
(c) Payment, performance and observance by Debtor of each
covenant, condition, provision and agreement contained in that Loan
Agreement dated July 11, 1994, by and between Debtor and Secured Party
as successor-in-interest to First Interstate Bank of Arizona, N.A. (as
amended from time to time, hereinafter called the "Loan Agreement") and
in any other document or instrument related to the indebtedness
described in subparagraph (a) above (the "Term Loan") and of all monies
expended or advanced by Secured Party pursuant to the terms thereof
with respect to the Term Loan only, and not with respect to the RLC (as
defined in the Loan Agreement), or to preserve any right of Secured
Party thereunder.
All of the indebtedness and obligations secured by this Agreement are
hereinafter collectively called the "Obligation."
3. USE; LOCATION; MANILA EQUIPMENT
3.1 The Collateral is or will be used or produced primarily for
business purposes.
3.2 The Collateral will be kept at Debtor's address set forth at the
beginning of this Agreement; provided that, notwithstanding anything herein to
the contrary, Collateral ("Manila Equipment") may be removed from the State of
Arizona without the consent of the Secured Party only to the extent it is
designated by Debtor in the ordinary course of business to be sent to Debtor's
facility in Manila, P.I. ("Manila Facility"). Upon the shipment of any such
Manila Equipment to the Manila Facility and its departure from the State of
Arizona, the Security Interest of the Secured Party shall be automatically
released from such Manila Equipment.
3.3 Debtor's records concerning the Collateral will be kept at Debtor's
address set forth at the beginning of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF DEBTOR
Debtor hereby represents and warrants that:
4.1 Debtor (i) is duly organized, validly existing and in good standing
under the laws of the state in which it is organized; (ii) is qualified to do
business and is in good standing under the laws of the state in which the
Collateral is located and in each state in which it is doing business; (iii) has
full power and authority to own its properties and assets and to carry on its
businesses as now conducted; and (iv) is fully authorized and permitted to
execute and deliver this Agreement and to enter into any transactions evidenced
by any portion of the Collateral. The execution, delivery and performance by
Debtor of this Agreement and all other documents and instruments relating to the
Obligation will not result in any breach of the terms and conditions or
constitute a default under any agreement or instrument under which Debtor is a
party or is obligated. Debtor is not in default in the performance or observance
of any covenants, conditions or provisions of any such agreement or instrument.
4.2 Subject to Section 7.2 of the Loan Agreement, Debtor is the owner
of the Collateral free of all security interests or other encumbrances except
the Security Interest and no financing statement covering the Collateral is
filed or recorded in any public office.
4.3 The Collateral is, and is intended to be, used, produced or
acquired by Debtor for use primarily for business purposes. The address of
Debtor set forth at the beginning of this Agreement is the chief executive
office of Debtor. If a portion of the Collateral is or will become a fixture, it
will be affixed to the real property as described above.
5. COVENANTS OF DEBTOR
5.1 Except as permitted in Paragraph 3.2 hereof with respect to the
Manila Equipment, Debtor shall not sell, transfer, assign or otherwise dispose
of any Collateral or any interest therein (except as permitted herein) without
obtaining the prior written consent of Secured Party and, subject to Section 7.2
of the Loan Agreement, shall keep the Collateral free of all security interests
or other encumbrances except the Security Interest; provided however that Debtor
may sell, transfer, assign or otherwise dispose of any Collateral ("Disposed
Collateral") or any interest thereon without obtaining the prior written consent
of Secured Party so long as (i) Debtor is doing so in the ordinary course of
business, (ii) the book value of any such Disposed Collateral does not exceed
$5,000.00, and (iii) the aggregate book value of all such Disposed Collateral
does not exceed $100,000.00 in any fiscal year. Although proceeds of Collateral
are covered by this Agreement, this shall not be construed to mean that Secured
Party consents to any sale of the Collateral.
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5.2 Debtor shall keep and maintain the Collateral in good condition and
repair and shall not use the Collateral in violation of any provision of this
Agreement or any applicable statute, ordinance or regulation or any policy of
insurance insuring the Collateral.
5.3 Debtor shall provide and maintain insurance insuring the Collateral
against risks, with coverage and in form and amount satisfactory to Secured
Party. At Secured Party's request, Debtor shall deliver to Secured Party the
original policies of insurance containing endorsements naming Secured Party as a
loss payee.
5.4 Subject to Section 7.2 of the Loan Agreement, Debtor shall pay when
due all taxes, assessments and other charges which may be levied or assessed
against the Collateral.
5.5 Debtor shall prevent any portion of the Collateral that is not a
fixture from being or becoming a fixture and shall prevent any portion of the
Collateral from being or becoming an accession to other goods that are not part
of the Collateral.
5.6 Debtor shall give Secured Party immediate written notice of any
change in the location of: (i) Debtor's chief executive office; (ii) except as
permitted in Paragraph 3.2 hereof with respect to the Manila Equipment, the
Collateral or any part thereof; or (iii) Debtor's records concerning the
Collateral.
5.7 After reasonable notice by Secured Party to Debtor, Secured Party
or its agents may inspect the Collateral at reasonable times and may enter into
any premises where the Collateral is or may be located. Debtor shall keep
records concerning the Collateral in accordance with generally accepted
accounting principles and, if requested in writing by Secured Party, shall ▇▇▇▇
its records and the Collateral to indicate the Security Interest. Secured Party
shall have free and complete access to Debtor's records and shall have the right
to make extracts therefrom or copies thereof. Upon request of Secured Party from
time to time, Debtor shall submit up-to-date schedules of the items comprising
the Collateral in such detail as Secured Party may require.
5.8 Debtor, at its reasonable cost and expense, shall protect and
defend this Agreement, all of the rights of Secured Party hereunder, and the
Collateral against all claims and demands of other parties. Debtor shall pay all
claims and charges that in the opinion of Secured Party might prejudice, imperil
or otherwise affect the Collateral or the Security Interest. Debtor shall
promptly notify Secured Party of any levy, distraint or other seizure by legal
process or otherwise of any part of the Collateral and of any threatened or
filed claims or proceedings that might in any way affect or impair the terms of
this Agreement.
5.9 Subject to Section 7.2 of the Loan Agreement, the Security
Interest, at all times, shall be perfected and shall be prior to any other
interests in the Collateral. Debtor shall act and perform as necessary and shall
execute and file all security agreements, financing statements, continuation
statements and other documents requested by Secured Party to establish, maintain
and continue the perfected Security Interest. Debtor, on demand, shall promptly
pay all reasonable costs and expenses of filing and recording, including the
costs of any searches, deemed reasonably necessary by Secured Party from time to
time to establish and determine the validity and the continuing priority of the
Security Interest.
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5.10 If Debtor shall fail, subject to Section 7.2 of the Loan
Agreement, to pay any taxes, assessments, expenses or charges, to keep all of
the Collateral free from other security interests, encumbrances or claims, to
keep the Collateral in good condition and repair, to procure and maintain
insurance thereon, or to perform otherwise as required herein, Secured Party may
advance the monies necessary to pay the same, to accomplish such repairs, to
procure and maintain such insurance or to so perform; after reasonable notice by
Secured Party to Debtor, Secured Party is hereby authorized to enter upon any
property in the possession or control of Debtor for such purposes.
5.11 All rights, powers and remedies granted Secured Party herein, or
otherwise available to Secured Party, are for the sole benefit and protection of
Secured Party, and Secured Party may exercise any such right, power or remedy at
its option and in its sole and absolute discretion without any obligation to do
so. In addition, if under the terms hereof, Secured Party is given two or more
alternative courses of action, Secured Party may elect any alternative or
combination of alternatives at its option and in its sole and absolute
discretion. All monies advanced by Secured Party under the terms hereof and all
amounts paid, suffered or incurred by Secured Party in exercising any authority
granted herein, including reasonable attorneys' fees, shall be added to the
Obligation, shall be secured by the Security Interest, shall bear interest at
the highest rate payable on any of the Obligation until paid, and shall be due
and payable by Debtor to Secured Party immediately without demand.
6. COLLATERAL IN THE POSSESSION OF SECURED PARTY
6.1 Secured Party shall use such reasonable care in handling,
preserving and protecting the Collateral in its possession as it uses in
handling similar property for its own account. Secured Party, however, shall
have no liability for the loss, destruction or disappearance of any Collateral
unless there is affirmative proof of a lack of due care; the lack of due care
shall not be implied solely by virtue of any loss, destruction or disappearance.
7. EVENTS OF DEFAULT; REMEDIES
7.1 The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure or neglect to perform or observe any of the
terms, provisions, or covenants of this Agreement, and such failure or
neglect either (i) cannot be remedied, (ii) can be remedied within
fifteen (15) days by prompt and diligent action, but it continues
unremedied for a period of fifteen (15) days after notice thereof to
Debtor, or (iii) can be remedied, although not within fifteen (15) days
even by prompt and diligent action, but such remedy is not commenced
within fifteen (15) days after notice thereof to Debtor or is not
diligently prosecuted to completion within a total of forty-five (45)
days from the date of such notice.
(b) Any warranty, representation or statement contained in
this Agreement that shall be or shall prove to have been false when
made or furnished.
(c) Any levy or execution upon, or judicial seizure of, any
portion of the Collateral or any other collateral or security for the
Obligation.
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(d) Any attachment or garnishment of, or the existence or
filing of any lien or encumbrance against, any portion of the
Collateral or any other collateral or security for the Obligation that
is not removed and released within fifteen (15) days after its
creation.
(e) The institution of any legal action or proceedings to
enforce any lien or encumbrance upon any portion of the Collateral or
any other collateral or security for the Obligation, that is not
dismissed within sixty (60) days after its institution.
(f) The abandonment by Debtor of all or any part of the
Collateral.
(g) The loss, theft or destruction of, or any substantial
damage to, any portion of the Collateral or any other collateral or
security for the Obligation, that is not adequately covered by
insurance.
(h) The occurrence of any event of default under the Loan
Agreement.
7.2 Upon the occurrence of any Event of Default and at any time while
such Event of Default is continuing, Secured Party shall have the following
rights and remedies and may do one or more of the following:
(a) Declare all or any part of the Obligation to be
immediately due and payable, and the same, with all reasonable costs
and charges, shall be collectible thereupon by action at law.
(b) Without further notice or demand and without legal
process, take possession of the Collateral wherever found and, for this
purpose, enter upon any property occupied by or in the control of
Debtor. Debtor, upon demand by Secured Party, shall assemble the
Collateral and deliver it to Secured Party or to a place designated by
Secured Party that is reasonably convenient to both parties.
(c) Pursue any legal or equitable remedy available to collect
the Obligation, to enforce its title in and right to possession of the
Collateral and to enforce any and all other rights or remedies
available to it.
(d) Upon obtaining possession of the Collateral or any part
thereof, after notice to Debtor as provided in Paragraph 7.4 herein,
sell such Collateral at public or private sale either with or without
having such Collateral at the place of sale. The proceeds of such sale,
after deducting therefrom all reasonable expenses of Secured Party in
taking, storing, repairing and selling the Collateral (including
reasonable attorneys' fees) shall be applied to the payment of the
Obligation, and any surplus thereafter remaining shall be paid to
Debtor or any other person that may be legally entitled thereto. In the
event of a deficiency between such net proceeds from the sale of the
Collateral and the total amount of the Obligation, Debtor, upon demand,
shall promptly pay the amount of such deficiency to Secured Party.
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7.3 Secured Party, so far as may be lawful, may purchase all or any
part of the Collateral offered at any public or private sale made in the
enforcement of Secured Party's rights and remedies hereunder.
7.4 Any demand or notice of sale, disposition or other intended action
hereunder or in connection herewith, whether required by the Uniform Commercial
Code or otherwise, shall be deemed to be commercially reasonable and effective
if such demand or notice is given to Debtor at least ten (10) days prior to such
sale, disposition or other intended action, in the manner provided herein for
the giving of notices.
7.5 Debtor shall pay all costs and expenses, including without
limitation costs of Uniform Commercial Code searches, court costs and reasonable
attorneys' fees, incurred by Secured Party in enforcing payment and performance
of the Obligation or in exercising the rights and remedies of Secured Party
hereunder. All such costs and expenses shall be secured by this Agreement and by
all deeds of trust and other lien and security documents securing the
Obligation. In the event of any court proceedings, court costs and attorneys'
fees shall be set by the court and not by jury and shall be included in any
judgment obtained by Secured Party.
7.6 In addition to any remedies provided herein for an Event of
Default, Secured Party shall have all the rights and remedies afforded a secured
party under the Uniform Commercial Code and all other legal and equitable
remedies allowed under applicable law. No failure on the part of Secured Party
to exercise any of its rights hereunder arising upon any Event of Default shall
be construed to prejudice its rights upon the occurrence of any other or
subsequent Event of Default. No delay on the part of Secured Party in exercising
any such rights shall be construed to preclude it from the exercise thereof at
any time while that Event of Default is continuing. Secured Party may enforce
any one or more rights or remedies hereunder successively or concurrently. By
accepting payment or performance of any of the Obligation after its due date,
Secured Party shall not thereby waive the agreement contained herein that time
is of the essence, nor shall Secured Party waive either its right to require
prompt payment or performance when due of the remainder of the Obligation or its
right to consider the failure to so pay or perform an Event of Default.
8. MISCELLANEOUS PROVISIONS
8.1 The acceptance of this Agreement by Secured Party shall not be
considered a waiver of or in any way to affect or impair any other security that
Secured Party may have, acquire simultaneously herewith, or hereafter acquire
for the payment or performance of the Obligation, nor shall the taking by
Secured Party at any time of any such additional security be construed as a
waiver of or in any way to affect or impair the Security Interest; Secured Party
may resort, for the payment or performance of the Obligation, to its several
securities therefor in such order and manner as it may determine.
8.2 Without notice or demand, without affecting the obligations of
Debtor hereunder or the personal liability of any person for payment or
performance of the Obligation, and without affecting the Security Interest or
the priority thereof, Secured Party, from time to time, may: (i) extend the time
for payment of all or any part of the Obligation, accept a renewal note
therefor, reduce the payments thereon, release any person liable for all or any
part thereof, or otherwise change the terms of all or any part of the
Obligation; (ii) take and hold other security for the payment or performance of
the Obligation and enforce, exchange, substitute, subordinate, waive or release
any such security; (iii) join in any extension or subordination agreement; or
(iv) release any part of the Collateral from the Security Interest.
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8.3 Debtor waives and agrees not to assert: (i) any right to require
Secured Party to proceed against any guarantor, to proceed against or exhaust
any other security for the Obligation, to pursue any other remedy available to
Secured Party, or to pursue any remedy in any particular order or manner; (ii)
the benefits of any legal or equitable doctrine or principle of marshalling;
(iii) the benefits of any statute of limitations affecting the enforcement
hereof; (iv) demand, diligence, presentment for payment, protest and demand, and
notice of extension, dishonor, protest, demand and nonpayment, relating to the
Obligation; and (v) any benefit of, and any right to participate in, any other
security now or hereafter held by Secured Party.
8.4 The terms herein shall have the meanings in and be construed under
the Uniform Commercial Code. This Agreement shall be governed by and construed
according to the laws of the State of Arizona. Each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be void or
invalid, the same shall not affect the remainder hereof which shall be effective
as though the void or invalid provision had not been contained herein.
8.5 No modification, rescission, waiver, release or amendment of any
provision of this Agreement shall be made except by a written agreement executed
by Debtor and a duly authorized officer of Secured Party.
8.6 This is a continuing Agreement which shall remain in full force and
effect until actual receipt by Secured Party of written notice of its revocation
as to future transactions and shall remain in full force and effect thereafter
until all of the Obligation with respect to the Term Loan incurred before the
receipt of such notice, and all of the Obligation incurred thereafter under
commitments extended by Secured Party before the receipt of such notice with
respect to the Term Loan, shall have been paid and performed in full. Once the
Term Loan has been fully paid, Secured Party agrees to terminate this Security
Agreement and release its Security Interest with respect to the Collateral.
8.7 No setoff or claim that Debtor now has or may in the future have
against Secured Party shall relieve Debtor from paying or performing the
Obligation.
8.8 Time is of the essence hereof. All liability hereunder shall be
joint and several. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives,
successors and assigns. The term "Secured Party" shall include not only the
original Secured Party hereunder but also any future owner and holder, including
pledgees, of note or notes evidencing the Obligation. The provisions hereof
shall apply to the parties according to the context thereof and without regard
to the number or gender of words or expressions used.
8.9 All notices required or permitted to be given hereunder shall be in
writing and may be given in person or by United States mail, by delivery service
or by electronic transmission. Any notice directed to a party to this Agreement
shall become effective upon the earliest of the following: (i) actual receipt by
that party; (ii) delivery to the designated address of that party, addressed to
that party; or (iii) if given by certified or registered United States mail,
twenty-four (24) hours after deposit with the United States Postal Service,
postage prepaid, addressed to that party at its designated address. The
designated address of a party shall be the address of that party shown at the
beginning of this Agreement or such other address as that party, from time to
time, may specify by notice to the other parties.
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8.10 A carbon, photographic or other reproduced copy of this Agreement
and/or any financing statement relating hereto shall be sufficient for filing
and/or recording as a financing statement.
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
THREE-FIVE SYSTEMS, INC., a Delaware
corporation
By:____________________________________
Name:__________________________________
Its:___________________________________
DEBTOR
-9-
SCHEDULE "A"
COLLATERAL
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(a) All equipment now owned or hereafter acquired, including all
furniture, fixtures, furnishings, vehicles (whether titled or non-titled),
machinery, materials and supplies, wherever located in the State of Arizona,
together with all parts, accessories, attachments, additions thereto or
replacements therefor;
(b) Together with (i) all policies or certificates of insurance
covering any of the foregoing property, and all awards, loss payments, proceeds
and premium refunds that may become payable with respect to such policies; and
(ii) all proceeds of any of the foregoing property, whether due or to become due
from any sale, exchange or other disposition thereof, whether cash or non-cash
in nature, and whether represented by checks, drafts, notes or other instruments
for the payment of money, including, without limitation, all property, whether
cash or non-cash in nature, derived from tort, contractual or other claims
arising in connection with any of the foregoing property.