1
EXHIBIT 10-C
SECURITY AGREEMENT
Security Agreement, dated as of November 5, 1999, made by and among
Illinois Superconductor Corporation, a Delaware Corporation with offices at ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company"), ▇▇▇▇▇▇▇
Associates, L.P., a Delaware limited partnership with offices at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇▇▇"), Westgate
International, L.P., a Cayman Islands limited partnership with offices c/o
Stonington Management Corp., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
("Westgate"), and Alexander Finance, LP, an Illinois limited partnership with
offices at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Alexander"). ▇▇▇▇▇▇▇,
Westgate and Alexander are sometimes individually referred to as a "Secured
Party" or collectively referred to as "Secured Parties."
NOW THEREFORE, in consideration of the foregoing, the Company hereby
agrees with the Secured Parties as follows:
SECTION 1. Grant of Security Interest. As collateral security for
all of the Obligations (as defined in Section 2 hereof), the Company hereby
pledges and collaterally assigns to the Secured Parties, and grants to the
Secured Parties a continuing security interest in the following (the
"Collateral"):
"Collateral" means all assets of the Company, including without limitation all
presently existing and hereafter arising (i) accounts, contract rights, and all
other forms of obligations owing to the Company from any source ("Accounts");
(ii) all of the Company's books and records, including ledgers, records
indicating, summarizing, or evidencing the Company's assets or liabilities, or
the Collateral, all information relating to the Company's business operations or
financial condition, all computer programs, disc or tape files, printouts, runs
or other computer prepared information, and any equipment containing such
information (the Company's "Books"); (iii) all of the Company's present and
hereafter acquired equipment, wherever located, and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
to any of the foregoing, wherever located ("Equipment"); all of the Company's
general intangibles and other personal property (including, but not limited to,
contract rights, rights arising under common law, statutes or regulations,
choses or things in action, goodwill, patents, trade names, trademarks, service
marks, copyrights, blueprints, drawings, purchase orders, customer lists, monies
due under any royalty or licensing agreements, infringements, claims, computer
programs, discs or tapes, deposit accounts, insurance premium rebates, tax
refunds, and tax refund claims, as well as all cash collateral that is
hypothecated to secure letters of credit or bonding obligations) ("General
Intangibles"); all present and future inventory in which the Company has any
interest, and all of the Company's present and future raw materials, work in
process, finished goods, and packing and shipping material, wherever located,
any documents of title representing any of the above ("Inventory"); all of the
Company's negotiable collateral, including all of the Company's present and
future letters of credit, notes, drafts, instruments, certificated securities
(including the shares of stock of any subsidiary), documents, personal property
leases (where the Company is the lessor), chattel paper and the Company's books
and records relating to any of
2
the foregoing ("Negotiable Collateral"); any money or other assets of the
Company which hereafter come into the possession, custody or control of the
Company, and the proceeds and products, whether tangible or intangible, of any
of the foregoing including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Equipment, General Intangibles, Inventory,
Negotiable Collateral, money, deposit accounts or other tangible or intangible,
real or personal, property resulting from the sale, exchange, collection or
other disposition of the Collateral, or any portion thereof or interest therein,
and the proceeds thereof;
in each case howsoever the Company's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
The Secured Parties acknowledge that their security interest in
Accounts and Inventory is junior to the lien, to the extent there is overlap,
granted to Franklin Capital Corporation (the "Factor") in "accounts" and
"inventory" ("Common Collateral"), pursuant to a Factoring Agreement, dated as
of October 6, 1999 by and between the Factor and the Company (the "Factoring
Agreement"), and further acknowledge that so long as any balances owing to the
Factor remain outstanding under the Factoring Agreement, the Secured Parties
shall not foreclose on the Common Collateral. The foregoing is subject to the
continued perfection of the Factor's lien in the "accounts" and "inventory"
under the Factoring Agreement and to the rights of the Secured Parties to pay
all outstanding amounts under the Factoring Agreement and to thereupon become
subrogated to the rights of the Factor.
SECTION 2. Security for Obligations. The security interest
created hereby in the Collateral constitutes continuing collateral security for
the prompt payment by the company, as and when due and payable, of all amounts
from time to time owing by it to the Secured Parties under the Securities
Purchase Agreements, dated as of May 15, 1998 and March 31, 1999 (the "Purchase
Agreements") by and among the Company, the Secured Parties and certain other
investors and the additional investment letter agreement, dated the date hereof
("Letter Agreement"), by and among the Company and the Secured Parties, the
Registration Rights Agreements dated as of May 15, 1998 and March 31, 1999 by
and among the Company, the Secured Parties and certain other investors and the
Amendment Agreement relating thereto by and among the Company, Secured Parties
and another investor, the Notes (as defined in the Letter Agreement) issued to
the Secured Parties and any obligations to the Secured Parties arising out of
the option of the Secured Parties to provide additional financing under the
terms of the Letter Agreement (the "Obligations").
SECTION 3. Representation and Warranties. The Company represents
and warrants as follows:
The Company is and will be at all times the owner of the Collateral
free and clear of any other lien, security interest or other charge or
encumbrance except for Permitted Liens (as defined in the Purchase Agreements).
SECTION 4. Covenants as to the Collateral. So long as any of
3
the Obligations shall remain outstanding, unless the Secured Parties shall
otherwise consent in writing,
(a) Further Assurances. The Company will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be reasonably necessary or
desirable (i) to perfect and protect the security interest to be created hereby;
(ii) to enable Secured Parties to exercise and enforce their rights and remedies
hereunder in respect of the Collateral; or (iii) to otherwise effect the
purposes of this Agreement.
(b) Provisions Concerning the Collateral. The Company will (A) give
Secured Parties prompt notice of any change in the Company's name, identity or
corporate structure, (B) keep all originals of all documents relating to the
Collateral at Company's principal office, and (C) keep adequate records
concerning the Collateral and permit representatives of Secured Parties at any
time during normal business hours on reasonable notice to inspect such records
(provided Secured Parties agree to keep all information inspected strictly
confidential).
(c) Transfer. The Company will not sell, assign, exchange or otherwise
dispose of any of the Collateral except in the ordinary course of business.
(d) If the Company fails to perform any agreement contained herein,
Secured Parties may itself perform or cause performance of such agreement or
obligation, and the reasonable expenses of Secured Parties incurred in
connection therewith shall be payable by the Company pursuant to Section 5(d)
hereof.
SECTION 5. Remedies Upon Default. If any of the Obligations are
not paid when due, or if the Company is in default of any of its obligations
under this Agreement, the Letter Agreement or the Purchase Agreements:
(a) Secured Parties may exercise in respect of the Collateral in
addition to other rights and remedies the rights and remedies of a secured party
under the Uniform Commercial Code in effect in the state of Illinois (the
"Code") and also may (i) require the Company to, and the Company hereby agrees
that it will at its expense and upon request of Secured Parties forthwith,
assemble all or part of the Collateral as directed by Secured Parties and make
it available to Secured Parties at a place to be designated by Secured Parties
and (ii) upon ten (10) days' (or such longer period shall be required by law)
prior written notice, sell the Collateral or any part thereof, in one or more
parcels at public or private sale, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as Secured Parties may
determine (provided that such terms are commercially reasonable). Secured
Parties shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Secured Parties may adjourn any public or
private sale from time to time by announcement at the time and placed fixed
therefor, and such sale may, without further notices, be made at the time and
place to which it was so adjourned.
(b) Any cash held by Secured Parties as Collateral and all cash
proceeds received by Secured Parties in respect of any sale of, collection from,
or other realization upon, all or any
4
part of the Collateral may, in the discretion of Secured Parties, be held by
Secured Parties as collateral for, and/or then or at any time thereafter applied
in whole or in part by Secured Parties against, all or any part of the
Obligations in such order as Secured Parties shall elect. Any surplus of such
cash or cash proceeds held by Secured Parties and remaining after the payment in
full of all of the Obligations shall be paid over to the Company or to such
person as may be lawfully entitled to receive such surplus.
(c) In the event that the proceeds of any such collection or
realization are insufficient to pay all amount to which Secured Parties is
legally entitled, the Company shall be liable for the deficiency, together with
interest thereon at the highest rate specified in the Notes for interest on
overdue principal thereof, together with the reasonable costs of collection.
(d) The Company will upon demand pay to Secured Parties the amount of
any and all reasonable costs and expenses, including the reasonable fees and
disbursements of Secured Parties' counsel, which Secured Parties may incur in
connection with (i) the sale of, collection from, or other realization upon, any
Collateral, (ii) the exercise or enforcement of any of the rights of Secured
Parties hereunder, or (iii) the failure by the Company to perform or observe any
of the provisions hereof.
SECTION 6. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be sent by certified mail,
return receipt requested or by overnight courier or delivered by hand, to the
parties at their respective addresses specified above (or to such other address
as shall be designated by a party in a written notice to the other party
complying as to delivery with the terms of this Section 6). All such notices and
other communications shall be effective upon delivery.
SECTION 7. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Company and Secured Parties, and no
waiver of any provision of this Agreement shall be effective unless it is in
writing and signed by Secured Parties, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) No failure on the part of Secured Parties to exercise, and no delay
in exercising, any right hereunder or under any other document relating hereto
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other further exercise thereof or the exercise of
any other right. The rights and remedies of Secured Parties provided herein and
in the Notes are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law.
(c) Any provision of this Agreement which is 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 portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
5
(d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the payment in
full or release of the Obligations and (ii) be binding on the Company and its
successors and assigns and shall inure, together with all rights and remedies
hereunder, to the benefit of Secured Parties and their successors, transferee
and assigns.
(e) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York, except as required by mandatory
provisions of law and except to the extent that the validity and perfection and
the effect of perfection or non-perfection of the security interest created
hereby, or remedies hereunder, in respect of any particular Collateral are
governed by the law of a jurisdiction other than the State of New York. The
parties hereby consent to the exclusive jurisdiction of any New York State or
Federal court in New York City in any action or proceeding arising hereunder.
(f) The actions of the holders of a majority-in-interest of the
Obligations shall be deemed the actions of Secured Parties for purposes of
giving any notice or enforcing any rights or remedies.
6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
as of the date first above written.
ILLINOIS SUPERCONDUCTOR CORPORATION
By:
Name:
Title:
▇▇▇▇▇▇▇ ASSOCIATES, L.P.
By:
Name:
Title:
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
Name:
Title:
ALEXANDER FINANCE, L.P.
By:
Name:
Title: