Exhibit 10.1
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
▇▇▇▇▇▇▇▇ & Vande ▇▇▇▇, Ltd.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
SECURITY AGREEMENT (ASSETS)
This Agreement is entered this 1st day of October, 2001, by and between
CIRCUIT SOURCE INTERNATIONAL, INC. ("Debtor"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ("Secured
Party"), and AVANTI CIRCUITS, INC. ("Corporation").
1. Definitions. When used herein, the following terms shall have the
following meanings:
a. "Account Receivable" shall include any and all accounts, notes,
drafts and general intangibles consisting of rights to payment, whether now
existing or hereafter arising or acquired, all as defined in the Arizona Uniform
Commercial Code.
b. "Account Debtor" shall mean any party who is obligated on any
Account Receivable.
c. "Equipment" shall mean all equipment, furniture and fixtures of
Corporation including, without limitation, certificated Motor Vehicles (herein
so called) and other certificated or uncertificated moveable equipment.
d. "General Intangibles" means all contract rights or general
intangibles of Corporation not constituting an Account Receivable including,
without limitation, all of Corporation's right, title and interest in and to any
and all construction draws, construction accounts, loan commitments, rights to
payment or other rights of Corporation to draw upon sources of cash flow or
other similar items caused by or arising out of Corporation's general course of
contracting or other business as now or hereafter conducted.
e. "Inventory" shall mean all goods. merchandise, and other personal
property, now owned or hereafter acquired by Corporation, held for sale or
lease, or furnished or to be furnished under any contract of service. or held as
raw materials, work in process, or materials used or consumed, or to be used or
consumed, in business.
f. "Note" means that certain promissory note dated October __, 2001,
executed by Debtor in favor of Secured Parry in the principal amount of
$2,000,000.00 and bearing interest at the rate of 10% per annum until paid. A
copy of the Note is attached hereto as Exhibit "A" and made a part hereof.
2. Grant of Security Interest Collateral. To secure the Obligations
described in paragraph 3, Debtor (as the owner of all of the outstanding stock
of Corporation) and Corporation hereby assign to Secured Party all of Debtor's
and Corporation's rights in connection with, and grant to Secured Party a
security interest in, the following personal property ("Collateral"):
a. All Inventory of Corporation now owned or hereafter acquired by
Corporation;
b. All General Intangibles of Corporation now existing or hereafter
arising or acquired;
c. All Accounts Receivable of Corporation now existing or hereafter
arising or acquired;
d. All Equipment of Corporation now owned or hereafter acquired by
Corporation;
e. All financial or other records used in the business of Corporation;
f. All proceeds of the foregoing, including all proceeds of any
insurance covering the Collateral; and
g. Any other personal property of Corporation in the possession of
Secured Party at the time of any default by Corporation.
3. Obligations. Debtor and Corporation will receive a material benefit from
the execution of the Note. Debtor and Corporation are willing to pledge and
grant a security interest in Corporation's assets as security for the Note. By
its execution and delivery hereof; Corporation agrees to grant a security
interest in its assets to secure prompt performance of the Note, all as set
forth herein. Therefore, the obligations secured by this Agreement
("Obligations") are the following:
a. Any and all sums due to Secured Party, pursuant to the terms of the
Note and any and all obligations of Debtor (monetary or non-monetary) to Secured
Party under or pursuant to any other documents or instruments executed by
Debtor, or which are given as security there for,
b. Any and all sums advanced by Secured Party in order to preserve the
collateral or to perfect its security interest in the Collateral;
c. In the event of any proceeding to enforce the collection of the
Obligations, or any of them, after default, the reasonable expenses of retaking,
holding, preparing for sale or lease, selling or otherwise disposing of or
realizing on the Collateral, or of any exercise by Secured Party of its rights
in the event of default, together with reasonable attorneys' fees and court
costs; and
d. Any other indebtedness or liability of Debtor to Secured ▇▇▇▇▇,
whether direct or indirect, joint or several, absolute or contingent, now or
hereafter existing, while this Agreement is in effect, however created or
arising and however evidenced.
4. Representations Warranties, and Promises. Debtor and Corporation further
represent, warrant and agree:
a. Corporation is the owner of the Collateral and grants the security
interest herein in consideration of the execution and delivery of the Note.
b. Neither Debtor nor Corporation will hereafter grant a security
interest in, or sell the Collateral to, any other person, firm or corporation,
without Secured Party's consent except as permitted herein
c. Debtor and Corporation will at all times defend the Collateral
against any and all claims of any person adverse to the claims of Secured Party.
d. Debtor and Corporation will take such action and execute such
documents as Secured Party may from time to time request to maintain a perfected
security interest on the part of Secured Party in the Collateral (free of all
other liens and claims whatsoever except as permitted pursuant to paragraph 16
below) to secure payment of the Obligations. Without limiting the generality of
the foregoing, Debtor and Corporation shall execute appropriate financing
statements for filing in the office of the Secretary of State of Arizona and any
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other appropriate governmental bodies and shall execute and deliver all
documents necessary to perfect a security interest in, and shall deliver
appropriate certificates of title for notation of Secured Party's lien on, any
Motor Vehicles of Corporation.
e. Debtor and Corporation will use the Collateral in conformity with
all applicable laws and will pay all taxes and assessments on it or its use when
due.
f. Debtor and Corporation have full power and authority to enter into
this Agreement.
g. In case of failure by Debtor or Corporation to procure or maintain
insurance. or to maintain the Collateral, or to pay any fees, assessments,
charges or taxes arising with respect to the Collateral, all as herein
specified, Secured Party shall have the right, but shall not be obligated, to
effect such insurance, or cause the Collateral to be maintained, or pay such
fees, assessments, charges or taxes, as the case may be, and, in that event,
tire cost thereof shall be payable by Debtor and Corporation to Secured Party
immediately upon demand together with interest at the rate of fifteen percent
(15%) from the date of disbursement by Secured Party to the date of payment by
Debtor or Corporation,
h. The Collateral will be kept free from any lien, security interest,
encumbrance or other right, title or interest of any other person, firm or
corporation created on or after the effective date hereof except a superior
encumbrance in favor of Heritage Bank in an amount not to exceed $600,000.00 as
described in paragraph 16 below.
i. Debtor and Corporation shall keep in full force and effect all
policies of insurance in place as of the date hereof covering the Inventory and
Equipment. Debtor and Corporation shall not alter, cancel or permit to lapse any
of such policies of insurance. The proceeds of any insurance from loss, theft,
or damage to the Inventory and Equipment shall be held, disbursed and applied
toward the repair, restoration or replacement of the Inventory and Equipment
with Inventory and Equipment of comparable nature and value. If the proceeds are
not so used, they shall be disbursed to reduce the balance of the Obligations.
j. All Inventory and Equipment covered by this Agreement is. and will
be, kept, all records concerning Accounts Receivable are, and will be, kept, and
Corporation's principal business office is located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇. Inventory and Equipment or records concerning the Accounts
Receivable or concerning or constituting the General Intangibles shall not be
removed to, or kept at, any other place without the prior written consent of
Secured Party. If Collateral is at any time kept or located at locations other
than those above listed, Secured Party's security interest therein shall
continue.
k. At the time an Account Receivable becomes Collateral under this
Agreement, the Account Receivable will be a valid, undisputed, bona fide
indebtedness incurred by the Account Debtor for merchandise sold to or services
performed for the Account Debtor by Corporation. There will be no setoffs or
counterclaims against any such Account Receivable. No agreement under which
deduction or discount (other than a reasonable and ordinary trade discount for
prompt payment) may be claimed or will be made with an Account Debtor, except
with the prior written consent of Secured party.
l. Upon reasonable advance notice from Secured party, Debtor and
Corporation will permit Secured Party to inspect the Collateral and any books
and records of Corporation relating thereto at any reasonable time and to verify
Accounts Receivable, or any of them, by a method satisfactory to Secured Party
5. Right of Secured Party to Collect Accounts Receivable. Debtor and
Corporation authorize Secured Party to notify any and all Account Debtors if
Debtor or Corporation is in default hereunder to make payment directly to
Secured Party. From and after an Event of Default (as defined in paragraph 7
below) Debtor and Corporation agree to deliver to Secured Party promptly upon
receipt thereof, in the form in which received (together with all necessary
endorsements), all payments received by Debtor and Corporation on account of any
Account Receivable. Secured Party may apply all such payments against the
Obligations.
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6. Authorization to Sell Inventory. As long as Debtor and Corporation are
not in default hereunder, Corporation may sell its Inventory in the ordinary
course of its business.
7. Events of Default. Debtor and Corporation shall be in default under this
Agreement (an "Event of Default") upon the occurrence of any one or more of the
following events or conditions:
a. Nonpayment of any of the Obligations when due, whether by
acceleration or otherwise, or nonperformance of any promise made by Debtor or
Corporation in this Agreement or in the Obligations;
b. Breach of any wananty made by Debtor or Corporation in this
Agreement, or the failure of Debtor or Corporation to comply with the terms and
conditions of the Heritage Bank loan referred to in paragraph 16 below;
c. Any misrepresentation made by Debtor or Corporation in this
Agreement or in any document furnished by Debtor or Corporation, or on Debts of
or Corporation's behalf, to Secured Party in connection with this Agreement or
the Collateral;
d. Use of the Collateral in violation of any statute or ordinance;
e. Any event which results in the acceleration of any indebtedness of
Corporation to any party or parties under any undertaking by Debtor or
Corporation of any kind;
f. The creation of any encumbrance upon the Collateral not permitted
herein or the making of any levy, judicial seizure, or attachment thereof or
thereon;
g. Any material loss, theft, damage to, or destruction of any of the
Collateral which is uninsured or results from the negligent or willful acts or
omissions of Debtor,
h. Dissolution., termination of existence, or insolvency of Debtor or
Corporation; or
i. The appointment of a receiver for any part of the property of
Debtor or Corporation, the making by Debtor or Corporation of any assignment for
the benefit of creditors, or the initiation by or against Debtor or Corporation
of any proceeding under the Federal Bankruptcy Act or any state insolvency law
8. Rights of Parties upon Default. In the event of a default by Debtor or
Corporation, in addition to all the rights and remedies provided in the Uniform
Commercial Code, as adopted by the State of Arizona and any other applicable
law, Secured Party may (but is under no obligation so to do):
a. Take physical possession of Inventory and Equipment and of Debtor
or Corporation's records pertaining to the Collateral (whether Inventory,
Accounts Receivable or General Intangibles) which are necessary to administer
properly and control the Collateral or the handling and collection of the
Accounts Receivable and sell, lease or otherwise dispose of the Collateral in
whole or in part, at public or private sale, on or off the premises of
Corporation;
b. Require Debtor and Corporation to assemble the Collateral to which
Debtor or Corporation has or is entitled to possession at a location to be
determined by Secured Party;
c. Collect any and all money due or to become due and enforce in
Debtor's or Corporation's name all rights with respect to the Collateral;
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▇. ▇▇▇▇▇▇, adjust or compromise any dispute with respect to any
Account Receivable; or
e. On behalf of Corporation, endorse checks, notes, drafts, money
orders, instruments or other evidence of payment
9. Notice. Any notice of any sale, lease, other disposition, or other
intended action by Secured Party shall be deemed reasonable if it is in writing
and deposited in the United States Mails ten (10) days in advance of the
intended disposition or other intended action, first class postage prepaid, and
addressed to Debtor and Corporation, at the address set forth below, or any
other address designated ma written notice by Debtor and Corporation previously
received by Secured Party
10. Cumulative Remedies Waiver.
a. Any and all remedies herein expressly conferred upon the Secured
Party shall be deemed cumulative with, and not exclusive of, any other remedy
conferred hereby or by law on the Secured Party, and the exercise of any one
remedy shall not preclude the exercise of any other.
b. Failure of the Secured Party to exercise any rights it may have
upon Debtor's or Corporation's breach hereof or upon Debtor's default in payment
of the Promissory Note secured hereby shall not release Debtor or Corporation
from any of its obligations hereunder or under such indebtedness, unless such
waiver or release be expressed in writing signed by the Secured Party. In
addition, the waiver by the Secured Party of any breach hereof for default in
payment of the Promissory Note secured hereby shall not be deemed to constitute
a waiver of any succeeding breach or default By exercising or failing to
exercise any of the options or elections contained in this Security Agreement.
The Secured Party shall not be deemed to have waived any breach or default on
the part of Debtor or Corporation.
c. Debtor and Corporation hereby waives any rights or privileges which
it or its creditors might otherwise have to require the Secured Party to proceed
against the assets encumbered hereby in any particular order or fashion under
any legal or equitable doctrine or principle of marshaling and/or suretyship,
and further agrees that upon default, the Secured Party may proceed to exercise
any or all remedies with regard to any or all assets encumbered hereby in such
manner and order as the Secured Party, in his sole discretion, may determine.
11. Duration. This Agreement shall remain in effect from the date first
above mentioned until all of the Obligations have been fully satisfied.
12. Assigns. This Agreement and all rights and liabilities hereunder and in
and to any and all Collateral shall inure to the benefit of Secured party and
its successors and assigns, and shall be binding on Debtor, Corporation and
their respective successors and assigns.
13. Definition of terms. The terms and provisions contained herein shall,
unless the context otherwise requires, have the meaning and be construed as
provided in the Uniform Commercial Code, as adopted by the State of Arizona.
14. Construction of Agreement. Any provision hereof which may be deemed
invalid or unenforceable under any applicable laws or a governmental regulation
shall be deemed to be omitted herefrom or shall be deemed to be modified such
that it will comply with such law or regulation. The invalidity or
unenforceability of any provision contained herein shall not invalidate the
remaining provisions of this Security Agreement
15. Modification. No modification of this Security Agreement, except as
provided in paragraph 14 herein, or waiver of any provision hereof shall be
deemed effective unless in writing and signed by all parties hereto, and any
waiver granted shall not be deemed effective except for the instance and in the
circumstances particularly specified therein.
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16. Subordination. The Security Agreement granted herein shall constitute a
first-position purchase money security interest notwithstanding the foregoing,
the security interest granted herein shall be subordinate to the security
interest of Heritage Bank in and to the Collateral in an amount not to exceed
$600,000.00.
ADDRESS. "DEBTOR"
_____________________ CIRCUIT SOURCE INTERNATIONAL, INC.
_____________________
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
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Its: President
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ADDRESS. "SECURED PARTY"
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
"CORPORATION"
AVANTI CIRCUITS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Its: President
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EXHIBIT "A"
(ATTACH COPY OF THE NOTE)