Exhibit 10.3
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SECURITY AGREEMENT
AGREEMENT made this 30th day of May, 1997 by and between
PROGRAMS FOR EDUCATION, INC., a New Jersey corporation with its
principal place of business at Building #▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ("Programs"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, an individual with
his principal residence at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ ("▇▇▇▇▇▇▇", with Programs and ▇▇▇▇▇▇▇ hereinafter referred to
as the "Secured Party"), and MODERN LEARNING PRESS, INC., a
Delaware corporation with its principal place of business at ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Debtor").
Debtor and Secured Party hereby agree as follows:
1. Grant of Security Interest. To secure the punctual
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payment and performance by Debtor of its obligations to Secured
Party pursuant to (i) that certain promissory note of Debtor in
favor of Programs in the original principal amount of One Million
and 00/100 Dollars ($1,000,000.00) and dated the date hereof (the
"Note"), and (ii) that certain Royalty Agreement between ▇▇▇▇▇▇▇
and the Debtor and dated the date hereof (the "Royalty Agreement",
the Note and Royalty Agreement collectively, the "Debt"), Debtor
hereby grants to Secured Party a continuing first priority security
interest in the Collateral (defined hereinafter). Capitalized
terms used herein but not otherwise defined herein shall have the
meanings ascribed thereto in the Asset Purchase Agreement.
2. Collateral. The "Collateral" in which a security
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interest in favor of the Secured Party is hereby granted is
described in Schedule "A" annexed hereto and made a part hereof.
3. Debtor's Representations and Warranties. Debtor
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warrants, represents and covenants to the Secured Party that:
(a) The chief executive office and other places of
business of Debtor, and its books and records relating to the
Collateral and the Collateral are and have been since the date of
Closing located at the address(es) set forth below:
Building #▇
▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) Debtor agrees that during the term of the Debt, it
shall not transfer, assign or otherwise dispose of the Collateral.
(c) Debtor will not merge or consolidate with any
entity, other than Touchstone Applied Science Associates, Inc.,
without prior written notice to and consent of the Secured Party.
(d) Debtor will use the Collateral with all reasonable
care and caution and in conformity with all applicable laws,
ordinances, rules and regulations.
(e) The Secured Party shall at agreed dates and times,
upon reasonable notice, but in no event more than once each year of
the Debt, have the right to inspect the Collateral and any records
pertaining thereto.
(f) The Collateral is now and shall remain personal
property, consisting of general intangibles and contract rights.
(g) Debtor will perform all acts and execute all
necessary documents reasonably requested by the Secured Party from
time to time to evidence, maintain or enforce the Secured Party's
first priority security interest granted herein, except that no
continuation of this security interest shall be filed or effective
upon payment in full of the Note;
(h) At any time and from time to time, Debtor shall
execute and deliver to the Secured Party such financing statements
or other instruments or documents pursuant to the Uniform
Commercial Code ("UCC") of the State of New Jersey, or Uniform
Commercial Code of any other State affecting the Collateral (the
"UCC"), as may be requested by the Secured Party in connection with
this Security Agreement. Notwithstanding the prior sentence, no
financing statement or other instruments or documents shall be
executed by Debtor which shall continue the security interest of
the Secured Party after payment in full of the Note, it being the
intention of the parties that unless an Event of Default has
occurred and is continuing under the Royalty Agreement at such
time,this Security Agreement terminate upon payment in full of the
Note regardless of any payment or performance obligations remaining
under the Royalty Agreement at such time;
(i) In its discretion, Secured Party may, at any time
and from time to time, for the account of Debtor, pay any amount or
do any act required of Debtor hereunder, which Debtor fails to do
or pay, and any such payment shall be deemed an advance by Secured
Party to Debtor payable on demand together with interest at the
highest rate then payable on the Debt;
(j) Debtor will pay the Secured Party for all sums,
costs, and expenses which Secured Party may pay or incur pursuant
to the provisions of this Security Agreement or in executing,
defending, or protecting the security interest granted herein or in
enforcing payment of the Debt, including but not limited to
reasonable attorneys fees, all of which, together with interest at
the highest rate then payable on the Debt, shall be part of the
Debt, be payable on demand and be secured hereby;
(k) Except as otherwise specifically provided in any
agreement between the Secured Party and the Debtor, all proceeds of
any Collateral received by Debtor after the occurrence of a default
thereunder and the expiation of applicable cure periods, shall not
be commingled with other property of Debtor, but shall be
segregated, held by Debtor in trust for the Secured Party, and
immediately delivered to the Secured Party in the form received,
duly endorsed in blank where appropriate to effectuate the
provisions hereof, the same to be held by the Secured Party as
additional Collateral hereunder or, at Secured Party's option, to
be applied to payment of the Debt, whether or not due and in any
order the Secured Party may elect.
4. Default. Any of the following events or occurrences
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shall constitute a "Default" under this Agreement and the Debt:
(a) The default in the payment when due of any sum
payable (i) hereunder, if not paid within ten (10) days after
written notice thereof is given to Debtor by Secured Party; and
(ii) with respect to the Debt after the expiration of any
applicable cure period;
(b) The failure of the Debtor to perform any
other obligations to be performed by it hereunder or under the Note
or Royalty Agreement which are not performed within thirty (30)
days after written notice thereof is given to Debtor by Secured
Party;
(c) The occurrence of a default and expiration of any
applicable cure period by any Guarantor of the Debt pursuant to its
agreements with Secured Party;
(d) Dissolution, insolvency, assignment for the benefits
of creditors; commencement of a voluntary bankruptcy proceeding, or
involuntary proceeding which is not withdrawn within sixty (60)
days of filing thereof, under any Federal or State bankruptcy law
now or hereinafter in existence; application for the appointment of
a receiver or liquidating agent; issuance of an order of attachment
against the Collateral;
(e) Any representation made by Debtor in this Agreement
proves to have been materially misleading when it was made.
5. Rights Upon Default. Upon the occurrence of any Default
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and at any time thereafter, the Secured Party shall have the right
to declare the Note immediately due and payable without notice,
demand or protest, all of which are hereby waived, and shall have
all rights and remedies of a secured party under the UCC or federal
copyright law or available to the Secured Party under the Debt;
provided, however, that no costs or liabilities arising in
connection with obtaining or protecting any federal copyright for
any or all of the titles constituting the Collateral shall be
chargeable to or reimbursable by, Debtor other than to the extent
such federal copyrights were in existence at the date of this
Agreement and assigned to Debtor. Debtor agrees to provide
reasonable cooperation to Secured Party to obtain or protect such
federal copyrights at Secured Party's cost and expense. All of the
rights and remedies of Secured Party hereunder shall be cumulative,
not exclusive and enforceable alternatively, successively or
concurrently, including, but not limited to the following:
(a) The right to enter at any time and from time to
time, with or without judicial process or the aid and assistance of
others, any premises where any Collateral may be located;
(b) The right without resistance or interference by
Debtor, to take possession of the Collateral; and/or dispose of any
Collateral where located; and/or require Debtor to assemble and
make available to the Secured Party at the expense of Debtor any
Collateral at a place designated by the Secured Party which is
reasonably convenient to both parties;
(c) The right to remove any Collateral from where it is
located for the purpose of effecting sale or other disposition
thereof;
(d) The right to sell, resell, license, assign and
deliver, or otherwise dispose of any Collateral in its then
condition, at the public or private sale or proceedings or
otherwise, by one or more contracts, at the same or different
times, with or without having the Collateral at the place of sale
or other disposition, for cash and/or credit, and upon any terms,
at such place(s) and time(s) and to such person(s) as the Secured
Party deems best, all without demand, but subject to the provisions
of the UCC, including, but not limited to, notice of sale or other
disposition as set forth in the UCC. If any Collateral is sold by
the Secured Party upon credit or for future delivery, the Secured
Party shall not be liable for the failure of the purchaser to pay
for same and in such event the Secured Party may resell such
Collateral. The Secured Party may buy any Collateral at any public
sale.
6. Application of Proceeds Received. The Secured Party may
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apply the sale proceeds actually received from any sale or other
disposition to the reasonable expenses of retaking, holding,
preparing for sale, selling, leasing and the like, to reasonable
attorneys fees and other expenses which may be incurred by Secured
Party to collect the Debt or enforce this Security Agreement or in
the prosecution or defense of any action or proceeding related to
the subject matter of this Security Agreement; and then to the Debt
in such order and as to principal, or interest or other charges as
the Secured Party may desire; and Debtor shall remain liable and
will pay the Secured Party, on demand, any deficiency remaining,
together with interest thereon at the highest rate then payable on
the Debt and the balance of any expenses unpaid, with any surplus
to be paid to Debtor, subject to any duty of the Secured Party,
imposed by law, to the holder of any subordinate interest in the
Collateral actually known to the Secured Party.
7. Miscellaneous.
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(a) The Secured Party shall not be deemed, by its
acceptance of this Security Agreement, to have assumed any
responsibility, or obligation or duty with respect to, any of the
Collateral or its use, or any matter or proceeding arising out of
or relating thereto, including, without limitation, any obligation
or duty to take action to collect, preserve or protect its or
Debtor's rights in the Collateral.
(b) Debtor hereby releases the Secured Party from any
claims, causes of action and demands at any time arising out of or
with respect to this Security Agreement, the Debt, the Collateral
or its use or disposition and Debtor hereby agrees to hold the
Secured Party harmless from and with respect to any and such
claims, causes of action and demands relating thereto; provided,
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however, this provision shall not require Debtor to indemnify
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Secured Party nor shall it release Secured Party from its
obligations and liabilities as set forth in the Asset Purchase
Agreement and the exhibits and schedules annexed thereto and
executed and delivered in connection therewith.
(c) The Secured Party's prior recourse to any Collateral
shall not constitute a condition of any demand, suit or proceeding
for payment or collection of the Debt. No act, omission or delay by
the Secured Party shall constitute a waiver of its rights and
remedies hereunder or otherwise. No single or partial waiver by the
Secured Party of any Default or right or remedy which it may have
shall operate as a waiver of any other Default, right or remedy or
of the same Default, right or remedy on a future occasion.
(d) Debtor hereby waives presentment, notice of dishonor
and protest of all instruments included in or evidencing the Debt
of the Collateral, and all other notices and demands whatsoever
(except as expressly otherwise provided herein).
(e) All terms herein shall have the meanings as defined
in the UCC, unless the context otherwise requires.
(f) No provision hereof shall be modified, altered or
limited except by a written instrument expressly referring to this
Security Agreement and to such provision, and executed by the party
to be charged. This Security Agreement and all Debt shall be
binding upon the successors, or assigns of Debtor and shall,
together with the rights and remedies of the Secured Party
hereunder, inure to the benefit of the Secured Party and its
successors, endorsees and assigns. Notwithstanding the prior
sentence, this Security Agreement may not be assigned by either
party without the written consent of the other.
(g) This Security Agreement and the Debt shall be
governed, enforced and controlled by and in accordance with the
laws of the State of New Jersey. If any term of this Security
Agreement shall be held to be invalid, illegal or unenforceable,
the validity of all other terms hereof shall in no way be affected
thereby.
(h) Debtor acknowledges receipt of a copy of this
Security Agreement.
(i) If the provisions of this Security Agreement should
conflict with the terms and provisions of the Asset Purchase
Agreement entered into by the Debtor with the Secured Party in
connection with the Debt, the terms and provisions of the Asset
Purchase Agreement shall control any conflicting terms and
provisions herein contained.
IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, have executed and delivered this Security Agreement in
the State of New York as of the date first above written.
MODERN LEARNING PRESS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇, President
PROGRAMS FOR EDUCATION, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
STATE OF NEW YORK )
) SS.:
COUNTY OF ORANGE )
On the 30th day of May, 1997, before me personally came ▇▇▇▇▇▇
▇▇▇▇▇, to me known, who, by me duly sworn, did depose and say that
deponent resides at Honesdale, Pennsylvania that deponent is the
President of MODERN LEARNING PRESS, INC. the corporation described
in, and which executed the foregoing instrument by order of the
board of directors of the corporation; and that deponent signed
deponent's name by like order.
/s/ ▇▇▇▇▇▇▇ CRUSH
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Notary Public
▇▇▇▇▇▇▇ Crush
Notary Public, State of New York
No. 4892935
Qualified in ▇▇▇▇▇▇ County
Commission Expires 4/13/99
STATE OF NEW YORK )
) SS.:
COUNTY OF ORANGE )
On the 30th day of May, 1997, before me personally came
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, to me known, who, by me duly sworn, did depose
and say that deponent resides at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ that deponent is the President of PROGRAMS FOR EDUCATION,
INC. the corporation described in, and which executed the foregoing
instrument by order of the board of directors of the corporation;
and that deponent signed deponent's name by like order.
/s/ ▇▇▇▇▇▇▇ CRUSH
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Notary Public
▇▇▇▇▇▇▇ Crush
Notary Public, State of New York
No. 4892935
Qualified in ▇▇▇▇▇▇ County
Commission Expires 4/13/99
STATE OF NEW YORK )
) SS.:
COUNTY OF ORANGE )
On the 30th day of May, 1997, before me personally came
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, to me known and known to me to be the
individual described in and who executed the foregoing instrument
and acknowledged to me that he executed the same.
/s/ ▇▇▇▇▇▇▇ CRUSH
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Notary Public
▇▇▇▇▇▇▇ Crush
Notary Public, State of New York
No. 4892935
Qualified in ▇▇▇▇▇▇ County
Commission Expires 4/13/99
SCHEDULE "A"
TO SECURITY AGREEMENT DATED AS OF MAY 30, 1997
BETWEEN MODERN LEARNING PRESS, INC., AS DEBTOR,
AND
PROGRAMS FOR EDUCATION, INC., AND ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
COLLECTIVELY, AS SECURED PARTY
All author/publisher contracts and other contracts and
agreements, all as listed below, and any and all right, title and
interest of Modern Learning Press, Inc. therein, including, but not
limited to all intellectual property rights and goodwill (such
collateral being collectively known as the "Intellectual
Property"), which Intellectual Property was acquired by Modern
Learning Press, Inc. from Programs for Education, Inc. in
connection with that certain Asset Purchase Agreement dated the
30th day of May, 1997 by and between the parties.