EXHIBIT 10.38
SECURITY AGREEMENT
(under the Uniform Commercial Code of California)
December 16, 2002
BFI Business Finance
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This Agreement confirms the understanding and agreement by and between
BFI BUSINESS FINANCE, a California corporation ("Lender") and BRIGHTSTAR
INFORMATION TECHNOLOGY SERVICES, INC. AND BRIGHTSTAR INFORMATION TECHNOLOGY
GROUP, INC., each a DELAWARE CORPORATION (individually and collectively,
"Borrower") regarding the loan to be made by Lender and its terms and
conditions.
1. Lender shall from time to time in Lender's sole discretion advance
sums to Borrower up to EIGHTY FIVE PERCENT (85%) of the Net Face Amount of Prime
Accounts (as defined below in Paragraph 6) and such other sums as Lender may
determine (an "Advance"), but in no event shall the aggregate indebtedness
(under this Agreement or under all Obligations) to Lender at any one time exceed
without Lender's prior written approval, the sum of SEVEN HUNDRED FIFTY THOUSAND
AND 00/100 DOLLARS ($750,000.00) (the "Maximum Amount"). In the event that the
balance owing under this Security Agreement (the "Agreement") exceeds the sum
set forth in this Paragraph 1, or in the event that said balance exceeds the
percentage set forth above of the Value of Prime Accounts as determined by
Lender, Borrower understands and agrees that Lender shall make no further
Advances to the Borrower unless and until Borrower pays Lender the amount of
such excess (the "Overadvance"), and Borrower hereby promises to pay such excess
to Lender upon Lender's demand.
2. Each Advance and Borrower's total indebtedness to Lender shall be
paid by Borrower as follows: (a) the delivery to Lender of all collections
received by Borrower on Accounts assigned to Lender; (b) the delivery to Lender
from time to time on demand, of a sum equal to the Net Face Amount of all
Accounts assigned to Lender and which remain uncollected more than ninety (90)
days from the date of each invoice or which are more than sixty (60) days past
due. In addition, Borrower's entire unpaid indebtedness, whenever and however
created, shall become immediately due and payable upon the occurrence of an
Event of Default as defined in Paragraph 19 or in the case of termination, as
set forth in Paragraph 21, whether by notice, lapse of time or otherwise,
whichever occurs first. Payments received shall be applied first against fees
and costs, if any, then against interest and then against principal. Each
accounting rendered by Lender to Borrower shall be deemed correct and binding
unless Borrower notifies Lender in writing to the contrary within thirty (30)
days after the date of each accounting rendered by Lender.
3. Advances hereunder shall bear interest, on the average daily
outstanding balance, at the rate of FOUR PERCENTAGE POINT(S) (4.0%) PER ANNUM
over and above the rate announced as the "prime" rate in the Western Edition of
the Wall Street Journal which is in effect from time to time (the "Prime Rate");
provided that the Prime Rate shall at all times be deemed to be not less than
four and one quarter percent (4.25%) per annum (the "Deemed Prime Rate") and
provided that the minimum amount of interest and fees payable shall in no event
be less than ONE THOUSAND AND 00/100 DOLLARS ($1,000.00) per month (the
"Minimum Monthly Interest Payment"). In the event that the Prime Rate is
changed, the adjustment in the interest rate charged shall be made on the day
such change occurs. The Prime Rate is a rate used by certain financial
institutions as one of their index rates and serves as a basis upon which
effective rates of interest are calculated for loans making reference thereto
and may not be the lowest of such financial institutions' index rates. Interest
shall be computed on the basis of a 360-day year for the actual number of days
elapsed. Interest shall be due and payable monthly on the first day of each
month, and if not so paid, shall bear interest at the rate hereinabove
specified. At Lender's option, accrued interest may be charged as an Advance
under this Agreement. Notwithstanding anything to the contrary contained in this
Agreement, no payment made by check shall be deemed made until THREE (3)
business days after receipt thereof by Lender, to allow for and subject to,
clearance of such checks.
4. At the time of execution hereof, Borrower agrees to pay Lender a
one-time fee of ONE PERCENT (1.0%) of the Maximum Amount (the "Loan Origination
Fee"). A sum of ONE HALF OF ONE PERCENT (0.50%) of the Maximum Amount will be
paid annually, every twelve (12) months from the date of this Agreement,
thereafter (the "Annual Fee"). While any indebtedness remains outstanding
pursuant to this Agreement, on or before the first day of each month, Borrower
agrees to pay an administrative fee equal to ONE HALF OF ONE PERCENT (0.50%) per
month of the average daily outstanding balance during the preceding month (the
"Administrative Fee"). For purposes of computing the average daily outstanding
balance during the month and the Administrative Fee payable on account thereof,
payments made by check shall be applied as set forth in Paragraph 2 and 3 above.
5. All Advances and charges hereunder, together with all obligations
and indebtedness to Lender, however and whenever created (collectively, the
"Obligations"), shall be secured by a continuing security interest in (a) all of
Borrower's present and hereafter acquired Inventory, including, but not by way
of limitation, raw materials, work in process and finished goods of all nature
and description; (b) all present and hereafter acquired plant, office and/or
other equipment, including, but not limited to machinery and all attachments and
appurtenances hereto, tools, dies, molds, jigs, bores, patterns, appliances,
fixtures, furniture and furnishings; (c) assignment and pledge of all our
Accounts now existing or hereafter arising during the term hereof, (d) all
present and hereafter acquired contracts, contract rights, purchase orders,
chattel paper, negotiable documents, insurance policies and proceeds; (e) all
cash, cash in banks, savings institutes, certificates of deposit, etc., now
owned or hereafter acquired, and proceeds thereof; (if) all present and
hereafter acquired general intangibles, including, but not by way of limitation
to the name and goodwill of debtor, trademarks, tradenames, copyrights,
processes, patents, patent rights,
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patent applications, licenses, inventions, royalties and/or commissions; (g)
such other security as shown by separate written instruments which Borrower now
or hereafter gives Lender, and (h) any and all other property of Borrower coming
into Lender's possession or under Lender's control all of which security
interests, assignments and pledges Borrower hereby grants to Lender in
accordance with and subject to Division 9 of the California Commercial Code, (i)
any and all products and proceeds of the foregoing. Each new Advance (and all
prior Advances, indebtedness or liabilities) shall be covered by all security
agreements that Borrower has then given or caused to be given to Lender.
6. As used in this Agreement, unless otherwise indicated by the
context, "Accounts" shall mean all present and future right of Borrower to
payment for goods sold or leased, or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance. "Net Face Amount" shall mean with respect to an Account, the gross
face amount of such Account less all trade discounts or other deductions to
which the account debtor is entitled. "Prime Accounts" shall mean Accounts
created by Borrower which: (a) are acceptable to Lender; (b) are credit worthy;
(c) have been validly assigned to Lender; (d) as of the date of determination,
are not more than sixty (60) days past due or remain uncollected more than
ninety (90) days from the date of each invoice; and (e) strictly comply with all
Borrower's warranties and representations to Lender. "Value" shall mean the
lower of cost or fair market value. "Inventory" shall mean all of Borrower's now
owned and hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or nature (or as
described in any Financing Statement which Lender has been authorized to file)
wherever located and including but not limited to inventory located at ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, which is Borrower's
chief executive office (the "Chief Executive Office"), and ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ AND ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (collectively the "Premises"). The Inventory and Equipment shall not at
any time now or hereafter be stored with a landlord, bailee, warehouseman, or
similar party without Lender's prior written consent.
7. Borrower shall not relocate its Chief Executive Office or Premises,
or open any new locations unless Borrower (a) gives thirty (30) days prior
written notification to Lender; (b) executes and delivers, or causes to be
executed and delivered, to Lender such agreements, documents, and instruments as
Lender may deem reasonably necessary or desirable to protect its interests in
the collateral at such locations, including without limitation, UCC-1 Financing
Statements and waivers from any landlord, bailee, or warehouseman in form and
substance satisfactory to Lender.
8. So long as Borrower is indebted to Lender, Borrower warrants,
represents and agrees that: (a) all collateral security given or caused to be
given by Borrower to Lender is and will be a first security interest on the
property described in each such security agreement (except insofar as Borrower
has notified Lender to the contrary in writing); (b) the property covered by all
security agreements given or caused to be given by Borrower to Lender is solely
owned by Borrower or the party described in such security agreement; (c) the
property covered by all security agreements given or caused to be given by
Borrower to Lender (except for sales of Inventory in the ordinary course of
business) is free and clear of all liens, encumbrances, security interest and
adverse claims other than created by such security agreements; (d) the property
covered by all security agreements given or caused to be given by Borrower to
Lender is kept in good condition and repair, is not subject to waste, will not
(except for sales of Inventory in the ordinary course of business) be sold,
transferred or assigned or removed from the Premises described in such security
agreements without first obtaining Lender's prior written consent; (e) all
Accounts when assigned to Lender will be Prime Accounts and will have been
created by absolute sales of Borrower's merchandise or services, will be
genuine, bona fide and collectible, and Borrower will have and convey good,
unencumbered and absolute title to Lender free of all third party claims; (f)
Accounts assigned to Lender will not be subject to any dispute, right of offset,
counterclaim, or right of cancellation or return; (g) at the time of assignment
of Accounts to Lender, all property giving rise to such Accounts will have been
delivered (from Premises in the United States) to, and unconditionally accepted
by, each account debtor; (h) prior to the assignment and pledge of an Account to
Lender, Borrower will have performed all things required by the terms of all
agreements or purchase orders giving rise to such Account; (i) at the time of
assignment to Lender, all Accounts will be due and unconditionally payable on
terms of thirty (30) days or less, or on such other terms (as are acceptable to
Lender) which are expressly set forth on the face of all invoices, copies of
which shall be delivered to Lender and no Account will then be past due; (j)
Accounts do not consist of progress ▇▇▇▇▇▇▇▇, ▇▇▇▇ and hold invoices or
retainage invoices; (k) neither the account debtor nor any officer, employee or
agent of the account debtor with respect to such Accounts is an officer,
employee or agent of or affiliated with Borrower directly or indirectly by
virtue of family membership, ownership, control, management or otherwise; (l)
the account debtors with respect to such Accounts are not any foreign
government, the United States of America, any State or any political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State or any political
subdivision, department, agency or instrumentality thereof the Federal
Assignment of Claims Act of 1940, as amended, or any similar State or local law,
if applicable, has been complied with in a manner satisfactory to Lender; (m)
Accounts of a single account debtor or its affiliates do not constitute more
than twenty-five percent (25%) of all otherwise Prime Accounts (but the portion
of the Accounts not in excess of such percentage may be deemed Prime Accounts);
(n) Accounts are not owed by any account debtor who has Accounts unpaid more
than ninety (90) days after the date of the original invoice therefore and which
constitute more than twenty-five percent (25%) of the total Accounts from such
account; (o) all facts figures, representations given, or caused to be given by
Borrower to Lender in connection with the Value of the property given to Lender
as security or regarding each Advance or Account or pertaining to anything done
under this Agreement shall be true and correct; (p) Borrower's books and records
fully and accurately reflect all of Borrower's assets and liabilities (absolute
and contingent), are kept in the ordinary course of business in accordance with
generally accepted accounting principles consistently applied and all
information contained therein is true and correct; (q) the fair market value of
the property covered by all security agreements given by Borrower to Lender, is
and shall at all times be, not less than the price which Borrower paid therefor
(less normal depreciation caused by ordinary wear and tear) and as represented
to Lender; (r) Borrower will not borrow any money except under this Agreement
without first notifying Lender; (s) Borrower will not sell or assign any of
Borrower's Accounts or pledge, encumber, hypothecate, first mortgage or
otherwise create or give any security interest on any property without notifying
Lender; (t) all taxes of any governmental or taxing authority due
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or payable by, or imposed or assessed against Borrower have been paid and shall
be paid in full before delinquency; (u) there are no actions or proceedings
pending by or against Borrower before any court or administrative agency, and
there are no pending, threatened, or known to be imminent litigations,
governmental investigations or claims, complaints, or prosecutions involving
Borrower except as heretofore disclosed in writing to Lender; (v) Borrower has
the legal power and authority to enter into this Agreement and to perform and
discharge obligations hereunder; (w) if Borrower is a CORPORATION, Borrower will
do all things necessary to preserve good standing as a CORPORATION under the
laws of the state(s) where Borrower conducts business, specifically
CALIFORNIA, MASSACHUSETTS, TEXAS, LOUISIANA, & ARKANSAS and under the laws of
DELAWARE, the state of Borrower's organization; and (x) every payment falling
due on Accounts assigned to Lender will be duly paid and received by Lender on
or before the earlier of ninety (90) days from the date of each invoice or sixty
(60) days from the due date of each invoice.
9. Borrower agrees to execute upon demand by Lender any and all
Financing Statements, Continuation Statements or other statements intended to
perfect Lender's security interest hereunder, in whatsoever form Lender may
require, as provided for and defined in Division 9 of the California Commercial
Code, but Lender shall be entitled and is hereby expressly authorized to execute
and file the same on Borrower's behalf, and Lender is hereby appointed
Borrower's attorney-in-fact for such purpose.
10. Each warranty, representation, and agreement contained in this
Agreement shall be automatically deemed repeated with each Advance and shall be
conclusively presumed to have been relied on by Lender regardless of any
investigation made, or information possessed by Lender. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements
contained in any other document or instrument which Borrower shall give, or
cause to be given, to Lender either now or hereafter.
11. Notwithstanding termination of this Agreement, all assignments,
pledges, liens, and/or other security interest now or hereafter granted to
Lender shall continue in full force until all of our indebtedness and
liabilities to Lender have been paid.
12. Borrower shall promptly pay any and all expenses of storing,
warehousing, insuring, handling and shipping of Borrower's property and any and
all excise, property, sales and other taxes (providing Lender with evidence of
payment thereof), security interest, encumbrances and liens, levied or imposed
by any governmental or taxing authority on Borrower or on any of Borrower's
property or any property caused to be given to Lender as security. If Borrower
fails to promptly pay when due, whether to Lender or any other person, monies
which Borrower is required to pay under any portion of this Agreement, Lender
may, but need not, pay the same and charge Borrower's account therefore and
Borrower shall promptly reimburse Lender therefor. Any and all sums shall become
additional indebtedness owing to Lender and shall bear interest at the rate
provided in Paragraph 3 hereof and shall be covered by all security now or
hereafter given by Borrower or which Borrower causes to be given to Lender.
Lender need not inquire as to, or contest the validity of, any such expense,
tax, security interest, encumbrance or lien, and the receipt of the usual
official for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
13. All documents to be delivered by Borrower shall contain such terms
and be in such form as Lender may require. Each assignment, pledge or other
security agreement shall include and cover all of Borrower's right, title and
interest in property described therein and all of Borrower's books, records and
files relating thereto. All ledger sheets, files, records and documents, files
and records relating to Accounts, Inventory, or other collateral assigned to
Lender shall, unless delivered to or removed by Lender, be kept on the Premises
in trust for, and without cost to Lender. Lender may at any time remove from the
Premises all documents, files and records relating to Lender's security.
14. Prior to Lender's first verification of Inventory or audit of
Borrower's Accounts, Lender may, in its sale discretion, determine or
redetermine the Value of Borrower's Inventory or Accounts by applying to
Borrower's assigned Value thereof such percentage as Lender deems appropriate,
based upon Lender's initial sample of other basis. Lender may likewise determine
or redetermine the Value thereof between Lender's Inventory verifications and
audits, based upon Lender's last preceding verification, audit, sampling,
review, or other basis.
15. Borrower shall have the revocable privilege to collect at
Borrower's expense the payments due on Accounts assigned to Lender, upon the
express condition, however, that all such collections shall (a) be received by
Borrower in trust for Lender; (b) not be mingled with Borrower's funds; and (c)
be delivered to Lender in kind within twenty-four (24) hours after Borrower's
receipt of the same. Borrower's collection privilege as described above is
subject to revocation by Lender at any time and shall be automatically revoked
upon the happening of an Event of Default as defined below. Unless the
instruments so received by Borrower are dishonored, or unless Borrower shall in
its discretion have remitted the amount thereof to Lender, Lender shall credit
the amount thereof against Borrower's indebtedness to Lender as set forth in
Paragraph 2 and 3 above. Lender is hereby irrevocably Borrower's
attorney-in-fact with authority and power to endorse our name on any checks,
notes, acceptances, money orders, drafts, or other forms of payment or security
that may come into Lender's possession; to sign Borrower's name on any invoice
or ▇▇▇▇ of lading related to any Accounts, on drafts against account debtors, on
schedules and assignments of Accounts, on verification of Accounts, and notices
to account debtors; to establish a lock box arrangement and/or at Lender's sole
discretion to notify the post office authorities to change the address for
delivery of Borrower's mail; to receive and open all mail addressed to Borrower
and to retain all mail relating to Lender's security, forwarding all other mail
to Borrower; to send, whether in writing or by telephone, requests for
verification of Accounts; and to do all things necessary to carry out this
Agreement.
16. If any property referred to or covered by any Account assigned to
Lender shall remain in, or revert to, Borrower's possession, Borrower will
forthwith set it apart, ▇▇▇▇ and designate it as Lender's property and promptly
notify Lender. Borrower will prepare and deliver to Lender financial statements,
balance sheets, profit and
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loss statements, schedules of Accounts, agings (listing the names and addresses
of, and amounts owing by date, by account debtors), preliminary fiscal year end
financial statements, reviewed fiscal year end statements and/or tax returns,
and such other reports, analysis and operating data as Lender may from time to
time reasonably request orally or in writing, all in form acceptable to Lender.
Lender or Lender's agents or employees shall have the right, during reasonable
business hours if prior to an Event of Default and at any time if on or after an
Event of Default, to have access to, examine, inspect and/or audit any or all of
Borrower's books and records, including but not limited to minute books,
ledgers, records indicating, summarizing or evidencing the assets (including
Accounts, Inventory and equipment) and liabilities, and all information relating
thereto, records indicating, summarizing or evidencing Borrower's business
operations or financial condition, and all computer programs, disc or tape
files, printouts, runs and other computer prepared information and the equipment
containing such information, and permit Lender or Lender's employees or agents
to copy and make extracts therefrom. Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to Lender at Borrower's
expense all financial information, books and records, work papers, management
reports and other information in their possession relating to Borrower.
17. Borrower shall accept no returns and shall grant no allowances or
credits to account debtors without notifying Lender at the time credit is
issued. Borrower shall maintain insurance at Borrower's expense on property
given to Lender as security with such carriers, covering such risks and
containing such amount of coverage and other terms (including an endorsement
providing for non-cancellation except upon thirty (30) days' written notice to
Lender and a loss payable endorsement, 438BFU, in Lender's favor) as Lender may
from time to time specify in writing. Borrower shall promptly deliver to Lender
copies of all policies, endorsements, evidence of premium payment, claims and
reports to insurance carriers.
18. Borrower promises and agrees to pay all costs and expenses and all
attorneys' fees incurred by Lender in connection with this Agreement and the
transactions contemplated hereby (including without limitation the prosecution
of motions or actions seeking relief from any stay or restraint under the United
States Bankruptcy Code from pursuing any remedy hereunder), whether or not suit
between Borrower and Lender is brought. Lender may bring all proceedings for
collection in Lender's name or in Borrower's name and may exercise Borrower's
right of stoppage in transit, replevin, and reclamation.
19. Without limiting any other portion of this Agreement, all
Borrower's indebtedness and Obligation shall automatically accelerate and become
immediately due and payable, and the revocable collection privilege referred to
in Paragraph 15 shall be automatically revoked, upon termination (by lapse of
time or otherwise) of this Agreement or upon the happening of any one of the
following which shall constitute an "Event of Default":
(a) Borrower's failure to make any payment to Lender when due, or any
default under, or breach or violation of any warranty, representation,
obligation, agreement, condition or undertaking contained herein or in any other
written document which Borrower now or hereafter executes and delivers, or which
Borrower now or hereafter causes to be executed and delivered to Lender; (b) the
Obligations at any time exceed the Maximum Amount (c) Any change in Borrower's
business, (including, without limitation, the ownership thereof) or financial
condition or that of any guarantor of any of Borrower's Obligations or
indebtedness hereunder or any decline in the Value of any property given to
Lender as security, which causes Lender to deem itself insecure; (d) The
withdrawal or cancellation of any guarantor of any of Borrower's Obligations or
indebtedness hereunder, or the termination of any subordination agreement
whereby any indebtedness is subordinated to Borrower's Obligations; (e) The
ceasing to do business as a going concern, or the assignment of any property for
the benefit of creditors or the commission of any act of bankruptcy or
insolvency, by or on the part of Borrower or any guarantor of any of Borrower's
Obligations or indebtedness hereunder; (f) The filing by or against Borrower or
any guarantor of any of Borrower's Obligations or indebtedness hereunder of any
petition or application in bankruptcy, reorganization, arrangement, trusteeship
or receivership, whether under the United States Bankruptcy Code or otherwise,
or the appointment of a trustee or receiver over all or any part of the property
or business of Borrower or any guarantor of any of Borrower's Obligations or
indebtedness hereunder, or the levying of an attachment or garnishment on any of
Borrower's property which is not released within ten (10) days; (g) Any of the
property covered by any of the security agreements given or caused to be given
by Borrower to Lender is lost, secreted, misused or destroyed; or (h) Any
delinquency on Borrower's part in paying any tax when it comes due.
20. Borrower waives presentment, demand, protest, and notice of
dishonor as to any instrument. Borrower consents to any extensions,
modifications, allowances, compromises or releases of security which Lender may
grant, none of which shall release Borrower or any guarantors from, or affect,
any of Borrower's or Guarantor's Obligations.
21. This Agreement shall be effective as of the date first set forth
above and shall remain in full force and effect for a period of TWENTY FOUR (24)
MONTH(S) (the "Basic Term"). Notwithstanding the preceding sentence, this
Agreement shall be renewed automatically for successive periods (each, a
"Renewal Term") equal to the Basic Term unless this Agreement is terminated by
Borrower giving written notice (a "Termination Notice") to Lender specifying
such termination. Termination Notices shall be given by mailing a registered or
certified letter specifying such termination not less than thirty (30) days
prior to the effective date of such termination, addressed to Lender at the
address set forth herein, and the termination shall be effective as of the date
fixed in such notice. Notwithstanding the foregoing, Lender reserves the right
to terminate this Agreement at Lender's sole discretion upon giving thirty (30)
days prior written notice to Borrower or should Borrower be in default of one or
more provisions of this Agreement, Lender may terminate this Agreement at any
time without notice. After termination and when Lender has received all sums
due, Lender shall reassign to Borrower all collateral held by Lender, and shall
execute a cancellation of, and/or reconveyance under, all security agreements
given by Borrower to Lender, upon the execution and delivery of mutual general
releases.
22. The Obligations may be prepaid by Borrower at any time and to the
extent such Prepayment occurs, Borrower shall pay to Lender a fee equal to the
amount of the Minimum Monthly Interest Payment times the number
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of months remaining in the Basic Term or Renewal Term, as applicable (the
"Prepayment Fee"). In addition, Borrower shall also pay any prepayment fees or
penalties provided for in any other agreement with Lender. "Prepayment" includes
any payment or other reduction of the balance of the Obligations, regardless of
whether such payment or other reduction (a) is voluntary or involuntary; (b) is
occasioned by Lender's acceleration of the Obligations or demand hereunder; (c)
is made by Borrower or other third party, including Guarantor; (d) results from
Lender's receipt or collection of proceeds of its collateral, including
insurance proceeds and condemnation awards; (e) results from Lender's exercise
of its right of setoff; and/or (f) is made during a bankruptcy, reorganization
or other proceeding, or is made pursuant to any plan of reorganization or
liquidation.
23. Borrower will reimburse Lender for all out-of-pocket expenses
incurred by Lender, including, without limitation, the cost of title searches,
title reports, title insurance, recording fees, filing fees, publication fees,
attorneys' fees, appraisals, and all other expenses similar to the foregoing. If
during the term hereof, Borrower fails to make any such payment required, Lender
may, but need not, pay the same and charge Borrower's account therefore.
24. Lender may, in its discretion, make advances under this Agreement
or under the Obligations to make any payments due from Borrower to Lender under
this Agreement or any of the Obligations. Lender may also, in its sole
discretion, reserve under this Agreement or under the Obligations, for amounts
due under this Agreement or any of the Obligations
25. In case of any breach or default by Borrower, or the occurrence of
any Event of Default described in Paragraph 19, or if Borrower fails or neglects
to promptly pay any and all of their Obligations, when due, all of their
Obligations shall, without notice or demand, become immediately due and payable
at Lender's option. Thereafter, all amounts outstanding shall bear interest at
the rate of an additional THREE PERCENT (3.0%) per annum in excess of the then
applicable interest rate (the "Default Rate"). Upon the occurrence of any such
Event of Default Lender may immediately, or at any time or times thereafter,
without any demand or notice to Borrower or any guarantor of any of our
Obligations and without advertisement or notice, all of which are expressly
waived, commence an action for the recovery of any and all such Obligations,
commence proceedings to sell, lease or otherwise dispose of any and all
collateral covered by this Agreement and by all security agreements given or
caused to be given by Borrower to Lender or, without legal proceedings, enter
such places as any of such collateral may be found and take possession of such
collateral and sell the same. Such collateral may be sold where it is located at
the time of the breach or default, or elsewhere, at public or private sale, for
cash, upon credit or otherwise at Lender's sole option and discretion. Borrower
hereby further waives all notices of seizure and sale, and all requirements that
such property be physically present at the place of sale. Any person, including
Lender, may purchase at any such sale, free from any right of redemption which
is expressly waived, and if Lender is the purchaser, may turn all or part of any
of Borrower's indebtedness to Lender in toward payment of the purchase price.
The proceeds of any such sale or other disposition shall be applied, first to
all expenses of setting all liens and claims against, and all costs, charges and
expenses incurred in taking, removing, holding, repairing and selling such
collateral, including without limitation, all attorneys' fees and costs incurred
by Lender, and second, to the payment of all Obligations, whether due, or to
become due, and whether arising under this Agreement or otherwise. The surplus,
if any, shall be delivered to Borrower. Borrower shall pay any deficiency
forthwith.
26. All notices or demands hereunder shall be in writing and sent by
certified, first class mail. They shall be deemed received when deposited in a
United States Post Office Mail Box, postage paid, properly addressed to Lender
or Borrower at the addresses set forth herein or to such other address as Lender
or Borrower may from time to time specify in writing.
27. Lender shall not be liable for any claims, demands, losses or
damages made, claimed or suffered by Borrower, except such as may arise through
or could be caused by Lender's gross negligence or willful misconduct. Lender
shall not be liable or responsible for the safekeeping of any collateral. Lender
shall not be responsible for any lost profits of Borrower arising from any
breach of contract, tort (excluding the Lender's gross negligence or willful
misconduct), or any other wrong arising from the establishment, administration,
or collection of the Obligations.
28. Borrower hereby releases and exculpates Lender, its officers,
employees, agents, designees, attorneys, and accountants from any liability
arising from any acts under this Agreement or in furtherance thereof, whether of
omission or commission, and whether based upon any error of judgment or mistake
of law or fact, except for gross negligence or willful misconduct. In no event
shall Lender have any liability to Borrower for lost profits or other special or
consequential damages.
29. If there are two or more Borrowers, then (a) regardless of the form
of Lender's check or other papers, Advances hereunder shall be deemed to be made
to each and all Borrowers and each Borrower shall be jointly and severally
obligated to repay the Obligations; (b) each Borrower jointly and severally
makes, and is liable for, each and every warranty, representation, obligation,
covenant and undertaking under this Agreement; and (c) when permitted by the
context, the word "Borrower" shall include and mean all, or any one of the
undersigned Borrowers.
30. Lender's rights and remedies under this Agreement and all security
agreements shall be cumulative and Lender shall have all other rights and
remedies not inconsistent therewith as provided by law; no exercise by Lender of
one right or remedy shall be deemed an election and no waiver by Lender of any
default in Borrower's part shall be deemed a continuing waiver. No delay by
Lender shall constitute a waiver or election. This Agreement shall be binding
when signed by Lender where indicated below and shall bind and inure to the
benefit of Lender's and Borrower's respective successors and assigns. However,
Borrower may not assign this Agreement or any rights hereunder without Lender's
prior written consent. No such consent by Lender shall release Borrower or any
guarantor of any Obligation or indebtedness hereunder. Paragraphs and paragraph
numbers have been set forth herein for convenience only; unless the contrary is
compelled by the context, everything contained in each paragraph
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applies equally to all paragraphs herein. Neither this Agreement nor any
uncertainty, or ambiguity herein shall be construed or resolved against Lender
or Borrower whether under any rule of construction or otherwise; on the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words so used as to
fairly accomplish the purposes and intentions of all parties hereto. When
permitted by the context, the singular includes the plural and vice versa.
31. This Agreement and all transactions contemplated hereunder and/or
evidenced hereby shall be governed by, construed under, and enforced in
accordance with the internal laws of the State of California. This Agreement and
all agreements relating to the subject matter hereof are the product of
negotiation and preparation by and among each party and its respective
attorneys, and shall be construed accordingly. The parties waive the provisions
of California Civil Code ss. 1654.
32. Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP. All other terms contained in this Agreement, which are not
specifically defined herein, shall have the meanings provided in the UCC to the
extent the same are used herein. All references herein to the singular or plural
shall also mean the plural or the singular, respectively. "GAAP" means generally
accepted accounting principles set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and pronouncements of the Financial Accounting Standards Board (or
any successor authority) that are applicable as of the date of determination.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in the
State of California, as amended from time to time, and any successor statute.
33. Each and every provision of this Agreement shall be severable from
every other provision for the purposes of determining legal enforceability of
any such provision or provisions.
34. ANY LAWSUIT OR OTHER PROCEEDING ARISING OR CONNECTED WITH THIS
AGREEMENT OR THE SECURITY INTERESTS CREATED HEREUNDER SHALL, TO THE EXTENT
PERMITTED BY LAW, BE BROUGHT AND TRIED SOLELY IN THE SUPERIOR COURT OF SANTA
▇▇▇▇▇ COUNTY, CALIFORNIA. WE HEREBY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY
ACTION HEREUNDER OR ARISING OUT OF OUR TRANSACTIONS WITH YOU.
35. Borrower shall comply with the reporting requirements set forth
below:
(a) Monthly internally prepared financial statements due within
30 days of month end;
(b) Monthly accounts payable agings due within 15 days of month
end;
(c) Payroll tax receipts due within 30 days of payment. All
taxes must be paid when due;
(d) Preliminary year-end statements due within 60 days of fiscal
year end; and
(e) Corporate Tax Returns or Reviewed Fiscal Year End Statements
due within 120 days of fiscal year end.
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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed as of the date first set forth above.
This Security Agreement is subject to the terms and conditions set
forth in Addendum A attached hereto and made a part hereof.
BRIGHTSTAR INFORMATION TECHNOLOGY SERVICES, INC.
("Borrower")
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: C.E.O.
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
("Borrower")
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: C.E.O.
BFI BUSINESS FINANCE ("Lender")
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------
By: ▇▇▇▇▇ ▇▇▇▇▇▇
Its: President
Page 7 of 12
ADDENDUM A TO SECURITY AGREEMENT
Pursuant to this Addendum A to Security Agreement (this "Addendum"),
the foregoing Security Agreement by and between BFI Business Finance, BRIGHTSTAR
INFORMATION TECHNOLOGY SERVICES, INC. and BRIGHTSTAR INFORMATION TECHNOLOGY
GROUP, INC. (the "Agreement") is hereby amended and/or supplemented by the
following terms and conditions, which are incorporated by this reference in the
Agreement as the following additional paragraphs to the Agreement:
36. Each Borrower hereby waives its rights of subrogation,
reimbursement, indemnification, and contribution and any other rights and
defenses that are or may become available to either Borrower by reason of
Sections 2787 to 2855, inclusive, of the California Civil Code.
37. Each Borrower waives all rights and defenses arising out of an
election of remedies by Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed either Borrower's rights of subrogation and reimbursement against
the principal by the operation of Section 580d of the Code of Civil Procedure or
otherwise, and each Borrower further waives any and all benefits or defenses, if
any, arising directly or indirectly under any one or more of Sections 3116,
3118, 3119, 3419, 3605, 9504, 9505, and 9507 of the California Uniform
Commercial Code.
38. Notwithstanding the provisions of Section 1, the advance rate
against the Net Face Amount of Prime Accounts shall be (a) seventy-five per cent
(75%) of the Net Face Amount of Prime Accounts issued prior to January 1, 2003,
provided that the time cards associated with the invoices issued in connection
with such Prime Accounts have been signed by the employee and/or subcontractor
of Borrower; and (b) eighty-five percent (85%) of the Net Face Amount of Prime
Accounts issued after January 1, 2003, provided that the time cards associated
with the invoices issued in connection with such Prime Accounts have been signed
by Borrower's client. However, notwithstanding the foregoing, the amount that
would otherwise be available to be advanced to Borrower shall be reduced by
certain amounts to be reserved under the Agreement (each, a "Reserved Amount")
with respect to (a) certain tax claims of Washington State, for which the sum of
Twenty-two Thousand Five Hundred Dollars ($22,500) will be reserved; (b) certain
tax claims of Arkansas, for which the sum of Four Thousand Five Hundred Dollars
($4,500) will be reserved; and (c) the amount of the Reserved Amount, as
described below in Section 54 (b). Lender reserves the right to change such
Reserved Amounts, or to establish additional Reserved Amounts if facts and
circumstances require them to be changed, in Lender's sole discretion.
39. Notwithstanding the provisions of Section 3, the Minimum Monthly
Interest Payment shall be the amount of One Thousand and 00/100 Dollars
($1,000.00) during the first six (6) months of the loan, shall be in the amount
of Two Thousand Three Hundred Seventy Five and 00/100 Dollars ($2,375.00) during
the next three (3) months, and shall be in the amount of Three Thousand Seven
Hundred Fifty and 00/100 Dollars ($3,750.00) thereafter.
40. Notwithstanding the provisions of Section 6, Borrower has advised
Lender and Lender hereby acknowledges that the facility located at ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ may be closed on or about the month of
February 2003.
41. Notwithstanding the provisions of Section 8(p), such Section shall
be deemed to require Borrower's books and records to fully and accurately
reflect in all material respects all of Borrower's assets and liabilities.
42. The following verbiage shall be added to the end of Section 8(u):
"except as heretofore disclosed in writing to Lender".
43. Notwithstanding the provisions of Sections 8m, Borrower warrants
and agrees that Accounts of a single account debtor or its affiliates do not
constitute more than thirty five percent (35%) of all otherwise Prime Accounts,
(but the portion of the Accounts not in excess of such percentage may be deemed
Prime Accounts) (with such maximum percentage being the "Concentration Limit").
Notwithstanding the foregoing, the Concentration Limit for Arkansas Blue Cross
of not greater than sixty percent (60%) shall be permitted on a direct
notification basis.
44. Notwithstanding the provisions of the last sentence of Section 13,
Lender shall only remove any original documents, files, and records relating to
Lender's security if an Event of Default has occurred. Otherwise, Lender shall
only remove copies of such documents, files, and records.
45. Notwithstanding the provisions of Section 15, Lender shall not
notify the post office authorities to change the address for delivery of
Borrower's mail except upon the occurrence of an Event of Default, and in such
event, Lender shall retain copies of Borrower's mail and return the originals to
Borrower.
46. Notwithstanding the provisions of Section 21, any renewal term
shall be for a period of twelve (12) months.
47. Section 21 is hereby further amended to replace the words "reassign
to Borrower" with "release any lien on all collateral pledged to Lender".
48. Notwithstanding the provisions of Section 22, Lender shall waive
the Prepayment Fee should Borrower, after the first six (6) months of the loan
made pursuant to the Agreement, either (i) obtain financing from U.S. Bank or
(ii) sell all or substantially all of Borrower's assets or stock or merge either
Borrower with another entity. Should either of these events occur during the
first six (6) months of the loan, Borrower shall pay a Prepayment Fee equal to
the amount of the Minimum Monthly Interest Payment times six (6) months. After
the first
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twelve (12) months of the loan, Lender shall waive the Prepayment Fee unless
Borrower obtains similar commercial financing in Lender's place. In this case,
Borrower shall pay a Prepayment Fee equal to the amount of the Minimum Monthly
Interest Payment times three (3) months. Also notwithstanding the provisions of
Section 22, the Prepayment Fee shall not apply to a payment from any source
which payment is used to reduce but not retire the loan made under the
Agreement.
49. Section 28 is hereby amended by adding the following verbiage after
"any event": "except in the case of gross negligence or willful misconduct".
50. In the event that either Borrower provides services for the benefit
of the other Borrower, on any of the other Borrower's Accounts, the economic
benefit resulting from such services shall be remitted to such Borrower on
receipt of such economic benefit by the other Borrower.
51. Borrower agrees that Borrower shall not undertake, without the
prior written consent of Lender, any of the following actions, with respect to
any subsidiaries, affiliates, or related entities (each a "Related Entity" and
collectively, the "Related Entities"); (a) take any steps to activate or operate
any such Related Entities; (b) transfer any assets to such Related Entities; (c)
downstream any monies to such Related Entities; or (d) pledge to any party a
security interest in any asset of any such Related Entity.
52. Borrower shall keep Lender apprised on a monthly basis of all
litigation and shall advise Lender promptly upon the occurrence of any
significant developments in any litigation to which either Borrower is a party.
53. Conditions Precedent to any Advance:
(a) Borrower shall have reached a resolution satisfactory to Lender for
any and all judgment and or tax liens, including but not limited to that certain
judgment lien regarding Compaq Computers.
(b) Borrower shall have provided to Lender, time cards in support of
each and every invoice issued (a) prior to January 1, 2003, which time cards
have been signed by the employee and/or subcontractor of Borrower; and (b) after
January 1, 2003, which time cards have been signed by Borrower's client.
54. Conditions Subsequent to Advance:
(a) On or before December 31, 2002, Borrower shall file an Annual
Report with the Secretary of State of Delaware to reflect the corporate officers
of Borrower as represented to Lender, and shall provide Lender with a copy of
the recorded document by January 15, 2003.
(b) In the event that Lender shall not have received a signed
Subordination Agreement from _______ (the "Subordination Agreement") prior to
the date on which the initial advance under this Agreement is to be funded,
Borrower shall within thirty (30) days of the date hereof, either: (a) provide
such signed _____ Subordination Agreement to Lender, or (b) take appropriate
enforcement action to compel _____ to sign the ______ Subordination Agreement.
In any event, until such time as ______ has executed the _______ Subordination
Agreement, the sum of Eighty-Five Thousand Dollars ($85,000.00) shall be a
reserved Amount reserved under the loan made pursuant to the Agreement, meaning
the loan that would otherwise be available to be advanced to Borrower shall be
reduced by such Reserved Amount.
55. All references in the Agreement to the "assignment" of accounts
shall be deemed to refer to the assignment for collateral purposes of such
accounts only.
56. All references in the Agreement to attorneys' fees and costs
charged by Lender pursuant to this Agreement shall be deemed to be required to
be reasonable.
57. All references in the Agreement to defaults, breaches, violations
or failures to act shall be deemed to require them to be material defaults in
order to constitute an Event of Default, except that in any event fraud and/or
conversion shall be deemed to be material.
58. Borrower has made certain disclosures to Lender regarding potential
claims of certain Swiss, Washington, and Arkansas taxing authorities to Lender,
which disclosures are attached hereto as a schedule entitled Potential Tax
Claims.
59. Borrower has made certain disclosures to Lender regarding
litigation and potential litigation, which is attached hereto on a schedule
entitled Litigation.
60. Lender agrees that all financial and other information concerning
the business of Borrower disclosed by Borrower to Lender shall (except to the
extent required to be disclosed to any government or governmental or political
subdivision or any agency, authority, bureau, central bank, or comparable
agency, or any court, tribunal or grand jury by legal or by governmental process
or otherwise by law or if such documentation becomes publicly available other
than by action of Lender) be held in confidence and used solely in connection
with the administration and enforcement of this Agreement, any other document
contemplated hereby or any other agreement between Lender and Borrower;
provided, however, that Lender may disclose such documentation and other
information to any financial organization to which Lender sells or proposes to
sell a participation in any portion of the Advances under this Agreement if such
financial institution, prior to such disclosure, agrees for the benefit of
Borrower to comply with the foregoing confidentiality provision.
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61. Borrower has advised Lender that it may re-locate its Chief
Executive Office to a facility located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. Borrower will advise Lender in writing if and when it
signs a lease for such potential new leased facility and when it actually
re-locates its Chief Executive Office.
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LITIGATION DISCLOSURE SCHEDULE
1. Borrower's Litigation Summary
(a) ▇▇▇▇▇ ▇▇▇▇ Employment Contract Claim
A former employee of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and Associates, Inc. (BRBA) filed a wage
claim in September 2001 against BRBA and BrightStar Group with the Texas Wage
Commission for approximately $280,000 related to some alleged contract
obligations on the part of BRBA (a subsidiary of Borrower that filed for
bankruptcy in June 2002 and whose Chapter 7 case was completed and the Trustee
dismissed in November 2002). The case was heard and the Wage Commission, after
an administrative appeal, found no liability for the defendants. The claimant
failed to make a further appeal. Subsequently, in August of 2002, claimant filed
a legal action in Dallas County district court alleging similar theories against
the same defendants. Defendants have moved for summary judgment as the action is
barred by the Texas Labor Code. No hearing has been scheduled yet.
(b) Infomart Litigation
Plaintiff Infomart's owner alleges that Borrower is liable for approximately
$400,000 in unpaid rents relating to the premises leased by BRBA at the
Infomart, alleging various alter-ego and fraudulent conveyance theories. The
third motion for summary judgment is about to be filed (the first was denied and
the second was not heard for technical reasons) for a hearing before a new
judge. Lender has copies of the previous documents and will promptly receive the
new documents when they are filed.
(c) City of Austin. About a year ago, a $7,000 claim was asserted against
Borrower by the City of Austin for failure to perform services for which payment
was allegedly made. A draft complaint was received but to the best of our
knowledge was never filed. This is a contingent liability subject to compromise.
(d) BRBA has been the subject of claims and litigation, but in view of the
completion of its Chapter 7 bankruptcy, those liabilities are now moot.
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TAX CLAIMS DISCLOSURE SCHEDULE
1. Tax Claims.
Borrower has disclosed the following potential tax claims and made the following
representation with respect to such disclosure:
(a) At least two years ago, a claim in Switzerland was reportedly made by Swiss
cantonal tax authorities in the sum of approximately Two Hundred Thousand
Dollars ($200,000) against a Swiss subsidiary of Borrower as the result of the
subsidiary having located to a different canton. Borrower has been advised by
counsel that this amount is negotiable. Nevertheless, Borrower believes that
there is no exposure in the U.S. to this obligation, but is willing to make a
nominal payment (say in the neighborhood of 10%) as a corporate housekeeping
matter to resolve the claim. No contact in the U.S. has ever been received from
the Swiss and this is a low priority clean up item.
(b) About two years ago, the State of Washington had asserted a sales tax claim
against Software Consulting Services America, Inc. ("SCSA"), a subsidiary of
Borrower, and agreed to waive interest and penalties in return for adhering to a
payment schedule. Although the agreed upon payments had been completed, a formal
closing agreement had not been executed. The State has requested representations
of SCSA's insolvency in order to complete the closing agreement without further
payment. If the closing agreement cannot be executed, approximately $20,000 of
interest and penalties would be payable by SCSA. We have no intention currently
of making any further payments and expect to close this out with the appropriate
documentation.
(c) We were recently informed that a judgment had been entered in Arkansas
against Software Innovators, Inc. a wholly owned subsidiary of Borrower. Upon
subsequent discussion with the State's auditor, she reviewed our documentation
and advised us that she would issue a new assessment of approximately $4,500, in
replacement of the $110,000 judgment item. Upon receipt of this assessment, we
shall immediately pay it.
(d) There are other minor tax liens and items that have shown up on BFI's lien
search, which we have or will promptly payoff.
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