SECURITY AGREEMENT
This Security Agreement is made and entered into as of the _____ day of
December 1998 by and between AMERICAN QUANTUM CYCLES, INC., a Florida
corporation (the "Debtor"), and SKIPPACK CAPITAL CORP. (the "Secured Party").
Background
The Debtor has executed and delivered to the Secured Party its Promissory
Note (the "Note"), bearing even date herewith, wherein the Debtor promises to
pay to the Secured Party the principal sum of Seven Hundred Fifty-Five Thousand
Dollars ($755,000). Pursuant to the terms of the Note, the parties agreed to
execute and deliver this Security Agreement (the "Security Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto, each intending to be legally bound hereby,
agree as follows:
Section 1. Definitions.
As herein used:
1.1 "Account Debtor" means the Person who is obligated on an Account.
1.2 "Account" means any account as that term is defined in the Uniform
Commercial Code as in effect in any jurisdiction in which any of the
Collateral may at the time be located (the "U.C.C.") and includes any right
of the Debtor to payment for goods sold or leased or for services rendered
or money loaned which is not evidenced by an instrument or chattel paper
(as those terms are defined in the U.C.C.) whether or not it has been
earned by performance.
1.3 "Chattel Paper" means any chattel paper as that term is defined in
the U.C.C.
1.4 "Collateral" means (i) all of the Debtor's Accounts, General
Intangibles, Chattel Paper and Instruments now existing or hereafter
arising; (ii) all guarantees of Debtor's existing and future Accounts,
General Intangibles, Chattel Paper and Instruments and all other security
held by the Debtor for the payment and satisfaction thereof; (iii) all of
the Debtor's Inventory now owned or hereafter acquired; (iv) all of the
Debtor's Equipment now owned or hereafter acquired; (v) all of the Debtor's
books and records which relate to the Debtor's
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Inventory, Equipment, Accounts, General Intangibles, Chattel Paper and
Instruments or guarantees thereof; (vi) all insurance on all of the
foregoing and the proceeds of that insurance; and (vii) all cash and
noncash proceeds and products of all of the foregoing and the proceeds and
products of other proceeds and products. Notwithstanding anything to the
contrary contained herein, "Collateral" shall not include any of the
following assets or rights of the Debtor:
1.5 "Equipment" means any equipment as that term is defined in the
U.C.C. and shall include, without limitation, all equipment, machinery,
appliances, tools, furniture and tangible personal property, whether or not
the same are or may become fixtures, used or bought for use primarily in
the Debtor's business or leased by the Debtor to others, of every nature,
presently existing or hereafter acquired or created, wherever located,
additions, accessories and improvements thereto and substitutions therefor
and all parts which may be attached to or which are necessary for the
operation and use of such personal property or fixtures, whether or not the
same shall be deemed to be affixed to real property, and all rights under
or arising out of present or future contracts relating to the foregoing.
All equipment is and shall remain personal property irrespective of its use
or manner of attachment to real property.
1.6 "General Intangibles" means all general intangibles as that term
is defined in the U.C.C., including, without limitation, all books,
correspondence, credit files, records and other documents, computer
programs, computer tapes and cards and other paper and documents in the
possession or control of the Debtor or in the possession or control of any
affiliate or computer service bureau, and all contract rights, claims,
chooses in action, judgments, patents, patent applications, trademarks,
license agreements, royalty payments, copyrights, service names, service
marks, logos, goodwill and deposit accounts.
1.7 "Instruments" means all instruments as that term is defined in the
U.C.C.
1.8 "Inventory" means any inventory as that term is defined in the
U.C.C. and shall include tangible personal property held for sale or lease
or to be furnished under contracts of service, tangible personal property
which the Debtor has so leased or furnished, and raw materials, work in
process and materials used, produced or consumed in the Debtor's business,
and shall include tangible personal property returned to the Debtor by a
purchaser or lessor thereof following the sale or lease thereof by the
Debtor. All equipment, accessories and parts related to, attached to or
added to items of Inventory or used in connection therewith and all
accessions thereto shall be deemed to be part of the Inventory.
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1.9 "Obligations" means all existing and future liabilities and
obligations of the Debtor to the Secured Party, whether absolute or
contingent of any nature whatsoever, now existing or hereafter incurred
arising out of or provided for in the Note and all obligations of the
Debtor to the Secured Party created or referred to herein.
1.10 "Person" means an individual, a corporation, a govemment or
governmental subdivision or agency or instrumentality, a business trust, an
estate, a trust, a partnership, a cooperative, an association, two or more
Persons having a joint or common interest or any other legal or commercial
entity.
1.11 "Proceeds" means whatever is received when Collateral is sold,
exchanged, collected or otherwise disposed of.
Section 2. Security Interest in Collateral.
2.1 The Debtor hereby assigns to the Secured Party and grants to the
Secured Party a lien upon and a security interest in the Collateral as
security for the payment and performance of the Obligations.
Section 3. Collection of Accounts.
3.1 Upon occurrence of an event of default as set forth in Section 5
hereof, the Secured Party shall have the right at any time, acting if it so
chooses in the Debtor's name, to collect the Debtor's Accounts itself, to
sell, assign, compromise, discharge or extend the time for payment of any
Account, to institute legal action for the collection of any Account, and
to do all acts and things necessary or incidental thereto and the Debtor
hereby ratifies all such acts. The Secured Party may at any time after the
occurrence of such event of default and without notice to the Debtor,
notify any Account Debtor or guarantor thereof that the Account payable by
such Account Debtor has been assigned to the Secured Party and is to be
paid directly to the Secured Party. At the Secured Party's request the
Debtor will so notify Account Debtors and shall indicate on all xxxxxxxx to
Account Debtors that payments thereon are to be made to the Secured Party.
In the event Account Debtors are so notified, the Debtor shall not
compromise, discharge, extend the time for payment or otherwise grant any
indulgence or allowance with respect to any Account without the prior
written consent of the Secured Party.
Section 4. Warranties and Covenants as to Collateral.
4.1 The Debtor warrants that it has and at all times will have good
title to the Collateral free of any prior lien (except for Permitted Liens,
as defined) and that all Accounts included in the Collateral are bona fide
existing
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obligations created by the sale and delivery of merchandise or the
rendering of services to customers and arose in the ordinary course of
business; and that such Accounts are not subject to defense, set-off or
counterclaim which in the aggregate would materially impair the value of
such Accounts as collateral for the Obligations. As used in this Agreement,
"Permitted Liens", means
4.2 The Debtor will promptly notify the Secured Party if there is any
adverse change in the status of the Collateral that materially impairs its
value or collectibility, or if any defenses, set-offs or counterclaims are
asserted by Account Debtors which in the aggregate materially impair the
value or collectibility of the Accounts.
4.3 The Debtor will preserve the Collateral and its rights against
Account Debtors free and clear of any liens or encumbrances (except for
Permitted Liens) and will keep the Inventory and Equipment in good
condition, insured by insurers authorized to do business in the
jurisdictions where such Collateral is located from time to time against
fire or other casualty loss (with extended coverage in the broadest form),
liability and such other hazards as are customary with companies in the
same or similar business and in the same area, and will cause Secured
Party's security interest to be endorsed on all policies of insurance
thereon in such manner that all payments for losses will be paid to Secured
Party as its interest may appear and will furnish Secured Party upon
request with evidence of such insurance.
Section 5. Default.
The Debtor shall be in default hereunder upon the occurrence of any of
the following events:
5.1 The occurrence of any Event of Default as defined under the Note.
5.2 The failure of the Debtor to observe or perform any of the
covenants or obligations contained in this Security Agreement and such
failure shall remain uncured twenty (20) days after notice thereof from the
Secured Party.
Section 6. Remedies.
6.1 Whenever the Debtor shall be in default as aforesaid, the Secured
Party may, at its option, exercise from time to time any or all rights and
remedies available to it under the U.C.C. or otherwise available to it,
including the right to collect, receipt for, settle, compromise, adjust,
xxx for, foreclose or otherwise realize upon any of the Collateral and to
dispose of any of
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the Collateral at public or private sale(s) or other proceedings, and the
Debtor agrees that the Secured Party or its nominee may become the
purchaser at any such sale(s).
6.2 The Proceeds of any Collateral received by the Secured Party at
any time before or after default, whether from the sale of Collateral or
otherwise, shall be applied to the payment of the Obligations in such order
as the Secured Party may elect.
Section 7. Further Assurances.
7.1 The Debtor will execute and deliver financing and continuation
statements for filing and recording under the U.C.C. or other applicable
law, landlord waivers, mortgagee waivers and other papers which the Secured
Party reasonably may request, and which the Debtor is able to obtain using
its best efforts, in order to perfect, preserve or enforce the Secured
Party's security interest in the Collateral or to enable the Secured Party
to exercise any of its rights hereunder, and will pay all reasonable
attorney fees and reasonable expenses in connection therewith.
Section 8. Successors and Assigns.
8.1 All provisions herein shall inure to and become binding upon the
successors, representatives, receivers, trustees and assigns of the
parties.
Section 9. Termination.
9.1 This Agreement and the liens and security interests created hereby
shall terminate upon payment in full of all of the Obligations. Upon
termination of this Agreement, the Secured Party shall promptly furnish to
the Debtor, in form for recordation, such executed UCC termination
statements and other instruments, if any, as may be requested by the Debtor
and in the Secured Party's judgment necessary to evidence of record the
termination of the liens and security interests created hereby.
Section 10. Miscellaneous.
10.1 This Agreement has been executed pursuant to and shall be
governed by and be construed in accordance with, the laws of the
Commonwealth of Pennsylvania, except as required by mandatory provisions of
law and except to the extent that remedies provided by the laws of any
state other than Pennsylvania are governed by the laws of such state.
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IN WITNESS WHEREOF, this Agreement has been duly executed under seal on the
day and year first above written.
[CORPORATE SEAL] AMERICAN QUANTUM CYCLES, INC.
Attest: /s/ Illegible By: /s/ Illegible
---------------------- -------------------------
Secretary President
SKIPPACK CAPITAL CORP.
By: /s/ Illegible
-------------------------
President
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Attachment
Security Interest in Collateral.
--------------------------------
The Debtor hereby assigns to the Secured Party and grants to the Secured
Party a lien upon and a security interest in the Collateral as security for the
payment and performance of the Obligations.
As herein used:
"Account Debtor" means the Person who is obligated on an Account.
"Account" means any account as that term is defined in the Uniform
Commercial Code as in effect in any jurisdiction in which any of the Collateral
may at the time be located (the "U.C.C.") and includes any right of the Debtor
to payment for goods sold or leased or for services rendered or money loaned
which is not evidenced by an instrument or chattel paper (as those terms are
defined in the U.C.C.) whether or not it has been earned by performance.
"Chattel Paper" means any chattel paper as that term is defined in the
U.C.C.
"Collateral" means (i) all of the Debtor's Accounts, General Intangibles,
Chattel Paper and Instruments now existing or hereafter arising; (ii) all
guarantees of Debtor's existing and future Accounts, General Intangibles,
Chattel Paper and Instruments and all other security held by the Debtor for the
payment and satisfaction thereof; (iii) all of the Debtor's Inventory now owned
or hereafter acquired; (iv) all of the Debtor's Equipment now owned or hereafter
acquired; (v) all of the Debtor's books and records which relate to the Debtor's
Inventory, Equipment, Accounts, General Intangibles, Chattel Paper and
Instruments or guarantees thereof; (vi) all insurance on all of the foregoing
and the proceeds of that insurance; and (vii) all cash and noncash proceeds and
products of all of the foregoing and the proceeds and products of other proceeds
and products.
"Equipment" means any equipment as that term is defined in the U.C.C. and
shall include, without limitation, all equipment, machinery, appliances, tools,
furniture and tangible personal property, whether or not the same are or may
become fixtures, used or bought for use primarily in the Debtor's business or
leased by the Debtor to others, of every nature, presently existing or hereafter
acquired or created, wherever located, additions, accessories and improvements
thereto and substitutions therefor and all parts which may be attached to or
which are necessary for the operation and use of such personal property or
fixtures, whether or not the same shall be deemed to be affixed to real
property, and all rights under or arising out of present or future contracts
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relating to the foregoing. All equipment is and shall remain personal property
irrespective of its use or manner of attachment to real property.
"General Intangibles" means all general intangibles as that term is defined
in the U.C.C., including, without limitation, all books, correspondence, credit
files, records and other documents, computer programs, computer tapes and cards
and other paper and documents in the possession or control of the Debtor or in
the possession or control of any affiliate or computer service bureau, and all
contract rights, claims, chooses in action, judgments, patents, patent
applications, trademarks, license agreements, royalty payments, copyrights,
service names, service marks, logos, goodwill and deposit accounts.
"Instruments" means all instruments as that term is defined in the U.C.C.
"Inventory" means any inventory as that term is defined in the U.C.C. and
shall include tangible personal property held for sale or lease or to be
furnished under contracts of service, tangible personal property which the
Debtor has so leased or furnished, and raw materials, work in process and
materials used, produced or consumed in the Debtor's business, and shall include
tangible personal property returned to the Debtor by a purchaser or lessor
thereof following the sale or lease thereof by the Debtor. All equipment,
accessories and parts related to, attached to or added to items of Inventory or
used in connection therewith and all accessions thereto shall be deemed to be
part of the Inventory.
"Obligations" means all existing and future liabilities and obligations of
the Debtor to the Secured Party, whether absolute or contingent of any nature
whatsoever, now existing or hereafter incurred arising out of or provided for in
the Note and all obligations of the Debtor to the Secured Party created or
referred to herein.
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