SECURITY AGREEMENT
THIS
SECURITY AGREEMENT, dated January 30, 2008, by and between Karat Platinum,
LLC,
with an
address at 00 Xxxxxx Xxxxxx, Xxxxxx, Xxx Xxxx 00000 (the
“Debtor”), and Continental Capital, LLC, a New York limited liability
company,
with an
address at 0000 X. 00xx
Xxxxxx,
Xxxxxxxx, Xxx Xxxx 00000 (the
“Secured Party”).
WITNESSETH:
WHEREAS,
the Secured Party has advanced funds to Debtor in the amount of One Million
Dollars ($1,000,000), as evidenced by a Secured Promissory Note dated January
30, 2008 (the “Note”; capitalized terms used herein not otherwise defined shall
have the meanings given to such terms in the Note);
WHEREAS,
as a condition precedent to the making of such loan by the Secured Party to
the
Debtor, the Secured Party has required that Debtor enter into, and Debtor has
agreed to enter into, this Security Agreement (this “Agreement”) assigning,
pledging, conveying, hypothecating, transferring, granting, and delivering
to
the Secured Party a continuing lien on and first priority security interest
in
and to all of Debtor's right, title and interest with respect to the inventory
of the Debtor, as described in Schedule
A
annexed
hereto (the “Collateral”), as collateral security for Debtor's obligations to
the Secured Party pursuant to the Note, on the terms and conditions set forth
herein;
NOW
THEREFORE, and in consideration of Debtor obtaining the loan from the Secured
Party with knowledge that the Secured Party would not have advanced the funds
but for the promises of Debtor hereunder, Debtor binding itself and its
successors and assigns, does hereby promise, covenant, and agree as
follows:
1. SECURITY
INTEREST.
1.1 Grant
of Security.
As
security for the performance by the Debtor of the terms and provisions of the
Note, Debtor hereby grants a continuing lien and first priority security
interest to the Secured Party in all of Debtor's right, title and interest,
in
the Collateral.
1.2 Continuing
Agreement.
This
Security Agreement shall create a continuing security interest in the Collateral
and shall remain in full force and effect until performance and payment in
full
of the Note.
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1.3 Minimum
Collateral and Monthly Reports. The
Debtor agrees that at all times until the Note is paid in full that the meltdown
value of the Collateral shall not be less than 125% of the Principal Amount.
Within 20 days following the end of each month, the Chief Financial Officer
of
Debtor shall provide the Secured Party with a report disclosing the meltdown
value of the Collateral, as of the most recent practicable date of the preceding
month, provided,
however,
for the
last month of the Debtor’s fiscal year, the report will be submitted no earlier
than when the audited financial statements of the Debtor are completed. The
Parties agree that the first such monthly report to be provided by Debtor to
the
Secured Party shall be due March 20, 2008 and shall report on the Collateral
as
of the end of February 2008.
2. REPRESENTATIONS,
WARRANTIES, CONVENANTS AND AGREEMENTS OF THE DEBTOR.
2.1 The
Debtor has the requisite corporate power and authority to enter into this
Agreement and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by the Debtor of this Agreement and the filings
contemplated therein have been duly authorized by all necessary action on the
part of the Debtor and no further action is required by the Debtor. This
Agreement constitutes a legal, valid and binding obligation of the Debtor
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor’s rights generally.
2.2 The
Debtor represents and warrants that it has no other place of business or offices
where its respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants).
2.3 The
Debtor is the owner of the Collateral, subject to a continuing lien and security
interest in all of the assets and personal property of the Debtor held by Sentra
Consulting Corp. pursuant to and accordance with the General Security Agreement
dated July 11, 2007, as amended on August 22, 2007, (the “Sentra Security
Interest”) and is fully authorized to grant the Security Interest in and to
pledge the Collateral. There is not on file in any governmental or regulatory
authority, agency or recording office an effective financing statement, security
agreement, license or transfer or any notice of any of the foregoing (other
than
those that have been filed in favor of the Secured Party pursuant to this
Agreement and other than those that have been filed in accordance with the
Sentra Security Interest) covering or affecting any of the Collateral.
2.4 The
Debtor shall at all times maintain its books of account and records relating
to
the Collateral at its principal place of business and may not relocate such
books of account and records unless it delivers to the Secured Party at least
10
business days prior to such relocation (i) written notice of such relocation
and
the new location thereof (which must be within the United States) and
(ii) evidence that appropriate financing statements and other necessary
documents have been filed and recorded and other steps have been taken to
perfect the Security Interest to create in favor of the Secured Party valid,
perfected and continuing liens in the Collateral.
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2.5 This
Agreement creates in favor of the Secured Party a valid security interest in
the
Collateral securing the payment and performance of the Note and, upon making
the
filings described in the immediately following sentence, a perfected security
interest in such Collateral. Except for the filing of an assignment on Form
UCC-3 under the UCC relating to the assignment of the Sentra Security Interest
to the Secured Party, no authorization or approval of or filing with or notice
to any governmental authority or regulatory body is required either (i) for
the
grant by the Debtor of, or the effectiveness of, the Security Interest granted
hereby or for the execution, delivery and performance of this Agreement by
the
Debtor or (ii) for the perfection of or exercise by the Secured Party of its
rights and remedies hereunder.
2.6 Concurrently
with the execution of this Agreement, the Debtor is delivering to the Secured
Party one or more executed UCC financing statements on Form UCC-3 with respect
to the Security Interest for filing in the State of New York and in such other
jurisdictions as may be requested by the Secured Party.
2.7 The
execution, delivery and performance of this Agreement does not conflict with
or
cause a breach or default, or an event that with or without the passage of
time
or notice, shall constitute a breach or default, under any agreement to which
the Debtor is a party or by which the Debtor is bound. Other than the consent
of
Sentra Consulting Corp., no consent is required for the Debtor to enter into
and
perform its obligations hereunder.
2.8 The
Debtor shall at all times maintain the liens and Security Interest provided
for
hereunder as valid and perfected liens and security interests in the Collateral
in favor of the Secured Party until this Agreement and the Security Interest
hereunder shall terminate. The Debtor hereby agrees to defend the same against
any and all persons. The Debtor shall use commercially reasonable efforts to
safeguard and protect all Collateral for the account of the Secured Party.
At
the request of the Secured Party, the Debtor will sign and deliver to the
Secured Party at any time or from time to time one or more financing statements
pursuant to the UCC (or any other applicable statute) in form reasonably
satisfactory to the Secured Party and will pay the cost of filing the same
in
all public offices wherever filing is, or is deemed by the Secured Party to
be,
necessary or desirable to effect the rights and obligations provided for herein.
Without limiting the generality of the foregoing, the Debtor shall pay all
fees,
taxes and other amounts necessary to maintain the Collateral and the Security
Interest hereunder, and the Debtor shall obtain and furnish to the Secured
Party
from time to time, upon demand, such releases and/or subordinations of claims
and liens which may be required to maintain the priority of the Security
Interest hereunder.
2.9 The
Debtor will not transfer, pledge, hypothecate, encumber, license, sell or
otherwise dispose of any of the Collateral without the prior written consent
of
Secured Party, except in the ordinary course of business.
2.10 The
Debtor shall keep and preserve its Inventory in good condition, repair and
order
and shall not operate or locate any such Collateral (or cause to be operated
or
located) in any area excluded from insurance coverage.
2.11 The
Debtor shall permit the Secured Party and its representatives and agents to
inspect the Collateral upon reasonable notice and at reasonable times, and
to
make copies of records pertaining to the Collateral as may be requested by
the
Secured Party from time to time.
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2.12 The
Debtor will take all steps reasonably necessary to diligently pursue and seek
to
preserve, enforce and collect any rights, claims, causes of action and accounts
receivable in respect of the Collateral.
2.13 The
Debtor shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by the
Debtor that may materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Party hereunder.
2.14 All
information heretofore, herein or hereafter supplied to the Secured Party by
or
on behalf of the Debtor with respect to the Collateral is accurate and complete
in all material respects as of the date furnished.
3. EVENTS
OF DEFAULT.
3.1
Definition
of Event of Default.
A
default by Debtor under any of the terms and provisions of this Security
Agreement or the occurrence of an Event of Default pursuant to the terms and
provisions of the Note shall constitute an “Event of Default” by Debtor under
this Security Agreement.
3.2
Remedies.
Upon
the occurrence and continuation of an Event of Default, the Secured Party may
declare all obligations secured hereby immediately due and payable and shall
have all the remedies of a secured party under the laws of the State of New
York
with respect to the Collateral.
4. MISCELLANEOUS.
4.1 Waiver.
No
course of dealing or usage of trade, and no oral or written representations
or
agreement, between Debtor and the Secured Party, whether or not relied on or
acted upon, and no act, delay or omission by the Secured Party in exercising
any
right or remedy hereunder or with respect to the Note shall operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise
of
any other right or remedy. The giving of notice or a demand by the Secured
Party
at any time shall not operate as a waiver in the future of the Secured Party’s
right to exercise any right or remedy without notice or demand. The Secured
Party may remedy any default by Debtor in any reasonable manner, without waiving
the default remedied, and without waiving any other prior or subsequent default
by Debtor.
4.2 Remedies
Cumulative.
All
rights and remedies with respect to the Note or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative
and
may be exercised singularly, alternatively, successively, or concurrently at
such time or at such times as the Secured Party deems expedient.
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4.3 Amendment.
This
Security Agreement may be amended or modified only by a writing signed by all
of
the parties hereto and any provision hereof may be waived only by a writing
signed by each and all of the Secured Party and the Debtor.
4.4 Severability.
The
provisions of this Security Agreement are severable, and if any clause or
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction and shall not in
any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision of this Security Agreement in any jurisdiction.
4.5 Assignment.
The
benefits of this Security Agreement shall inure to the benefit of the successors
and assigns of the Secured Party. The rights and obligations of the Debtor
under
this Security Agreement shall not be assigned or delegated, by operation of
law
or otherwise, and any such assignment or attempted assignment shall be void,
of
no force or effect.
4.6
Headings.
The
headings contained herein shall be for convenience of reference only and shall
not have any bearing in the meaning of the provisions contained
herein.
4.7
Interpretation.
(a)
Reference to any agreement, document, or instrument means such agreement,
document, or instrument, as may be modified, amended, restated, or otherwise
supplemented from time to time. Reference to any law, statute, regulation,
rule,
or ordinance shall mean law, statute, regulations, rule, or ordinance as
amended, modified, codified, replaced, or reenacted, in whole or in part, from
time to time. (b) "Including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term means not limited to. (c) With respect to the determination of any period
of time, "from" means "from and including" and "to" means "to but excluding".
(d) References to any documents, instruments, or agreements shall be deemed
to
refer as well to all addenda, exhibits, schedules, or amendments thereto.
4.8
CHOICE
OF LAW.
THIS
SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAWS
PRINCIPLES.
4.9
Jurisdiction.
The
Secured Party and Debtor hereby irrevocably consents to the jurisdiction of
the
state or federal courts located in New York County, New York, in connection
with
any action or proceeding arising out of or relating to the Note, this Security
Agreement or the Collateral, or any document or instrument delivered with
respect to the Note, or the transactions and the relationships established
thereunder.
4.10 Construction
and Joint Preparation. The
Secured Party and Debtor agree that this Security Agreement shall be deemed
to
have been jointly and equally drafted by them, and that the provisions of this
Security Agreement therefore shall not be construed against a party or parties
on the ground that such party or parties drafted or was more responsible for
the
drafting of any such provision(s). The parties further agree that they have
each
carefully read the terms and conditions of this Security Agreement, that they
know and understand the contents and effect of this Security Agreement and
that
the legal effect of this Security Agreement has been fully explained to its
satisfaction by counsel of its own choosing.
As used
in this Security Agreement, the masculine, feminine or neuter gender and the
singular or plural numbers shall each be deemed to include the other whenever
the context so requires.
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4.11 THE
SECURED PARTY AND DEBTOR WAIVE ANY AND ALL RIGHTS TO A TRIAL BY
JURY.
ALL
PARTIES TO THIS AGREEMENT UNCONDITIONALLY, IRREVOCABLY, AND EXPRESSLY WAIVE
ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, SUIT, COUNTERCLAIM, OR
CROSS-CLAIMS ARISING DIRECTLY OR INDIRECTLY IN ANY MATTER (WHETHER SOUNDING
IN
TORT, CONTRACT, OR OTHERWISE) IN ANY WAY ARISING OUT OF OR OTHERWISE RELATING
TO
THIS AGREEMENT OR TRANSACTIONS OR THE RELATIONSHIPS ESTABLISHED THEREUNDER.
ALL
PARTIES CONFIRM THAT THE FOREGOING WAIVER OF A TRIAL BY JURY IS INFORMED AND
FREELY MADE.
IN
WITNESS WHEREOF, the undersigned have executed this Security Agreement on the
date first set forth above.
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DEBTOR:
KARAT PLATINUM, LLC
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| By: | /s/ Xxxx X. Xxxxxx | |
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Name: Xxxx X. Xxxxxx |
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| Title: Chief Financial Officer | ||
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SECURED PARTY:
CONTINENTAL CAPITAL, LLC
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| By: | /s/ Xxxxx Xxxxxxxxxx | |
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Name: Xxxxx Xxxxxxxxxx |
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| Title: Managing Member | ||
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CONSENTED TO:
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| By: | /s/ Xxxx X. Xxxxxx | |
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Name: Xxxx X. Xxxxxx |
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Title:
Chief
Financial Officer
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