SECURITY AGREEMENT
To: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services, Ltd.
X.X. Xxx 0000 G.T
Queensgate House
South Church Street
Grand Cayman, Cayman Islands
Gentlemen:
1. To secure the payment of all Obligations (as hereafter defined), we hereby
grant to you a continuing security interest in all of the following property now
owned or at any time hereafter acquired by us, or in which we now have or at any
time in the future may acquire any right, title or interest (the "Collateral"):
see Exhibit A attached hereto, whether any of the foregoing is owned now or in
which we hereafter may acquire any right, title or interest, all proceeds and
products thereof (including, without limitation, proceeds of insurance) and all
additions, accessions and substitutions thereto or therefor.
2. The term "Obligations" as used herein shall mean and include all debts,
liabilities and obligations owing by us to you and all loans, advances,
extensions of credit, endorsements, guaranties, benefits and/or financial
accommodations heretofore or hereafter made, granted or extended by you to us or
which you have or will become obligated to make, grant or extend to us or for
our account and any and all interest, charges and/or expenses heretofore or
hereafter owing by us to you and any and all renewals or extensions of any of
the foregoing, no matter how or when arising, direct or indirect, absolute or
contingent, liquidated or unliquidated, and whether under any present or future
agreement or instruments between or among us, you, or otherwise, including,
without limitation, all obligations owing by us to you under the Convertible
Note dated as of the date hereof made by us in favor of you in the original
principal amount of $2,000,000 (as amended, modified and supplemented from time
to time, the "Note").
3. We hereby represent, warrant and covenant to you that: (a) we are a company
validly existing, in good standing and formed under the laws of the State of
California and we will provide you thirty days prior written notice of any
change in our state of formation; (b) our legal name is "Valencia Entertainment
International, L.L.C.", as set forth in our organizational documents as amended
through the date hereof; (c) we are the lawful owner of the Collateral and, have
the sole right to grant a security interest therein and will defend the
Collateral against all claims and demands of all persons and entities; (d)
except with respect to prior liens, we will keep the Collateral free and clear
of all attachments, levies, taxes, liens, security interests and encumbrances of
every kind and nature ("Encumbrances")except to the extent said Encumbrance does
not secure indebtedness in excess of $20,000 and such Encumbrance is removed or
otherwise released within 10 days of the creation thereof; (e) we will at our
own cost and expense keep the Collateral in good state of repair and will not
waste or destroy the same or any part thereof; (f) we will not without your
prior written consent, sell, exchange, lease or otherwise dispose of the
Collateral (except for sales or inventory in the ordinary course of business) or
any of our rights therein; (g) we will insure the Collateral in your name
against loss or damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as you shall specify in amounts and under policies by
insurers acceptable to you and all premiums thereon shall be paid by us and the
policies delivered to you. If we fail to do so, you may procure such insurance
and the cost thereof shall constitute Obligations; (h) we will at all times
allow you or your representatives free access to and the right of inspection of
the Collateral; (i) we hereby indemnify and save you harmless from all loss,
costs, damage, liability and/or expense, including reasonable attorneys' fees,
that you may sustain or incur to enforce payment, performance or fulfillment of
any of the Obligations and/or in the enforcement of this Agreement or the Note
or in the prosecution or defense of any action or proceeding either against you
or us concerning any matter growing out of or in connection with this Agreement,
the Note and/or any of the Obligations and/or any of the Collateral.
4. We shall be in default under this Agreement upon the happening of any of the
following events or conditions, each such event or condition an "Event of
Default" (a) we shall fail to pay when due or punctually perform any of the
Obligations; (b) any covenant, warranty, representation or statement made or
furnished to you by us or on our behalf was false in any material respect when
made or furnished; (c) the loss, theft, substantial damage, destruction, sale or
encumbrance to or of any of the Collateral or the making of any levy, seizure or
attachment thereof or thereon except to the extent said levy, seizure or
attachment does not secure indebtedness in excess of $20,000 and such levy,
seizure or attachment has not been removed or otherwise released within 10 days
of the creation or the assertion thereof; (d) we shall become insolvent, cease
operations, dissolve, terminate our business existence, make an assignment for
the benefit of creditors, suffer the appointment of a receiver, trustee,
liquidator or custodian of all or any part of our property; or (e) any
proceedings under any bankruptcy or insolvency law shall be commenced by or
against us and if commenced against us shall not be dismissed within 30 days.
5. Upon the occurrence of any Event of Default and at any time thereafter, you
may declare all Obligations immediately due and payable and you shall have the
remedies of a secured party provided in the Uniform Commercial Code as in effect
in the State of California, this Agreement and other applicable law. Upon the
occurrence of any Event of Default and at any time thereafter, you will have the
right to take possession of the Collateral and to maintain such possession on
our premises or to remove the Collateral or any part thereof to such other
premises as you may desire. Upon your request, we shall assemble the Collateral
and make it available to you at a place designated by you. If any notification
of intended disposition of any Collateral is required by law, such notification,
if mailed, shall be deemed properly and reasonably given if mailed at least ten
days before such disposition, postage prepaid, addressed to us either at our
address shown herein or at any address appearing on your records for us. Any
proceeds of any disposition of any of the Collateral shall be applied by you to
the payment of all expenses in connection with the sale of the Collateral,
including reasonable attorneys' fees and other legal expenses and disbursements
and the reasonable expense of retaking, holding, preparing for sale, selling,
and the like, and any balance of such proceeds may be applied by you toward the
payment of the Obligations in such order of application as you may elect, and we
shall be liable for any deficiency.
6. If we default in the performance or fulfillment of any of the terms,
conditions, promises, covenants, provisions or warranties on our part to be
performed or fulfilled under or pursuant to this Agreement, you may, at your
option without waiving your right to enforce this Agreement according to its
terms, immediately or at any time thereafter and without notice to us, perform
or fulfill the same or cause the performance or fulfillment of the same for our
account and at our sole cost and expense, and the cost and expense thereof
(including reasonable attorneys' fees) shall be added to the Obligations and
shall be payable on demand with interest thereon at the highest rate permitted
by law.
7. We appoint you, any of your officers, employees or any other person or entity
whom you may designate as our attorney, with power to execute such documents in
our behalf and to supply any omitted information and correct patent errors in
any documents executed by us or on our behalf; to file financing statements
against us covering the Collateral; to sign our name on public records; and to
do all other things you deem necessary to carry out this Agreement. We hereby
ratify and approve all acts of the attorney and neither you nor the attorney
will be liable for any acts of commission or omission, nor for any error of
judgment or mistake of fact or law. This power being coupled with an interest,
is irrevocable so long as any Obligations remains unpaid.
8. No delay or failure on your part in exercising any right, privilege or option
hereunder shall operate as a waiver of such or of any other right, privilege,
remedy or option, and no waiver whatever shall be valid unless in writing,
signed by you and then only to the extent therein set forth, and no waiver by
you of any default shall operate as a waiver of any other default or of the same
default on a future occasion. Your books and records containing entries with
respect to the Obligations shall be admissible in evidence in any action or
proceeding, shall be binding upon us for the purpose of establishing the items
therein set forth and shall constitute prima facie proof thereof. You shall have
the right to enforce any one or more of the remedies available to you,
successively, alternately or concurrently. We agree to join with you in
executing financing statements or other instruments to the extent required by
the Uniform Commercial Code in form satisfactory to you and in executing such
other documents or instruments as may be required or deemed necessary by you for
purposes of affecting or continuing your security interest in the Collateral.
9. This Agreement shall be governed by and construed in accordance with the laws
of the State of California and cannot be terminated orally. All of the rights,
remedies, options, privileges and elections given to you hereunder shall enure
to the benefit of your successors and assigns. The term "you" as herein used
shall include your company, any parent of your company, any of your subsidiaries
and any co-subsidiaries of your parent, whether now existing or hereafter
created or acquired, and all of the terms, conditions, promises, covenants,
provisions and warranties of this Agreement shall enure to the benefit of and
shall bind the representatives, successors and assigns of each of us and them.
You and we hereby (a) waive any and all right to trial by jury in litigation
relating to this Agreement and the transactions contemplated hereby and we agree
not to assert any counterclaim in such litigation, (b) submit to the
nonexclusive jurisdiction of any California State court sitting in the city of
Los Angeles and (c) waive any objection you or we may have as to the bringing or
maintaining of such action with any such court.
[CONTINUED ON FOLLOWING PAGE]
10. All notices from you to us shall be sufficiently given if mailed or
delivered to us at our address set forth below.
Very truly yours,
VALENCIA ENTERTAINMENT INTERNATIONAL. L.L.C.
By: ValCom, Inc., its sole member
By:_______________________________
Name:
Title:
Address: 00000 Xxxxxx Xxxx - Xxxxxx #0
Xxxxxxxx, Xxxxxxxxxx 00000
Dated as of: May __, 2002
ACKNOWLEDGED:
LAURUS MASTER FUND, LTD.
By:_______________________
Name:
Title:
