Exhibit 99.2
EXECUTION COPY
SECURITY AGREEMENT
AMONG
ELEPHANT & CASTLE GROUP INC.,
ITS SUBSIDIARIES SIGNATORIES HERETO,
AND
GE INVESTMENT PRIVATE PLACEMENT PARTNERS II,
A LIMITED PARTNERSHIP
dated as of October 6, 1999
TABLE OF CONTENTS
Page
1. The Pledge and Security Interest. 1
2. The Secured Obligations 5
3. Continuing Security Interest; Transfer of Notes. 5
4. Debtor Remains Liable 6
5. Security and Pledge Interests Absolute 6
6. Delivery of Pledged Property 7
7. Dividends on Subsidiaries Shares 7
8. Subrogation, etc 7
9. Representations and Warranties 8
10. Certain Covenants 11
11. Secured Party 18
12. Default 19
13. Remedies 20
14. Closing Conditions 24
15. Miscellaneous Provisions. 25
Exhibit A -- List of Subsidiaries and Description of Shares
Exhibit B -- Leases
Exhibit C -- List of Properties Located in the United States
Exhibit D -- Trademark Agreement (US)
Exhibit E -- Assignment and Assumption of Lease
Exhibit F -- Letter Agreement
Exhibit G -- Landlord Consent
Schedule 9.5(a) -- Consents of Third Parties
Schedule 9.5(i) -- Actions, Suits and Proceedings
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of October 6, 1999 (as the same
may be amended, modified or supplemented from time to time, this "Agreement") by
and among ELEPHANT & CASTLE GROUP INC., a corporation incorporated in the
Province of British Columbia (the "Debtor") and each of its Subsidiaries
signatories hereto and listed on Exhibit A hereto (the "Subsidiaries"), and GE
Investment Private Placement Partners II, a Limited Partnership, a Delaware
limited partnership (the "Secured Party").
WITNESSETH:
WHEREAS, the Debtor and the Secured Party have entered into that
certain Note, Stock Purchase and Warrant Agreement dated November 30, 1995 (as
amended, the "Note, Stock Purchase and Warrant Agreement") and, pursuant to the
Note, Stock Purchase and Warrant Agreement, the Debtor has executed and
delivered to the Secured Party convertible subordinated debentures in the
aggregate principal amount of $9,000,000 (collectively, the "Notes"). Terms used
herein not otherwise defined shall have the meaning ascribed thereto in the
Note, Stock Purchase and Warrant Agreement.
WHEREAS, the Secured Party desires to receive certain security for
the repayment of the Notes and has agreed to waive and forgive interest due on
the Notes by the Debtor to the Secured Party for the period commencing June 1,
1999 and ending November 30, 1999 and, in exchange therefor, the Debtor and its
Subsidiaries have agreed to execute this Agreement and, pursuant hereto, to
pledge the Collateral (as hereinafter defined) as security for the prompt
satisfaction of the Secured Obligations (as hereinafter defined).
WHEREAS, each Subsidiary signatory hereto is a direct or indirect
wholly-owned subsidiary of the Debtor and will obtain benefits from the waiver
of the interest due on the Notes described above.
NOW, THEREFORE, in consideration of the foregoing and the premises
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged and confessed, and intending to be legally bound
hereby, the Debtor, its Subsidiaries and the Secured Party agree as follows:
1. THE PLEDGE AND SECURITY INTEREST.
1.1 In order to secure the prompt and unconditional payment and
performance of the Secured Obligations (as herein defined), the Debtor and each
of its Subsidiaries hereby:
(a) grants to the Secured Party a lien and a first priority
security interest in, and mortgages, assigns, transfers, delivers,
pledges, sets over and confirms to the Secured Party all of the Debtor's
and each such Subsidiary's right, title, interest (including all
power of the Debtor and each such Subsidiary, if any, to pass greater
title than it has itself), remedies, powers and privileges, of every kind
and character now owned or hereafter acquired, created or arising in and
to the following (all of the property referred to in this Section 1.1(a)
and in Section 1.1(b) is hereinafter collectively called the
"Collateral"):
(i) all shares of capital stock or other equivalents of the
Subsidiaries of the Debtor owned by the Debtor, as set forth on
Exhibit A hereto, and any shares of capital stock or other equity
interest of any Subsidiary obtained in the future by the Debtor
and the certificates representing all such shares or equity
interest ("Subsidiaries Shares").
(ii) all other debt or equity interests of the Debtor in
its Subsidiaries listed on Exhibit A hereto, presently owned or
from time to time acquired by the Debtor in any manner, and all
dividends, distributions, interest, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all such debt
or equity interests referred to in clause (i) above;
(iii) all equipment now owned or hereafter acquired either
by the Debtor or by its Subsidiaries, in all of its forms, located
in the United States on all properties now or hereafter owned or
leased by the Debtor or any of the Subsidiaries, a list of
properties currently owned or leased by the Debtor or the
Subsidiaries is attached hereto as Exhibit C, including, without
limitation, all machinery and other goods, furniture, fixtures,
furnishings, office supplies, appliances and all other similar
types of tangible personal property of whatever nature (whether or
not the same constitute fixtures) and all parts thereof and all
accessions thereto, together with all parts, fittings, special
tools, alterations, substitutions, replacements and accessions
thereto.
(iv) all receivables, accounts, contracts, contract rights,
chattel paper, documents, instruments and general intangibles (not
otherwise specifically described herein) of the Debtor and each
Subsidiary, whether or not arising out of or in connection with
the sale or lease of goods or the rendering of services, and all
rights of the Debtor and each Subsidiary now or hereafter existing
in and to all security agreements, guaranties and other contracts
securing or otherwise relating to any such receivables, contracts,
contract rights, chattel paper, documents, instruments and general
intangibles, (any and all such receivables, contracts, contract
rights, chattel paper, documents and instruments being the
"Receivables", and any and all such security agreements,
guaranties and other contracts being the "Related Contracts").
(v) all claims, awards and payments made as a result of the
exercise of the right of eminent domain or condemnation against
the property or any part thereof (the "Property") subject to any
of the leases now or hereafter entered into
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by the Debtor or any of the Subsidiaries (the "Leases"), a list of
the Leases now held by Debtor and its Subsidiaries is set forth on
Exhibit B hereto, or payments received in lieu of the exercise of
any such right, all rents, income or profits arising as from or in
connection with any of the Leases, all compensation received as
damages for injury to the Property, all proceeds from insurance on
improvements to the Property, and all proceeds of any sale,
assignment or subletting of any of the Leases (collectively,
"Lease Proceeds").
(vi) all products and proceeds of any of the foregoing
including, without limitation, proceeds which constitute property
of the types described in clauses (i) through (v) above, proceeds
deposited from time to time in any lock boxes of the Debtor or any
Subsidiary and, to the extent not otherwise included, all payments
under insurance, or any indemnity, warranty or guaranty, payable
by reason of loss or damage to or otherwise with respect to any of
the foregoing, and all accessions, appurtenances and additions to
and substitutions for any of the foregoing and all renewals and
replacements of any of the foregoing, and all accounts,
receivables, account receivables, instruments, notes, chattel
paper, documents (including all documents of title), books,
records, contract rights and general intangibles arising in
connection with any of the foregoing.
(vii) (A) all U.S. and foreign copyrights, whether
statutory or common law, registered or unregistered, now or
hereafter in force throughout the world including, without
limitation copyrights registered in the United States Copyright
Office or anywhere else in the world, applications for
registration thereof, whether pending or in preparation for filing
(all of the foregoing items in this clause (A) being collectively
called a "Copyright"), mask works, and computer software and
databases; (B) all Copyright licenses; (C) all extensions or
renewals of any of the items described in clauses (A) and (B); (D)
all proceeds of, and rights associated with, the foregoing,
including without limitation royalties, income, payments, claims,
damages and proceeds of suit; and (E) the right (but not
obligation) to xxx in the name of the Debtor or any Subsidiary for
any past, present or future infringement of any Copyright, and all
rights (but not obligations) corresponding thereto in the United
States and any foreign country.
(viii) (A) all U.S. and foreign patents, registered
designs, whether or not registered, and other trade secrets,
research and development, formulae, know-how, proprietary and
intellectual property rights and information, including all
grants, registrations and applications relating thereto, which are
presently, or in the future may be, owned, issued, acquired, or
used (whether pursuant to a license or otherwise) by the Debtor or
any Subsidiary, in whole or in part, and all patent rights with
respect thereto throughout the world (all of the foregoing items
in this clause (A) being collectively called a "Patent"); (B) all
of the Debtor's and each Subsidiary's right, title, and interest
in all patentable inventions, and to file applications for Patents
under federal law or the law or regulation of any foreign
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country, and to request reexamination and/or reissue of any U.S.
or foreign patents, and to extend such patents and patent rights;
(C) all proceeds of, and rights associated with, the foregoing,
including without limitation royalties, income, payments, claims,
damages and proceeds of infringement suits; and (D) the right (but
not obligation) to xxx or bring interference proceedings in the
name of the Debtor or any Subsidiary for past, present or future
infringement of the Patents, and all rights (but not obligations)
corresponding thereto in the United States and any foreign
country.
(b) grants to the Secured Party a lien and a first priority
security interest in, and mortgages and pledges to the Secured Party all
of the Debtor's and each Subsidiary's right, title, interest (including
all power of the Debtor and each such Subsidiary, if any, to pass greater
title than it has itself), remedies, powers and privileges, of every kind
and character now owned or hereafter acquired, created or arising in and
to the following: (A) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, certification marks, collective marks, logos, other source
of business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of a like
nature, now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and
recordings thereof and all applications in connection therewith, whether
pending or in preparation for filing (all of the foregoing items in this
clause (A) being collectively called a "Trademark"); (B) all Trademark
licenses; (C) all reissues, extensions or renewals of any of the items
described in clauses (A) and (B); (E) all proceeds of, and rights
associated with, the foregoing, including without limitation royalties,
income, payments, claims, damages and proceeds of infringement suits; and
(F) the right (but not obligation) to xxx or bring cancellation or
opposition proceedings in the name of the Debtor or any Subsidiary for
any past, present or future infringement or dilution of any Trademark,
Trademark registration or Trademark license, or for any injury to the
goodwill associated with the use of any such Trademark or for breach or
enforcement of any Trademark license or protection of any Trademark, and
all rights (but not obligations) corresponding thereto in the United
States and any foreign country.
1.2 It is understood that, subject to Permitted Encumbrances (as
hereinafter defined) the security interest hereby granted by the Debtor and the
Subsidiaries to the Secured Party with respect to Collateral described in
Section 1.1 (a) and (b) hereof shall constitute a first priority security
interest in such Collateral, subject, however, to the provisions of Section 1.3
below. The security interests granted by the Debtor and the Subsidiaries to the
Secured Party pursuant to this Agreement are hereinafter referred to as the
"Security Interest". The property and interests described in clauses (i) and
(ii) and clause (v) as it relates to the property and interests described in
clauses (i) and (ii), all of Section 1.1(a) hereof, are hereinafter collectively
referred to as the "Pledged Property". The property and interests described in
clause (iii) and clause (v) as it relates to the property and interests
described in clause (iii), all of Section 1.1(a) hereof, are hereinafter
collectively referred to as the "Equipment". The term "Permitted Encumbrances"
shall mean any purchase money security interests in Equipment used in
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connection with and located at the Property and not exceeding, together with any
purchase money security interests permitted pursuant to Section 1.2 of the
Canadian Security Agreement (as hereinafter defined), an aggregate principal
amount of CDN$50,000 in any one year.
1.3 The Secured Party hereby acknowledges and agrees that,
notwithstanding any provisions of this Agreement to the contrary, it shall
subordinate its Security Interest (by executing a consent to such subordination
if so requested) in any Equipment acquired after the date hereof which is
located on any new properties (the "New Properties") hereinafter purchased,
leased or otherwise acquired by the Debtor or any of the Subsidiaries and used
to operate a restaurant business to the lien of any security interest granted to
any institutional lender which provides financing to Debtor or any of the
Subsidiaries in respect of any such Equipment on the New Properties; PROVIDED,
HOWEVER, that the extent of such subordination shall be limited to an aggregate
amount of $2,000,000 and such subordination shall be pursuant to a subordination
agreement reasonably satisfactory in form and substance to Secured Party and in
all events the Secured Party shall retain a second priority interest in such
Equipment.
2. THE SECURED OBLIGATIONS.
2.1 In consideration of the grant of the Security Interest hereunder and
the security interests granted pursuant to the Canadian Documents (as herein
defined), the Secured Party hereby waives and forgives interest for the six (6)
month period, beginning as of June 1, 1999 and ending on November 30, 1999 which
would otherwise be due and payable by the Debtor to the Secured Party with
respect to the Notes.
2.2 This Agreement is being executed and delivered to secure, and the
Security Interests herein granted shall secure: (a) full payment and performance
of all of the indebtedness and obligations owing to the Secured Party by the
Debtor under the Note, Stock Purchase and Warrant Agreement and the Notes,
whether for principal, interest, costs, fees, expenses or otherwise, and (b) all
covenants of the Debtor and the Subsidiaries under this Agreement and all
covenants of the Debtor and the Subsidiaries under the Note, Stock Purchase and
Warrant Agreement, in each case including all renewals, extensions and
modifications thereof. All of such debts, indebtedness, liabilities, covenants,
and duties referred to in (a) and (b) of this Section 2.2 are hereinafter
collectively referred to as the "Secured Obligations".
3. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.
(a) This Security Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect
until payment in full of all Secured Obligations, or until earlier
terminated in accordance with the terms hereof and (ii) be binding upon
the Debtor, and the Subsidiaries, their respective successors,
transferees and assigns.
(b) Subject to the applicable provisions of the Note, Stock
Purchase and Warrant Agreement, the Secured Party may assign or otherwise
transfer (in whole or in part) any Note held by it to any other Person or
entity, and such other Person or entity shall
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thereupon become vested with all the rights and benefits in respect
thereof granted to the Secured Party under this Security Agreement or
otherwise, subject, however, to any contrary provisions in such
assignment or transfer.
(c) Upon the payment in full of all Notes and the termination of
all Secured Obligations, other than in connection with the exercise of
remedies under this Agreement, the Security Interest granted herein shall
terminate and all rights to the Collateral shall revert to the Debtor or
the Subsidiaries, as the case may be. Upon any such termination, the
Secured Party will, at sole expense of the Debtor execute and deliver to
the Debtor and the Subsidiaries, such documents (without recourse and
without representation or warranty) as the Debtor shall reasonably
request to evidence such termination.
4. DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding
(a) the Debtor and each of the Subsidiaries shall remain liable
under the contracts and agreements included in, or relating to, the
Collateral to the extent set forth therein, and shall perform all of
their respective duties and obligations under such contracts and
agreements to the same extent as if this Security Agreement had not been
executed;
(b) the exercise by the Secured Party of any of its rights
hereunder shall not release the Debtor or the Subsidiaries from any of
the Debtor's or the Subsidiaries' duties or obligations under any of the
contracts or agreements included in, or relating to, the Collateral; and
(c) the Secured Party shall have no obligation or liability under
any such contracts or agreements included in, or relating to, the
Collateral by reason of this Security Agreement, nor shall the Secured
Party be obligated to perform any of the obligations or duties of the
Debtor or any of the Subsidiaries thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
5. SECURITY AND PLEDGE INTERESTS ABSOLUTE. All rights of the Secured
Party and the Security Interest granted to and pledges made to the Secured Party
hereunder, and all obligations of the Debtor and any of the Subsidiaries
hereunder, shall be absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the Note, Stock
Purchase and Warrant Agreement or any Note;
(b) the failure of the Secured Party to assert any claim or demand
or to enforce any right or remedy against the Debtor or any other Person
under the provisions of the Note, Stock Purchase and Warrant Agreement,
any Note or otherwise;
(c) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations or any other
extension, compromise or renewal of any Secured Obligations;
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(d) any reduction, limitation, impairment or termination of any
Secured Obligation of the Debtor or any of the Subsidiaries for any
reason, including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to (and the Debtor and each such
Subsidiary hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any
Secured Obligation of the Debtor or any of the Subsidiaries or otherwise;
(e) any amendment to, rescission, waiver, or other modification
of, or any consent to departure from, any of the terms of the Note, Stock
Purchase and Warrant Agreement or any Note;
(f) any addition, exchange, release, surrender or non-perfection
of any collateral (including the Collateral), or any amendment to or
waiver or release of or addition to or consent to departure from any
guaranty, for any of the Secured Obligations; or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Debtor or
any of the Subsidiaries.
6. DELIVERY OF PLEDGED PROPERTY. All certificates or instruments
representing or evidencing any Pledged Property, including all Subsidiaries
Shares, shall be delivered to and held by or on behalf of the Secured Party
pursuant hereto, shall be in suitable form for transfer by delivery, and shall
be accompanied by all necessary instruments of transfer or assignment, duly
executed in blank all in form and substance satisfactory to the Secured Party.
The Secured Party shall have the right, at any time after the occurrence of an
Event of Default, in its discretion and without notice to the Debtor, to
transfer to or to register in the name of the Secured Party or any of its
nominees any or all of the Pledged Property, subject only to revocable rights
specified in Section 3(b) hereof; provided, however, that the Secured Party
shall promptly give notice to the Debtor following any such transfer of the
Pledged Property. In addition, the Secured Party shall have the right at any
time to exchange certificates or instruments representing or evidencing the
Pledged Property for certificates or instruments of smaller or larger
denominations.
7. DIVIDENDS ON SUBSIDIARIES SHARES. In the event that any dividend in
the ordinary course (excluding, without limitation, any distribution of the type
described in clauses (i), (ii) and (iii) of Section 8 hereof) on the shares
pledged pursuant to this Agreement is to be paid at a time when (x) no Default
of the nature referred to in Section 6(ix) or (x) of the Note, Stock Purchase
and Warrant Agreement has occurred and is continuing and (y) no Event of Default
has occurred and is continuing, such dividend may be paid directly to the
Debtor. If any such Default or Event of Default has occurred and is continuing,
then any such dividend shall be paid directly to the Secured Party.
8. SUBROGATION, ETC. Neither the Debtor nor any of the Subsidiaries will
exercise any rights which it may acquire by reason of any payment on account of
any Collateral, whether by way of subrogation, reimbursement or otherwise, until
the prior payment, in full and in cash,
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of all Secured Obligations of the Debtor. Subject to the provisions of Section 7
hereof, any amount paid to the Debtor or any of the Subsidiaries on account of
any Collateral prior to the payment in full of all Secured Obligations of the
Debtor or any of the Subsidiaries, including without limitation (i) instruments
and other property received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Property, (ii) dividends and other distributions
paid or payable in cash in respect of any Pledged Property in connection with a
total liquidation or dissolution of the payor of the dividends, and (iii) cash
paid, payable or otherwise distributed in respect of principal of or in
redemption of, or in exchange for, any Pledged Property, shall be held in trust
for the benefit of the Secured Party, be segregated from the other property or
funds of the Debtor or any such Subsidiary, and shall immediately be paid to the
Secured Party and credited and applied against the obligations of the Debtor,
whether matured or unmatured, in accordance with the terms of the Note, Stock
Purchase and Warrant Agreement.
9. REPRESENTATIONS AND WARRANTIES. The Debtor and each of the
Subsidiaries jointly and severally represents and warrants unto the Secured
Party as set forth in this Section 9 on the date hereof and with respect to the
Collateral, as at the date of each pledge and delivery hereunder:
9.1 LOCATION OF COLLATERAL, ETC. All of the Equipment currently owned by
the Debtor and the Subsidiaries is located at the places specified in Exhibit C
hereto. None of the Equipment has, within the four months preceding the date of
this Agreement, been located at any place other than the places specified in
Exhibits C hereto. The place(s) of business and chief executive office of the
Debtor and the office(s) where the Debtor keeps its records concerning the
Collateral, including Receivables and all originals of all chattel paper which
evidence Receivables, are located at 000 Xxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxxxx,
XX, Xxxxxx V613 2W5. The place(s) of business and chief executive office of each
Subsidiary and the office(s) where such Subsidiary keeps its records concerning
the Collateral, including Receivables and all originals of all chattel paper
which evidence Receivables, are listed on Exhibit A hereto. Neither the Debtor
nor any Subsidiary has any trade names. Neither the Debtor nor any Subsidiary
has been known by any legal name different from the one set forth on the
signature page hereto, nor has the Debtor or any Subsidiary been the subject of
any merger or other corporate reorganization.
9.2 OWNERSHIP, NO LIENS, ETC. The Debtor or the Subsidiaries, as the case
may be, own the Collateral free and clear of any Lien, except for the security
interest created by this Agreement and except as permitted by the Note, Stock
Purchase and Warrant Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office, except financing statements (a) as may have been
filed in favor of the Secured Party relating to this Agreement, or (b) with
respect to which the Debtor has delivered UCC-3 (or similar releases) executed
by the secured party to the Secured Party on the date hereof. Each of the Debtor
and the Subsidiaries is the legal and beneficial owner of, and has good and
marketable title to (and has full right and authority to pledge and assign) the
Collateral, which the Debtor has not previously sold, assigned or transferred
and which is free and clear of all Liens, except the Lien granted pursuant
hereto in favor of the
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Secured Party and Permitted Encumbrances. No Subsidiary of the Debtor, other
than the Subsidiaries listed on Exhibit A hereto and on Exhibit A to the
Canadian Security Agreement (as hereinafter defined), owns any Equipment.
9.3 POSSESSION AND CONTROL. The Debtor or the Subsidiaries have exclusive
possession and control of all of the Equipment.
9.4 VALIDITY, ETC. This Agreement creates a valid first priority security
interest in the Collateral as provided in Section 1.2 hereof, securing the
payment of the Secured Obligations. The Security Interest constitutes, subject
to the filings described in Section 9.5(b) below, a perfected security interest
in all Collateral in which a security interest may be perfected by filing,
recording or registering a financing statement or analogous documents in the
United States (or any political subdivision thereof) and its territories and
possessions pursuant to the U.C.C. or other applicable law in such
jurisdictions. The delivery of the Pledged Property to the Secured Party is
effective to create a valid, perfected, first priority security interest in the
Pledged Property and all proceeds thereof, securing the Secured Obligations. No
filing or other action will be necessary to perfect or protect the Security
Interest as it relates to the Pledged Property. All the Subsidiaries Shares are
"certificated securities" as that term is defined in Section 8-102 of the U.C.C.
(as hereinafter defined).
9.5 DUE AUTHORIZATION, EXECUTION, APPROVAL, ETC.
(a) No consent of any other party, other than those consents
listed on Schedule 9.5(a) attached hereto, and no consent, authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
grant by the Debtor and the Subsidiaries of the Security Interest granted
hereby or for the pledge by the Debtor and the Subsidiaries of any
Collateral pursuant hereto or for the execution, delivery and performance
of this Agreement by the Debtor and the Subsidiaries, or (ii) for the
perfection of or the exercise by the Secured Party of its rights and
remedies hereunder including the exercise by the Secured Party of the
voting or other rights provided for in this Agreement, or, except with
respect to any Subsidiaries Shares, as may be required in connection with
a disposition of such Subsidiaries Shares by laws affecting the offering
and sale of securities generally, the remedies in respect of the Pledged
Property pursuant to this Agreement and, except for the filing of
executed UCC-1 financing statements in the following states: Minnesota,
Pennsylvania, California, Massachusetts and Washington, and the following
counties: Mennepin County, Minnesota, Philadelphia County, Pennsylvania,
San Diego County, California, King County, Washington, Whatcom County,
Washington, and Boston, Massachusetts.
(b) Fully executed financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations containing a description of the Collateral have been
delivered to the Secured Party for filing in each governmental, municipal
or other office specified in Schedule 9.5(b) hereto, which are all the
filings, recordings and registrations (other than filings required to be
made in the United States Patent and Trademark Office and the United
States Copyright Office in order to perfect
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the Security Interest in Collateral consisting of United States
Trademarks or Copyrights) that are necessary to publish notice of and
protect the validity of and to establish a legal, valid and perfected
security interest in favor of the Secured Party in respect of all
Collateral in which the Security Interest may be perfected by filing,
recording or registration in the United States (or any political
subdivision thereof) and its territories and possessions, and no further
or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided
under applicable law with respect to the filing of continuation
statements.
(c) This Agreement and the Security Interest created hereby is in
full compliance with the terms of all documents, instruments and
agreements relating to the Debtor and the Subsidiaries or among the
Debtor's or the Subsidiaries' shareholders, respectively, including,
without limitation, the Debtor's memorandum and articles and the
certificate of incorporation and bylaws of each Subsidiary.
(d) The Debtor is a corporation duly incorporated, validly
existing and in good standing under the laws of the Province of British
Columbia, has the corporate power and authority to own its assets and to
transact its business and is duly qualified under the laws of each
jurisdiction in which such qualification is required.
(e) Each Subsidiary of the Debtor is a corporation duly
incorporated, validly existing and in good standing in the jurisdiction
of its incorporation, has the corporate power and authority to own its
assets and to transact its business and is duly qualified under the laws
of each jurisdiction in which such qualification is required.
(f) This Agreement is a legal, valid and binding obligation of the
Debtor and each Subsidiary, enforceable against the Debtor and each
Subsidiary in accordance with its terms.
(g) The execution, delivery and performance of this Agreement by
the Debtor and each Subsidiary have been duly authorized by all necessary
corporate action and do not and will not contravene the Debtor's
memorandum or articles and each Subsidiary's certificate of incorporation
or bylaws.
(h) The execution, delivery and performance of this Agreement by
the Debtor and each Subsidiary do not and will not (1) require any
consent which has not been obtained; (2) violate any provision of law or
require filing or registration with any governmental authority; (3)
result in a breach or constitute a default under or require any consent
under any indenture or loan or credit agreement, any other agreement,
lease or instrument to which the Debtor or any Subsidiary is a party or
by which any of their property is bound; (4) result in, or require, the
creation or imposition on any lien, security interest or other
encumbrance upon or with respect to any of their properties now owned or
hereafter acquired; or (5) cause the Debtor or any Subsidiary to be in
default under any law, order, writ, judgment, injunction, decree,
agreement, lease or instrument.
10
(i) Other than as set forth on Schedule 9.5(i) attached hereto,
there are no actions, suits or proceedings pending or, to the Debtor's
and each Subsidiary's best knowledge, threatened against or with respect
to the Debtor or such Subsidiary that are (1) reasonably likely to
materially and adversely affect its obligations under this Agreement; or
(2) reasonably likely to materially and adversely affect its business,
property, assets, condition (financial or otherwise), results of
operation, or prospects.
9.6 AS TO SUBSIDIARIES SHARES. In the case of any Subsidiaries Shares
pledged by the Debtor, all of such Subsidiaries Shares are duly authorized and
validly issued, fully paid, and non-assessable, and constitute all of the issued
and outstanding shares of capital stock of each Subsidiary of the Debtor.
9.7 COMPLIANCE WITH LAWS. The Debtor and each Subsidiary is in compliance
with the requirements of all applicable laws, rules, regulations and orders of
every governmental authority, the noncompliance with which might materially
adversely affect the business, properties, assets, operations, condition
(financial or otherwise) of the Debtor and the Subsidiaries taken as a whole or
the value of the Collateral.
10. CERTAIN COVENANTS. The Debtor and each of the Subsidiaries jointly
and severally covenants and agrees that, so long as any portion of the Notes
shall remain unpaid or any Secured Obligations shall remain outstanding, the
Debtor and each such Subsidiary will, unless the Secured Party shall otherwise
consent in writing, perform the obligations set forth in this Section 10.
10.1 AS TO EQUIPMENT. The Debtor and each Subsidiary hereby agrees that
it shall:
(a) keep all the Equipment at the places therefor specified in
Exhibit C hereto, or, upon 30 days' prior written notice to the Secured
Party, at such other places in a jurisdiction where all representations
and warranties set forth in Section 9 (including Section 9.4) shall be
true and correct, and all action required pursuant to the first sentence
of Section 10.7 shall have been taken with respect to the Equipment;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual; and
forthwith, or in the case of any loss or damage to any of the Equipment,
as quickly as practicable after the occurrence thereof, make or cause to
be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end; and promptly
furnish to the Secured Party a statement respecting any loss or damage to
any of the Equipment; and
(c) promptly pay when due all material property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the
Equipment, except to the extent the validity thereof is
11
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP as in effect in Canada have
been set aside.
10.2 AS TO RECEIVABLES.
(a) Subject to Section 10.3(b), the Debtor and each Subsidiary
shall keep its place(s) of business and chief executive office and the
office(s) where it keeps its records concerning the Receivables, and all
originals of all chattel paper which evidenced Receivables, located at
its chief executive office of the Debtor or such Subsidiary, or, upon 30
days' prior written notice to the Secured Party, at such other locations
in a jurisdiction where all actions required by Section 10.7 shall have
been taken with respect to the Receivables; not change its name except
upon 30 days' prior written notice to the Secured Party; hold and
preserve such records and chattel paper; and permit representatives of
the Secured Party at any time during normal business hours to inspect and
make abstracts from such records and chattel paper.
(b) Until such time as the Secured Party shall notify the Debtor
or any of its Subsidiaries that a Default of the nature referred to in
Section 6(ix) or (x) of the Note, Stock Purchase and Warrant Agreement or
an Event of Default has occurred and is continuing, the Debtor and each
Subsidiary shall, in accordance with its customary business practices,
continue to collect, at its own expense, all amounts due or to become due
to it under the Receivables; provided, however, that the Secured Party
shall have the right, at any time after notice to the Debtor or the
Subsidiary from the Secured Party that a Default of the nature referred
to in Section 6(ix) or (x) of the Note, Stock Purchase and Warrant
Agreement or an Event of Default has occurred and is continuing, to
notify the account debtors or obligors under any Receivables of the
assignment of such Receivables to the Secured Party and to direct such
account debtors or obligors to make payment of all amounts due or to
become due to the Debtor or such Subsidiary thereunder directly to the
Secured Party and, upon such notification and at the expense of the
Debtor or such Subsidiary, to enforce collection of any such Receivables,
and to adjust, settle or compromise the amount or payment thereof, in the
same manner and to the same extent as the Debtor or such Subsidiary might
have done. After delivery to the Debtor or the Subsidiary of the notice
from the Secured Party referred to above:
(i) all amounts and proceeds (including instruments)
received by the Debtor or the Subsidiary in respect of any
Receivables shall be received in trust for the benefit of the
Secured Party hereunder, shall be segregated from other funds of
the Debtor or such Subsidiary, and shall be forthwith paid over to
the Secured Party in the same form as so received (with any
necessary endorsements) to be held as cash collateral and applied
as provided by Section 13; and
(ii) except in the ordinary course of business, neither the
Debtor, nor any Subsidiary shall, without the consent of the
Secured Party, adjust, settle, or compromise the amount or payment
of any Receivable, or release wholly or partly any account debtor
or obligor thereof, or allow any credit or discount thereon.
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After the occurrence and during the continuance of an Event of
Default, (A) the Secured Party may in its own name or in the name of others
communicate with account debtors in order to verify with them to the Secured
Party `s satisfaction the existence, amount and terms of any Receivables and (B)
the Secured Party shall have the right, at the Debtor's expense, to make test
verifications of the Receivables in any manner and through any medium that it
considers advisable, and the Debtor agrees to furnish all such assistance.
10.3 AS TO OTHER COLLATERAL.
(a) Until such time as the Secured Party shall notify the Debtor
or any Subsidiary of the revocation of such power and authority, which
notice may be given by the Secured Party at any time if a Default of the
nature referred to in Section 6(ix) or (x) of the Note, Stock Purchase
and Warrant Agreement or an Event of Default has occurred and is
continuing, the Debtor and each Subsidiary (i) will, at its own expense,
endeavor to collect, as and when due in accordance with its customary
practices, all amounts due with respect to any of the Collateral (except
as otherwise specifically provided herein), including the taking of such
action with respect to such collection as the Secured Party may
reasonably request or, in the absence of such request, as the Debtor or
such Subsidiary may deem advisable, and (ii) may grant, in the ordinary
course of business, to any party obligated on any of the Collateral
(except as otherwise specifically provided herein), any rebate, refund or
allowance to which such party may be lawfully entitled, may accept, in
connection therewith, the return of goods, the sale or lease of which
shall have given rise to such Collateral (except as otherwise
specifically provided herein). The Secured Party, however, may, at any
time, after Default of the nature referred to in Section 6(ix) or (x) of
the Note, Stock Purchase and Warrant Agreement or an Event of Default has
occurred and is continuing, notify any parties obligated on any of the
Collateral (except as otherwise specifically provided herein) to make
payment to the Secured Party of any amounts due or to become due
thereunder and enforce collection of any of the Collateral (except as
otherwise specifically provided herein) by suit or otherwise and
surrender, release, or exchange all or any part thereof, or compromise or
extend or renew for any period (whether or not longer than the original
period) any indebtedness thereunder or evidenced thereby. Upon request of
the Secured Party, the Debtor or any Subsidiary will, at its own expense,
notify any parties obligated on any of the Collateral (except as
otherwise specifically provided herein) to make payment to the Secured
Party of any amounts due or to become due thereunder.
(b) The Secured Party is authorized to endorse, in the name of the
Debtor or any Subsidiary, any item, howsoever received by the Secured
Party, representing any payment on or other proceeds of any of the
Collateral (except as otherwise specifically provided herein). The Debtor
and each Subsidiary shall, immediately following the occurrence and
during the continuance of a Default of the nature referred to in Section
6(ix) or (x) of the Note, Stock Purchase and Warrant Agreement or an
Event of Default deliver to the Secured Party possession of all originals
of all negotiable documents,
13
instruments and chattel paper currently owned or held by the Debtor or
such Subsidiary (duly endorsed in blank, if requested by the Secured
Party).
10.4 AS TO COLLATERAL; FURTHER ASSURANCES, ETC.
(a) Except as expressly provided in the Note, Stock Purchase and
Warrant Agreement, neither the Debtor nor any of the Subsidiaries will
sell, assign, transfer, pledge, encumber in any manner or otherwise
dispose of, or grant any option with respect to, the Collateral (except
in favor of the Secured Party hereunder). The Debtor and each Subsidiary
will warrant and defend the right and title herein granted unto the
Secured Party in and to the Collateral pledged by it hereunder (and all
right, title, and interest represented by such Collateral) against the
claims and demands of all Persons whomsoever. The Debtor and each of the
Subsidiaries agrees that it will not issue any stock or other securities
in addition to or in substitution for the Subsidiaries Shares. The Debtor
and each such Subsidiary agrees that at any time, and from time to time,
at the expense of the Debtor, the Debtor and the Subsidiary will promptly
execute and deliver all further instruments, and take all further action,
that may be necessary or desirable, or that the Secured Party may
reasonably request, in order to perfect and protect any Security Interest
granted or purported to be granted by the Debtor and each such Subsidiary
hereby or to enable the Secured Party to exercise and enforce its rights
and remedies hereunder with respect to any Collateral pledged by it
hereunder.
(b) STOCK POWERS, ETC. The Debtor agrees that all Subsidiaries
Shares (and all other shares of capital stock constituting Pledged
Property) delivered by the Debtor pursuant to this Agreement will be
accompanied by duly executed undated blank stock powers, or other
equivalent instruments of transfer acceptable to the Secured Party. The
Debtor will, from time to time upon the request of the Secured Party,
promptly deliver to the Secured Party such stock powers, instruments, and
similar documents, satisfactory in form and substance to the Secured
Party, with respect to the Pledged Property as the Secured Party may
reasonably request.
(c) CONTINUOUS PLEDGE. Subject to Section 4, the Debtor will, at
all times, keep pledged to the Secured Party pursuant hereto all
Subsidiaries Shares and all other shares of capital stock constituting
Pledged Property, all dividends and distributions with respect thereto,
and other securities, instruments, proceeds, and rights from time to time
received by or distributable to the Debtor in respect of any Pledged
Property.
(d) VOTING RIGHTS; DIVIDENDS, ETC. The Debtor agrees:
(i) So long as no Event of Default shall have occurred, the
Debtor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Property or any part
thereof for any purpose not inconsistent with the terms of this
Agreement; provided, however, that the Debtor shall not exercise
or refrain from exercising any such right if (A) such action would
modify or in any way adversely change the Debtor's or the Secured
Party's rights under the
14
Pledged Property or any part thereof or (B) the Secured Party
shall notify the Debtor that in the Secured Party's sole judgment
such action would modify or in any way adversely change the
Debtor's or the Secured Party's rights under the Pledged Property
or any part thereof.
(ii) after any Default of the nature referred to in Section
6(ix) or (x) of the Note, Stock Purchase and Warrant Agreement or
an Event of Default shall have occurred and be continuing,
promptly upon receipt thereof by the Debtor and without any
request therefor by the Secured Party, to deliver (properly
endorsed where required hereby or requested by the Secured Party)
to the Secured Party all dividends, distributions, all interest,
all principal, all other cash payments, and all proceeds of the
Pledged Property, all of which shall be held by the Secured Party
for use in accordance with Section 13.1; and
(iii) after any Event of Default shall have occurred and be
continuing and the Secured Party has notified the Debtor of the
Secured Party's intention to exercise its voting power under this
Section 10.4:
(A) the Secured Party may exercise (to the exclusion of
the Debtor) the voting power and all other incidental rights of
ownership with respect to any Subsidiaries Shares or other shares of
capital stock constituting Pledged Property and the Debtor hereby
grants the Secured Party an irrevocable proxy, exercisable under
such circumstances, to vote the Subsidiaries Shares and such other
Pledged Property; and
(B) promptly to deliver to the Secured Party such
additional proxies and other documents as may be necessary to allow
the Secured Party to exercise such voting power.
All dividends, distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by the Debtor but which
Debtor is then obligated to deliver to the Secured Party, shall, until delivery
to the Secured Party, be held by the Debtor separate and apart from its other
property in trust for the Secured Party. The Secured Party agrees that unless an
Event of Default shall have occurred and be continuing and the Secured Party
shall have given the notice referred to in Section 10.4(d), the Debtor shall
have the exclusive voting power with respect to any shares of capital stock
(including any of the Subsidiaries Shares) constituting Pledged Property and the
Secured Party shall, upon the written request of the Debtor, promptly deliver
such proxies and other documents, if any, as shall be reasonably requested by
the Debtor which are necessary to allow the Debtor to exercise voting power with
respect to any such share of capital stock (including any of the Subsidiaries
Shares) constituting Pledged Property; provided, however, that no vote shall be
cast, or consent, waiver, or ratification given, or action taken by the Debtor
that would impair any Pledged Property or be inconsistent with or violate any
provision of this Agreement, the Notes or the Note, Stock Purchase and Warrant
Agreement.
15
(e) ADDITIONAL SUBSIDIARIES SHARES. The Debtor agrees to pledge,
hypothecate, assign, charge, mortgage, deliver and transfer to the
Secured Party, for its benefit, shares of any additional subsidiaries, if
any, formed, purchased or otherwise acquired by the Debtor after the date
hereof within three (3) business days after such formation, purchase or
other acquisition, and all dividends, distributions, interest, cash,
instruments and other property or rights the Debtor might have with
respect to such shares as provided in Sections 6 and 7 hereof.
10.5 INSURANCE. The Debtor will maintain or cause to be maintained
insurance of the type, in the amounts and with such insurance companies as
provided in Section 5O of the Note, Stock Purchase and Warrant Agreement. If a
Default of the nature referred to in Section 6(ix) or (x) of the Note, Stock
Purchase and Warrant Agreement or an Event of Default has occurred and is
continuing, all proceeds of all insurance maintained by the Debtor or the
Subsidiaries and covering the Collateral shall be paid to the Secured Party for
application to the payment in full of all outstanding Secured Obligations.
10.6 TRANSFERS AND OTHER LIENS. Neither the Debtor nor any of the
Subsidiaries shall, without the prior written consent of the Secured Party,
which may be granted or denied by the Secured Party in its sole and absolute
discretion:
(a) sell, assign (by operation of law or otherwise) transfer, or
otherwise dispose of any of the Collateral other than worn-out or
obsolete Equipment;
(b) create or suffer to exist any Lien or other charge or
encumbrance upon or with respect to any of the Collateral or Leases to
secure Indebtedness of any Person or entity, except for the Security
Interest created by this Agreement, Permitted Encumbrances and security
interest in the New Properties as permitted by Section 1.3, and except as
permitted by the Note, Stock Purchase and Warrant Agreement; or
(c) sell, assign (by operation of law or otherwise), transfer,
sublet or otherwise dispose of any Lease.
10.7 FURTHER ASSURANCES, ETC. The Debtor and each of the Subsidiaries
agrees that, from time to time at its own expense, the Debtor and each such
Subsidiary will promptly execute and deliver all further instruments and
documents including, without limitation, assignments, certificates and
supplemental documents, and do all further acts or things, that may be necessary
or desirable, or that the Secured Party may request, in order to more fully
evidence, perfect, preserve and protect any Security Interest granted or
purported to be granted hereby or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Debtor and each such
Subsidiary will:
(a) xxxx conspicuously each chattel paper included in the
Receivables and each Related Contract and each of its records pertaining
to the Collateral with a legend, in
16
form and substance satisfactory to the Secured Party, indicating that
such chattel paper, Related Contract or Collateral is subject to the
Security Interest granted hereby;
(b) if any Collateral shall be evidenced by a promissory note or
other instrument, negotiable document or chattel paper, deliver and
pledge to the Secured Party hereunder such promissory note, instrument,
negotiable document or chattel paper duly endorsed and accompanied by
duly executed instruments of transfer or assignment, all in form and
substance satisfactory to the Secured Party;
(c) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices (including,
without limitation, filings with the United States Patent and Trademark
Office or United States Copyright Office (or any successor office or any
similar office in any other country), as may be necessary or desirable,
or as the Secured Party may request, in order to perfect and preserve the
Security Interests and other rights granted or purported to be granted to
the Secured Party hereby;
(d) furnish to the Secured Party, from time to time at the Secured
Party's request, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Secured Party may reasonably request, all in reasonable
detail;
(e) furnish such other information as the Secured Party may
reasonably request concerning the Collateral;
(f) promptly notify the Secured Party of any change in the facts
or circumstances warranted or represented by the Debtor or any of the
Subsidiaries herein which change could reasonably be expected to have a
material adverse effect on the business of the Debtor or such Subsidiary
or the ability of the Debtor or such Subsidiary to perform its
obligations under the Note, Stock Purchase and Warrant Agreement or this
Agreement; and
(g) promptly notify the Secured Party of any material claim,
action, or proceeding commenced against the Debtor or any of the
Subsidiaries.
With respect to the foregoing and the grant of the Security Interest hereunder,
the Debtor and each of the Subsidiaries hereby authorizes the Secured Party to
file one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral, without the signature of the
Debtor or such Subsidiary where permitted by law. A carbon, photographic or
other reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
10.8 LANDLORD CONSENTS. The Debtor and each Subsidiary covenants and
agrees that it will use its best efforts to obtain as promptly as practicable
following execution of this Agreement, all consents from third parties necessary
to effect the transactions contemplated by
17
this Agreement, such consents to be substantially in the form attached hereto as
Exhibit G (the "Landlord Consent").
10.9 ADDITIONAL SUBSIDIARIES. The Debtor covenants and agrees that it
will cause any subsidiary of which the Debtor owns 75% or more of the issued and
outstanding voting shares and which purchases or otherwise acquires any property
or interests of a nature described in Section 1.1(a) and Section 1.1(b) after
the date hereof, within three (3) business days after any such purchase or
acquisition, to become a party to this Agreement and thereby grant a security
interest in such property or interests purchased or otherwise acquired by it and
be bound by all of the provisions hereof.
11. SECURED PARTY
11.1 SECURED PARTY APPOINTED ATTORNEY-IN-FACT. The Debtor and each of the
Subsidiaries hereby irrevocably appoints the Secured Party as the Debtor's and
each such Subsidiary's attorney-in-fact, with full authority in the place and
stead of the Debtor or such Subsidiary and in the name of the Debtor or such
Subsidiary or otherwise, to take any action and to execute any instrument which
the Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(a) to ask, demand, collect, xxx for, recover, compromise, receive
and give acquittance and receipts for moneys representing any dividend,
interest payment or other distribution or payment due and to become due
under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a)
above;
(c) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the
rights of the Secured Party with respect to any of the Collateral;
(d) to perform the affirmative obligations of the Debtor or any
such Subsidiary hereunder (including all obligations of the Debtor or any
such Subsidiary pursuant to Section 10.7); and
(e) without limiting the generality of the foregoing, following
the occurrence of an Event of Default, to assign, sell or otherwise
dispose of all right, title and interest of the Debtor in and to the
Trademarks listed on Schedule I to the Trademark Agreement, and including
those trademarks which are added to the same subsequent hereto, and all
registrations and recordings thereof, and all pending applications
therefor, and to record, register and file, or accomplish any other
formality with respect to the foregoing, and to execute and deliver any
and all agreements, documents, statements, certificates,
18
instruments of assignment or other papers necessary or advisable to
effect such purpose as the Secured Party may in its sole discretion
determine.
The Debtor and each of the Subsidiaries hereby acknowledges, consents and agrees
that the power of attorney granted pursuant to this Section 11 is irrevocable
and coupled with an interest.
11.2 SECURED PARTY MAY PERFORM. If the Debtor or any of the Subsidiaries
fails to perform any agreement contained herein, the Secured Party may itself
perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be payable by the Debtor
pursuant to Section 13.3.
11.3 SECURED PARTY HAS NO DUTY. In addition to, and not in limitation of,
Section 4, the powers conferred on the Secured Party hereunder are solely to
protect its interest in the Collateral and shall not impose any duty on it to
exercise any such powers. Except for reasonable care of any Collateral in its
possession or control and the accounting for moneys actually received by it
hereunder, the Secured Party shall have no duty as to any Collateral, or as to
the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral including, without limitation,
with respect to the Pledged Property, responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Property, whether or not the Secured Party has or is deemed
to have knowledge of such matters, or
(b) taking any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.
11.4 REASONABLE CARE. The Secured Party is required to exercise
reasonable care in the custody and preservation of any of the Collateral in its
possession or control; provided, however, the Secured Party shall be deemed to
have exercised reasonable care in the custody and preservation of any of the
Collateral if the Collateral is accorded treatment substantially equal to that
which the Secured Party accords its own property and if it takes such action for
that purpose as the Debtor reasonably requests in writing at times other than
upon the occurrence and during the continuance of any Event of Default, but
failure of the Secured Party to comply with any such request at any time shall
not in itself be deemed a failure to exercise reasonable care.
12. DEFAULT. As used herein, the term "Event of Default" shall mean any
one of the following events:
(a) any representation or warranty made by the Debtor or any of
the Subsidiaries in this Agreement or in any writing furnished in
connection with entering in the transactions contemplated hereby shall be
false in any material respect on the date as of which made;
19
(b) the Debtor or any of the Subsidiaries shall fail to observe or
perform any covenant, condition or agreement set forth in this Agreement
and such failure shall continue unremedied for a period of fifteen (15)
days after notice thereof from the Secured Party to the Debtor;
(c) any Event of Default under the Note, Stock Purchase and
Warrant Agreement shall have occurred and be continuing; or
(d) any Event of Default under the Canadian Security Agreement (as
hereinafter defined) shall have occurred and be continuing.
13. REMEDIES
13.1 CERTAIN REMEDIES. If any Event of Default shall have occurred and be
continuing that has not been cured or waived:
(a) The Secured Party may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the State of New
York at the time ("U.C.C.") (whether or not the U.C.C. applies to the
affected Collateral) and also may
(i) require the Debtor and each Subsidiary to, and the
Debtor and each such Subsidiary hereby agrees that it will, at its
expense and upon request of the Secured Party forthwith, assemble
all or part of the Collateral as directed by the Secured Party and
make it available to the Secured Party at a place to be designated
by the Secured Party which is reasonably convenient to both
parties;
(ii) without notice except as specified below, sell, lease,
or otherwise dispose of the Collateral or any part thereof, in its
then condition or following any commercially reasonable
preparation or processing, in one or more parcels at public or
private sale or other proceeding, at any of the Secured Party's
offices, on the premises of the Debtor, at any exchange, broker's
board or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Secured Party may deem
commercially reasonable and by way of one or more contracts (it
being agreed that the sale of any part of the Collateral shall not
exhaust the Secured Party's power of sale, but sales may be made
from time to time, and at any time, until all of the Collateral
has been sold or until the Secured Obligations have been paid and
performed in full). The Debtor and each of the Subsidiaries agrees
that, to the extent notice of sale shall be required by law, at
least ten days' prior notice to the Debtor of the time and place
of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Secured
Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Secured Party
may adjourn any public or private sale from time to time by
announcement at the time and place fixed
20
therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. In case any sale
of all or any part of the Collateral is made on credit or for
future delivery, the Collateral so sold may be retained by the
Secured Party until the sale price is paid in full by the
purchaser or purchasers thereof, but the Secured Party shall not
incur any liability in case any such purchaser or purchasers shall
fail to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may be sold again upon like
notice. The Secured Party may bid for or purchase, free from any
right of redemption, stay or appraisal on the part of the Debtor
or any of the Subsidiaries (all said rights being also hereby
waived and released), the Collateral or any part thereof offered
for sale and may make payment on account thereof by using any
claim then due and payable to it from the Debtor as a credit
against the purchase price, and it may, upon compliance with the
terms of sale, hold, retain and dispose of such property without
further accountability to the Debtor or any of the Subsidiaries
therefor. Each purchaser at any sale shall hold the property sold
absolutely free from any claim or right on the part of the Debtor
or any of the Subsidiaries and each of the Debtor and the
Subsidiaries hereby waives all rights of redemption, stay,
valuation and appraisal Debtor or any such Subsidiary now has or
may at any time in the future have under any rule of law or
statute now existing or hereafter enacted; and
(iii) without limiting the generality of the foregoing,
require the Debtor and each Subsidiary to, and the Debtor and each
such Subsidiary hereby agrees that it will, at its expense and
upon request of the Secured Party forthwith, assign, all right,
title and interest of the Debtor or such Subsidiary in and to the
Trademarks listed on Schedule I to the Trademark Agreement, and
including those trademarks which are added to the same subsequent
hereto, and all registrations and recordings thereof, and all
pending applications therefor, and record, register and file, or
accomplish any other formality with respect to the foregoing, and
execute and deliver any and all agreements, documents, statements,
certificates, instruments of assignment or other papers necessary
or advisable to effect such purpose.
(b) All cash proceeds received by the Secured Party in respect of
any sale of, collection from, or other realization upon all or any part
of the Collateral may, in the discretion of the Secured Party, be held by
the Secured Party as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to the Secured
Party pursuant to Section 13.3) in whole or in part by the Secured Party
against, all or any part of the Secured Obligations in such order as the
Secured Party shall elect. Any surplus of such cash or cash proceeds held
by the Secured Party and remaining after payment in full of all the
Secured Obligations shall be paid over to the Debtor or to whomsoever may
be lawfully entitled to receive such surplus. If the proceeds of the sale
of the Collateral are insufficient to pay all the Secured Obligations,
the Debtor agrees to pay upon demand any deficiency to the Secured Party.
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(c) The Secured Party may
(i) transfer all or any part of the Pledged Property into the name of
the Secured Party or its nominee, with or without disclosing that
such Pledged Property is subject to the lien and security
interest hereunder,
(ii) notify the parties obligated on any of the Collateral to make
payment to the Secured Party of any amount due or to become due
thereunder,
(iii) enforce collection of any of the Collateral by suit or otherwise,
and surrender, release or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not
longer than the original period) any obligations of any nature of
any party with respect thereto,
(iv) endorse any checks, drafts, or other writings in the Debtor's or
a Subsidiary's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
(vi) execute (in the name, place and stead of the Debtor or the
Subsidiaries) endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or any
of the Collateral.
(d) The Secured Party further may:
(i) foreclose or otherwise enforce the Security Interest, in whole or
in part, against the Collateral by any available judicial
procedure;
(ii) enter upon the premises where any of the Collateral not in the
possession of the Secured Party or its agent is located and take
possession thereof and remove the same, with or without judicial
process;
(iii) at its discretion, surrender any policies of insurance on the
Collateral and receive the unearned premiums, and as the agent
and attorney-in-fact for the Debtor and the Subsidiaries to
collect such premiums; and
(iv) at its discretion, retain the Collateral in satisfaction of the
Secured Obligations where the circumstances are such that the
Secured Party is entitled to do so under the Code and otherwise.
13.2 COMPLIANCE WITH RESTRICTIONS. Each of the Debtor and the
Subsidiaries agrees that in any sale of any of the Collateral whenever an
Event of Default shall have occurred and be continuing, the Secured Party is
hereby authorized to comply with any limitation or restriction in connection
with such sale as it may be advised by counsel is necessary in order to avoid
any violation of applicable law (including compliance with such procedures as
may restrict
22
the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to persons who will represent and
agree that they are purchasing for their own account for investment and not
with a view to the distribution or resale of such Collateral), or in order to
obtain any required approval of the sale or of the purchaser by any
governmental regulatory authority or official, and the Debtor and the
Subsidiaries further agree that such compliance shall not result in such sale
being considered or deemed not to have been made in a commercially reasonable
manner, nor shall the Secured Party be liable nor accountable to the Debtor
or the Subsidiaries for any discount allowed by the reason of the fact that
such Collateral is sold in compliance with any such limitation or restriction.
13.3 INDEMNITY AND EXPENSES.
(a) Each of the Debtor and the Subsidiaries agrees to indemnify the
Secured Party from and against any and all claims, losses and liabilities
arising out of or resulting from this Agreement (including, without
limitation, enforcement of this Agreement), except claims, losses or
liabilities resulting from the Secured Party's gross negligence or willful
misconduct.
(b) The Debtor and each of its Subsidiaries will, so long as an
Event of Default shall not have occurred and be continuing, within 15
Business Days after demand and, if an Event of Default has occurred and is
continuing, upon demand, pay to the Secured Party the amount of any and
all reasonable expenses, including the costs of any insurance and
payment of taxes and other charges and the reasonable fees and
disbursements of its counsel and of any experts and agents, which the
Secured Party may incur in connection with
(i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of or the
sale of, collection from, or other realization upon, any
of the Collateral,
(iii) the exercise or enforcement of any of the rights of the
Secured Party hereunder, or
(iv) the failure of the Debtor or any of the Subsidiaries to
perform or observe any of the provisions hereof.
All such expenses, costs, taxes and other charges shall be a part of
the Secured Obligations and shall bear interest at the maximum rate permitted by
applicable law from the date incurred until the date repaid to the Secured
Party. It is agreed, however, that the risk of loss or damage to the Collateral
is on the Debtor and the Subsidiaries prior to the Secured Party's exercise of
any right or remedy described herein, and the Secured Party shall have no
liability whatsoever for failure to obtain or maintain insurance, nor to
determine whether any insurance ever in force is adequate as to amount or as to
the risks insured.
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14. CLOSING CONDITIONS. The Secured Party's obligation to enter
into this Security Agreement and to waive and forbear interest as
contemplated in Section 2.1 hereof is subject to the satisfaction, at or
prior to the date hereof, of the following conditions:
(a) the representations and warranties made by the Debtor and
each of the Subsidiaries in Section 9 hereof shall be true and correct on
and as of the date hereof and the Debtor and each of the Subsidiaries
shall have performed all obligations and conditions herein required to
be performed or observed by it on or prior to the date hereof, and the
Debtor shall have delivered to the Secured Party an Officer's Certificate,
dated the date hereof, to such effect;
(b) the Debtor and each of the Subsidiaries shall have executed
and delivered:
(i) the Assignment and Assumption of Lease, substantially in
the form attached hereto as Exhibit E, with respect to the Leases;
and
(ii) the Trademark Agreement (US), substantially in the form
attached hereto as Exhibit D, with respect to United States
Trademarks;
(c) the Debtor shall have executed and delivered the letter
agreement, substantially in the form attached hereto as Exhibit F, with
respect to the Assignment and Assumption of Lease, referred to above;
(d) the Secured Party shall have received such other documents,
instruments, opinions or assurances, including, without limitation,
corporate resolutions and good standing and incumbency certificates, as
the Secured Party and its counsel may request;
(e) the Debtor and the Secured Party shall have entered into the
Waiver and Amendment No. 6 dated as of October 6, 1999;
(f) Xxxxxxx X. Xxxxxxx, Jephco Holdings Ltd., a corporation
incorporated in the Province of British Columbia, Barnesco Holdings Ltd.,
a corporation incorporated in the Province of British Columbia, the
Secured Party and GE Investment Management Incorporated, a Delaware
corporation, as the general partner of the Secured Party, shall have
entered into the Voting Trust Agreement dated as of July 16, 1999;
(g) the Debtor, Xxxxxxx X. Xxxxxxx and Jephco Holdings Ltd., a
corporation incorporated in the Province of British Columbia, shall have
entered into the Settlement Agreement dated as of June 25, 1999; and
(h) the Debtor and each of its subsidiaries formed under the
Canadian federal laws or laws of any province of Canada (the "Canadian
Subsidiaries") shall have executed and delivered a security agreement
(the "Canadian Security Agreement") substantially in the form of this
Agreement and the other documents required by the Canadian Security
Agreement (such documents, together with the Canadian Security
24
Agreement, herein referred to as the "Canadian Documents") to which the
Debtor and the Canadian Subsidiaries are a party.
15. MISCELLANEOUS PROVISIONS.
15.1 AMENDMENTS, ETC. No amendment to or waiver of any provision of
this Agreement nor consent to any departure by the Debtor or any of the
Subsidiaries herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Secured Party, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
15.2 ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing and, if to the Debtor or any of the
Subsidiaries, delivered or transmitted to it at 000 Xxxxx Xxxxxx, Xxxxx Xxxxx,
Xxxxxxxxx, Xxxxxxx Xxxxxxxx, X0X 0X0, facsimile number (000) 000-0000 and if to
the Secured Party, delivered or transmitted to it, at the address or facsimile
number of the Secured Party specified in the Note, Stock Purchase and Warrant
Agreement, or as to any party at such other address or facsimile number as shall
be designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section. Any notice, if mailed and properly
addressed with postage prepaid or if properly addressed and sent by prepaid
courier service, shall be deemed given when received; any notice, if transmitted
by facsimile, shall be deemed given when transmitted upon receipt of electronic
confirmation of transmission.
15.3 SECTION CAPTIONS. Section captions used in this Agreement are
for convenience of reference only, and shall not affect the construction of this
Agreement.
15.4 SEVERABILITY. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
15.5 COUNTERPARTS, ETC. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute but one and the same agreement.
15.6 RIGHTS CUMULATIVE. All rights and remedies of the Secured Party
hereunder are cumulative of each other and of every other right or remedy which
the Secured Party may otherwise have at law or in equity or under any other
contract or other writing for the enforcement of the Security Interest herein or
in the collection of the Notes or the Secured Obligations, and the exercise of
one or more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights and remedies.
15.7 ASSIGNMENT. The rights, powers and interests held by the
Secured Party hereunder, together with the Collateral, may be transferred and
assigned by the Secured Party,
25
without the prior written consent of the Debtor or any of the Subsidiaries. The
rights of the Debtor and any of the Subsidiaries are not transferable hereunder
without the written consent of the Secured Party.
15.8 NO WAIVER. No failure on the part of the Secured Party to
exercise, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise by the
Secured Party of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
15.9 BINDING EFFECT. This Agreement shall be binding on the Debtor
and the Subsidiaries and the Debtor's and the Subsidiaries' successors and
assigns and shall inure to the benefit of the Secured Party, and the Secured
Party's successors and assigns.
15.10 TERMINATION. This Agreement and the Security Interest in the
Collateral will terminate upon the earlier to occur (i) satisfaction and payment
in full of all of the Secured Obligations by extinguishment thereof but not by
renewal, modification or extension thereof or (ii) fifteen (15) days following
the request of the Debtor received on or at any time after the third anniversary
of the date of this Agreement; provided, however, that (A) the Debtor is, on the
date of the termination, and has been, at all times during the twelve (12)
months preceding such date, in compliance with its covenants contained in
Section 5 of the Notes, Stock Purchase and Warrant Agreement, (B) on the date of
the termination there exists no Default or "Event of Default" (as defined in the
Note, Stock Purchase and Warrant Agreement) or Event of Default hereunder, and
(C) there is no litigation in excess of $200,000 existing, pending or threatened
against the Debtor or any of its Subsidiaries on the date of the termination.
15.11 AGREEMENT AS FINANCING STATEMENT. The Secured Party shall have
the right at any time to execute and file this Agreement as a financing
statement, but the failure of the Secured Party to do so shall not impair the
validity or enforceability of this Agreement.
15.12 NUMBER AND GENDER OF WORDS. Whenever herein the singular is
used, the same shall include the plural where appropriate, and the words of any
gender shall include each other where appropriate.
15.13 U.C.C. DEFINITIONS. Unless otherwise defined herein or the
context otherwise requires, terms for which meanings are provided in the U.C.C.
are used in this Agreement, including the recitals, with such meanings.
15.14 GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD FOR CONFLICT OF LAWS PRINCIPLES.
15.15 FORUM SELECTION AND CONSENT TO JURISDICTION. THE DEBTOR AND
EACH OF THE SUBSIDIARIES IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
26
IN THE CITY OF VANCOUVER. THE DEBTOR AND EACH OF THE SUBSIDIARIES HEREBY
CONSENTS TO THE NONEXCLUSIVE JURISDICTION IN XXX XXXXXX XX XXX XXXXX XX XXX XXXX
AND IN THE FEDERAL COURTS IN THE SOUTHERN DISTRICT OF THE STATE OF NEW YORK AND
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM
THAT ANY SUCH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO
THE EXTENT THAT THE DEBTOR OR ANY OF THE SUBSIDIARIES HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
DEBTOR AND EACH OF THE SUBSIDIARIES HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT.
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the day, month and year first above written.
DEBTOR:
ELEPHANT & CASTLE GROUP INC.
By: /s/ Xxxx Xxxxxx
-----------------------------
Name: Xxxx Xxxxxx
Title: President and CEO
SUBSIDIARIES:
ELEPHANT & CASTLE, INC.
By: /s/ Xxxx Xxxxxx
-----------------------------
Name: Xxxx Xxxxxx
Title: President and CEO
ALAMO GRILL, INC.
By: /s/ Xxxx Xxxxxx
-----------------------------
Name: Xxxx Xxxxxx
Title: President and CEO
ELEPHANT AND CASTLE OF PENNSYLVANIA, INC.
By: /s/ Xxxx Xxxxxx
-----------------------------
Name: Xxxx Xxxxxx
Title: President and CEO
E & C PUB, INC.
By: /s/ Xxxx Xxxxxx
-----------------------------
Name: Xxxx Xxxxxx
Title: President and CEO
28
MASSACHUSETTS ELEPHANT & CASTLE GROUP,
INC.
By: /s/ Xxxx Xxxxxx
-----------------------------
Name: Xxxx Xxxxxx
Title: President and CEO
ELEPHANT & Castle International, Inc.
By: /s/ Xxxx Xxxxxx
-----------------------------
Name: Xxxx Xxxxxx
Title: President and CEO
SECURED PARTY:
GE INVESTMENT PRIVATE PARTNERS II, A
LIMITED PARTNERSHIP
By: GE Investment Management
Incorporated, its General Partner
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President
29
