SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is dated as of October 4, 2000,
between TAG-IT PACIFIC, INC., a Delaware corporation ("Debtor"), and XXXX X.
XXXX, an individual ("Secured Party").
R E C I T A L S
A. SECURED PROMISSORY NOTE. Debtor and Secured Party are parties to a
certain a Convertible Secured Subordinated Promissory Note, dated October 4,
2000 (the "Note"), in favor of Secured Party in the face principal amount of
$500,000. The Note evidences a loan made by Secured Party to Debtor in the
amount of $500,000.
B. THIS AGREEMENT. Secured Party has agreed to lend Debtor the amount
evidenced by the Note conditioned upon Debtor entering into this Security
Agreement for the purpose of securing Debtor's obligations under the Note.
NOW, THEREFORE, for valuable consideration, the receipt, adequacy and legal
sufficiency of which Debtor hereby acknowledges, Debtor hereby agrees with
Secured Party for its benefit as follows:
A G R E E M E N T
1. GRANT OF SECURITY INTEREST. Debtor hereby assigns, transfers, sets over,
conveys, grants and delivers to Secured Party and grants to Secured Party a
security interest and lien in and to (such security interest and lien is
referred to herein as the "Security Interest") all of Debtor's right, title and
interest in and to the following described property, whether now in existence or
hereafter created, and whether now owned or hereafter acquired (the
"Collateral"): (a) all inventory, goods and merchandise in all its forms,
including raw materials, work in progress and finished goods, whether held for
sale or lease, wherever located, now owned or hereafter acquired; (b) all
accounts, contract rights, chattel paper, instruments, general intangibles for
money due or to become due, whether or not earned by performance, and other
obligations of any kind, now owned or hereafter acquired, whether or not arising
out of or in connection with the sale, distribution, lease, license, or other
disposition of goods or the rendering of services, together with all rights now
or hereafter existing in and to all security agreements, leases, and other
contracts securing or otherwise relating to any such accounts, contract rights,
chattel paper, instruments, general intangibles or obligations; (c) all
equipment in all its forms, wherever located, now or hereafter existing, and all
fixtures and all parts thereof and all accessions thereto; (d) all other general
intangibles, whether now owned or hereafter acquired, including, without
limitation, all patents (and all applications, registrations and renewals),
trademarks and service marks (and all applications, registrations and renewals),
trade names, trade secrets, trade styles, copyrights (and all applications,
registrations and renewals), maskwork rights, source codes, licenses,
franchises, goodwill, customer lists, deposit accounts, tax refunds and claims,
rights in litigation presently pending or hereafter pending for any cause or
claim and all judgments now or hereafter arising therefrom; and (e) all
accessions thereto, products thereof and proceeds of any and all of the
foregoing, including, without limitation, proceeds which constitute property of
the types described in (a) through (d) above, and all payments under insurance
payable by reason of loss or damage to or otherwise with respect to any of the
Collateral.
2. OBLIGATIONS SECURED. The Security Interest secures the (a) the full
payment and performance, whether direct or indirect, absolute or contingent, or
now or hereafter due or arising, of all obligations and liabilities of Debtor,
whether for principal, interest, fees, costs, expenses or otherwise, under the
Note, including any extension, modification, substitution, amendment or renewal
thereof; and (b) the payment of all expenses incurred by Secured Party in the
enforcement of its rights and remedies hereunder (collectively referred to
herein as the "Obligations").
3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor covenants
with, and represents and warrants to, Secured Party as follows:
3.1 Debtor is a corporation duly incorporated and validly existing and in
good standing under the laws of the State of California and its chief place of
business and the office where Debtor keeps its records concerning the Collateral
is located at 0000 X. Xxxx Xxxxxx Xxx Xxxxxxx XX 00000.
3.2 Debtor has full power, authority and legal right, and all requisite
governmental licenses, permits and franchises to own the Collateral and to grant
a security interest in all the Collateral.
3.3 The execution and delivery of the Note and this Agreement by Debtor,
and the grant of the security interest granted hereby, have been duly authorized
by all necessary corporate action; and this Agreement has been validly executed
and delivered by Debtor and is a legal, valid and binding obligation of Debtor
enforceable in accordance with its terms.
3.4 Debtor has not granted, and Debtor shall not grant, any security
interest, lien or pledge in or to any of the Collateral to any other Person
whatsoever the effect of which would be to supersede, cause to be subordinated,
take priority over, or participate on an even priority with, the Security
Interest, excepting only such security interests, if any, as are identified in
EXHIBIT A hereto ("Permitted Liens").
3.5 The provisions of this Agreement are effective to grant to Secured
Party a valid and perfected security interest in the Collateral, second in
priority to any security interests and liens held by Sanwa Bank California,
enforceable against Debtor in all of Debtor's right, title and interest in and
to the Collateral, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been made or taken or are being
made or taken concurrently herewith.
3.6 Debtor shall execute, acknowledge and deliver to Secured Party
concurrently with the execution of this Agreement, and at such time or times
thereafter as Secured Party may in its reasonable discretion under the
circumstances require, all such notices, financing statements, continuation
statements, security agreements, assignments, transfers and other documents and
instruments as Secured Party shall require to further evidence, perfect, effect,
protect and/or enforce any or all of Secured Party's rights as a secured party
hereunder. Debtor hereby irrevocably appoints and authorizes Secured Party, as
Debtor's attorney-in-fact (Debtor hereby acknowledging that such appointment is
coupled with an interest) to take all steps in Secured Party's name and/or in
the name of Debtor but for Secured Party's use and benefit, as may be reasonably
required under the circumstances for the purpose of further evidencing,
perfecting, effecting, protecting and/or
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enforcing any or all of Secured Party's rights as a secured party hereunder, in
the event that Debtor fails to take any such steps within ten days of any
written request by Secured Party to do so.
3.7 Debtor shall not change its chief place of business and the office
where Debtor keeps its records concerning the Collateral and shall not change
its name or conduct its business under a name other than its present name unless
it (i) gives Secured Party notice of its intent to change such location or its
name or to conduct its business under another name at least thirty days before
it does so, and (ii) shall have simultaneously delivered to Secured Party all
such new, appropriate and executed Uniform Commercial Code financing statements
and other documents and instruments as Secured Party shall request in order for
Secured Party to continue the perfection and relative priority of the security
interests granted hereunder.
3.8 Debtor shall furnish to Secured Party, in form satisfactory to Secured
Party, all such information in connection with the Collateral as Secured Party
may reasonably request, including, without limitation, all books, records,
contracts, statements and all other data of every kind relating to the
Collateral.
4. COLLECTIONS, ETC. If Debtor fails to make any payment or to take any
action that is an Obligation secured hereunder, or fails to make any other
payment or take any other action reasonably required under the circumstances to
preserve the priority and value of Secured Party's rights under this Agreement,
then Secured Party may (but shall not be obligated to) make such payments and
take all such actions as Secured Party in its reasonable discretion under the
circumstances deems necessary to protect its security interest in the
Collateral, and Secured Party is hereby authorized (without limiting the general
nature of the authority hereinabove conferred), if Debtor has so failed to make
payment or take action within three business days (or such lesser time as
Secured Party deems necessary under the circumstances) after Secured Party gives
Debtor notice that such payment or action is required and has not been made or
taken, to pay, purchase, contest or compromise any security interest or lien
which in Secured Party's reasonable discretion under the circumstances appears
to be prior or superior to, or of equal priority with, the Security Interest, or
to pay, purchase, contest or compromise any security interest or lien which in
Secured Party's reasonable discretion under the circumstances appears to give
its holder, or any other Person, any right the exercise of which could adversely
affect the priority and/or value of the rights of Secured Party under this
Agreement.
5. DUTY TO HOLD IN TRUST. Upon the occurrence of any Event of Default,
Debtor shall, subject to the rights, if any, of the holders of Permitted Liens,
upon receipt by it of any revenue, income or other sums in which a security
interest is granted to Secured Party under this Agreement, or of any check,
draft, note, trade acceptance or other instrument evidencing an obligation to
pay any such sum, hold the same in trust for Secured Party, in precisely the
form received, and shall forthwith endorse, transfer and deliver any such sums
or instruments, or both, to Secured Party for application to the satisfaction of
the Obligations.
6. EVENTS OF DEFAULT. As used herein, the term "Event of Default" shall
mean the occurrence of any of the following events:
6.1 An Event of Default (as defined in the Note) shall have occurred under
the Note or Debtor shall fail to fully pay, satisfy, perform or comply with any
other Obligation in a due and timely manner.
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6.2 Debtor shall terminate, disaffirm, reject or repudiate, or attempt to
terminate, disaffirm, reject or repudiate, the Note, or its obligations
thereunder.
6.3 Any of Debtor's representations and warranties set forth in this
Agreement shall prove to have been false when made, or Debtor shall fail to
timely, fully and completely perform and comply with each of Debtor's covenants
made under this Agreement.
7. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default,
Secured Party shall, subject to the rights, if any, of the holders of Permitted
Liens, have all of the rights and remedies of a secured party under the Uniform
Commercial Code of the State of California (the "CUCC"), and all other rights
and remedies under all other applicable laws and, without limiting the
generality of the foregoing, Secured Party may in its sole discretion:
7.1 Enter upon the premises where any of the Collateral may be, and take
possession of the Collateral, and may demand and receive such possession from
any person who has possession thereof, and Secured Party may take such measures
as it may deem reasonably necessary or proper for the care or protection
thereof, including the right to remove, keep and/or store all or any portion of
the Collateral or put a custodian in charge thereof; and/or
7.2 With or without taking possession, sell or cause to be sold, at any
time, and from time to time, as Secured Party may determine, any of the
Collateral in its entirety or in parcels, either at public or private sale, at
such price and on such terms as Secured Party may reasonably deem best. Debtor
agrees that to the extent notice of sale is required by law, at least ten days'
notice to 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 notice. Secured
Party may be the purchaser of any or all of the Collateral at any such sale and
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
sale, to use and apply any of the Obligations as a credit on account of the
purchase price of any Collateral payable by Secured Party at such sale. Debtor
shall not have any right of redemption subsequent to any such sale, and Debtor
hereby expressly waives any such right. Secured Party shall apply the proceeds
of any such sale or sales first to the expenses incident thereto, including
reasonable attorneys' fees, and next to the full and complete satisfaction of
all of the Obligations. Any purchaser at any such sale or sales (including
without limitation Secured Party) shall thereafter hold any of the Collateral so
purchased absolutely free from any claim or right of any nature whatsoever by
any other person or entity (including, without limitation, Debtor), except for
the claims and rights, if any, of the holders of Permitted Liens that have
priority over the lien of this Agreement (and then only to the extent of such
priority and only to the extent of that Collateral to which such priority
applies); and/or
7.3 Institute any proceeding at law, in equity, or otherwise for the
foreclosure of the Collateral or any part thereof. To the extent permitted by
law, any sale thereof shall be held in the same manner, with the same effect and
subject to the same terms and conditions as specified in paragraph (b) above.
Secured Party may, in its sole discretion, from time to time, at any time and in
any order, choose to institute a proceeding for foreclosure on some portion of
the Collateral and a sale under paragraph (b) on other portions of the
Collateral, without being deemed to have made an election of remedies or to have
waived any other rights or remedies, and without in any other way limiting any
remedies or rights which it may otherwise have; and/or
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7.4 In its name or in the name of Debtor, or otherwise, demand, xxx for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for or make any compromise or settlement deemed
desirable with respect to, any of the Collateral, but shall be under no
obligation to do so, and Secured Party may extend the time of payment, arrange
for payment in installments, or otherwise modify the terms of, or release, any
of the Collateral, without thereby incurring responsibility to, or discharging
or otherwise affecting any liability of, Debtor; and/or
7.5 Petition any court for the appointment of a receiver for any part of or
all of the Collateral, for the purpose of preserving, protecting and retaining
the Collateral and the value of the Collateral, and for the purpose of
facilitating Secured Party's exercise of any other of Secured Party's rights and
remedies under this Agreement, the CUCC and/or any other applicable law.
8. SECURITY INTEREST REMAINS IN FULL FORCE AND EFFECT. All rights of
Secured Party and the Security Interest hereunder, and all obligations of Debtor
hereunder, shall be and remain in full force and effect irrespective of any
change in the time, manner or place of payment or performance of, or in any
other term of, all or any of the Obligations or any obligation the failure of
performance of which is an Event of Default hereunder, or any other amendment or
waiver of or any consent to any departure from the Note or any other document
executed in connection herewith, including any agreement that guaranteed the
obligations of Debtor under the Note.
9. NO EXTINGUISHMENT, RELEASE, MITIGATION, DIMINISHMENT OR REDUCTION OF ANY
CLAIM. Neither Secured Party's acceptance of this Agreement and the security
interests granted hereunder, nor any exercise by Secured Party of any of its
rights hereunder, shall extinguish, release, mitigate, diminish or reduce in any
manner whatsoever any claim, cause of action or other right or remedy Secured
Party has, claims, or may at the date hereof or hereafter have or claim, against
Debtor or any other person.
10. DUTIES OF SECURED PARTY. The powers conferred on Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Provided that Secured Party
complies with its obligations, if any, of section 9-207 of the CUCC, Secured
Party shall not otherwise be liable or responsible in any way or manner for (a)
the safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion or from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever.
11. INDEMNIFICATION. Debtor shall, at all times, defend and indemnify and
hold Secured Party harmless from and against any and all liabilities, claims,
demands, causes of action, losses, damages, settlements, judgments or recoveries
resulting from any breach of the Obligations, and from any suit or proceeding of
any kind or nature whatsoever against Secured Party arising from or connected
with the transactions contemplated by this Agreement or any of the documents,
instruments or agreements to be executed pursuant hereto or any of the rights
and properties assigned to Secured Party hereunder.
12. INTEREST; DAMAGES; EXPENSES. Debtor shall pay to Secured Party (a)
interest, computed at an interest rate equal to 10% per annum, as the same may
vary from time to time, on all amounts of damages incurred by Secured Party
arising out of any Event of Default hereunder; (b) the amounts of all damages
incurred by Secured Party arising out of the breach of any covenant
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hereunder or the failure of any representation or warranty hereunder; and (c)
all fees, costs and expenses of any nature whatsoever, including reasonable
attorneys' fees, of or arising out of the enforcement of any provisions of this
Agreement after the occurrence of an Event of Default hereunder; and the due and
timely payment of all such interest, damages, fees, costs and expenses shall be
an Obligation secured hereunder.
13. NO DELAY. No delay on the part of Secured Party in exercising any power
or right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right hereunder preclude other or further
exercise thereof or the exercise of any other power or right.
14. CONTINUING ASSIGNMENT AND SECURITY INTEREST; TERMINATION; RELEASE. This
Agreement shall create a continuing assignment of and security interest in the
Collateral and shall remain in full force and effect until indefeasible payment
or other performance in full of each and all of the Obligations (the
"Termination Date"). Upon the occurrence of the Termination Date, the security
interest in the Collateral created under this Agreement (and this Agreement in
its entirety) shall automatically terminate, whereupon Secured Party shall
promptly execute such documents and instruments as Debtor shall reasonably
require to evidence such termination. Notwithstanding any such termination, the
Secured Party's rights hereunder shall be reinstated and revived, and the
enforceability of this Security Agreement shall continue in full force and
effect if any payment or payments made to Secured Party on account of the
Obligations are subsequently invalidated, declared to be fraudulent or
preferential, set aside or otherwise required to be repaid (in whole or in part)
as a result of any bankruptcy or insolvency proceeding or any other legal
action.
15. GENERAL.
15.1 CONSENT TO JURISDICTION. Any legal action, suit or proceeding against
Debtor or Secured Party arising out of or relating to this Agreement shall be
initiated in a federal court located in the City and County of Los Angeles,
State of California (or if there shall not be federal jurisdiction in such
court, a state court located within the City and County of Los Angeles, State of
California) and, by execution and delivery of this Agreement, each of Debtor and
Secured Party irrevocably accepts the exclusive jurisdiction of the
aforementioned courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement.
15.2 NOTICES. All notices, demands or other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered in
person, or by facsimile transmission with confirmation of receipt, or by
overnight courier:
(i) If to Secured Party, to:
Xxxx X. Xxxx
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
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(ii) If to Debtor, to:
Tag-It Pacific, Inc.
Xxxxxx Xxxxxxx
Chief Financial Xxxxxx
0000 X. Xxxx Xxxxxx
Xxx Xxxxxxx XX 00000
or such other addresses as the parties may have furnished to each other pursuant
to the provisions of this Subsection (b). Any such notice, demand or other
communication shall be deemed to have been given on the earlier of (x) the date
actually delivered to the address to which it is directed or (y) the date sent
(if sent by facsimile).
15.3 REMEDIES CUMULATIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy
which is otherwise available at law, in equity, by statute or otherwise, and
each and every other remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or otherwise. The election of any one or more
of such remedies by Secured Party shall not constitute a waiver by Secured Party
of the right to pursue any other available remedies.
15.4 TRANSFEREES, SUCCESSORS AND ASSIGNS. All terms and provisions of this
Agreement shall be binding upon Debtor and its successors in interest and inure
to the benefit of Secured Party and the transferees, successors and assigns of
Secured Party.
15.5 TERMS. Unless otherwise defined herein, terms used in Division 9 of
the CUCC are used herein as therein defined.
15.6 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, excluding (to the fullest
extent a California court would permit) any rule of law that would cause
application of the laws of any jurisdiction other than the State of California.
15.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
15.8 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to make such provision valid and
enforceable under applicable law, but if any provision thereof shall be or
become prohibited or invalid under any applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity only, without
thereby invalidating the remainder of such provision or of any of the remaining
provisions thereof.
15.9 HEADINGS. Section or other headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation thereof.
15.10 NO WAIVER. No breach of any provision of this Agreement may be waived
unless in writing and the waiver of any one breach shall not be deemed to be a
waiver of any other breach of the same or any other provision thereof.
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15.11 AMENDMENT. This Agreement may be amended only by a written agreement
executed by all of the parties thereto.
15.12 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural as the identity
of the Person may require.
15.13 BENEFIT OF AGREEMENT. This Agreement is entered into for the express
benefit of the parties thereto, their successors and permitted assigns and,
except as otherwise expressly set forth in this Agreement, is not intended, and
shall not be deemed, to create in any other Person any rights or interest
whatsoever, including, without limitation, any right to enforce the terms
hereof.
15.14 PAYMENTS. All amounts payable under this Agreement shall be paid in
U.S. dollars.
15.15 ENTIRE AGREEMENT. This Agreement embodies the entire understanding of
the parties, and there are no further or other agreements or understandings,
written or oral, in effect between the parties hereto relating to the subject
matter hereof, unless expressly referred to by reference herein or executed
concurrently herewith.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
TAG-IT PACIFIC, INC.,
a Delaware Corporation
By: /S/ XXXXX XXXXXXX
-----------------------------
Its: CFO
-------------------------
ACCEPTED AND AGREED TO:
/S/ XXXX X. XXXX
--------------------------------
XXXX X. XXXX
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EXHIBIT A
SCHEDULE OF LIENS
1. Senior Lien of Sanwa Bank California in the Collateral.
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