[THIS DOCUMENT IS A COPY OF THE CURRENT REPORT ON FORM 8-K DATED MARCH 16, 1998
FILED ON APRIL 1, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION]
SECURITY AGREEMENT
DATE: Effective March 6, 1998
BETWEEN: KENCO PRODUCTS, INC., a Delaware corporation
00000 Xxxxxx Xxxx 0
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx
(the "Debtor")
AND: KENCO XXXXXXXX, INC., a Delaware corporation
c/o Aptek Xxxxxxxx, Inc.
000 X.X. 00xx Xxxxxx
Xxxxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, CFO
(the "Secured Party")
1. Grant of Security Interest. For valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and to secure payment
and performance of the Obligations described in Xxxxxxx 0, Xxxxxx hereby grants
to Secured Party, a security interest in and to the following (collectively, the
"Collateral"):
(a) all of Debtor's inventory (including finished inventory,
work-in-process, and raw materials), equipment, machinery, furniture and
fixtures, vehicles, supplies, all accounts (including all rights under contracts
to sell or lease goods or equipment or to render services, whether or not earned
by performance, which are not evidenced by an instrument or chattel paper),
contract rights, drafts, acceptances, notes, securities and other instruments,
all chattel paper, documents, records, computer software and data general
intangibles and other forms of receivables, and all guaranties and securities
therefor, including without limitation the property described below, now owned
or hereafter acquired by Debtor, as well as the products and proceeds thereof:
(i) any and all patents, copyrights, registered and
common law trademarks, trade names, service marks, service names, slogans,
assumed names and other similar rights owned by Debtor or which it has the
right to use in the conduct of its business, including, without
limitation, any rights to Debtor's trade names;
(ii) all claims, causes of action, and other rights of
Debtor that relate in any way to the ownership, operation, use, or lease
of any of the Collateral;
(iii) all rents, income, receipts, revenues, issues,
profits and other income, liens, and security interests of any nature to
which Debtor may now be or shall hereafter become entitled arising from
the Collateral; and
(b) all equipment, fixtures, and goods of Debtor, including
additional equipment, fixtures, and goods acquired hereafter, together with all
accessions, parts, additions, substitutions, and replacements affixed thereto,
as well as the products and proceeds thereof.
2. Obligations Secured. This Agreement is given to secure (a) payment of
all indebtedness now or hereafter owing to Secured Party by Debtor and
performance of the covenants, notes and agreements between the Debtor and
Secured Party arising under the Asset Purchase Agreement, Warehouse Agreement
and Lease, each dated March 6, 1998 and the promissory note to be entered into
in connection with the Warehouse Agreement (the "Acquisition Documents"); (b)
any and all renewals and extensions of the any of the Acquisition Documents,
whether or not evidenced by new or additional instruments; (c) performance of
the covenants and provisions in all other agreements, certificates, guaranties,
or other documents executed by Debtor in connection with the Acquisition
Documents; (d) full performance or repayment of any and all obligations of
Debtor to Secured Party resulting from advances, either direct or indirect, to
Debtor by Secured Party and any other obligations incurred, either direct or
indirect, for the benefit of Debtor by Secured Party, and (e) payment of all
costs, expenses and reasonable attorney fees at trial, on appeal, or in any
bankruptcy proceeding incurred by Secured Party in enforcing the debts,
obligations and liabilities of Debtor and in preserving, handling, protecting,
collecting, foreclosing, disposing and otherwise realizing on any and all
security therefor (collectively, the "Obligations").
Notwithstanding any provision contained herein as to the rights of Secured
Party hereunder, Secured Party shall take no action, including, without
limitation, enforcement of any of its rights with respect to the Collateral that
would be in conflict with or contrary to provisions of the Subordination
Agreement dated of even date herewith among Debtor, Secured Party and Fidelity
Funding, Inc. (the "Subordination Agreement").
3. Warranties, Representations and Covenants of Debtor. Debtor
represents, warrants and covenants as follows:
(a) Except for Permitted Liens (as defined below): (i) It will keep
its portion of the Collateral free and clear of any lien, encumbrance or
security interest; (ii) It will not mortgage, pledge, grant, or permit to exist
a security interest or lien upon any of the Collateral, now owned or hereafter
acquired by it; (iii) It is, and as to portions of the Collateral it acquires
after the date hereof, it will be, the sole owner of the Collateral, free from
any adverse lien, security interest, or adverse claim of any kind whatsoever,
except for claims of persons claiming solely by, through or under Secured Party.
"Permitted Liens" means (i) liens arising by operation of law for taxes,
assessments or governmental charges not yet due; (ii) statutory liens of
mechanics, materialmen, shippers, warehousemen, carriers and other similar
persons for services or materials arising in the ordinary course of business for
which payment is not yet due; (iii) non-consensual liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
liens for taxes or statutory liens of mechanics, materialmen, shippers,
warehousemen, carriers and other similar persons for services or materials which
are due but are being contested in good faith and by appropriate and lawful
proceedings promptly initiated and diligently conducted and for which reserves
satisfactory to Secured Party have been established; (v) liens in favor of
Secured Party; and (vi) liens in favor of Fidelity Funding, Inc. No financing
statement or other instrument affecting the Collateral, or rights therein,
bearing the signature of, or otherwise authorized by, Debtor is on file in any
public filing office, other than those giving rise to Permitted Liens. Debtor
will notify Secured Party of any claim or demand against the Collateral and will
defend the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein, other than those persons whose claims
or demands are based on Permitted Liens, and other than those persons claiming
solely by, through or under Secured Party.
(b) Debtor's equipment and inventory are located in the States of
Indiana and Oregon. Debtor will notify Secured Party in the event it opens
places of business in other states or comes to have Collateral located in other
states. The Collateral is not used or bought for personal, family or household
purposes.
(c) Debtor's principal place of business is in Middlebury, Indiana.
Debtor will not move its principal place of business outside its present
location. Debtor will not do business under any assumed business names except
those of which Debtor has notified Secured Party in writing of the adoption or
change of any assumed business name, and will, upon request of Secured Party,
execute any additional financing statements or other certificates necessary to
reflect the adoption or change in such name or names.
(d) Debtor will not sell, lease, transfer or otherwise dispose of
any interest in any Collateral (other than in the ordinary course of business)
without the prior written consent of Secured Party.
(e) Debtor will keep the Collateral in good condition and repair,
and will not misuse, abuse, destroy, or allow to deteriorate or waste the
Collateral or any part thereof, except for ordinary wear and tear of its normal
and excepted use in Debtor's business. Debtor will not use any of the Collateral
in violation or any governmental law, rule, or regulation. Secured Party or its
designee may examine and inspect the Collateral at all reasonable times,
wherever located, and for that purpose is authorized by Debtor to enter any
place or places where any part of the Collateral may be.
(f) Debtor will keep the Collateral fully insured against loss or
damage by fire, theft, collision, and such other hazards.
(g) Debtor will pay promptly when due all taxes, license fees, and
assessments on the Collateral. Debtor may withhold payment of any tax, license
fee, or assessment in connection with a good faith dispute over the obligation
to pay, so long as Secured Party's interest in the Collateral is not
jeopardized. If a lien arises or is filed as a result of nonpayment, Debtor
shall within 20 days after the lien arises or, if a lien is filed, within 15
days after Debtor has notice of the filing, secure the discharge of the lien or
deposit with Secured Party cash or a sufficient corporate surety bond or other
security satisfactory to Secured Party in an amount sufficient to discharge the
lien plus any costs, attorney fees, or other charges that could accrue as a
result of a foreclosure or sale under the lien.
(h) Debtor will promptly execute any document, alone or with Secured
Party, procure any document, give any notices, do all other acts, and pay all
costs associated with the foregoing that Secured Party determines are necessary
to protect the Collateral against rights, claims or interest of third parties
(except those arising from Permitted Liens or those claiming solely by, through
or under Secured Party) and will otherwise preserve the Collateral as security
hereunder.
(i) Debtor will not assert against Secured Party any claim or
defense which Debtor may have against any other person with respect to the
Collateral or any part thereof.
(j) Until foreclosure, Debtor will indemnify, defend and hold
Secured Party harmless from and against any loss, liability, damage, cost and
expense whatsoever arising from the use, operation, ownership or possession of
the Collateral or any part thereof.
(k) Debtor shall promptly replace any material loss, theft, damage
or destruction of any Collateral; provided that if all insurance proceeds
covering such loss, theft, damage or destruction are promptly applied to the
reduction of indebtedness under the Kenco Note, then such failure to replace
shall not constitute an Event of Default.
(l) Debtor promptly will deliver to Secured Party all appropriate
financing statements and such other documents or instruments as Secured Party
may reasonably request to perfect the Security Interest created hereby which
will be subordinate only to the security interests granted to Fidelity Funding,
Inc.
4. Preservation of Collateral by Secured Party. If Debtor should fail to
make any payment, perform or observe any other covenant, obligation or
agreement, or take any other action which Debtor is obligated hereunder to make,
perform, observe, take or do, then Secured Party may, at Secured Party's sole
discretion, without notice to or demand upon Debtor and without releasing Debtor
from any obligation, covenant, or agreement hereof, make, perform, observe, take
or do the same in such manner and to such extent as Secured Party may deem
necessary to protect the security interest in or the value of the Collateral.
Furthermore, Secured Party, in its sole discretion, may commence, appear or
otherwise participate in any action or proceeding purporting to affect Secured
Party's security interest in or the value or ownership of the Collateral. All
sums expended or incurred by Secured Party pursuant to the foregoing
authorizations (including reasonable attorney fees) shall be secured hereby and
shall be due and payable within ten days after demand and shall bear interest
from the date of expenditure until the date of reimbursement at 15% per annum.
5. Use of Collateral by Debtor. So long as no Event of Default shall have
occurred, Debtor may have possession of the Collateral (other than instruments
delivered to Secured Party pursuant to this Agreement) and may use the
Collateral in any lawful manner not inconsistent with any other agreement or
policy of insurance which affects the Collateral. Secured Party acknowledges and
agrees that any buyer in the ordinary course of Debtor's business takes free of
Secured Party's security interest.
6. Events of Default. TIME IS OF THE ESSENCE. Any of the following
shall constitute an event of default under this Agreement ("Event of
Default"):
(a) An Event of Default shall occur under any of the Acquisition
Documents;
(b) Secured Party receives any evidence that any Debtor has taken
any action that is contrary to its grant to Secured Party of a security interest
in the Collateral, and such default is not remedied within 20 days after notice
to Debtor by Secured Party;
(c) Debtor fails to perform or observe any covenant, agreement,
term, or promise contained herein or in any other agreement with Secured Party
to which Debtor is a party, and such performance or observance is not remedied
within 20 days from the earlier of the time an officer or director of Debtor
obtains actual acknowledge thereof or notice from Secured Party or the Bank;
(d) Any representation, warranty, or statement made herein proves to
have been false or misleading in any material respect as of the time made; or
(e) Material loss, theft, destruction or disappearance of, or damage
to, the Collateral, and such Collateral is not replaced within 20 days of such
event (or such additional time as may be necessary to replace such Collateral by
the exercise of reasonable diligence) or all insurance proceeds covering such
loss, theft, destruction or disappearance are not promptly applied to the
reduction of any indebtedness to Fidelity Funding, Inc. or Obligations to
Secured Party, as appropriate.
7. Remedies Upon Default. Subject in all cases to the Subordination
Agreement.
(a) Upon the occurrence of any Event of Default, Secured Party may,
at its option and in addition to any other remedies provided by law, in this
Agreement or in any other agreement with Secured Party to which Debtor is a
party, do any one or more of the following, successively or concurrently:
(i) Declare all indebtedness secured hereby to be
immediately due and payable.
(ii) Either personally, or by means of a court appointed
receiver, take possession of all or any of the Collateral and exclude
therefrom Debtor and all others claiming under Debtor, and thereafter
hold, store, use, operate, manage, lease, maintain and control the
Collateral, make repairs, replacements, alterations, additions and
improvements to the Collateral and exercise all rights and powers of
Debtor with respect to the Collateral or any part thereof. Debtor hereby
expressly waive any requirement that Secured Party or the receiver post a
bond upon such appointment. If Secured Party demands or attempts to take
possession of the Collateral in the exercise of any rights under this
Agreement, Debtor shall turn over promptly and deliver complete possession
thereof to Secured Party.
(iii) Without notice to or demand upon Debtor, make such
payments and do such acts as Secured Party may deem necessary to protect
Secured Party's security interest in the Collateral, including without
limitation, (1) paying, purchasing, contesting or compromising any
encumbrance, charge or lien which is prior to or superior to the security
interest granted hereunder, and in exercising any such powers or authority
to pay all expenses incurred in connection therewith, and (2) in
exercising its rights under this Section 7, collect, compromise, endorse,
sell, or otherwise deal with Collateral or proceeds thereof in its own
name or that of Debtor, with full power to endorse any certificates of
title.
(iv) Require Debtor to deliver to Secured Party all original
documents, drafts, acceptances, notes, securities, other instruments and
chattel paper. If any of the chattel paper covers property that is covered
by certificates of title, then Debtor shall also deliver such
certificates.
(v) Require Debtor to assemble the Collateral, or any portion
thereof, at a place designated by Secured Party and reasonably convenient
to both parties, and promptly to deliver such Collateral to Secured Party
or its designee. Secured Party, and its agents and representatives and
designees, shall have the right to enter upon any or all of Debtor's
premises and property to exercise Secured Party's rights thereunder.
(vi) Notify account debtors or lessees of any Collateral that
the Collateral has been assigned to Secured Party and the proceeds, lease
payments, or other payments thereon shall be paid to Secured Party. Upon
request of Secured Party, Debtor will also promptly notify account debtors
and will indicate on all xxxxxxxx to account debtors that the accounts are
payable to Secured Party, and will promptly notify lessees of Collateral
that all lease payments are payable to Secured Party. Any and all proceeds
thereafter received by Debtor shall be turned over to Secured Party daily
in the exact form in which they are received.
(vii) Foreclose on the Collateral as herein provided or in any
manner permitted by law, and exercise any and all lawful rights and
remedies conferred upon Secured Party by Debtor in connection with the
indebtedness secured hereby, either concurrently or in such order as
Secured Party may determine; and sell or cause to be sold in such order as
Secured Party may determine, as a whole or in such parcels as Secured
Party may determine, the Collateral without affecting in any way other
rights or remedies to which Secured Party may be entitled.
(viii) Sell, lease or otherwise dispose of the Collateral
at public sale, without having the Collateral at the place of sale, and
upon terms and in such manner as Secured Party may determine. Secured
Party or Debtor may be a purchaser at any sale.
(ix) Exercise any remedies of a secured party permissible
under the Uniform Commercial Code any state in which Collateral is
located.
(b) Unless the Collateral is perishable or threatens to decline
rapidly in value or is of a type customarily sold on a recognized market,
Secured Party shall give Debtor at least ten days' prior written notice of the
time and place of any intended public sale or of the time after which any
intended private sale or other disposition of the Collateral is to be made,
which notice shall be deemed reasonable.
(c) In the event of a public or private sale of the Collateral, the
proceeds, after payment therefrom of Secured Party's reasonable expenses of
sale, reasonable attorney fees and other legal expenses incurred in connection
therewith, shall be applied in satisfaction of the obligations secured hereby,
and any surplus remaining shall be paid by Secured Party to Debtor. If proceeds
applied to such obligations are insufficient to pay the same in full, Debtor
shall be jointly and severally liable for any deficiency and shall promptly pay
the same to Secured Party. Any repossession or retaking or sale of the
Collateral pursuant to the terms hereof shall not operate to release Debtor
until full payment of any deficiency has been made in cash.
8. Payment of Costs of Collection. In case of an Event of Default, or in
case litigation is commenced to enforce or construe any term of this Agreement
or any other instrument evidencing indebtedness of Debtor to Secured Party or of
any other document or agreement executed hereunder, the losing party will pay to
the prevailing party such amounts as shall be sufficient to cover the cost and
expense of collection or enforcement, including, without limitation, reasonable
attorney's fees and costs at trial, on appeal, and in any bankruptcy proceeding.
9. Power of Attorney. Debtor does hereby irrevocably appoint Secured Party
as its attorney-in-fact, with full power of substitution, upon the occurrence of
an Event of Default, to execute any document or instrument, including any proofs
of claim, to endorse any draft or other instrument for the payment of money, to
execute releases, to negotiate settlements, to cancel any insurance referred to
herein and to do all other things necessary or required to effect a settlement
under any insurance policy or to take any action or perform any obligation or
enforce any right with respect to the Collateral Debtor would have the right or
power to do, all of which actions may be taken in Secured Party's own name.
Secured Party agrees to give Debtor notice of any actions it has taken pursuant
to its appointment as attorney-in-fact within a reasonable time after such
action is taken, it being understood that the failure to give such notice will
not revoke Secured Party's appointment as attorney-in-fact or invalidate any
actions taken in such capacity. This power of attorney is a power coupled with
an interest which cannot be revoked until payment in full of the whole amount
then due and unpaid of the indebtedness of Debtor to Secured Party. Any actions
taken by Secured Party under this provision shall be subject to the
Subordination Agreement.
10. Miscellaneous.
(a) Notices. All notices or other communications required or
permitted hereunder shall be given to the appropriate party or parties and shall
be effective as provided in the Asset Purchase Agreement dated of even date
herewith between Debtor and Secured Party..
(b) Remedies Cumulative. Any and all remedies herein expressly
conferred upon Secured Party shall be deemed cumulative with and not exclusive
of any other remedy conferred hereby or by law on Secured Party, and the
exercise of any one remedy shall not preclude the exercise of any other.
(c) Waiver. Secured Party shall not be deemed to have waived any
power, right or remedy under this or any other agreement executed by Debtor
unless the waiver is in writing signed by Secured Party. No delay in exercising
Secured Party's power, right or remedy shall be a waiver nor shall a waiver on
one occasion operate as a waiver of such power, right or remedy on a future
occasion.
(d) Further Assurances. Debtor will join with Secured Party in
executing, filing and doing whatever may be necessary under applicable law to
perfect and continue Secured Party's security interest in the Collateral now
owned or hereafter acquired by Debtor, all at Debtor's expense.
(e) Attorneys Fees. If Secured Party exercises its rights or
remedies under this Agreement or under the Uniform Commercial Code, Debtor
agrees to pay all costs, expenses and reasonable attorney fees as the trial
court or any appellate court may adjudge reasonable in any matter arising from
or related to this Agreement, including claims and adversary proceedings in
bankruptcy.
(f) Successors and Assigns. This Agreement may not be assigned by
Debtor without the prior written consent of Secured Party. This Agreement shall
be binding upon and shall inure to the benefit of the parties and their
permitted respective successors and assigns.
(g) Validity; Severability. If any provision of this Agreement is
held to be invalid, such event shall not affect, in any respect whatsoever, the
validity of the remainder of this Agreement, and the remainder shall be
construed without the invalid provision so as to carry out the intent of the
parties to the extent possible without the invalid provision.
(h) Exhibits and Schedules. Any exhibits or schedules attached to
this Agreement and referred to herein are incorporated in this Agreement as if
they were fully set forth in the text hereof.
(i) Counterparts; Hearings. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. Section
headings in this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof.
(j) Amendment. This agreement can be modified or terminated
only by a writing signed by Secured Party and Debtor.
(k) Term of Security Agreement. This Agreement shall remain in
full force and effect as long as any indebtedness of Debtor to Secured Party
remains unpaid or outstanding.
(l) Capitalized Terms. Capitalized terms not defined herein
shall have the respective meanings ascribed thereto in the Acquisition
Documents.
(m) Include. The terms "include," "including," and similar
terms shall be construed as if followed by the phrase "without limitation."
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
SECURED PARTY:
KENCO XXXXXXXX, INC., a Delaware
corporation
By /s/Xxxxxx X. Xxxxxxx
------------------------
Xxxxxx X. Xxxxxxx, CFO
DEBTOR:
KENCO PRODUCTS, INC., a Delaware
corporation
By /s/ Xxxxxx Xxxxxx
---------------------------
Xxxxxx Xxxxxx, President
