1
EXHIBIT 10(d)(4)
INVESTMENT AND
SECURITY AGREEMENT
THIS INVESTMENT AND SECURITY AGREEMENT, dated effective as of September
6, 1996 (the "Effective Date"), is made by and among Xxxxxx XxXxxxxx, a
resident of the State of Texas ("Pledgor"), whose address is 0000 Xxxx Xxxx,
Xxxxxx, Xxxxx 00000, ErgoBilt, Inc., a Texas corporation ("Debtor"), and Summit
Partners Management Co., a Texas corporation ("Secured Party"). Unless
otherwise defined herein, capitalized terms used in this Agreement shall have
the meanings assigned in the Note.
WHEREAS, Debtor and BodyBilt Seating, Inc., a Texas corporation
("BodyBilt") among others, have entered into an Agreement and Plan of Merger
(the "Merger Agreement");
WHEREAS, Pledgor and BodyBilt entered into that certain Employment
Agreement dated January 1, 1993 (the "Employment Agreement"), pursuant to which
Pledgor has certain rights to receive a commission upon the sale of BodyBilt,
as amended by the Termination Agreement of the Employment Agreement effective
July 31, 1994 between Pledgor and BodyBilt and the Conditional Release of
Commission executed by Pledgor and BodyBilt on May 23, 1996 (collectively, as
heretofore and from time to time hereafter amended, the "Contract");
WHEREAS, Debtor has executed, as maker, the Convertible Promissory Note
dated of even date herewith payable to Secured Party in the original principal
amount of $500,000 (the "Note");
WHEREAS, Debtor, Secured Party, Pledgor and BodyBilt desire that Pledgor
grant to Secured Party a security interest in all of Pledgor's right, title and
interest with respect to only the initial $500,000 which may be or become due
and payable under the Contract (the "Collateral") to secure the Note and no
other right, title or interest under the Contract shall be subject to this
Agreement;
WHEREAS, Pledgor acknowledges that Pledgor will receive a direct and
substantial benefit as a result of the loan evidenced by the Note and the
transactions related thereto and agrees to grant such security interest in the
Collateral in consideration for and as an inducement to Secured Party to make
the loan evidenced by the Note;
NOW THEREFORE, in consideration of the Note and the related transactions
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Debtor, Pledgor and Secured Party agree as follows:
Section 1. Grant of Security Interest. For value received and as
collateral security for the Secured Indebtedness (hereinafter defined), Pledgor
hereby grants to Secured Party a security interest, lien and mortgage in and
to, and agrees and acknowledges that Secured Party has, and shall continue to
have, a security interest, lien and mortgage in and to, and assigns to Secured
Party its right, title and interest in the Collateral (as defined in the
recitals herein).
2
Section 2. Indebtedness Secured. The security interest and assignment
of rights contained herein is granted to secure the payment and performance of
indebtedness arising in connection with, or evidenced by, the Note and all
renewals, extensions and modifications of such indebtedness or any part
thereof; provided, however, that in no event shall the amount of such
indebtedness secured hereby exceed $500,000 (the "Secured Indebtedness").
Section 3. Pledgor's Warranties and Representations.
Pledgor represents and warrants to Secured Party that:
(a) Pledgor has full power and authority to execute, deliver
and perform this Agreement.
(b) The Collateral is free and clear of all liens and other
adverse claims of any nature, and Pledgor has good and marketable title
to such Collateral;
(c) The residence of Pledgor is Dallas County, Texas;
(d) The Contract is valid, binding and enforceable in
accordance with its terms, and the enforcement thereof is not subject to
any defense, counterclaim, set off or right of recoupment;
(e) Except the consent of BodyBilt, no consent or approval of
any person, arbitrator, governmental body or regulatory agency is
necessary to effect the validity of the rights hereunder;
(f) No financing statement covering the Collateral or any part
thereof has been filed with any filing officer; and
(g) All of the representations and warranties made by Pledgor
in all instruments and documents evidencing and securing the Secured
Indebtedness or any part thereof, including, without limitation, this
Agreement, are true and correct in all material respects.
Section 4. Pledgor's Covenants and Agreements.
Pledgor covenants and agrees with Secured Party that:
(a) Pledgor shall, at its expense, make, procure, execute and
deliver such financing statement or statements, or amendments thereof or
supplements thereto, and take such other actions as Secured Party may
from time to time require in order to preserve and protect the security
interest hereby granted and to comply with Chapter 9 of the Uniform
Commercial Code, as amended, as adopted in the State of Texas (or any
successor statute) (the "Code"). In the event, for any reason, that the
law of any jurisdiction other than the State of Texas becomes or is
applicable to the Collateral, or any part thereof, or to any of the
Secured Indebtedness, Pledgor agrees to execute and deliver all such
instruments and to do
- 2 -
3
all such other things as may be necessary or appropriate to preserve,
protect and enforce the security interest or lien of Secured Party,
under the law of such other jurisdiction, to at least the same extent as
such security interest would be protected under the Code;
(b) Until the termination of this Agreement, Pledgor will not
execute and there will not be on file in any public office any financing
statement or statements creating or evidencing a security interest or
lien covering any of the Collateral, except as may have been or may
hereafter be granted to Secured Party, and Pledgor further agrees that
it will keep the Collateral free from any lien, or any other legal or
equitable process, or any encumbrance of any kind or character;
(c) Pledgor shall take all necessary steps to obtain,
preserve, perfect, defend and enforce the security interest in and
assignment of any of the Collateral and to preserve, defend, enforce and
collect the Collateral;
(d) The Collateral shall not be assigned or disposed of by
Pledgor without the prior written consent of Secured Party. Pledgor
will not amend, modify, release, postpone or change the Contract, or any
part thereof, without the prior written consent of Secured Party.
Pledgor shall promptly furnish to Secured Party any writing relating to
any of the Collateral; and
(e) Pledgor will give Secured Party thirty days' prior written
notice of any change in Pledgor's residence and will immediately notify
Secured Party of any change occurring in or to the Collateral, of any
change in any fact or circumstance warranted or represented by Pledgor
to Secured Party, or if any Event of Default (hereinafter defined)
occurs.
Section 5. Representations and Warranties of Debtor. Debtor represents
and warrants as set forth below.
(a) Due Organization. Debtor is duly incorporated, validly
existing and in good standing under the laws of its state of
incorporation, having Articles of Incorporation, as amended, and Bylaws
(all terms of which are in full force and effect) as previously
furnished to Secured Party. Except where the failure to so qualify
would not have a material adverse effect on Debtor, Debtor is duly
qualified to conduct business as proposed and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its
business or location of its properties require such qualification.
(b) Authority of Debtor. Debtor has full power and authority
to enter into this Agreement, the Note, and the Merger Agreement and to
carry out the provisions contained herein and therein, and Debtor has
taken all corporate action necessary for the execution and performance
of each of the above-named documents and each document above-named will
constitute a valid and binding obligation of Debtor enforceable in
accordance with its respective terms when executed and delivered.
- 3 -
4
(c) Capitalization of Debtor. Debtor has authorized capital
stock of 20,000,000 shares of Common Stock, par value $0.10 per share,
of which, as of the Effective Date, 3,400,000 shares are issued and
outstanding. All of the issued and outstanding shares of Common Stock
were duly and validly issued and are fully paid and non-assessable.
None of the outstanding shares of Common Stock have been issued in
violation of any preemptive rights of the current or past stockholders
of Debtor. There are no outstanding options, warrants or rights to
subscribe for, cause, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of Debtor or contracts, commitments,
understandings or arrangements by which Debtor is or may be obligated to
issue additional shares of its capital stock or options, warrants, or
rights to purchase or acquire any additional shares of its capital stock
other than those in favor of the Secured Party.
(d) Non-Contravention. Debtor is not in breach of, default
under, or in violation of, to the extent the same would have a material
adverse effect on Debtor, any applicable law, decree, order, rule or
regulation or any indenture, contract, agreement, deed, lease, loan
agreement, commitment, bond, note, deed of trust, restrictive covenant,
license or other instrument or obligation to which Debtor is a party or
by which Debtor is bound or to which any of Debtor's assets are subject;
the execution, delivery and performance of this Agreement will not
constitute any such breach, default or violation or require consent or
approval of any court, governmental agency or body except as
contemplated herein.
Section 6. Debtor's Covenants and Agreements. Debtor covenants and
agrees with Secured Party that, so long as the Note is outstanding:
(a) Payment of Principal and Accrued Interest. Debtor will
duly and punctually pay or cause to be paid the principal amount of the
Note, together with interest accrued thereon from the date thereof to
the date of payment, in accordance with the terms thereof.
(b) Corporate Existence. Debtor will do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises.
(c) Taxes; Claims; etc. Debtor will promptly pay and
discharge all lawful taxes, assessments, and governmental charges or
levies imposed upon it or upon its income or profits, or upon any of its
properties, real, personal, or mixed, before the same shall become in
default, as well as all lawful claims for labor, materials, and supplies
or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that Debtor shall not
be required to pay or cause to be paid any such tax, assessment, charge,
levy, or claim prior to institution of foreclosure proceedings if the
validity thereof shall concurrently be contested in good faith by
appropriate proceedings and if Debtor shall have established reserves
deemed by Debtor adequate with respect to such tax, assessment, charge,
levy, or claim.
- 4 -
5
(d) Maintenance of Existence and Properties. Debtor will keep
its properties in good repair, working order, and condition, ordinary
wear and tear excepted, and from time to time will make all needful and
proper repairs, renewals, replacements, extensions, additions,
betterments, and improvements thereto, so that the business carried on
may be properly conducted at all times in accordance with prudent
business management.
(e) Notice of Defaults. Debtor will promptly notify Secured
Party in writing of the occurrence of any Event of Default under the
Note.
(f) Covenant Regarding Capitalization. Debtor will maintain
its authorized capital stock as set forth in Section 5(c) above and will
not alter such authorized capital stock without the prior written
consent of Secured Party.
(g) New Debt. Without prior written consent from Secured
Party which shall not be unreasonably withheld, Debtor will not incur
any indebtedness for borrowed money in the aggregate outstanding
principal amount in excess of $250,000; provided that if Debtor elects
to pay a portion of the merger consideration (with respect to the merger
transaction contemplated under the terms of the Merger Agreement) in
borrowed funds, Secured Party agrees that no such consent shall be
required so long as the portion of the indebtedness evidenced by the
Note to be paid in cash is paid concurrently with the consummation of
such merger transaction as contemplated under the terms of the Note.
(h) Limitation on Distributions. Without prior written
consent from Secured Party which shall not be unreasonably withheld,
Debtor will not (a) declare or pay any dividends in cash or property on
any shares of its capital stock, (b) make any other distributions in
cash or property with respect to any shares of its capital stock, or (c)
make any payment on account of the purchase, redemption or other
acquisition or retirement of any shares of Debtor's capital stock, or
(d) return any capital to its shareholders, except that Debtor may
declare and deliver stock dividends.
(i) Limitation on Prepayment of Indebtedness. Debtor will not
prepay any of its indebtedness (other than the Secured Indebtedness) nor
will Debtor sell, assign or otherwise dispose of any of its properties
(whether now owned or hereafter acquired) to any person for
consideration including, in whole or in part, the exchange,
cancellation, payment or discharge of Debtor's indebtedness (other than
the Secured Indebtedness).
(j) Transactions with Officers, Directors, Shareholders and
Affiliates. Debtor will not enter into any transaction with any
director, officer, shareholder, employee or affiliate, other than
payment of officers' salaries, directors' fees and consulting fees to
officers or prospective officers, except for transaction for purchase,
sale or exchange of property or rendering of any service in the ordinary
course of and pursuant to the reasonable requirements of Debtor's
business and upon fair and reasonable terms no less favorable to Debtor
than Debtor would obtain in a comparable arm's length transaction with a
person not an affiliate.
- 5 -
6
(k) Sale or Discount of Accounts. Debtor shall not discount
or sell with recourse any of its notes receivables or accounts
receivable, other than customary discounts to account obligors for
prompt payment of accounts arising in the ordinary course of business.
(l) Limitation on Investments. Except with respect to the
Debtor's proposed acquisition of Metamorphis, Inc. and except with
respect to the transactions related to the Merger Agreement, Debtor
shall not make or have outstanding any cash investments in excess of
$250,000 in the aggregate, whether by means of share purchase, loan,
advance, extension of credit, capital contribution or otherwise, in any
person, the guaranty of indebtedness of any person, or the subordination
of any claim against any person to other indebtedness of such person
without prior written consent from Secured Party which shall not be
unreasonably withheld.
(m) Limitation on Mergers and Sale of Assets. Except with
respect to investments and acquisitions permitted under paragraph (l)
immediately preceding above and pursuant to the Merger Agreement,
Debtor will not consolidate or merge with or into, or sell, convey,
transfer or lease in a single transaction or series of related
transactions, any substantial part of its assets to, any person or
entity, or make any material change in the nature of its business as
conducted on the date of this Agreement; provided, however, that Debtor
shall not be precluded from entering into any agreements in
contemplation of any of the foregoing set forth in this paragraph (m).
Section 7. Events of Default.
Pledgor shall be in default under this Agreement upon the happening of
any of the following events or conditions (hereinafter called an "Event of
Default"):
(a) An Event of Default under the Note shall occur;
(b) The ownership of the Collateral, or any legal or equitable
interest therein, becomes vested in a person or entity other than
Pledgor;
(c) Secured Party's liens in the Collateral should become
unenforceable, or cease to be first priority liens;
(d) Default is made in the due observance or performance by
the Pledgor or Debtor of any of the covenants or agreements contained
herein;
(e) Any statement, warranty or representation by or on behalf
of Pledgor or Debtor contained in this Agreement or in any other
instrument or certificate furnished in connection with this Agreement,
proves to have been materially incorrect as of the date made or deemed
made;
(f) Default is made in the due observance or performance by
BodyBilt or Pledgor of any of the covenants or agreements contained in
the Contract;
- 6 -
7
(g) Debtor, Pledgor or BodyBilt shall generally not pay its or
his debts as they become due or shall admit in writing its or his
inability to pay its or his debts, or shall make any general assignment
for the benefit of creditors;
(h) Debtor, Pledgor or BodyBilt shall commence any case,
proceeding or other action seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or him or its
or his debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or him for
all or any substantial part of its or his property;
(i) Debtor or BodyBilt shall take any corporate action to
authorize any of the actions set forth above in paragraphs (g) or (h)
above;
(j) Any case, proceeding or other action against Debtor,
Pledgor or BodyBilt shall be commenced seeking to have an order for
relief entered against it or him as debtor, seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it
or him or its or his debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment
of a receiver, trustee, custodian or similar official of it or him or
for all or any substantial part of its or his property, and any such
case, proceeding or other action (i) results in the entry of any order
for relief against it or him which is not fully stayed within seven (7)
business days after the entry thereof or (ii) remains undismissed for a
period of sixty (60) business days; or
(k) Failure of Debtor, Pledgor or BodyBilt to pay any money
judgment against it or him before the expiration of ten (10) days after
such judgment becomes final and no longer appealable.
Section 8. Secured Party's Rights and Remedies.
(a) Secured Party, at any time, after an Event of Default:
(i) may, at the sole option of Secured Party, discharge
taxes, liens and interest, perform or cause to be performed, for
and on behalf of Pledgor, any actions and conditions, obligations
or covenants which Pledgor has failed or refused to perform, and
may pay for the repair, maintenance or preservation of any of the
Collateral, and may do all other things deemed necessary by
Secured Party to perfect the security interest granted hereby and
to preserve, collect, enforce and protect the Collateral, and may
exercise all rights of Pledgor in the Collateral, and Pledgor
hereby appoints Secured Party its attorney-in-fact for such
purposes, and all sums expended therefor, including, but limited
to, attorneys' fees, court costs, agents' fees or commissions, or
any other costs or expenses, shall become part of the Secured
Indebtedness, shall bear interest from the date of payment at the
highest lawful rate and shall be payable at the place designated
for payment of the Secured Indebtedness and shall be secured by
this Agreement;
- 7 -
8
(ii) may, in its sole discretion, to the extent
permitted by law, require Pledgor to give possession or control
of the Collateral to Secured Party; endorse as Pledgor's agent
any instruments, documents, or accounts relating to the
Collateral; take control of the Collateral or proceeds thereof,
including, without limitation, stock, stock or cash dividends or
stock splits, and use cash proceeds to reduce any part of the
Secured Indebtedness; exchange any of the Collateral for any
other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof and,
in connection therewith, deposit any of the Collateral with any
committee, depositary, transfer agent, registrar or other
designated agency upon such terms as Secured Party may determine;
and may require Pledgor to use its best efforts to cause the
issuer of the Collateral to register any or all of the Collateral
under applicable securities laws, at the expense of Pledgor or
such issuer;
(iii) may, in its sole discretion, in its own name or the
name of Pledgor, notify BodyBilt to make all payments due or to
become due under the Contract directly to Secured Party, or such
other person or officer as Secured Party may require, whereupon
the power and authority of Pledgor to collect the same shall be
deemed to be immediately revoked and terminated; and
(iv) may, in its sole discretion, take all steps,
actions, suits or proceedings deemed by Secured Party necessary
or desirable to enforce the Contract.
(b) In the event of the occurrence of any Event of Default,
Secured Party may, at its option, in addition to the rights and remedies
provided in Section 8(a) hereof, without demand, presentment, notice of
intention to accelerate, notice of acceleration or any other notice
(which are fully waived), take possession and dispose of all or any
portion of the Collateral, to the extent permitted by law, at public or
private sale, as a unit or in parcels, upon any terms and prices and in
any order, free from any claim or right of any kind including any equity
of redemption of Pledgor, ANY SUCH DEMAND, RIGHT OR EQUITY BEING
EXPRESSLY WAIVED AND RELEASED. Upon Secured Party's demand, Pledgor
will take all steps necessary to prepare the Collateral for and
otherwise assist in any proposed disposition of the Collateral; and
assemble the Collateral and make it available to Secured Party at a
reasonably convenient location. Any disposition of the Collateral may
be made by way of one or more contracts.
(c) In addition:
(i) Secured Party shall not be liable for any act or
omission on the part of Secured Party, its officers, agents, or
employees, except for willful misconduct or gross negligence.
All rights and remedies of Secured Party hereunder are cumulative
and may be exercised singly or concurrently. The exercise of any
right or remedy will not be a waiver of any other;
(ii) The rights, titles, interests, liens and securities
of Secured Party hereunder shall be cumulative of all of the
securities, rights, titles, interests or liens
- 8 -
9
which Secured Party may now or at any time hereafter hold
securing the payment of the Secured Indebtedness, or any part
thereof;
(iii) Secured Party is hereby expressly authorized to
apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Pledgor
hereby expressly consents to any such appointment; and
(iv) Secured Party shall apply the proceeds of any sale
or other disposition of the Collateral, and the payments received
by Secured Party with respect to any of the Collateral, to the
payment of the balance of the Secured Indebtedness.
Section 9. Miscellaneous.
(a) Secured Party agrees that upon the final discharge of the
obligations with respect to the Secured Indebtedness pursuant to the
payment of cash and the conversion of the portion of the Note into
shares of common stock of Debtor pursuant to the terms of the Note, this
Agreement shall without further action of either party terminate and
Secured Party will execute and deliver any UCC-3 termination statements
necessary to terminate its security interest in the Collateral or the
perfection thereof.
(b) This Agreement is entered into and is to be governed by
the laws of the State of Texas.
(c) This Agreement is binding upon and shall inure to the
benefit of Pledgor, Secured Party, Debtor, their respective heirs,
executors, representatives, administrators, successors and assigns;
provided, however, that Pledgor may not, without the prior written
consent of Secured Party, assign any rights, powers, duties or
obligations hereunder. Secured Party reserves the right to assign any
or all of its rights hereunder.
(d) Any notice of sale, disposition or other action by Secured
Party required by the Code and sent to Pledgor at Pledgor's address
shown above, or at such other address of Pledgor as may from time to
time be shown on the records of Secured Party, at least ten (l0) days
prior to such action, shall constitute reasonable notice to Pledgor.
Notice shall be deemed given or sent when mailed by certified mail,
return receipt requested to Pledgor's address.
(e) No failure to exercise, and no delay in exercising, on the
part of Secured Party, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right.
(f) This Agreement shall not be amended in any way except by a
written agreement signed by Secured Party, Pledgor and Debtor.
- 9 -
10
IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.
/s/ XXXXXX XxXXXXXX
----------------------------------------
XXXXXX XxXXXXXX
ERGOBILT, INC.
By: /s/ XXXXXX XXXXX
-------------------------------------
Name: Xxxxxx Xxxxx
-----------------------------------
Title: President & CEO
----------------------------------
SUMMIT PARTNERS MANAGEMENT CO.
/s/ XXX X. XXXXXX
----------------------------------------
Name: Xxx X. Xxxxxx, Pres.
----------------------------------
CONSENT OF SPOUSE
The undersigned hereby consents to the grant by Pledgor to Secured Party
of a security interest, lien and mortgage in and to the Collateral and also
consents to the sale and transfer of 34,000 shares of common stock of ErgoBilt,
Inc. by Pledgor to Secured Party pursuant to the terms of the Common Stock and
Warrant Purchase Agreement dated the date hereof.
/s/ XXXXX X. XxXXXXXX
----------------------------------------
Xxxxx X. XxXxxxxx
-------------------
- 10 -
