EXHIBIT 10.6
------------
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT is made and entered into effective as of the
10th day of January, 2003, between PALWEB CORPORATION, an Oklahoma corporation
("PalWeb"), PLASTIC PALLET PRODUCTION, INC., a Texas corporation ("PPP") (PalWeb
and PPP collectively, the "Debtors"), and XXXX X. XXXXXX, an individual (the
"Secured Party").
RECITALS:
---------
A. The Debtors have requested that the Secured Party make in favor of
the Debtors a $7,000,000 term loan (the "Loan"), to be evidenced by that certain
$7,000,000 Promissory Note (the "Note") dated as of even date herewith.
B. Pursuant to that certain Loan Agreement dated as of even date
herewith (the "Loan Agreement") between the Debtors and the Secured Party, the
Secured Party has agreed to make the Loan in favor of the Debtors.
C. The Loan Agreement provides that the Secured Party's obligations
thereunder are subject to the execution and delivery of this Security Agreement.
NOW, THEREFORE, to induce the Secured Party to enter into the Loan
Agreement, to consummate the transactions provided for therein, and for other
valuable considerations, the receipt of which is hereby acknowledged, the
Secured Party and the Debtors agree as follows:
1. Definitions.
1.1. Terms Defined in Loan Agreement. All capitalized terms used herein
and not otherwise defined shall have the meanings assigned to such terms in the
Loan Agreement.
1.2. Terms Defined in the UCC. Each term used herein which is defined
in the UCC and not otherwise defined herein, shall have the respective meaning
given such term in the UCC.
1.3. Definitions of Certain Terms Used Herein. As used in this Security
Agreement, the following terms shall have the following meanings:
"Account" shall have the meaning given such term in Article 9 of the
UCC.
"Collateral" is defined in Section 2 of this Security Agreement.
"Chattel Paper" shall have the meaning given such term in Article 9 of
the UCC.
"Equipment" shall have the meaning given such term in Article 9 of the
UCC.
"General Intangible" shall have the meaning given such term in Article
9 of the UCC.
"Instruments" shall have the meaning given such term in Article 9 of
the UCC.
"Inventory" shall have the meaning given such term in Article 9 of the
UCC.
"Indebtedness" means and includes all liabilities, obligations and
indebtedness of the Debtors to the Secured Party, of every kind and description,
now existing or hereafter incurred, direct or indirect, absolute or contingent,
due or to become due, matured or unmatured, and whether or not of the same or a
similar class or character as the Loan and whether or not currently contemplated
by the Secured Party or the Debtors, including (i) the Loan; (ii) all other
liabilities, obligations and indebtedness of the Debtors to the Secured Party
arising out of or related to the Loan Agreement, the Loan or any of the Loan
Documents, including costs and expenses of collection and other amounts
reimbursable under the Loan Agreement; and (iii) any and all extensions of any
of the foregoing; PROVIDED, HOWEVER, that the term "Indebtedness" shall exclude
all Claims (as defined in that certain Mutual Release Agreement dated as of even
date herewith between the Lender, the Borrowers, Westgate Investments, L.P. and
each of the existing directors of PalWeb).
"Letter of Credit Rights" shall have the meaning given such term in
Article 9 of the UCC.
"Lien" shall mean any lien (statutory or other), security interest,
mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, capitalized lease or other title
retention agreement).
"Payment Intangible" shall have the meaning given such term in Article
9 of the UCC.
"Proceeds" shall have the broadest and most extensive meaning now or
hereafter given or assigned to such term in Article 9 of the UCC and, in any
event, shall include, but not be limited to, (i) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to the Debtors from time to
time with respect to the Collateral, and (ii) any and all payments (in any form
whatsoever) made or due and payable to the Debtors from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Oklahoma as hereinafter amended, modified or re-enacted from
time to time.
2. Grant of Security Interest. As security for the payment of all
Indebtedness, the Debtors hereby assign and grant to the Secured Party, a first
and prior, continuous and continuing security interest in, and assignment of,
all of the following, whether now or hereafter existing or acquired (the
"Collateral"):
(a) All Accounts of the Debtors;
(b) All Equipment of the Debtors;
2
(c) All Inventory of the Debtors;
(d) All General Intangibles of the Debtors;
(e) All Payment Intangibles of the Debtors;
(f) All Instruments (including promissory notes), Letter of
Credit Rights, Supporting Obligations, Documents, Chattel Paper of the
Debtors;
(g) All books, records, ledger cards, electronic data
processing materials and other general intangibles relating to the
foregoing subsections (a) through (f), inclusive; and
(h) all proceeds of and all replacements, additions,
substitutions, accessories, appurtenances, and parts for, the items or
types of collateral described above in subsections (a) through (g),
inclusive, whether now owned or hereafter acquired including, without
limitation insurance proceeds.
3. Warranties. The Debtors warrant that: (i) no financing statement
(other than any which may have been filed on behalf of the Secured Party or for
Permitted Liens, as defined and described in the Loan Agreement) covering any of
the Collateral is on file in any public office; (ii) except for Permitted Liens,
the Debtors are and will be the lawful owners of all of the Collateral, free of
all Liens and claims whatsoever, with full power and authority to execute this
Security Agreement and to perform the Debtors' obligations hereunder, and to
subject the Collateral to the security interest hereunder; (iii) all information
with respect to the Collateral and the Account Debtors set forth on any
schedule, certificate or other writing at any time heretofore or hereafter
furnished by the Debtors to the Secured Party, is and will be true and correct
in all material respects as of the date furnished, and (iv) the Debtors are duly
authorized to execute, deliver and perform this Security Agreement.
4. Use and Possession. As long as there exists no Event of Default, the
Debtors may have possession of the Collateral and use the same in any lawful
manner not inconsistent with this Security Agreement, with any applicable law or
regulation or with any policy of insurance on any of such Collateral.
5. Sales in the Ordinary Course of Business; Collections by Debtors.
Until such time as the Secured Party shall notify the Debtors of the revocation
of such power and authority because of the occurrence of an Event of Default
(whether or not the Secured Party takes any other action or accelerates the
Indebtedness), the Debtors (i) may, in the ordinary course of their business, at
their own expense, sell, lease or furnish under contracts of service any of the
Collateral held by the Debtors for such purpose, and use and consume, in the
ordinary course of its business, any raw materials, work in process or materials
normally held by the Debtors for such purpose, and (ii) will, at their own
expense, endeavor to collect, as and when due, all amounts due with respect to
Accounts, lease and/or notes receivable, leases, lease agreements, chattel
paper, contracts, General Intangibles and Payment Intangibles pertaining to any
of the
3
Collateral, 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 Debtors may deem advisable.
6. Collections by the Secured Party. Upon the occurrence of an Event of
Default (whether or not the Secured Party takes any other action or accelerates
the Indebtedness), the Secured Party may at any time, whether before or after
any revocation of such power and authority or the maturity of any of the
Indebtedness, notify any parties obligated on any of the Accounts, leases and/or
notes receivable, leases, lease agreements, Chattel Paper, contracts, General
Intangibles or Payment Intangibles to make payment to the Secured Party of any
amounts due or to become due thereunder and enforce collection of any such
Accounts, leases and/or notes receivable, leases, lease agreements, Chattel
Paper, contracts, General Intangibles or Payment Intangibles 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 thereunder or evidenced thereby. The Debtors
will, at their own expense, notify any parties obligated on any of the Accounts,
leases and/or notes receivable, leases, lease agreements, Chattel Paper,
contracts, General Intangibles or Payment Intangibles pertaining to the
Collateral to make payment to the Secured Party of any amounts due or to become
due thereunder. The Secured Party is authorized to endorse, in the name of the
Debtors, any item howsoever received by the Secured Party, representing any
payment on or other proceeds of any of the Collateral. In each instance in which
the Secured Party may elect hereunder to effect direct collection of any one or
more Accounts, leases and/or notes receivable, leases, lease agreements, Chattel
Paper, contracts, General Intangibles or Payment Intangibles pertaining to the
Collateral, the Secured Party is also entitled to take possession of all books
and records of the Debtors relating to the Debtors' Accounts, leases and/or
notes receivable, leases, lease agreements, Chattel Paper, contracts, General
Intangibles or Payment Intangibles, and the Debtors will not in any manner take
or suffer any action to be taken to hinder, delay or interfere with the Secured
Party's attempts to effect collection.
7. Inventory Location. The Debtors hereby represent and warrant to the
Secured Party that the Inventory is located only in or near the locations set
forth on Exhibit A hereto. The Debtors will not open or establish any warehouse
not owned or established as of the date of this Security Agreement or locate any
Inventory at any location except as set forth above without obtaining the
Secured Party's prior written consent and executing such financing statements as
the Secured Party and its counsel deem necessary to perfect its security
interest therein. The Debtors shall immediately notify the Secured Party of the
occurrence of any event causing loss or depreciation in value (except for
ordinary wear and tear and loss or depreciation in value) of Collateral and the
amount of such loss or depreciation.
8. Covenants of the Debtors. The Debtors will (i) upon demand, provide
to the Secured Party any information the Secured Party deems necessary in order
to protect, preserve, continue, perfect, extend or maintain a valid security
interest in the Collateral (free of all other Liens, claims and rights of third
parties whatsoever) to secure payment of the Indebtedness, and Debtors hereby
authorize the filing of any financing statement, continuation statement,
inventory list, lien entry forms or other similar documents and will pay any
expenses and fees incurred from time to time by Secured Party in connection
therewith; (ii) keep all Inventory only at the
4
locations set forth in Section 7 hereof or at such other addresses as shall be
provided to the Secured Party at least fifteen days prior to the location of any
Inventory thereat, and which address shall be acceptable to the Secured Party;
(iii) keep only at the locations set forth in Section 7 hereof all records
concerning Accounts, notes receivable, contracts, General Intangibles and
Payment Intangibles, which records will be of such character as will enable the
Secured Party or its agents or designees to determine at any time the status
thereof; (iv) furnish the Secured Party such information concerning the Debtors,
the Collateral and the Account Debtors as the Secured Party may from time to
time reasonably request; (v) permit the Secured Party and its agents and
designees from time to time to inspect the Inventory and to inspect, audit and
make copies of and extracts from all records and all other papers in the
possession of the Debtors, and will, upon reasonable request of the Secured
Party, deliver to the Secured Party all of such records and papers which pertain
to the Collateral and the Account Debtors; (vi) upon request of the Secured
Party, stamp on the Debtors' records concerning the Collateral, a notation, in
form satisfactory to the Secured Party, of the security interest of the Secured
Party hereunder; (vii) except for the sale or lease of Inventory in the ordinary
course of its business, not sell, lease, transfer or otherwise dispose of,
assign or create or permit to exist any Lien on or security interest in any
Collateral to or in favor of anyone other than the Secured Party, except with
the prior written consent of the Secured Party; (viii) at all times keep all
Collateral insured against loss, damage, theft and other risks, in such amounts,
with such companies, under such policies and in such form, all as shall be
reasonably satisfactory to the Secured Party, which policies shall provide that
loss thereunder shall be payable to the Debtors and the Secured Party as their
interests may appear, and such policies or certificates thereof shall, if the
Secured Party so requests, be deposited with the Secured Party; (ix) if the
Collateral is of a type normally used in more than one state, whether or not
actually so used, the Debtors will immediately give written notice to the
Secured Party of any change in the location of the chief executive office or the
chief place of business of the Debtors, and of any transfer of any such
Collateral in any jurisdiction other than the locations set forth in paragraph 7
hereof; and (x) reimburse the Secured Party for all reasonable expenses,
including attorneys' fees and legal expenses, incurred by the Secured Party in
seeking to collect or enforce any rights in the Collateral and to collect the
Revolving Note and all other Indebtedness and to enforce its rights hereunder.
9. Remedies. Whenever an Event of Default shall exist, the Indebtedness
shall be immediately due and payable, or not, as provided in the Loan Agreement,
and the Secured Party may from time to time exercise any rights and remedies
available to it hereunder, under the Loan Agreement or applicable law. The
Debtors agree, in case of an Event of Default and upon the request of the
Secured Party, to assemble the Collateral, at the Debtors' expense, at a
convenient place acceptable to the Secured Party. Without limiting the
foregoing, upon the existence of an Event of Default, the Secured Party may, to
the fullest extent permitted by applicable law, without notice (except as
required by the Loan Agreement), advertisement, hearing or process of law of any
kind, (i) enter upon any premises where any of the Collateral may be located and
take possession of and remove all or any such items, (ii) sell any or all of the
Collateral free of all rights and claims of the Debtors therein and thereto at
any public or private sale, and (iii) bid for and purchase any of the Collateral
at any such sale. If any notification of intended disposition of any of the
Collateral is required by law, such notification, if mailed, shall be deemed
reasonably and properly given if mailed at least ten days before disposition,
postage prepaid, addressed to the Debtors, at the address shown on the signature
page or at any other address of the Debtors
5
appearing on the records of the Secured Party. Any proceeds of any of the
Collateral (including proceeds of collections by the Secured Party described in
Section 6) may be applied by the Secured Party to the payment of expenses
incurred in connection with enforcing its rights or remedies with respect to the
Collateral, including reasonable attorneys' fees and legal expenses, and any
balance of such proceeds may be applied by the Secured Party toward the payment
of such of the Indebtedness, and in such order of application as the Secured
Party may from time to time elect, but only if allowed by applicable law.
10. Reimbursement of Secured Party. The Secured Party may from time to
time, at its option, perform any agreement, obligation or covenant of the
Debtors hereunder which the Debtors shall fail to perform, and take any other
action which the Secured Party reasonably deems necessary for the maintenance or
preservation of any of the Collateral or its interest therein, and the Debtors
agree to forthwith reimburse the Secured Party for all reasonable expenses of
the Secured Party in connection with the foregoing, together with interest
thereon at the Default Rate from the date of notice thereof to the Debtors until
reimbursed by the Debtors.
11. Reasonable Care. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral in
its possession if it takes such action for that purpose as the Debtors may
request in writing, but failure of the Secured Party to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care.
12. Notices. Any notice from the Secured Party to the Debtors, if
mailed, shall be deemed given when mailed, postage prepaid, or delivered by
commercial delivery service, addressed to the Debtors, at the Debtors' address
shown on the signature page hereto or at any other address of the Debtors
appearing on the records of the Secured Party. Any notice from the Debtors to
the Secured Party, if mailed, shall be deemed given when mailed, postage
prepaid, or by commercial delivery service, addressed to the Secured Party at
the address shown on the signature page hereto or at such other address as the
Secured Party shall have provided to the Debtors for such purpose.
13. No Waiver. No delay on the part of the Secured Party in the
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by the Secured Party of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or remedy.
14. Amendments and Modifications. No amendment to, modification or
waiver of, or consent with respect to any provision of this Security Agreement,
shall in any event be effective unless the same shall be in writing and signed
and delivered by the Secured Party, and then any such amendment, modification,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
15. Choice of Law. This Security Agreement has been delivered to the
Secured Party at Tulsa, Oklahoma, and shall be construed in accordance with and
governed by the laws of the State of Oklahoma.
6
16. Severability. Whenever possible each provision of this Security
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under applicable 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 Security
Agreement.
17. Binding Effect. This Security Agreement shall be binding upon the
Debtors and their successors and assigns, and shall inure to the benefit of the
Secured Party and its successors and assigns.
18. Financing Statement. A carbon or photographic copy, or other
reproduction, of this Security Agreement or of any financing statement prepared
or filed with respect hereto is sufficient as a financing statement for all
purposes.
IN WITNESS WHEREOF, this Security Agreement has been duly executed and
delivered in Tulsa, Oklahoma, effective as of the day and year first above
written.
Address for Debtors: PALWEB CORPORATION,
an Oklahoma corporation
0000 Xxxx Xxxxxxxx By: /s/ Xxxxxx X. Xxxxxx
Xxxxxx, Xxxxx 00000 ------------------------------
Name: Xxxxxx X. Xxxxxx
------------------------------
Title: President
------------------------------
PLASTIC PALLET PRODUCTION, INC., a
Texas corporation
0000 Xxxx Xxxxxxxx By: /s/ Xxxxxx X. Xxxxxx
Xxxxxx Xxxxx 00000 ------------------------------
Name: Xxxxxx X. Xxxxxx
------------------------------
Title: President
------------------------------
"Debtors"
Address for Secured Party /s/ Xxxx X. Xxxxxx
------------------------------
Xxxx X. Xxxxxx, an individual
0000 Xxxxx XxXxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000 "Secured Party"
7
EXHIBIT A
---------
(Locations of Inventory)
0000 Xxxx Xxxxxxxx
Xxxxxx, Xxxxx 00000
