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EXHIBIT 10.12
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and entered
into as of January 14, 2000 (the "Effective Date") by and between MSI Holdings,
Inc., a Utah corporation ("Debtor"), and TSG Financial Limited Partnership (the
"Secured Party").
1. Creation of Security Interest. Debtor hereby grants to the Secured
Party a security interest in the Collateral described in Section 2 of this
Security Agreement to secure performance and payment of all obligations and
indebtedness of Debtor to the Secured Party, including, but not limited to, the
obligations and indebtedness of Debtor to the Secured Party described in Section
3 of this Security Agreement (collectively, the "Indebtedness"). Upon payment or
satisfaction of the Indebtedness, this Security Agreement will have no further
effect, and the Secured Party shall release it and the Collateral.
2. Collateral. In order to secure the payment when due of any and all
Indebtedness, Debtor hereby pledges to the Secured Party and grants to the
Secured Party a security interest in and to the following properties
(collectively, the "Collateral"):
(a) All of Debtor's inventory, both now owned and hereafter acquired,
including, without limitation, all goods, merchandise, raw materials, goods in
process, finished goods and other tangible personal property both now owned and
hereafter acquired by Debtor and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in Debtor's business,
and all proceeds thereof, as well as all additions and accessions thereto and
substitutions and replacements for any thereof;
(b) All of Debtor's tangible personal property, both now owned and
hereafter acquired, including, without limitation, all equipment, consumer
goods, furniture, fixtures, machinery, operating equipment, assembly and
production equipment, engineering and electrical equipment, and all proceeds of
any thereof, as well as all additions and accessions thereto and substitutions
and replacements for any thereof;
(c) All of Debtor's intangible personal property, cash on hand and cash
in and deposits with banks or other financial institutions, whether now owned or
hereafter acquired, including, but not limited to, all accounts, chattel paper,
documents, instruments and general intangibles, as those terms are defined in
the Texas Business and Commerce Code, Chapter 9, as in effect on the date
hereof, all contracts, shares of stock, bonds, notes, evidences of indebtedness
and other securities, bills, notes and accounts receivable, interests in life
insurance policies, trademarks, trade names, patents, patent rights, copyrights,
claims, credits, choses in action, licenses, permits, franchises and grants;
(d) All rights, title and interests, now owned or hereafter acquired,
to all other property and assets, real, personal or mixed;
(e) All awards in respect of any "Taking" of any thereof (as used
herein, a "Taking" shall mean a taking, conveyance or sale of all or any part of
the Collateral or any interest therein or right accruing thereto, as a result
of, or in lieu or anticipation of, the exercise of the right of appropriation,
confiscation, condemnation or eminent domain);
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(f) All rents, income and issues arising from or in connection with,
and all proceeds of, any of the foregoing; and
(g) All other real, personal and mixed (tangible and intangible)
property of every character and wherever situated, now owned and hereafter
acquired by Debtor.
3. Payment Obligations of Debtor.
(a) Debtor shall pay to the Secured Party any sum or sums due or which
may become due pursuant to any promissory note or notes now or hereafter
executed by Debtor to evidence Debtor's indebtedness to the Secured Party,
including, without limitation, the Secured Convertible Promissory Note of Debtor
dated as of even date herewith payable to the order of the Secured Party in the
original principal amount of Two Million and no/100's Dollars ($2,000,000.00)
(the "Note"), in accordance with the terms of such Note and the terms of this
Security Agreement, as well as all other indebtedness now due and owing the
Secured Party, and any and all indebtedness hereafter to become due and owing
the Secured Party, whether evidenced by note or otherwise, and any and all
renewals, rearrangements or extensions of said indebtedness.
(b) Debtor shall account fully and faithfully to the Secured Party for
proceeds from disposition of the Collateral in any manner and, following an
Event of Default (as defined below) hereunder, shall pay or turn over promptly
in cash, negotiable instruments, drafts, assigned accounts or chattel paper all
the proceeds from each sale to be applied to Debtor's Indebtedness to the
Secured Party, subject, if other than cash, to final payment or collection.
Application of such proceeds to Indebtedness of Debtor shall be in the sole
discretion of the Secured Party, provided such application of proceeds is made
by the Secured Party in a reasonable manner.
(c) Following an Event of Default hereunder or under the Note, Debtor
shall pay to the Secured Party on demand all expenses and expenditures
(including, but not limited to, reasonable fees and expenses of legal counsel)
incurred or paid by the Secured Party in exercising or protecting its interests,
rights and remedies under this Security Agreement, plus interest thereon at the
lesser of (i) 18% per annum or (ii) the highest rate of interest then allowed by
law.
(d) Debtor shall pay immediately, without notice, the entire unpaid
Indebtedness of Debtor to the Secured Party whether created or incurred pursuant
to this Security Agreement or otherwise, upon Debtor's default under Section 5
of this Security Agreement.
4. Representations, Warranties and Agreements of Debtor.
(a) All information supplied and statements made by Debtor in any
financial, credit or accounting statement or application for credit prior to,
contemporaneously with or subsequent to the execution of this Security Agreement
are and shall be true, correct, complete, valid and genuine in all material
respects.
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(b) Except for the security interest granted in this Security
Agreement, no financing statement covering the Collateral or its proceeds is on
file in any public office and there is no lien, security interest or encumbrance
in or on the Collateral.
(c) The location where Debtor maintains its chief executive office is
0000 Xxxx 0xx Xxxxxx, Xxxxxx, Xxxxx 00000.
(d) The Collateral shall remain in Debtor's possession or control at
all times at Debtor's risk of loss and be kept at the address shown in paragraph
4(c) above, where the Secured Party may inspect it at any time, except for its
temporary removal in connection with its ordinary use or unless Debtor notifies
the Secured Party in writing and the Secured Party consents in writing in
advance of its removal to another location.
(e) Until an Event of Default, Debtor may use the Collateral in any
lawful manner not inconsistent with this Security Agreement or with the terms or
conditions of any policy of insurance thereon and except for accounts and
contract rights may also sell the Collateral in the ordinary course of business.
The Secured Party security interest shall attach to all proceeds of sales and
other dispositions of the Collateral.
(f) Debtor will promptly notify the Secured Party in writing of any
change in the location of its chief executive office as set forth in paragraph
4(c) of this Security Agreement.
(g) Debtor shall pay prior to delinquency all material taxes, charges,
liens and assessments against the Collateral except those Debtor is contesting
in good faith and for which adequate accruals have been made, and upon Debtor's
failure to do so after ten days' prior written notice, the Secured Party at its
option may pay any of them and shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same. Such payment
shall become part of the Indebtedness secured by this Security Agreement and
shall be paid to the Secured Party by Debtor immediately and without demand,
with interest thereon at the rate set forth in paragraph 3(c) hereof.
(h) Debtor will have and maintain insurance at all times with respect
to all Collateral against risks of fire, theft and such other risks as the
Secured Party may reasonably require, including extended coverage, and in the
case of motor vehicles, including collision coverage. Such insurance policies
shall also contain a standard mortgagee's endorsement providing for payment of
any loss to the Secured Party. All policies of insurance shall provide for ten
days' written minimum cancellation notice to the Secured Party. Debtor shall
furnish the Secured Party evidence of compliance with the foregoing insurance
provisions. Following an Event of Default, the Secured Party may act as
attorneys for Debtor in obtaining, adjusting, settling and canceling such
insurance and endorsing any drafts drawn by insurers of the Collateral. The
Secured Party may apply any proceeds of such insurance which may be received by
it in payment on account of the obligations secured hereby, whether due or not.
(i) Debtor shall, at its own expense, do, make, procure, execute and
deliver all acts, things, writings and assurances as the Secured Party may at
any time reasonably request to protect, assure or enforce its interests, rights
and remedies created by, provided in or emanating from this Security Agreement.
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(j) Except in the ordinary course of business, Debtor shall not sell,
lend, rent, lease or otherwise dispose of the Collateral or any interest therein
except as authorized in this Security Agreement or in writing by the Secured
Party, and Debtor shall keep the Collateral, including the proceeds thereof,
free from unpaid charges, including taxes, and from liens, encumbrances and
security interests other than that of the Secured Party.
(k) Debtor shall sign and execute alone or with the Secured Party any
Financing Statement or other document or procure any document and pay all
connected costs reasonably incurred, necessary to protect the security interest
under this Security Agreement against the rights or interests of third persons.
(l) Debtor shall at all times keep the proceeds of the Collateral
separate and distinct from other property of Debtor and shall keep accurate and
complete records of the Collateral and its proceeds.
(m) Debtor is the owner of the Collateral free of all liens, claims and
encumbrances, except as created by this Security Agreement and the security
interest granted in favor of the Secured Party, EXCEPT AS OTHERWISE SET FORTH ON
SCHEDULE A.
(n) As to that portion of the Collateral which is accounts, Debtor
represents, warrants and agrees with respect to each such account that:
(i) The account arose from the performance of services by Debtor
which have been fully and satisfactorily performed or from the lease
or the absolute sale of goods by Debtor in which Debtor had the sole
and complete ownership, and the goods have been shipped or delivered
to the account debtor.
(ii) The account is not subject to any prior or subsequent
assignment, claim, lien or security interest other than that of the
Secured Party.
(iii) The account is not subject to set-off, counterclaim,
defense, allowance or adjustment other than discounts for prompt
payment shown on the invoice, or to dispute, objection or complaint by
the account debtor concerning his liability on the account, and the
goods, the sale or lease of which gave rise to the account, have not
been returned, rejected, lost or damaged.
The account arose in the ordinary course of Debtor's business,
and no notice of bankruptcy, insolvency or financial hardship of the
account debtor has been received by Debtor.
(o) Debtor further represents and warrants as follows:
(i) Organization. Debtor is a corporation duly incorporated,
validly existing and in good standing under the laws of its
jurisdiction of organization. Debtor has the corporate power to own
its properties and to
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carry on its business as now being conducted and as proposed to be
conducted and is duly qualified to do business and is in good standing
in each jurisdiction in which the failure to be so qualified and in
good standing would have a material adverse effect on its business,
financial condition, results of operations or prospects;
(ii) Authority. Debtor has all requisite corporate power and
authority to execute and deliver the Note and this Security Agreement
and to carry out and perform its obligations thereunder and hereunder;
(iii) No Conflicts. The execution, delivery and performance of
the Note and this Security Agreement will not result in any violation
of, conflict with, or constitute a breach or default or give rise to a
right of termination, cancellation or acceleration under any provision
of (A) Debtor's charter or governing documents; (B) any judgment,
decree or order or any agreement, contract, understanding, indenture
or other instrument to which Debtor is a party or by which it or its
assets may be bound; or (C) any statute, rule or governmental
regulation to which Debtor may be subject; and
(iv) Enforceability. The Note and this Security Agreement
constitute the valid and binding obligations of Debtor, enforceable
against Debtor in accordance with their respective terms.
5. Events of Default. Debtor shall be in default under this Security
Agreement upon the happening of any condition or event set forth below (each, an
"Event of Default"):
(a) Debtor's failure to pay any Indebtedness secured by this Security
Agreement within ten business days after such Indebtedness becomes due in
accordance with the terms of this Security Agreement or the Note.
(b) Default by Debtor in punctual performance of any of the
obligations, covenants, terms or provisions contained or referred to in this
Security Agreement or in any note secured hereby, if such default shall continue
unremedied for a period of twenty business days following written notice of
default by the Secured Party to Debtor.
(c) Any warranty, representation or statement contained in this
Security Agreement or made or furnished to the Secured Party by or on behalf of
Debtor in connection with this Security Agreement or to induce the Secured Party
to make a loan to Debtor proves to have been false in any material respect when
made or furnished.
(d) Loss, theft, substantial damage, destruction, sale (except as
authorized in this Security Agreement) or encumbrance to or of any material
portion of the Collateral, or the making of any levy, seizure or attachment
thereof or thereon.
(e) Debtor's dissolution, termination of existence, insolvency or
business failure; the appointment of a receiver of all or any part of the
property of Debtor; an assignment for the benefit of creditors by Debtor; or the
commencement of any proceeding under any
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bankruptcy or insolvency laws by or against Debtor or any guarantor, surety or
endorser for Debtor which results in the entry of an order for relief or which
remains undismissed, undischarged or unbonded for a period of 60 days or more.
(f) Any statement of the financial condition of Debtor or of any
guarantor, surety or endorser of any liability of Debtor to the Secured Party
submitted to the Secured Party by Debtor or any such guarantor, surety or
endorser proves to be false in any material respect.
6. Secured Party' Rights and Remedies.
(a) Rights Exclusive of Default.
(i) This Security Agreement, the Secured Party's rights hereunder
or the Indebtedness hereby secured may be assigned by the Secured
Party (or any subsequent assignee) from time to time, and in any such
case the assignee shall be entitled to all of the rights, privileges
and remedies granted in this Security Agreement to the Secured Party;
and in such event Debtor will assert no claims or defenses, other than
a defense that it has performed its obligations under the Note and
this Security Agreement, it may have against the Secured Party against
the assignee, except those granted in this Security Agreement.
(ii) The Secured Party may enter Debtor's premises at any
reasonable time without interruption of Debtor's business and without
any breach of the peace to inspect the Collateral and Debtor's books
and records pertaining to the Collateral, and Debtor shall assist the
Secured Party in making any such inspection; provided, that the
Secured Party and its agents shall keep confidential all Debtor's
proprietary information and confidential information and shall not use
such proprietary information and confidential information except in
connection with enforcing the Secured Party's rights under this
Security Agreement or unless required to disclose such information
pursuant to a judicial or governmental order.
(iii) The Secured Party may execute, sign, endorse, transfer or
deliver in the name of Debtor, notes, checks, drafts or other
instruments for the payment of money and receipts, certificates of
origin, applications for certificates of title or any other documents,
necessary to evidence, perfect or upon an Event of Default realize
upon the security interest and obligations created by this Security
Agreement.
(iv) At its option, the Secured Party may discharge taxes, liens
or security interests or other encumbrances at any time levied or
placed on the Collateral, may pay for the insurance on the Collateral
and may pay for the maintenance and preservation of the Collateral.
Debtor agrees to reimburse the Secured Party on demand for any payment
made, or expense incurred by the Secured Party pursuant to the
foregoing authorization, plus interest thereon at the rate set forth
in paragraph 3(c) hereof.
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(b) Rights in Event of Default. In addition to any other rights which
the Secured Party may have at law or hereunder, upon the occurrence of an Event
of Default, and at any time thereafter, the Secured Party may:
(i) Declare all obligations secured hereby immediately due and
payable and shall have the rights and remedies of a "secured party"
under the Texas Business and Commerce Code, including, without
limitation, the right to sell, lease or otherwise dispose of any or
all of the Collateral and the right to take possession of the
Collateral, and for that purpose the Secured Party may enter any
premises on which the Collateral or any part thereof may be situated
and remove the same therefrom, so long as the same may be accomplished
without a breach of the peace. The Secured Party may require Debtor to
assemble the Collateral and make it available to the Secured Party at
a place to be designated by the Secured Party which is reasonably
convenient to the parties. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Secured Party will send Debtor
reasonable notice of the time and place of any public sale thereof or
of the time after which any private sale or other disposition thereof
is to be made. The requirement of sending reasonable notice shall be
met if such notice is given to Debtor at least ten days before the
time of the sale or disposition. Expenses of retaking, holding,
preparing for sale, selling or the like shall include the Secured
Party's reasonable fees and expenses (including, but not limited to,
reasonable fees and expenses of legal counsel), and Debtor agrees to
pay such expenses, plus interest thereon at the rate set forth in
paragraph 3(c) hereof. Debtor shall remain liable for any deficiency
hereunder or under the Note;
(ii) Notify the account of debtors or obligors of any accounts,
chattel paper, negotiable instruments or other evidences of
indebtedness remitted by Debtor to the Secured Party as proceeds to
pay the Secured Party directly;
(iii) Demand, xxx for, collect or make any compromise or
settlement with reference to the Collateral as the Secured Party, in
its sole discretion, chooses; and
(iv) Remedy any default and may waive any default without waiving
or being deemed to have waived any other prior or subsequent default.
7. Miscellaneous.
(a) Notices. All notices and other communications hereunder shall be
in writing or by telegram or facsimile, and shall be deemed to have been duly
made when delivered in person or sent by telegram or facsimile (with confirmed
receipt), same day or overnight courier, or 72 hours after having been deposited
in the United States first class or registered or
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certified mail return receipt requested, postage prepaid, to a party at the
address set forth below (which may be changed in accordance with these notice
procedures):
If to the Secured Party:
TSG Financial Limited Partnership
0000 Xxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xx. Xxxxxxx X. XxXxxxxxxx
Fax: (000) 000-0000
If to Debtor:
MSI Holdings, Inc.
0000 Xxxx 0xx Xxxxxx
Xxxxxx, Xxxxx 00000
Attn: Xx. Xxxxxx X. Xxxxx
Fax: (000) 000-0000
(b) Construction. "Secured Party" and "Debtor", as used in this
instrument, include the administrators, successors, representatives, receivers,
trustees and assigns of such parties.
(c) Headings. The headings appearing in this instrument have been
inserted for convenience of reference only and shall be given no substantive
meaning or significance whatever in construing the terms and provisions of this
instrument. Terms used in this instrument which are defined in the Texas
Business and Commerce Code are used with the meanings as therein defined.
(d) Governing Law. The law governing this secured transaction shall be
that of the State of Texas in force at the date of this instrument.
(e) Further Assurances. All property acquired by Debtor after the date
hereof, which by the terms hereof is required or intended to be subjected to the
lien of this Security Agreement, shall, immediately upon the acquisition thereof
and without further mortgage, conveyance or assignment, become subject to the
lien of this Security Agreement as fully as though now owned by Debtor and
specifically described herein. Nevertheless, Debtor will do all such further
acts and execute, acknowledge and deliver all such further conveyances,
mortgages, financing statements and assurances as the Secured Party shall
reasonably require for accomplishing the purposes of this Security Agreement.
(f) Expenses. Debtor will pay to the Secured Party all reasonable
expenses and expenditures, including fees and expenses of counsel to the Secured
Party, and other expenses incurred or paid by the Secured Party in connection
with any default or non-payment when due and payable in collection of the Note.
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(g) Waiver. Debtor hereby waives all rights to which Debtor may or
might otherwise become entitled to with respect to the provisions of Section
34.02 and 34.03 of the Texas Business and Commerce Code, as amended, and agrees
that the rights of Debtor pursuant to the provisions of Section 34.04 of the
Texas Business and Commerce Code, as amended, shall be subject to, secondary,
subordinate and inferior in all respects to the rights of each Secured Party
pursuant to this Security Agreement.
(h) Rights Cumulative; No Waiver. The rights and remedies of the
Secured Party hereunder are cumulative, and the exercise (or waiver) of any one
or more of the remedies provided for herein shall not be construed as a waiver
of any of the other rights and remedies of the Secured Party. No delay on the
part of the holder of this Security Agreement in the exercise of any power or
right under this Security Agreement or under any other instrument executed
pursuant hereto shall operate as a waiver thereof, nor shall a single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power or right.
(i) Successors and Assigns. No assignment of this Security Agreement
shall be made without the prior written consent of the Secured Party. Any
assignee of Debtor or the Secured Party shall agree in writing prior to the
effectiveness of such assignment to be bound by the provisions hereof. All of
the stipulations, promises and agreements in this Security Agreement made by or
on behalf of Debtor shall bind the successors and permitted assigns of Debtor,
whether so expressed or not, and inure to the benefit of the successors and
permitted assigns of Debtor and the Secured Party.
(j) Severability. In the event any one or more of the provisions
contained in this Security Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this Security
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned parties have executed this Security
Agreement on and as of the Effective Date.
DEBTOR:
MSI HOLDINGS, INC.
By:
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Xxxxxx X. Xxxxx
Chief Executive Officer
SECURED PARTY:
TSG FINANCIAL LIMITED PARTNERSHIP
By:
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Xxxxxxx X. XxXxxxxxxx
Executive Vice President and
Managing Director
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SCHEDULE A TO SECURITY AGREEMENT
Secured debt consists of:
Austin Community Development Corporation $100,000 equipment loan dated May 29,
1996, secured by equipment and accounts receivable. December 31, 1999 balance is
$50,707.
Austin Community Development Corporation $100,000 working capital loan dated
June 14, 1995, secured by equipment and accounts receivable. December 31, 1999
balance is $14,583.
Neighborhood Commercial Management Program $75,000 loan from City of Austin
dated June 8, 1995, secured by second lien on equipment and accounts receivable.
December 31, 1999 balance is $17,708.
Neighborhood Commercial Management Program $250,000 loan from City of Austin
dated August 12, 1996, secured by second lien on equipment and accounts
receivable. December 31, 1999 balance is $96,284.
Note:
The Collateral discussed in Section 4(m) does not include leased equipment.
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