SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of June 11, 1997, made by ENHANCED
SYSTEMS, INC., an Arizona corporation, having its chief executive office at 0000
Xxxx Xxxxxxxx Xxxxx, Xxxxxxxxxx, Xxxxxxx 00000 ("Debtor"), in favor of GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation having an office at 1999
Avenue of the Stars, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000 ("Lender").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement dated as of April 11, 1994, by and among Vodavi Communications
Systems, Inc., an Arizona corporation formerly known as V Technology Acquisition
Corp. ("Borrower") and Lender, as amended and restated as of June 11, 1997 (as
the same from time to time may be amended, restated, supplemented or otherwise
modified, the "Credit Agreement"), Lender has agreed, among other things, to
make a certain Revolving Credit Loan (as defined in the Credit Agreement)
available to Borrower; and
WHEREAS, pursuant to that certain Guaranty Agreement, dated as of
June 11, 1997, executed by Debtor and Arizona Repair Services, Inc. in favor of
Lender (the "Guaranty Agreement"), Debtor has guaranteed the payment and
performance by Borrower of all obligations of Borrower arising under the Credit
Agreement (including without limitation payment of the Revolving Credit Loan);
and
WHEREAS, Lender is willing to make the Revolving Credit Loan and
any other extension of credit provided for in the Credit Agreement available to
Borrower, but only upon the condition, among others, that Debtor shall have
executed and delivered this Security Agreement in favor of Lender; and
NOW, THEREFORE, in consideration of the premises and the Lender's
commitment to make the Revolving Credit Loan available to Borrower, the parties
hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized
terms defined in the Credit Agreement are used herein as therein defined.
2. GRANT OF SECURITY INTEREST.
a. To secure the prompt and complete payment, performance and
observance of all of the obligations, indebtedness and liabilities of Debtor
under the Guaranty Agreement (collectively, the "Secured Obligations"), and to
induce Lender to enter into the Credit Agreement, to issue the Commitment and to
make the Revolving Credit Loan and any other extensions of credit provided for
therein available to Borrower in accordance with the respective terms thereof,
Debtor hereby grants to Lender a security interest in all of Debtor's right,
title and interest in, to and under the following whether now owned by or owing
to, or hereafter acquired by or arising in favor of Debtor (including, without
limitation, under any trade names, styles or
divisions thereof), and regardless of where located (all of which being
hereinafter collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Inventory;
(ix) all other money, cash or cash equivalents of Debtor;
(x) all books and records (including without limitation
credit files, customer lists, computer files, computer programs,
computer printouts, or other computer material) of Debtor
identifying, evidencing or otherwise pertaining to any of the
Collateral described above; and
(xi) all Proceeds of any of the Collateral described above.
b. In addition, to secure the prompt and complete payment,
performance and observance of the Secured Obligations and in order to induce
Lender as aforesaid, Debtor hereby grants to Lender, a security interest in all
property of Debtor held by Lender, including, without limitation, all property
of every description, now or hereafter in the possession or custody of or in
transit to Lender for any purpose, including safekeeping, collection or pledge,
for the account of Debtor, or as to which Debtor may have any right or power.
3. LENDER'S RIGHTS; LIMITATIONS ON LENDER'S SECURED
OBLIGATIONS.
a. It is expressly agreed by Debtor that, anything herein to the
contrary notwithstanding, Debtor shall remain liable under each of its Contracts
and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Lender shall have
no obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting herein of a security interest
therein or the receipt by Lender of any payment relating to any Contract or
License pursuant hereto, nor shall Lender be required or obligated in any manner
to perform or fulfill any of the obligations of Debtor under or pursuant to any
Contract or License, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the
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sufficiency of any performance by any party under any Contract or License, or to
present or file any claims, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
b. Lender may at any time after the occurrence and during the
continuation of an Event of Default and upon 24 hours prior notice to Debtor,
notify Account Debtors, parties to the Contracts, and obligors in respect of
Instruments, that the Accounts and the right, title and interest of Debtor in
and under such Contracts and Instruments have been assigned to Lender and that
payments shall be made directly to Lender, and upon the request of Lender,
Debtor shall so notify Account Debtors, parties to Contracts, and obligors in
respect of Instruments. Lender may at any time after the occurrence and during
the continuation of an Event of Default and upon notice to the Debtor (which may
be simultaneous with notice to Obligors on chattel paper) notify obligors in
respect of Chattel Paper that the right, title and interest of Debtor in and
under such Chattel Paper have been assigned to Lender and that payments shall be
made directly to Lender.
c. Lender at any time after the occurrence and during the
continuation of an Event of Default shall have the right to make test
verifications of the Accounts and verifications and appraisals of the other
Collateral in any manner and through any medium that it reasonably considers
advisable, and Debtor agrees to furnish all such assistance and information as
Lender may reasonably require in connection therewith. Lender may at any time
after the occurrence and during the continuation of an Event of Default, in
Lender's own name or in the name of Debtor, communicate with Account Debtors,
parties to Contracts, obligors in respect of Instruments and obligors in respect
of Chattel Paper to verify with such Persons, to Lender's satisfaction, the
existence, amount and terms of any such Accounts, Contracts, Instruments or
Chattel Paper. Upon the occurrence and continuation of an Event of Default,
Debtor, at its own expense, shall cause the certified public accountant then
engaged by Debtor, to prepare and deliver to Lender at any time and from time to
time promptly upon Lender's request the following reports: (i) a reconciliation
of all Accounts, (ii) an aging of all Accounts, (iii) trial balances, and (iv) a
test verification of such Accounts as Lender reasonably may request.
4. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants that:
a. Except for the security interest granted to Lender under this
Security Agreement, and the Liens set forth on Schedule 7.6 to the Credit
Agreement and Permitted Exceptions, Debtor is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto free and clear of any and all liens, security
interests or other encumbrances.
b. No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except as may be
set forth on Schedule 7.6 to the Credit Agreement or such as may have been filed
by Debtor in favor of Lender pursuant to this Security Agreement.
c. As a result of the filing of appropriate financing statements in
the filing offices listed on Schedule I hereto, this Security Agreement is
effective to create a valid and
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continuing lien on and perfected security interest in favor of Lender in the
Collateral with respect to which a security interest may be perfected by filing
pursuant to the UCC, which lien and security interest is prior to all other
Liens, except only for Liens specifically designated on Schedule 7.6 as being
prior to Lender's Liens and Permitted Prior Exceptions, and is enforceable as
such as against creditors of and purchasers from Debtor (other than purchasers
of Inventory in the ordinary course of business). All action necessary or
desirable to protect and perfect such security interest in each item of the
Collateral has been duly taken.
d. Schedule II hereto lists all Instruments of Debtor. All action
necessary or desirable to protect and perfect the security interest of Lender in
each item set forth on Schedule II, including the delivery of all originals
thereof to Lender, has been duly taken. The security interest of Lender in the
Collateral listed on Schedule II hereto is prior to all other Liens except those
Liens specifically designated on Schedule 7.6 as being prior to Lender's Liens
and Permitted Prior Exceptions and is enforceable as such against creditors of
and purchasers from Debtor.
e. Debtor's chief executive office, principal place of business,
corporate offices, all warehouses and premises within which Collateral is stored
and located and the locations of all of its records concerning the Collateral
are set forth on the Credit Party Questionnaire completed by Debtor and
delivered to Lender, and Debtor shall not change its chief executive office,
principal place of business, corporate offices or Collateral locations, or
remove such records unless it shall have notified the Lender in writing at least
30 days prior to such change and shall have taken such action as the Lender
deems reasonably necessary to cause the Lien of Lender in the Collateral to
continue to be perfected.
f. During the five (5) year period preceding the date of this
Agreement, Debtor has not been known as or used and Debtor presently does not
use any corporate name other than its name as set forth in its signature below
and those other corporate, fictitious or trade names (if any) of Debtor as
disclosed on the Credit Party Questionnaire completed by Debtor and delivered to
Lender. If such schedule sets forth any fictitious or trade names for Debtor
(collectively, the "Trade Names"), Debtor represents and warrants to and agrees
with Lender that: (i) any Collateral arising out of any sales under any of the
Trade Names is the property of and belongs to Debtor, (ii) each of the Trade
Names is a trade name or trade style (and not an independent or separate
corporation or other legal entity) by which Debtor may identify or market itself
or under which Debtor may sell certain products, render certain services or
otherwise conduct some or all of its business, (iii) any Collateral which arises
from any sales made, services rendered or other business conducted under any of
the Trade Names shall be owned solely by Debtor, and (iv) Debtor hereby appoints
Lender to be its attorney-in-fact to file such certificates disclosing Debtor's
use of the Trade Names and to take such other actions on Debtor's behalf as
Lender reasonably considers appropriate to comply with any statutes or
regulations relating to the use of fictitious or assumed business names.
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g. (i) The Accounts represent bona fide sales of Inventory or
services rendered by Debtor in the ordinary course of Debtor's business
completed in accordance with the terms and provisions contained in the documents
available to Lender with respect thereto and are not evidenced by a judgment,
Instrument or Chattel Paper, (ii) the amounts shown on any Borrowing Base
Certificate, summary or schedules of Account or any aged receivables trial
balance delivered by Debtor to Lender pursuant to the terms of this Security
Agreement or the Credit Agreement and on Debtor's books and records and all
invoices and statements which may be delivered to the Lender with respect
thereto are actually and absolutely owing to Debtor and are not in any way
contingent, (iii) to the best of Debtor's knowledge, there are no set-offs,
claims or disputes existing or asserted with respect thereto and Debtor has not
made any agreement with any Account Debtor for any deduction therefrom except a
discount or allowance allowed by Debtor in the ordinary course of its business
for prompt payment, (iv) to the best of Debtor's knowledge, there are no facts,
events or occurrences that in any way impair the validity or enforcement thereof
or tend to reduce the amount payable thereunder as shown on the respective aged
receivable trial balances, Debtor's books and records and all invoices and
statements delivered to Lender with respect thereto, (v) to the best of Debtor's
knowledge, all Account Debtors have the capacity to contract, (vi) Debtor has
received no notice of proceedings or actions which are threatened or pending
against any Account Debtor which might result in any material adverse change in
such Account Debtor's financial condition and (vii) Debtor has no knowledge that
any Account Debtor is unable generally to pay its debts as they become due.
h. With respect to all Inventory and Equipment, (i) such property
is located at one of the locations set forth on the Credit Party Questionnaire
completed by Debtor and delivered to Lender, (ii) Debtor has good and
merchantable title to such property and such property is not subject to any lien
or security interest or document whatsoever except for the security interest
granted to Lender hereunder and any set forth on Schedule 7.6 to the Credit
Agreement and Permitted Exceptions, (iii) such property is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with
any third parties except as described on Schedule III, which agreements will not
materially interfere with the sale or use of the Collateral by the Lender, (iv)
with respect to Inventory, such property is of good and merchantable quality,
(v) with respect to Inventory, such property is free from material defects, and
(vi) with respect to the Inventory, the completion of manufacture, sale or other
disposition of such property by Lender following an Event of Default shall not
require the consent of any Person and shall not constitute a breach or default
under any contract or agreement to which Debtor is a party or to which such
property is subject.
5. COVENANTS. Debtor covenants and agrees with Lender that from and
after the date of this Security Agreement and until the Termination Date:
a. Further Assurances; Pledge of Instruments. At any time and from
time to time, upon the written request of Lender and at the sole expense of
Debtor, Debtor shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Lender may
reasonably deem desirable to obtain the full benefits of this Security Agreement
and of the rights and powers herein granted, including (i) using its best
efforts to secure all consents and approvals necessary or appropriate for the
assignment to or for the benefit of Lender of any License or Contract held by
Debtor or in which Debtor has any
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rights not heretofore assigned, (ii) filing any financing or continuation
statements under the UCC with respect to the liens and security interests
granted hereunder or under any other Loan Document, (iii) transferring
Collateral to Lender's possession (if such Collateral consists of Chattel Paper
or if a security interest in such Collateral can be perfected only by
possession, or, if requested by Lender), and (iv) using its best efforts to
obtain waivers of liens from landlords and mortgagees. Debtor also hereby
authorizes Lender to file any such financing or continuation statement without
the signature of Debtor to the extent permitted by applicable law. If any amount
payable under or in connection with any of the Collateral is or shall become
evidenced by any Instrument, such Instrument, other than checks received in the
ordinary course of business (which shall be deposited to a Collection Account),
shall be duly endorsed in a manner satisfactory to Lender immediately upon
Debtor's receipt thereof and delivered to Lender.
b. Maintenance of Records. Debtor shall keep and maintain, at its
own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Debtor shall xxxx its books and records pertaining to the Collateral
to evidence this Security Agreement and the security interests granted hereby.
All Chattel Paper shall be marked with the following legend: "This writing and
the obligations evidenced or secured hereby are subject to the security interest
of General Electric Capital Corporation". For Lender's further security, Debtor
agrees that Lender shall have a special property right and security interest in
all of Debtor's books and records pertaining to the Collateral and, upon the
occurrence and during the continuation of any Event of Default, Debtor shall
deliver and turn over any such books and records to Lender or to its
representatives at any time on demand of Lender; provided, that the Lender will
provide the Debtor with copies of such books and records at Debtor's request and
expense. Prior to the occurrence of an Event of Default and upon reasonable
notice from Lender, Debtor shall permit any representative of Lender to inspect
such books and records and shall provide photocopies thereof to Lender as more
specifically set forth in Section 5(g) below.
c. Indemnification. In any suit, proceeding or action brought by
Lender relating to any Account, Chattel Paper, Contract, General Intangible,
Instrument or Document for any sum owing thereunder, or to enforce any provision
of any Account, Chattel Paper, Contract, General Intangible, Instrument, or
Document, Debtor shall save, indemnify and keep Lender harmless from and against
all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder arising out of a breach by Debtor of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to, or in favor of, such obligor or its successors from Debtor, and all such
obligations of Debtor shall be and remain enforceable against, and only against,
Debtor and shall not be enforceable against Lender; provided, however, that
Debtor shall not be required to indemnify Lender with respect to any such
expense, loss or damage suffered by Lender as a result of its gross negligence
or willful misconduct in collecting any sum owing under any Account, Chattel
Paper, Contract, General Intangible, Instrument or Document.
d. Compliance with Terms of Accounts, etc. In all material
respects, Debtor shall perform and comply with all obligations in respect of
Accounts, Chattel Paper, Contracts, Licenses, Instruments and Documents, and all
other agreements to which it is a party or by which it or any of its property is
bound.
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e. Limitation on Liens on Collateral. Debtor shall not create,
permit or suffer to exist, and shall defend the Collateral against and take such
other action as is necessary to remove, any Lien on the Collateral except as
otherwise permitted pursuant to Section 7.6 of the Credit Agreement and except
for Permitted Exceptions. Debtor shall further defend the right, title and
interest of Lender in and to any of Debtor's rights under the Accounts, Chattel
Paper, Contracts, Documents, General Intangibles and Instruments and to the
Inventory, and in and to the Proceeds thereof, against the Liens, claims and
demands of all Persons whomsoever.
f. Limitations on Modifications of Accounts. Subject to the terms
of the Credit Agreement, upon the occurrence and during the continuation of any
Event of Default, Debtor shall not, without Lender's prior written consent, (i)
grant any extension of the time of payment of any of the Accounts, Chattel
Paper, Instruments or amounts due under any Contract, (ii) compromise or settle
the same for less than the full amount thereof, (iii) release, in whole or in
part, any Person liable for the payment thereof, or (iv) allow any credit or
discount whatsoever thereon other than trade discounts granted in the ordinary
course of business of Debtor.
g. Right of Inspection. Upon reasonable notice to Debtor (unless an
Event of Default has occurred and is continuing, in which case no notice is
necessary), Lender shall at all times have full and free access during normal
business hours to all the books and records and correspondence of Debtor, and
Lender or its representatives may examine the same, take extracts therefrom and
make photocopies thereof, and Debtor agrees to render to Lender, at Debtor's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Upon reasonable notice to Debtor (unless an Event
of Default has occurred and is continuing, in which case no notice is
necessary), Lender and its representatives shall also have the right to enter
into and upon any premises where any of the Collateral is located for the
purpose of inspecting the same, observing its use or otherwise protecting
Lender's interests in the Collateral.
h. Continuous Perfection. Debtor shall not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9-402(7) of the UCC or any other then applicable
provision of the UCC unless Debtor shall have given Lender at least thirty (30)
days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Lender to amend such financing statement or continuation statement
so that it is not seriously misleading.
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6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
a. Debtor hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's reasonable discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may reasonably
be necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby grants to Lender
the power and right, on behalf of Debtor, upon notice to or assent by Debtor
(which notice may be simultaneous with such action), at any time after the
occurrence and during the continuation of an Event of Default, to do the
following:
(i) in the name of Debtor, in its own name or otherwise,
take possession of, endorse and receive payment of any checks,
drafts, notes, acceptances, or other Instruments for the payment of
monies due under any Collateral;
(ii) continue any insurance existing pursuant to the terms
of the Loan Documents, and pay all or any part of the premiums
therefor and the costs thereof; and
(iii) receive payment of any and all monies, claims, and
other amounts due or to become due at any time arising out of or in
respect of any Collateral.
b. Debtor hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's reasonable discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may reasonably
be necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby grants to Lender
the power and right, on behalf of Debtor, upon notice to (which notice may be
simultaneous with such action) but without the assent of Debtor, upon the
occurrence and during the continuation of an Event of Default, to do the
following:
(i) ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any
Collateral;
(ii) pay or discharge taxes, liens, security interest, or
other encumbrances levied or placed on or threatened against the
Collateral;
(iii) obtain any insurance called for by the terms of the
Loan Documents and pay all or any part of the premiums therefor and
costs thereof;
(iv) direct any party liable for any payment under or in
respect of any of the Collateral to make payment of any and all
monies due or to become due thereunder,
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directly to Lender or as Lender shall direct;
(v) sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with
accounts and other documents constituting or related to the
Collateral;
(vi) settle, compromise or adjust any suit, action, or
proceeding described above and, in connection therewith, give such
discharges or releases as Lender may deem appropriate;
(vii) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise reasonably
deemed appropriate by Lender for the purpose of collecting any and
all such monies due under any Collateral whenever payable;
(viii) commence and prosecute any suits, actions or
proceedings of law or equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral;
(ix) defend any suit, action or proceeding brought against
Debtor with respect to any Collateral if Debtor does not defend
such suit, action or proceeding or if Lender reasonably believes
that Debtor is not pursuing such defense in a manner that will
maximize the recovery with respect to such Collateral;
(x) license or, to the extent permitted by an applicable
license, sublicense whether general, specific or otherwise, and
whether on an exclusive or non-exclusive basis, any Patent or
Trademark throughout the world for such or terms on such conditions
and in such manner as Lender shall, in its reasonable discretion,
determine; and
(xi) sell, transfer, pledge, make any agreement with respect
to, or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option and Debtor's expense, at
any time, or from time to time, all acts and things which Lender
reasonably deems necessary to perfect, preserve, or realize upon
the Collateral and Lender's Lien thereon in order to effect the
intent of this Security Agreement, all as fully and effectively as
Debtor might do.
c. Debtor hereby ratifies, to the extent permitted by law, all that
said attorneys shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted pursuant to this Section 6 is a power coupled with an
interest and shall be irrevocable until the Termination Date.
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d. The powers conferred on Lender hereunder are solely to protect
Lender's interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers. None of Lender's
officers, directors, employees, agents or representatives shall be responsible
to Debtor for any failure to act, and in taking affirmative action, shall be
liable only to the extent that such Persons are finally determined by a court of
competent jurisdiction to be guilty of gross negligence or willful misconduct.
e. Following the occurrence and during the continuation of an Event
of Default, Debtor also authorizes Lender, at any time and from time to time, to
(i) communicate in its own name with any party to any Contract with regard to
the assignment of the right, title and interest of Debtor in and under the
Contracts and other matters relating thereto and (ii) execute, in connection
with the sale provided for in Section 8 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
7. PERFORMANCE BY LENDER OF DEBTOR'S SECURED OBLIGATIONS. If Debtor
fails to perform or comply with any of its agreements contained herein or in any
of the other Loan Documents, and Lender, as provided for by the terms of this
Security Agreement or any of the other Loan Documents, shall itself perform or
comply, or otherwise cause performance of or compliance, with such agreement,
the reasonable expenses, including attorneys' fees, of Lender incurred in
connection with such performance or compliance, together with interest thereon
at the rate then in effect in respect of the Revolving Credit Loan, shall be
payable by Debtor to Lender on demand and shall constitute Secured Obligations
secured hereby.
8. REMEDIES; RIGHTS UPON DEFAULT.
a. If any Event of Default shall occur and be continuing, Lender
may exercise in addition to all other rights and remedies granted to it under
this Security Agreement, the Credit Agreement, the other Loan Documents and
under any other instrument or agreement securing, evidencing, guaranteeing or
otherwise relating to the Secured Obligations, all rights and remedies that it
has as a secured party under the UCC. Without limiting the generality of the
foregoing, Debtor expressly agrees that in any such event Lender, without demand
of performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale and any
notice expressly required by the Guaranty Agreement) to or upon Debtor or any
other Person (all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the UCC and other
applicable law), may forthwith enter upon the premises of Debtor where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Debtor notice and opportunity for a hearing
on Lender's claim or action, and without paying rent to Debtor, and collect,
receive, assemble, process, appropriate and realize upon the Collateral, or any
part thereof, and may forthwith sell, lease, assign, give an option or options
to purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lender shall have the right upon any such public sale or sales,
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and, to the extent permitted by law, upon any such private sale or sales, to
purchase for the benefit of Lender the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption
Debtor hereby releases. Such sales may be adjourned and continued from time to
time with or without notice. Lender shall have the right to conduct such sales
on Debtor's premises or elsewhere and shall have the right to use Debtor's
premises without charge for such time or times as Lender reasonably deems
necessary or advisable.
Debtor further agrees, at Lender's request, to assemble the
Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at Debtor's premises or elsewhere. Until Lender is
able to effect a sale, lease, or other disposition of Collateral, Lender shall
have the right to use, operate or administer Collateral on behalf of Lender, or
any part thereof, to the extent that it reasonably deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose
reasonably deemed appropriate by Lender. Lender shall have no obligation to
Debtor to maintain or preserve the rights of Debtor as against third parties
with respect to Collateral while Collateral is in the possession of Lender.
Lender may, if it so elects and, to the extent not prohibited by applicable law,
seek the appointment of a receiver or keeper to take possession of Collateral
and to enforce any of Lender's remedies with respect to such appointment without
prior notice or hearing. Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale as provided in
Section 8(d) hereof, Debtor remaining liable for any deficiency remaining unpaid
after such application, and only after so paying over such net proceeds and
after the payment by Lender of any other amount required by any provision of
law, including section 9-504(1)(c) of the UCC (but only after Lender has
received what Lender considers reasonable proof of a subordinate party's
security interest), need Lender account for the surplus, if any, to Debtor. To
the maximum extent permitted by applicable law, Debtor waives all claims,
damages, and demands against Lender arising out of the repossession, retention
or sale of the Collateral except to the extent that a court of competent
jurisdiction issues a final determination that such claims or damages arise
solely out of the gross negligence or willful misconduct of such party. Debtor
agrees that ten (10) days' prior notice by Lender of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled, Debtor also being
liable for any reasonable attorneys' fees incurred by Lender to collect such
deficiency.
b. Debtor agrees to pay any and all reasonable costs of Lender,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
c. Except as otherwise specifically provided herein or in the Loan
Documents, Debtor hereby waives presentment, demand, protest or any notice (to
the maximum extent permitted by applicable law) of any kind in connection with
the Loan Documents, the Security Agreement or any Collateral.
d. The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Lender upon receipt,
in the following order of priorities:
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first, to Lender in an amount sufficient to pay in full the
reasonable expenses of Lender in connection with such sale,
disposition or other realization, including all expenses,
liabilities and advances incurred or made by Lender in connection
therewith, including reasonable attorney's fees;
second, to Lender in an amount equal to the then due and
unpaid accrued interest, fees and prepayment premiums, if any, on
the Secured Obligations;
third, to Lender in an amount equal to any other unpaid
Secured Obligations or amounts owed, if any, in connection with the
Secured Obligations; and
finally, upon payment in full of all of the Secured
Obligations, to Debtor or its representatives or to whomsoever may
be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct.
9. GRANT OF LICENSE TO USE PATENT AND TRADEMARK COLLATERAL. For the
purpose of enabling Lender to exercise rights and remedies under Section 8
hereof (including, without limiting the terms of Section 8 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time as Lender shall
be lawfully entitled to exercise such rights and remedies, Debtor hereby grants
to Lender an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to Debtor) to use, transfer, license or sublicense
any Patent, Trademark, trade secret, or copyright now owned or hereafter
acquired by Debtor, and wherever the same may be located, and including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof; provided that such
license shall be exercisable only at such time as the Lender shall have the
right to exercise its rights and remedies under Section 8 hereof.
10. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender
shall use reasonable care with respect to the Collateral in its possession or
under its control. Lender shall not have any other duty as to any Collateral in
its possession or control or in the possession or control of any agent or
nominee of Lender, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. Lender shall
account for any monies received by Lender in respect of any foreclosure on or
disposition of the Collateral.
11. REINSTATEMENT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Debtor for liquidation or reorganization, should Debtor become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Debtor's assets, and shall continue
to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In
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the event that any payment, or any part thereof, is rescinded, reduced, restored
or returned, the Secured Obligations shall be reinstated and deemed reduced only
by such amount paid and not so rescinded, reduced, restored or returned.
12. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon either of the
parties by the other party, or whenever either of the parties desires to give or
serve upon the other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in Section 11 of the Guaranty Agreement.
13. SEVERABILITY; COMPLETE AGREEMENT. Any provision of this
Security Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
This Security Agreement is to be read, construed and applied together with the
Credit Agreement and the other Loan Documents, which, taken together, set forth
the complete understanding and agreement of Lender and Debtor with respect to
the matters referred to herein and therein and supersede all prior agreements,
understandings or inducements whether express or implied, or oral or written.
14. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Lender and then only to the extent therein set forth. A waiver by Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Lender would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Lender and
Debtor.
15. LIMITATION BY LAW; TIME OF ESSENCE. All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered, or filed under the provisions of any applicable law. Time is of the
essence of this Security Agreement.
16. TERMINATION OF THIS SECURITY AGREEMENT. Subject to
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Section 11 hereof, this Security Agreement shall terminate upon the Termination
Date and all of Lender's rights, titles and interests in and to the Collateral
hereunder shall be automatically terminated and released on such date.
17. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of Debtor hereunder shall be binding upon the successors and assigns
of Debtor, and shall, together with the rights and remedies of Lender hereunder,
inure to the benefit of Lender, all future holders of any instrument evidencing
any of the Secured Obligations and their respective successors and assigns. No
sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing the Secured
Obligations or any portion thereof or interest therein shall in any manner
affect the security interest granted to Lender hereunder. Debtor may not assign,
sell or otherwise transfer an interest in this Security Agreement.
18. EXECUTION IN COUNTERPARTS. This Security Agreement may be
executed in any number of counterparts, each of which shall collectively and
separately constitute one agreement.
19. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY
AGREEMENT AND THE SECURED OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. DEBTOR HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, NEW YORK, SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
DEBTOR AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND DEBTOR ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
BOROUGH OF MANHATTAN, NEW YORK AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF LENDER AND, PROVIDED, FURTHER, THAT NOTHING IN
THIS AGREEMENT SHALL BE DEEMED TO PRECLUDE THE DEBTOR FROM PURSUING ANY
COMPULSORY COUNTERCLAIM IN ANY PROCEEDING BROUGHT BY THE LENDER IN ANY SUCH
OTHER JURISDICTION. DEBTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND DEBTOR
HEREBY WAIVES ANY OBJECTION WHICH DEBTOR MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
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CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. DEBTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO DEBTOR IN ACCORDANCE WITH SECTION 12 OF THIS
SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF DEBTOR'S ACTUAL RECEIPT THEREOF OR FIVE DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
21. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH, THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT,
OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
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IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.
ENHANCED SYSTEMS, INC.
By: /s/ Xxxx Xxxxxx
------------------------------------
Title: Secretary and Treasurer
----------------------------------
ACCEPTED AS OF JUNE 11, 1997:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Title: Duly Authorized Signatory
---------------------------------
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