EXHIBIT 10.4
SECURITY AGREEMENT
THIS AGREEMENT made as of this 18th day of November, 1986, between
XXXXXX INVESTMENT CORPORATION, a Minnesota corporation, as debtor (herein called
"Debtor") and NATIONAL CITY BUSINESS CREDIT, INC., a Minnesota corporation
(herein called "NCBC"), as secured party.
For good and valuable consideration, Debtor hereby agrees for the
benefit of NCBC as follows:
1.1 Debtor hereby grants NCBC a security interest (collectively
referred to as the "Security Interests") in the property described below, as
security for the payment and performance of each and every debt, liability and
obligation of every type and description which Debtor may now or at any time
hereafter owe to NCBC (whether such debt, liability or obligation now exists or
is hereafter created or incurred, whether it arises in a transaction involving
NCBC alone or in a transaction involving other creditors of Debtor, and whether
it is direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness of
Debtor arising under any loan or credit agreement or guaranty between Debtor and
NCBC, whether now in effect or hereafter entered into; all such debts,
liabilities and obligations are herein collectively referred to as the
"Obligations"). The Security Interests shall attach to the following property of
Debtor (the "Collateral"), and all products and proceeds thereof:
INVENTORY: All inventory of Debtor, whether now owned or hereafter
acquired, whether consisting of whole goods, spare parts or components,
supplies or materials, whether acquired, held or furnished for sale,
for lease or under service contracts or for manufacture or processing,
and wherever located, but excluding therefrom any and all interests in
land.
RECEIVABLES: Each and every right of Debtor to the payment of money,
whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a
loan, out of the overpayment of taxes or other liabilities, or any
other transaction or event, whether such right to payment is created,
generated or earned by Debtor or by some other person who subsequently
transfers his interest to Debtor, whether such right to payment is or
is not already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which Debtor may at any
time have by law or agreement against any account debtor or other
person obligated to make any such payment or against any property of
such account debtor or other person; all including but not limited to
all present and future accounts, contract rights, chattel papers,
bonds, notes and other debt instruments, and rights to payment in the
nature of general intangibles.
CHATTEL PAPER: To the extent not hereinbefore described, all chattel
paper of every kind and nature, including but not limited to, all
right, title and interest of Debtor (including rights to payment) under
contracts for deed and mortgages.
EQUIPMENT: All equipment of Debtor, whether now owned or hereafter
acquired, including all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office
and recordkeeping equipment, parts, tools, supplies and all other goods
(except inventory) used or bought for use by Debtor for any business or
enterprise and including specifically (without limitation) the goods
described in any equipment schedule or list herewith or hereafter
furnished to NCBC by Debtor, all accessions thereto, all substitutions
and replacements thereof, and all like or similar property now owned or
hereafter acquired by Debtor.
EQUITY SECURITIES: All stocks and other instruments, now owned or
hereafter acquired by Debtor, evidencing an ownership interest in any
partnership, corporation, entity or enterprise.
GENERAL INTANGIBLES: All general intangibles of Debtor whether now
owned or hereafter acquired, including (without limitation) all present
and future patents, patent applications, copyrights, trademarks, trade
names, trade secrets, customer or supplier lists and contracts,
manuals, operating instructions, permits, franchises, the right to use
Debtor's name, and the good will of Debtor's business.
1.2 Debtor represents, warrants and agrees that:
(a) Debtor has (or will have at the time it acquires rights in
Collateral hereafter arising) and will maintain so long as the Security
Interests may remain outstanding, absolute title to each item of
Collateral and all proceeds thereof, free and clear of all interests,
liens, attachments, encumbrances and security interests except for the
Security Interests and as provided herein and except as NCBC may
otherwise agree in writing. Debtor will defend the Collateral against
all claims or demands of all persons (other than NCBC) claiming the
Collateral or any interest therein. Debtor will not sell or otherwise
dispose of the Collateral or any interest therein, except the sale of
inventory in the ordinary course of Debtor's business, without NCBC's
prior written consent.
(b) Debtor does business solely under its own name and the
trade names (if any) set forth below. The sole place of business and
chief executive office of Debtor is located at the address set forth
below, and all of Debtor's records relating to its business or the
Collateral are kept at that location. Debtor will not permit any
tangible Collateral or any records pertaining to Collateral to be
located in any state or area in which, in the event of such location, a
financing statement covering such Collateral would be required to be,
but has not in fact been, filed in order to perfect the Security
Interests. Debtor will not change its name or the location of its place
of business, without prior written notice to NCBC.
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(c) None of the Collateral is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect
thereto.
(d) Each right to payment and each instrument, document,
chattel paper and other agreement constituting or evidencing Collateral
is (or, in the case of all future Collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, subject
to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in Debtor's records pertaining thereto as
being obligated to pay such obligation. Debtor will not agree to
modify, amend, subordinate, cancel or terminate the obligation of any
such account debtor or other obligor, without NCBC's prior written
consent.
(e) Debtor will keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and will,
from time to time, replace any worn, broken or defective parts.
(f) Debtor will promptly pay all taxes and other governmental
charges levied or assessed upon or against any Collateral or upon or
against the creation, perfection or continuance of the Security
Interests.
(g) Debtor will keep all Collateral free and clear of all
security interests, liens and encumbrances except for the Security
Interests as provided herein, purchase money security interests
permitted under the Credit Agreement by and between NCBC and Debtor of
even date herewith, and other security interests approved in writing by
NCBC.
(h) Debtor will at all reasonable times permit NCBC or its
representatives or examine or inspect any Collateral, or any evidence
of Collateral, wherever located, and Debtor will at any time and from
time to time send requests for verification of accounts or notices of
assignment to account debtors and other obligors.
(i) Debtor will keep accurate and complete records pertaining
to the Collateral and pertaining to Debtor's business and financial
condition, prepared on the basis of generally accepted accounting
principles consistently maintained; will submit to NCBC such weekly,
monthly and other periodic reports concerning the Collateral and
Debtor's business and financial condition as NCBC may from time to time
request; and will permit NCBC, or its employees, accountants, attorneys
or agents, to examine and copy any or all of its records at any time
during Debtor's business hours.
(j) Debtor will promptly notify NCBC of any loss of or
material damage to any Collateral or of any substantial adverse change,
known to Debtor, in any Collateral or the prospect of payment thereof.
(k) Upon request by NCBC, whether such request is made before
or after the occurrence of an Event of Default, Debtor will promptly
deliver to NCBC in pledge all instruments, documents and chattel papers
constituting Collateral, duly endorsed or assigned by Debtor.
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(l) Debtor will at all times keep all tangible Collateral
insured against risks of fire (including so-called extended coverage),
theft, collision (for Collateral consisting of motor vehicles) and such
other risks and in such amounts as NCBC may reasonably request, with
any loss payable to NCBC to the extent of its interest.
(m) Debtor will pay or reimburse NCBC on demand for all costs
of collection of any of the Obligations and all other out-of-pocket
expenses (including in each case all reasonable attorneys' fees and
legal expenses) incurred by NCBC in connection with the creation,
perfection, protection, satisfaction, foreclosure or enforcement of the
Security Interests or the creation, continuance or enforcement of this
Agreement or any or all of the Obligations.
(n) Debtor will use and keep the Collateral, and will require
that others use and keep the Collateral, only for lawful purposes,
without violation of any federal, state or local law, statute or
ordinance.
(o) Debtor from time to time will execute and deliver or
endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements and other agreements and
writings which NCBC may reasonably request in order to secure, protect,
perfect or enforce the Security Interests or the rights of NCBC under
this Agreement (but any failure to request or assure that Debtor
executes, delivers or endorses any such item shall not affect or impair
the validity, sufficiency or enforceability of this Agreement and the
Security Interests, regardless of whether any such item was or was not
executed, delivered or endorsed in a similar context or on a prior
occasion).
If Debtor at any time fails to perform or observe any of the foregoing
agreements, and if such failure shall continue for a period of ten calendar days
after NCBC gives Debtor written notice thereof (or in the case of the agreements
contained in clauses (g) and (l) above, immediately upon the occurrence of such
failure, without notice or lapse of time), NCBC may, but need not, perform or
observe such agreement on behalf and in the name, place and stead of Debtor (or,
at NCBC's option, in NCBC's name) and may, but need not, take any and all other
actions which NCBC may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and Debtor shall thereupon pay
to NCBC on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by NCBC in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by NCBC, together with interest thereon
from the date expended or incurred at the highest lawful rate than applicable to
any of the Obligations. To facilitate the performance or observance by NCBC of
such agreements to Debtor, Debtor hereby irrevocably appoints NCBC, or the
delegate of NCBC, acting alone, as the attorney-in-fact of Debtor with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of Debtor any and all
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instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by Debtor under this Section 1.02.
1.3 Debtor agrees to deliver to NCBC, or, at NCBC's option, to deposit
in one or more accounts maintained for NCBC by any bank reasonably satisfactory
to NCBC, all collections on accounts, contract rights, chattel paper and other
rights to payment constituting Collateral, and all other cash proceeds of
Collateral, immediately upon receipt thereof, in the form received, except for
Debtor's endorsement when deemed necessary. Amounts deposited in an account
shall not bear interest and shall not be subject to withdrawal by Debtor, except
after full payment and discharge of all Obligations. All such collections shall
constitute proceeds of Collateral and shall not constitute payment of any
Obligation, provided however, all amounts received by NCBC representing payments
on accounts receivable comprising part of the Collateral, or other payments
directed by Debtor to be applied to loans made by NCBC to Debtor, shall be
credited to the balance of such loans after allowing three (3) business days for
collection. Until delivered to NCBC or deposited in an account, all proceeds or
collections of Collateral shall be held in trust by Debtor for and as the
property of NCBC and shall not be commingled with any funds or property of
Debtor. NCBC may deposit any and all collections received by it from Debtor or
out of any collateral account in the general accounts of NCBC and may commingle
such collections with other property of NCBC or any other person. All items
shall be delivered to NCBC or deposited in any collateral account subject to
final payment. If any such item is returned uncollected, Debtor will immediately
pay NCBC, or, for items deposited in a collateral account, the bank maintaining
such account, the amount of that item, or such bank at its discretion may charge
any uncollected item to Debtor's commercial account or other account. Debtor
shall be liable as an endorser on all items deposited in any collateral account,
whether or not in fact endorsed by Debtor. NCBC from time to time at its
discretion may apply funds on deposit in any collateral account to the payment
of any or all Obligations, in any order or manner of application satisfactory to
NCBC.
1.4 In addition to the rights of NCBC under Section 1.03, with respect
to any and all rights to payment constituting Collateral NCBC may at any time
(either before or after the occurrence of an Event of Default under Section
1.06) notify any account debtor or other person obligated to pay the amount due
that such right to payment has been assigned or transferred to NCBC for security
and shall be paid directly to NCBC. Debtor will join in giving such notice, if
NCBC so requests. At any time after Debtor or NCBC gives such notice to an
account debtor or other obligor, NCBC may, but need not, in NCBC's name or in
Debtor's name, (i) demand, xxx for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor; and (ii) as
agent and attorney-in-fact of Debtor notify the Unites' States Postal Service to
change the address for delivery of Debtor's mail to any address designated by
NCBC and otherwise intercept, receive, open and dispose of Debtor's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for Debtor's account or forwarding such mail to Debtor's last known
address.
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1.5 As additional security for the payment and performance of the
Obligations, Debtor hereby assigns to NCBC any and all monies (including,
without limitation, proceeds of insurance and refunds of unearned premiums) due
or to become due under, and all other rights of Debtor with respect to, any and
all policies of insurance now or at any time hereafter covering the Collateral
or any evidence thereof or any business records or valuable papers pertaining
thereto, and Debtor hereby directs the issue of any such policy to pay all such
monies directly to NCBC. At any time, whether before or after the occurrence of
any Event of Default, NCBC may (but need not), in NCBC's name or in Debtor's
name, execute and deliver proof of claim, receive all such monies, endorse
checks and other instruments representing payment of such monies, and adjust,
litigate, compromise or release any claim against the issuer of any such policy.
1.6 Each of the following occurrences shall constitute an Event of
Default under this Agreement (herein called an "Event of Default"): (i) Debtor
shall fail to pay any or all of the Obligations when due or, if payable on
demand, on demand; or (ii) Debtor shall fail to observe or perform any covenant
or agreement binding on Debtor under this Agreement or under any other
assignment; conveyance, instrument or agreement now in effect or hereafter made
between Debtor and NCBC; or (iii) any representation or warranty made by Debtor
in this Agreement or in any such other assignment, conveyance, instrument or
agreement, or in any financial statements, or reports or certificates heretofore
or at any time hereafter submitted by or on behalf of Debtor to NCBC, shall
prove to have been false or materially misleading when made; or (iv) payment of
any substantial indebtedness of Debtor, other than the obligations, shall be
demanded and Debtor shall fail to honor such demand or the maturity of any such
indebtedness shall be accelerated or any precondition or circumstance permitting
any creditor of Debtor, acting individually or with the consent of other
creditors, to accelerate the maturity of any such indebtedness shall have
occurred (for this purpose indebtedness shall be deemed substantial if it
exceeds $10,000); or (v) Debtor shall become insolvent or shall commit an act of
bankruptcy under the United States Bankruptcy Act, or shall file or have filed
against it, voluntarily or involuntarily, a petition in bankruptcy or for
reorganization or for the adoption of an arrangement or plan under the United
States Bankruptcy Act or shall procure or suffer the appointment of a receiver
for any substantial portion of its properties, or shall initiate or have
initiated against it, voluntarily or involuntarily, any act, process or
proceeding under any insolvency law or other statute or law providing for the
modification or adjustment of the rights of creditors; or (vi) NCBC shall in
good faith believe that the prospect of due and punctual payment of any or all
of the Obligations is impaired.
1.7 Upon the occurrence of any Event of Default under Section 1.06 and
at any time thereafter, NCBC may exercise one or more of the following rights
and remedies: (i) declare all unmatured Obligations to be immediately due and
payable, and the same shall thereupon be immediately due and payable, without
presentment or other notice or demand (but NCBC expressly reserves the right to
demand payment of any Obligation payable on demand, at any time, whether or not
an Event of Default has occurred or is continuing); (ii) exercise and enforce
any and all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including, without limitation, the right to take
possession of Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice thereof, which
Debtor hereby expressly waives) and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith Debtor will
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on demand assemble the Collateral and make it available to NCBC at a place to be
designated by NCBC which is reasonably convenient to both parties. If notice to
Debtor of any intended disposition of Collateral or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Section 1.09) at
least ten (10) calendar days prior to the date of intended disposition or other
action; (iii) without notice or demand offset any indebtedness NCBC or any of
its participants, successors or assigns then owes to Debtor, whether or not then
due, against any obligation then owed to NCBC or any of its participants,
successors or assigns by Debtor, whether or not then due; and (iv) exercise or
enforce any and all other rights or remedies available by law or agreement
against the Collateral, against Debtor, or against any other person or property.
1.8 This Agreement does not contemplate a sale of accounts, contract
rights or chattel paper, and, as provided by law, Debtor is entitled to any
surplus and shall remain liable for any deficiency. NCBC's duty of care with
respect to Collateral in its possession (as imposed by law) shall be deemed
fulfilled if it exercises reasonable care in physically keeping such Collateral,
or in the case of Collateral in the custody or possession of a bailee or other
third person, exercises reason able care in the selection of the bailee or other
third person, and NCBC need not otherwise preserve, protect, insure or care for
any Collateral. NCBC shall not be obligated to preserve any rights Debtor may
have against prior parties, to realize on the Collateral at all or in any
particular manner in order or to apply any cash proceeds of the Collateral in
any particular order of application.
1.9 This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interests can be released, only explicitly in a
writing signed by NCBC. A waiver so signed shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any rights or remedies
available to NCBC. All rights and remedies of NCBC shall be cumulative and may
be exercised singularly in any order or sequence, or concurrently, at NCBC's
option, and the exercise or enforcement of any such right or remedy shall
neither be a condition to nor bar the exercise or enforcement of any other. All
notices to be given to Debtor shall be deemed sufficiently given if delivered or
mailed by registered, certified or ordinary mail, postage prepaid, to Debtor at
its address set forth below or at its most recent address shown on NCBC's
records.
1.10 NCBC and its participants, if any, are not partners or joint
venturers, and NCBC shall not have any liability or responsibility for any
obligation, act or omission of any of its participants.
1.11 This Agreement, and the Security Interests granted hereby, shall
be binding upon Debtor, its successors and assigns, and shall inure to the
benefit of and be enforceable by NCBC and each and all of its participants,
successors and assigns, and shall be effective when executed by Debtor and
delivered to NCBC whether or not this Agreement is executed by NCBC. All rights
and powers specifically conferred upon NCBC may be transferred or delegated to
any of the participants, successors or assigns of NCBC. Except to the extent
otherwise required by law, this Agreement and the transaction evidenced hereby
shall be governed by the substantive laws of the State in which this Agreement
is accepted by NCBC. If any provision or application of this Agreement is held
unlawful or unenforceable in any respect, such illegality or unenforceability
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shall not affect other provisions or applications which can be given effect, and
this Agreement shall be construed as if the unlawful or unenforceable provision
or application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement or in any other
agreement between Debtor and NCBC shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
Debtor waives notice of the acceptance of this Agreement by NCBC.
IN WITNESS WHEREOF, this Security Agreement has been duly executed and
delivered by the proper officers thereunto duly authorized on the day and year
first above written.
XXXXXX INVESTMENT CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Its: President
By: /s/ Xxxxx X. Xxxxx
------------------------------------
Its: Vice President
Address: 000 - 00xx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
TRADE NAMES: None INVENTORY LOCATION:
000 - 00xx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Accepted at Minneapolis, Minnesota
On November 24, 1986.
NATIONAL CITY BUSINESS CREDIT, INC.
By: /s/
-------------------------------------
Its: Vice President
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