EXHIBIT 10.13
SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of October 8, 2001 (this "Agreement"), is
by and between PRO2, INC., a Texas corporation ("Debtor"), and CORPORATE
STRATEGIES, L.L.C., a Texas limited liability company ("Secured Party").
R E C I T A L S
A. Debtor and Secured Party have entered into that certain Purchase and
Sale Agreement of even date herewith pursuant to which it is anticipated that
Secured Party will factor certain receivables of Debtor (such agreement, as the
same may be amended or modified from time to time, is referred to herein as the
"Purchase and Sale Agreement").
B. While the Purchase and Sale Agreement provides for the purchase by
Secured Party of accounts owned by Debtor, it is anticipated that certain
accounts owned by Debtor, will not be sold to Secured Party or, once sold to
Secured Party, might from time to time be repurchased by Debtor and available to
again serve as a portion of the Collateral (as defined below).
C. In addition to accounts, Debtor has additional assets which it
desires to pledge to Secured Party pursuant hereto.
D. Secured Party has conditioned its obligations under the Purchase and
Sale Agreement upon, among other things, the execution and delivery of this
Agreement by Debtor.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Security Interest
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Section 1.01. Security Interest. Debtor hereby grants to Secured Party
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a security interest in the following property, whether now owned or existing or
hereafter arising or acquired and wherever arising or located (such property
being hereinafter sometimes called the "Collateral"):
(a) all of its accounts, contract rights, funds on deposit or held
in a reserve account with Secured Party and general intangibles, whether now
owned or hereafter acquired, including, without limitation, all accounts
receivable, lease receivables and note receivables, all cash, notes, drafts,
acceptances, instruments and chattel paper arising therefrom, all returned and
repossessed goods arising from or relating to any such accounts, or other
proceeds of any sale, lease or other disposition of inventory, all tax refunds
of whatever nature, and all tradenames, trademarks, patents and other licenses
and all proceeds (including insurance proceeds) and products thereof; and
(b) all of its machinery, equipment, rolling stock, furniture,
fixtures and personalty (including, without limitation, all tradenames,
trademarks, patents and other licenses) of every nature and description, whether
now owned or hereafter acquired, and all appurtenances and additions thereto,
and substitutions and replacements therefor, wheresoever located, including all
tools, parts and accessories used in connection therewith, and all products and
proceeds thereof (including insurance proceeds).
Section 1.02. Obligations. The Collateral shall secure the following
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obligations, indebtedness, and liabilities being hereinafter sometimes called
the 'Obligations"):
(a) the obligations of Debtor to Secured Party under the Purchase
and Sale Agreement;
(b) all costs and expenses, including, without limitation, all
attorneys' fees and legal expenses, incurred by Secured Party to preserve and
maintain the Collateral, collect the obligations herein described, and enforce
this Agreement;
(c) all other obligations, indebtedness, and liabilities of Debtor
to Secured Party, now existing or hereafter arising, including liabilities under
existing guaranties, regardless of whether such obligations, indebtedness, and
liabilities are similar, dissimilar, related, unrelated, direct, indirect,
fixed, contingent, primary, secondary, joint, several, or joint and several; and
(d) all extensions, renewals, and modifications of any of the
foregoing.
ARTICLE II
Representations and Warranties
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To induce Secured Party to enter into this Agreement and the Purchase and
Sale Agreement, Debtor represents and warrants to Secured Party that:
Section 2.01. Title. Except for the security interest granted herein,
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Debtor owns, and with respect to Collateral acquired after the date hereof
Debtor will own, the Collateral free and clear of any lien, security interest,
or other encumbrance.
Section 2.02. Accounts. Unless Debtor has given Secured Party written
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notice to the contrary, whenever the security interest granted hereunder
attaches to an account, Debtor shall be deemed to have represented and warranted
to Secured Party as to each and all of its accounts that (a) each account is
genuine and is in all respects what it purports to be, (b) each account
represents the legal, valid, and binding obligation of the account debtor
evidencing indebtedness unpaid and owed by such account debtor arising out of
the performance of labor or services by Debtor or the sale or lease of goods by
Debtor, (c) the amount of each account represented as owing is the amount
actually owing except for normal trade discounts granted in the ordinary course
of business and adjustments in the ordinary course of business for shortages or
defects in inventory, and (d) no account is subject to any offset, counterclaim,
or other defense.
Section 2.03. Financing Statements. Except for financing statements
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assigned to Secured Party in connection with the Obligations or otherwise
assigned to Secured Party, no financing statement, security agreement, or other
lien instrument covering all or any part of the Collateral is on file in any
public office.
Section 2.04. State of Incorporation; Principal Place of Business;
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Exact Name. Debtor is a corporation organized under the laws of the State of
Texas. The principal place of business and chief executive office of the
Debtor, and the office where Debtor keeps its books and records, is located at
the address of Debtor listed in the Purchase and Sale Agreement. Debtor's exact
legal name is as set forth in the first paragraph hereof.
Section 2.05. Location of Collateral. All inventory, machinery, and
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equipment of Debtor are located at the address of Debtor listed in the Purchase
and Sale Agreement.
ARTICLE III
Covenants
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Debtor covenants and agrees with Secured Party that until the Obligations
are paid and performed in full:
Section 3.01. Maintenance. Debtor shall maintain the Collateral (other
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than portions of the Collateral which are not used in the ordinary course of
business) in good operating condition and repair, ordinary wear and tear
excepted, and shall not permit any waste or destruction of the Collateral or any
part thereof. Debtor shall not use or permit the Collateral to be used in
violation of any law or inconsistently with the terms of any policy of
insurance. Debtor shall not use or permit the Collateral to be used in any
manner or for any purpose that would impair the value of the Collateral or
expose the Collateral to unusual risk.
Section 3.02. Encumbrances. Debtor shall not create, permit, or suffer
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to exist, and shall defend the Collateral against, any lien, security interest,
or other encumbrance on the Collateral except the security interest of Secured
Party hereunder and liens permitted by the Purchase and Sale Agreement, and
shall defend Debtor's rights in the Collateral and Secured Party's security
interest in the Collateral against the claims of all other persons and entities.
Section 3.03. Modification of Collateral. Debtor shall do nothing to
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impair the rights of Secured Party in the Collateral. Without the prior written
consent of Secured Party, except in the ordinary course of business, Debtor
shall not grant any material extension of time for any payment with respect to
the Collateral, or compromise, compound, or settle in any material respect any
of the Collateral, or release in whole or in part any person or entity liable
for payment with respect to the Collateral, or allow any credit or discount for
payment with respect to the Collateral other than discounts or adjustments
granted in the ordinary course of business, or release any lien, security
interest, or assignment securing the Collateral, or otherwise amend or modify
any of the Collateral.
Section 3.04. Disposition of Collateral. Debtor shall not sell, lease,
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or otherwise dispose of the Collateral or any part thereof without the prior
written consent of Secured Party, except Debtor may sell inventory, equipment
and other assets in the ordinary course of Debtor's business.
Section 3.05. Further Assurances. At any time and from time to time,
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upon the request of Secured Party, and at the sole expense of Debtor, Debtor
shall promptly execute and deliver all such further instruments and documents
and take such further action as Secured Party may deem necessary or desirable to
preserve and perfect its security interest in the Collateral and carry out the
provisions and purposes of this Agreement, including, without limitation, the
execution and filing of such financing statements as Secured Party may require.
A carbon, photographic, or other reproduction of this Agreement or of any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement and may be filed as a financing statement.
Debtor shall promptly endorse and deliver to Secured Party all documents,
instruments, instruments, and chattel paper that it now owns or may hereafter
acquire.
Section 3.06. Risk of Loss; Insurance. Debtor shall be responsible for
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any loss of or damage to the Collateral. Debtor will maintain reasonable
amounts of insurance on the Collateral and name Secured Party as an additional
loss payee on its policies of insurance. Such insurance shall also include
general liability insurance in an amount of not less than $1,000,000 per
incident and $5,000,000 in the aggregate. Debtor agrees to deliver to Secured
Party a Certificate of Insurance showing Secured Party as a loss payee upon
execution of this Agreement. If any insurance required hereby expires, is
cancelled or is otherwise not in full force and effect, at Secured Party's
option, Secured Party may obtain replacement insurance which may, but need not,
be single interest insurance in favor of Secured Party. Secured Party may pay
the premiums thereunder and add the amount of such premiums to the Obligations.
Debtor agrees to reimburse Secured Party on demand for any amounts so paid.
Section 3.07. Inspection Rights. Debtor shall permit Secured Party and
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its representatives upon one-day notice to examine or inspect the Collateral
wherever located and to examine, inspect and copy Debtor's books and records at
any reasonable time and as often as Secured Party may desire.
Section 3.08. Notification. Debtor shall promptly notify Secured Party
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of (i) any lien, security interest, encumbrance, or claim made or threatened
against the Collateral, and (ii) any material change in the Collateral,
including, without limitation, any material damage to or loss of the Collateral.
Section 3.09. Corporate Changes. Debtor shall not change its legal
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name, state of incorporation, identity, or corporate structure in any manner
that might make any financing statement filed in connection with this Agreement
misleading. Debtor shall not change its principal place of business, chief
executive office, or the place where it keeps its books and records unless it
shall have given Secured Party thirty (30) days prior written notice thereof and
shall have taken all action deemed necessary or desirable by Secured Party to
cause its security interest in the Collateral to be perfected with the priority
required by this Agreement.
Section 3.10. Books and Records; Information. Debtor shall keep
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accurate and complete books and records of the Collateral and Debtor's business
and financial condition in accordance with generally accepted accounting
principles consistently applied. Debtor shall from time to time at the request
of Secured Party deliver to Secured Party such information regarding the
Collateral and Debtor as Secured Party may request, including, without
limitation, lists and descriptions of the Collateral and evidence of the
identity and existence of the Collateral. Debtor shall xxxx its books and
records to reflect the security interest of Secured Party under this Agreement.
Section 3.11. Location of Collateral. Except in the ordinary course of
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business, Debtor shall not move any of its equipment, machinery, or inventory
from the locations specified in Section 2.05 without the prior written consent
of Secured Party.
Section 3.12. Reimbursement of Expenses. Debtor will pay to Secured
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Party all advances, charges, costs and expenses (including, without limitation,
all costs and expenses of retaking, holding, preparing for sale and selling,
collecting or otherwise realizing upon the Collateral if an Event of Default
occurs, and all attorneys' fees, legal expenses and court costs) incurred by
Secured Party in connection with the exercise of Secured Party's rights and
remedies hereunder. If Debtor fails to make such payment upon demand (or if
demand is not made due to an injunction or stay arising from bankruptcy or other
proceedings) and Secured Party pays such amount, the same shall be due and
payable by Debtor to Secured Party, plus interest thereon from the date of
Secured Party's demand (or from the date of Secured Party's payment if demand is
not made due to such proceedings) at the lesser of eighteen percent (18%) per
annum or the highest lawful rate allowed by applicable law.
ARTICLE IV
Rights of Secured Party
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Section 4.01. Power of Attorney. Debtor hereby irrevocably constitutes
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and appoints Secured Party 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 name of Debtor or in its own name to take any and all
action and to execute any and all documents and instruments which Secured Party
at any time and from time to time deems necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, Debtor hereby gives Secured Party the power and right on behalf of
Debtor and in its own name to do any of the following, without notice to or the
consent of Debtor:
(a) to demand, xxx for, collect, or receive in the name of Debtor
or in its own name, any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral and, in connection
therewith, endorse checks, notes, drafts, acceptances, money orders, documents
of title, or any other instruments for the payment of money under the Collateral
or any policy of insurance;
(b) to pay or discharge taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against the Collateral;
(c) to send requests for verification to account debtors and other
obligors; and
(d) (i) to direct account debtors and any other parties liable for
any payment under any of the Collateral to make payment of any and all monies
due and to become due thereunder directly to Secured Party or as Secured Party
shall direct; (ii) to receive payment of and receipt for any and all monies,
claims, and other amounts due and to become due at any time in respect of or
arising out of any Collateral; (iii) to sign and endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, proxies, stock powers, verifications, and notices in
connection with accounts and other documents relating to the Collateral; (iv) to
exchange any of the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization, or other readjustment of the
issuer thereof and, in connection therewith, deposit any of the Collateral with
any committee, depositary, transfer agent, registrar, or other designated agency
upon such terms as Secured Party may determine; (v) to insure, and to make,
settle, compromise, or adjust claims under any insurance policy covering any of
the Collateral; and (vi) to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Debtor's expense, at any time, or from time to
time, all acts and things which Secured Party deems necessary to protect,
preserve, or realize upon the Collateral and Secured Party's security interest
therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Secured Party shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Agreement, and shall not be liable
for any failure to do so or any delay in doing so. Secured Party shall not be
liable for any act or omission or for any error of judgment or any mistake of
fact or law in its individual capacity or in its capacity as attorney-in-fact
except acts or omissions resulting from its willful misconduct. This power of
attorney is conferred on Secured Party solely to protect, preserve, and realize
upon its security interest in the Collateral. Secured Party shall not be
responsible for any decline in the value of the Collateral and shall not be
required to take any steps to preserve rights against prior parties or to
protect, preserve, or maintain any security interest or lien given to secure the
Collateral.
Section 4.02. Performance by Secured Party. If Debtor fails to perform
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or comply with any of its agreements contained herein, Secured Party itself may,
at its sole discretion, cause or attempt to cause performance or compliance with
such agreement and the expenses of Secured Party, together with interest thereon
at the maximum nonusurious per annum rate permitted by applicable law, shall be
payable by Debtor to Secured Party on demand and shall constitute Obligations
secured by this Agreement. Notwithstanding the foregoing, it is expressly
agreed that Secured Party shall not have any liability or responsibility for the
performance of any obligation of Debtor under this Agreement.
Section 4.03. Assignment by Secured Party. Secured Party may from time
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to time assign the Obligations and any portion thereof or the Collateral and any
portion thereof, and the assignee shall be entitled to all of the rights and
remedies of Secured Party under this Agreement in relation thereto.
ARTICLE V
Default
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Section 5.01. Events of Default. The term "Event of Default" shall
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mean the failure of Debtor to abide by any of the terms of the Purchase and Sale
Agreement or this Agreement.
Section 5.02. Rights and Remedies. Upon the occurrence and continuance
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of an Event of Default, Secured Party shall have the following rights and
remedies:
(a) Secured Party may declare the Obligations or any part thereof
immediately due and payable, without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by Debtor.
(b) In addition to all other rights and remedies granted to
Secured Party in this Agreement and in any other instrument or agreement
securing, evidencing, or relating to the Obligations or any part thereof,
Secured Party shall have all of the rights and remedies of a secured party under
the Uniform Commercial Code as adopted by the State of Texas. Without limiting
the generality of the foregoing, Secured Party may (i) without demand or notice
to Debtor, collect, receive, or take possession of the Collateral or any part
thereof and for that purpose Secured Party may enter upon any premises on which
the Collateral is located and remove the Collateral therefrom or render it
inoperable, and/or (ii) sell, lease, or otherwise dispose of the Collateral, or
any part thereof, in one or more parcels at public or private sale or sales, at
Secured Party's offices or elsewhere, for cash, on credit, or for future
delivery. Upon the request of Secured Party, Debtor shall assemble the
Collateral and make it available to Secured Party at any place designated by
Secured Party that is reasonably convenient to Debtor and Secured Party. Debtor
agrees that Secured Party shall not be obligated to give more than five (5) days
written notice of the time and place of any public sale or of the time after
which any private sale may take place and that such notice shall constitute
reasonable notice of such matters. Debtor shall be liable for all expenses of
retaking, holding, preparing for sale, or the like, and all attorneys' fees,
legal expenses, and all other costs and expenses incurred by Secured Party in
connection with the collection of the Obligations and the enforcement of Secured
Party's rights under this Agreement. Secured Party may apply the Collateral
against the Obligations in such order and manner as Secured Party may elect in
its sole discretion. Debtor shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
the Obligations in full. Debtor waives all rights of marshalling in respect of
the Collateral.
(c) Secured Party may cause any or all of the Collateral held by
it to be transferred into the name of Secured Party or the name or names of
Secured Party's nominee or nominees.
(d) Secured Party may exercise or cause to be exercised all voting
rights and corporate powers in respect of the Collateral.
(e) Secured Party may take possession of all books and records of
Debtor pertaining to the Collateral (including, but not limited to computer
records). Secured Party shall have the authority to enter upon any real
property or improvements thereon in order to obtain any such books or records,
or any Collateral located thereon, and remove the same therefrom without
liability.
ARTICLE VI
Miscellaneous
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Section 6.01. No Waiver; Cumulative Remedies. No failure on the part
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of Secured Party to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power, or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power, or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in this Agreement are
cumulative and not exclusive of any rights and remedies provided by law.
Section 6.02. Successors and Assigns. This Agreement shall be binding
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upon and inure to the benefit of Debtor and Secured Party and their respective
heirs, successors, and assigns, except that Debtor may not assign any of its
rights or obligations under this Agreement without the prior written consent of
Secured Party.
Section 6.03. No Oral Agreements; Amendment. There are no Oral
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Agreements among the parties hereto. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto.
Section 6.04. Notices. All notices and other communications provided
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for in this Agreement shall be given as provided in the Purchase and Sale
Agreement.
Section 6.05. Applicable Law; Venue; Service of Process. This
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Agreement shall be governed by and construed in accordance with the laws of the
State of Texas and the applicable laws of the United States of America. This
Agreement has been entered into in Xxxxxx County, Texas, and it shall be
performable for all purposes in Xxxxxx County, Texas. For purposes of any suit
relating to this Agreement, Debtor and Secured Party submit themselves to the
jurisdiction of any court sitting in the State of Texas and further agree that
venue in any suit arising out of this Agreement shall be fixed in Xxxxxx County,
Texas. Final judgment in any suit shall be conclusive and may be enforced in
any jurisdiction within or without the United States of America, by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of such liability.
Section 6.06. Headings. The headings, captions, and arrangements used
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in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 6.07. Survival of Representations and Warranties. All
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representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by Secured Party shall affect the
representations and warranties or the right of Secured Party to rely upon them.
Section 6.08. Counterparts. This Agreement may be executed in any
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number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 6.09. Waiver of Bond. In the event Secured Party seeks to take
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possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
Section 6.10. Severability. Any provision of this Agreement which is
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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 of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 6.11. Obligations Absolute. The obligations of Debtor under
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this Agreement shall be absolute and unconditional and shall not be released,
discharged, reduced, or in any way impaired by any circumstance whatsoever,
including, without limitation, any amendment, modification, extension, or
renewal of this Agreement, the Obligations, or any document or instrument
evidencing, securing, or otherwise relating to the Obligations, or any release
or subordination of collateral, or any waiver, consent, extension, indulgence,
compromise, settlement, or other action or inaction in respect of this
Agreement, the Obligations, or any document or instrument evidencing, securing,
or otherwise relating to the Obligations, or any exercise or failure to exercise
any right, remedy, power, or privilege in respect of the Obligations.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
DEBTOR:
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PRO2, INC.
By: /s/ Xxxxx Xxxxxxxx
Xxxxx Xxxxxxxx, President
SECURED PARTY:
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CORPORATE STRATEGIES, L.L.C.
By: /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx, President
