SECURITY AGREEMENT
THIS
SECURITY AGREEMENT (this “Agreement”), dated as of October 19, 2006, is made and
given by RED
MILE
ENTERTAINMENT, INC.,
a
corporation organized under the laws of the State of Delaware (the “Grantor”),
to OLYMPIA
TRUST COMPANY,
a trust
company incorporated under the laws of the Province of Alberta in its capacity
as Debenture Trustee (the “Security Trustee”).
RECITALS
A.
The
Grantor will or may become, or is now, indebted in the amount of a minimum
of
US$5,000,000 to Debentureholders under Initial Debentures issued under that
certain Trust Indenture dated October 19, 2006 (the “Indenture”).
B.
The
Security Trustee is the Debenture Trustee under the Indenture.
C.
Under
the terms of the Indenture the Grantor has agreed, and is required, to grant
a
security interest over all of its personal property to the Debenture Trustee
as
security for its obligations to, and for the benefit of, the Debentureholders
under the Initial Debentures. The security interest granted hereunder shall
be
subordinated to any security interest granted over the Grantor's accounts
receivable to secure indebtedness to any commercial bank, financial institution
or other lender(s).
D.
The
Grantor finds it advantageous, desirable and in its best interests to comply
with the requirement that it execute and deliver this Agreement to the Security
Trustee.
NOW,
THEREFORE, in consideration of the premises and in order to induce the
Debentureholders to extend or continue credit accommodations to the Grantor,
the
Grantor hereby agrees with the Security Trustee for the benefit of the
Debentureholders of the Initial Debentures as follows:
Section
1.
Defined
Terms.
1
(a)
As used
in this Agreement, the following terms shall have the meanings
indicated:
“Account”
shall
mean the rights of the Grantor to payment for goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not such right has been earned by performance, all guaranties and
security therefor, and all interests in the goods the sale or lease of which
gave rise thereto, including the right to stop such goods in transit.
“Account
Debtor”
shall
mean a Person who is obligated on or under any Account, Chattel Paper,
Instrument or General Intangible.
“Chattel
Paper”
shall
mean a writing or writings which evidence both a monetary obligation and a
security interest in or lease of specific goods; when a transaction is evidenced
by both a security agreement or a lease and by an Instrument or a series of
Instruments, the group of writings taken together constitutes Chattel
Paper.
“Collateral”
shall
mean all property and rights in property now owned or hereafter at any time
acquired by the Grantor in or upon which a Security Interest is granted to
the
Security Trustee by the Grantor under this Agreement.
“Debentureholders”
has
the
meaning ascribed to such term in the Indenture.
“Debenture
Trustee”
means
the Security Trustee in its capacity as debenture trustee under the
Indenture.
“Document”
shall
mean any xxxx of lading, dock warrant, dock receipt, warehouse receipt or order
for the delivery of goods, together with any other document or receipt which
in
the regular course of business or financing is treated as adequately evidencing
that the Person in possession of it is entitled to receive, hold and dispose
of
the document and the goods it covers.
“Equipment”
shall
mean all machinery, equipment, motor vehicles, furniture, furnishings and
fixtures, including all accessions, accessories and attachments thereto, and
any
guaranties, warranties, indemnities and other agreements of manufacturers,
vendors and others with respect to such Equipment.
“Event
of Default”
shall
have the meaning given to such term in Section 18
hereof.
“Financing
Statement”
shall
have the meaning given to such term in Section 4
hereof.
“General
Intangibles”
shall
mean any personal property (other than goods, Accounts, Chattel Paper,
Documents, Instruments and money) including choses in action, causes of action,
contract rights, corporate and other business records, inventions, designs,
patents, patent applications, service marks, trademarks, tradenames, trade
secrets, internet domain names, engineering drawings, good will, registrations,
copyrights, licenses, franchises, customer lists, tax refund claims, royalties,
licensing and product rights, rights to the retrieval from third parties of
electronically processed and recorded data and all rights to payment resulting
from an order of any court.
“Indenture”
means
that certain Trust Indenture dated October 19, 2006 between the Grantor and
the
Debenture Trustee providing for the issue of debentures of various series
including the Initial Debentures.
“Initial
Debentures”
means
up to US$10,000,000 of 5.5% senior secured convertible debentures issued by
the
Grantor to the Debentureholders in one or more closings, and such term has
the
meaning ascribed thereto in the Indenture.
“Instrument”
shall
mean a draft, check, certificate of deposit, note, xxxx of exchange, security
or
any other writing which evidences a right to the payment of money and is not
itself a security agreement or lease and is of a type which is transferred
in
the ordinary course of business by delivery with any necessary endorsement
or
assignment.
“Inventory”
shall
mean any and all goods owned or held by or for the account of the Grantor for
sale or lease, or for furnishing under a contract of service, or as raw
materials, work in process, materials incorporated in or consumed in the
production of any of the foregoing and supplies, in each case wherever the
same
shall be located, whether in transit, on consignment, in
retail
outlets, warehouses, terminals or otherwise, and all property the sale, lease
or
other disposition of which has given rise to an Account and which has been
returned to the Grantor or repossessed by the Grantor or stopped in
transit.
“Lien”
shall
mean any security interest, mortgage, pledge, lien, charge, encumbrance, title
retention agreement or analogous instrument or device (including the interest
of
the lessors under capitalized leases), in, of or on any assets or properties
of
the Person referred to.
“Obligations”
shall
mean (a) all principal of, and interest on, the Initial Debentures and any
extensions, renewals or replacements thereof, (b) all liabilities of the Grantor
under the Indenture and (c) all liabilities of the Grantor under this
Agreement.
“Person”
shall
mean any individual, corporation, partnership, limited partnership, limited
liability company, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or
any
other entity, whether acting in an individual, fiduciary or other
capacity.
“Security
Interest”
shall
have the meaning given such term in Section 2 hereof.
1
(b)
All
other terms used in this Agreement which are not specifically defined herein
shall have the meaning assigned to such terms in the Uniform Commercial Code
in
effect in the State of New York as of the date of this Agreement to the extent
such other terms are defined therein.
1
(c)
Unless
the context of this Agreement otherwise clearly requires, references to the
plural include the singular, the singular, the plural and “or” has the inclusive
meaning represented by the phrase “and/or.” The words “include,” “includes” and
“including” shall be deemed to be followed by the phrase “without limitation.”
The words “hereof,” “herein,” “hereunder” and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections are references to Sections in this Agreement
unless otherwise provided.
Section
2.
Grant
of Security Interest.
As
security for the payment and performance of all of the Obligations, the Grantor
hereby grants to the Security Trustee a security interest (the “Security
Interest”) in all of the Grantor’s right, title, and interest in and to the
following, whether now or hereafter owned, existing, arising or acquired and
wherever located:
2
(a)
All
Accounts.
2
(b)
All
Chattel Paper.
2
(c)
All
Documents.
2
(d)
All
Equipment.
2
(e)
All
General Intangibles.
2
(f)
All
Instruments.
2
(g)
All
Inventory.
2
(h)
To the
extent not otherwise included in the foregoing, (i) all other rights to the
payment of money, including rents and other sums payable to the Grantor under
leases, rental agreements and other Chattel Paper and insurance proceeds, and
each letter-of-credit right and all investment property; (ii) all books,
correspondence, credit files, records, invoices, bills of lading, and other
documents relating to any of the foregoing, including, without limitation,
all
tapes, cards, disks, computer software, computer runs, and other papers and
documents in the possession or control of the Grantor or any computer bureau
from time to time acting for the Grantor; (iii) all rights in, to and under
all
policies insuring the life of any officer, director, stockholder or employee
of
the Grantor, the proceeds of which are payable to the Grantor; and (iv) all
accessions and additions to, parts and appurtenances of, substitutions for
and
replacements of any of the foregoing.
2
(i)
To the
extent not otherwise included, all proceeds and products of any and all of
the
foregoing.
Section
3.
Grantor
Remains Liable.
Anything herein to the contrary notwithstanding, (a) the Grantor shall remain
liable under the Accounts, Chattel Paper, General Intangibles and other items
included in the Collateral to the extent set forth therein to perform all of
its
duties and obligations thereunder to the same extent as if this Agreement had
not been executed, (b) the exercise by the Security Trustee of any of the rights
hereunder shall not release the Grantor from any of its duties or obligations
under any items included in the Collateral, and (c) the Security Trustee shall
have no obligation or liability under Accounts, Chattel Paper, General
Intangibles and other items included in the Collateral by reason of this
Agreement, nor shall the Security Trustee be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
Section
5.
Disposition
of Collateral.
The
Grantor will not sell, lease or otherwise dispose of, or discount or factor
with
or without recourse, any Collateral, except sales of items of Inventory and
accounts receivable in the ordinary course of business. For clarity, Grantor
is
permitted to factor its accounts receivable so long as the same are sold in
the
ordinary course of business to a recognized commercial factor for their
reasonable fair market value. To facilitate such factoring, the Security Trustee
shall permit, and the Financing Statement shall expressly provide, that sales
of
accounts receivable at the reasonable fair market value thereof shall
automatically, without any further act or deed, be released from the Security
Interest.
Section
6.
Names,
Offices, Locations.
The
Grantor does business solely under its own name and the trade names and styles,
if any, set forth on Schedule II hereto. Except as noted on said Schedule,
no
such trade names or styles and no trademarks or other similar marks owned by
the
Grantor are registered with any governmental unit. The chief place of business
and chief executive office and the office where it keeps its books and records
concerning the Accounts and General Intangibles and the originals of all Chattel
Paper, Documents and Instruments are located at its address set forth on the
signature page hereof. All items of Equipment and Inventory existing on the
date
of this Agreement are located at the places specified on Schedule I hereto.
The
Grantor will immediately notify the Security Trustee of any additional state
in
which any item of Inventory or Equipment is hereafter located. The Grantor
will
from time to time at the request of the Security Trustee provide the Security
Trustee with current lists as to the locations of the Equipment and Inventory.
The Grantor will not permit any Inventory, Equipment, Chattel Paper or Documents
or any records pertaining to Accounts and General Intangibles 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 Interest. The Grantor will not change
its
name or the location of its chief place of business and chief executive office
unless the Security Trustee has been given at least 30 days prior written notice
thereof and the Grantor has executed and delivered to the Security Trustee
such
Financing Statements and other instruments required or appropriate to continue
the perfection of the Security Interest.
Section
7.
Rights
to Payment.
Except
as the Grantor may otherwise advise the Security Trustee in writing, each
Account, Chattel Paper, Document, General Intangible and Instrument 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
of
the Account Debtor or other obligor named therein or in the Grantor’s records
pertaining thereto as being obligated to pay or perform such obligation. Without
the Security Trustee’s prior written consent, the Grantor will not agree to any
modifications, amendments, subordinations, cancellations or terminations of
the
obligations of any such Account Debtors or other obligors except in the ordinary
course of business (including the issuance of price protection credits, returns
credits, marketing co-op credits, and similar credits in the normal course
of
business) and in amounts not exceeding $200,000 per Account Debtor or other
obligor in any calendar year. The Grantor will perform and comply in all
material respects with all its obligations under any items included in the
Collateral and exercise promptly and diligently its rights
thereunder.
Section
8.
Further
Assurances; Attorney-in-Fact.
8
(a)
The
Grantor agrees that from time to time, at its expense, it will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or that the Security Trustee may reasonably request,
in
order to perfect and protect the Security Interest granted or purported to
be
granted hereby or to enable the Security Trustee to exercise and enforce its
rights and remedies hereunder with respect to any Collateral (but any failure
to
request or assure that the Grantor execute and deliver such instrument or
documents or to take such action shall not affect or impair the validity,
sufficiency or enforceability of this Agreement and the Security Interest,
regardless of whether any such item was or was not executed and delivered or
action taken in a similar context or on a prior occasion). Without limiting
the
generality of the foregoing, the Grantor will, promptly and from time to time
at
the request of the Security Trustee: (i) xxxx, or permit the Security Trustee
to
xxxx, conspicuously its books, records, and accounts showing or dealing with
the
Collateral, and each item of Chattel Paper included in the Collateral, with
a
legend, in form and substance satisfactory to the Security Trustee, indicating
that each such item of Collateral and each such item of Chattel Paper is subject
to the Security Interest granted hereby; (ii) deliver and pledge to the Security
Trustee, all
Instruments
and Documents, duly indorsed or accompanied by duly executed instruments of
transfer or assignment, with full recourse to the Grantor, all in form and
substance satisfactory to the Security Trustee; (iii) execute and file such
Financing Statements or continuation statements in respect thereof, or
amendments thereto, and such other instruments or notices (including fixture
filings with any necessary legal descriptions as to any goods included in the
Collateral which the Security Trustee determines might be deemed to be fixtures,
and instruments and notices with respect to vehicle titles), as may be necessary
or desirable, or as the Security Trustee may request, in order to perfect,
preserve, and enhance the Security Interest granted or purported to be granted
hereby; and (iv) obtain waivers, in form satisfactory to the Security Trustee,
of any claim to any Collateral from any landlords or mortgagees of any property
where any Inventory or Equipment is located.
8
(b)
The
Grantor hereby authorizes the Security Trustee to file one or more Financing
Statements or continuation statements in respect thereof, and amendments
thereto, relating to all or any part of the Collateral without the signature
of
the Grantor where permitted by law. A photocopy or other reproduction of this
Agreement or any Financing Statement covering the Collateral or any part thereof
shall be sufficient as a Financing Statement where permitted by
law.
8
(c)
The
Grantor will furnish to the Security Trustee from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Security Trustee may reasonably
request, all in reasonable detail and in form and substance reasonably
satisfactory to the Security Trustee.
8
(d)
In
furtherance, and not in limitation, of the other rights, powers and remedies
granted to the Security Trustee in this Agreement, the Grantor hereby appoints
the Security Trustee the Grantor’s attorney-in-fact, with full authority in the
place and stead of Grantor and in the name of Grantor or otherwise, from time
to
time in the Security Trustee’s good faith discretion, to take any action
(including the right to collect on any Collateral) and to execute any instrument
that the Security Trustee may reasonably believe is necessary or advisable
to
accomplish the purposes of this Agreement, in a manner consistent with the
terms
hereof.
Section
9.
Taxes
and Claims.
The
Grantor 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 Interest, as well as all other claims
of any kind (including claims for labor, material and supplies) against or
with
respect to the Collateral, except to the extent (a) such taxes, charges or
claims are being contested in good faith by appropriate proceedings, (b) such
proceedings do not involve any material danger of the sale, forfeiture or loss
of any of the Collateral or any interest therein and (c) such taxes, charges
or
claims are adequately reserved against on the Grantor’s books in accordance with
generally accepted accounting principles.
Section
10.
Books
and Records.
The
Grantor will keep and maintain at its own cost and expense satisfactory and
complete records of the Collateral, including a record of all payments received
and credits granted with respect to all Accounts , Chattel Paper and other
items
included in the Collateral.
Section
11.
Inspection,
Reports, Verifications.
The
Grantor will at all reasonable times permit the Security Trustee or its
representatives to examine or inspect any Collateral, any evidence of Collateral
and the Grantor’s books and records concerning the Collateral, wherever located.
The Grantor will from time to time when requested by the Security Trustee
furnish to the Security Trustee a report on
its
Accounts, Chattel Paper, General Intangibles and Instruments, naming the Account
Debtors or other obligors thereon, the amount due and the aging thereof. The
Security Trustee or its designee, upon 5 days prior written notice to the
Grantor, is authorized to contact Account Debtors and other Persons obligated
on
any such Collateral from time to time to verify the existence, amount and/or
terms of such Collateral.
Section
12.
Notice
of Loss.
The
Grantor will promptly notify the Security Trustee of any loss of or material
damage to any material item of Collateral or of any substantial adverse change,
known to Grantor, in any material item of Collateral or the prospect of payment
or performance thereof.
Section
13.
Insurance.
The
Grantor will keep the Inventory and Equipment insured against “all risks” for
the full replacement cost thereof subject to a deductible not exceeding US$1,000
and with an insurance company or companies satisfactory to the Security Trustee,
the policies to protect the Security Trustee as its interests may appear, with
such policies or certificates with respect thereto to be delivered to the
Security Trustee at its request. Each such policy or the certificate with
respect thereto shall provide that such policy shall not be canceled or allowed
to lapse unless at least 30 days prior written notice is given to the Security
Trustee.
Section
14.
Lawful
Use; Fair Labor Standards Act.
The
Grantor 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. All Inventory of the Grantor as of
the
date of this Agreement that was produced by the Grantor or with respect to
which
the Grantor performed any manufacturing or assembly process was produced by
the
Grantor (or such manufacturing or assembly process was conducted) in compliance
in all material respects with all requirements of the Fair Labor Standards
Act,
and all Inventory produced, manufactured or assembled by the Grantor after
the
date of this Agreement will be so produced, manufactured or assembled, as the
case may be.
Section
15.
Action
by the Security Trustee.
If the
Grantor at any time fails to perform or observe any of the foregoing agreements,
the Security Trustee shall have (and the Grantor hereby grants to the Security
Trustee) the right, power and authority (but not the duty) to perform or observe
such agreement on behalf and in the name, place and stead of the Grantor (or,
at
the Security Trustee’s option, in the Security Trustee’s name) and to take any
and all other actions which the Security Trustee may reasonably deem necessary
to cure or correct such failure (including, without limitation, the payment
of
taxes, the satisfaction of Liens, the procurement and maintenance of insurance,
the execution of assignments, security agreements and Financing Statements,
and
the indorsement of instruments); and the Grantor shall thereupon pay to the
Security Trustee on demand the amount of all monies expended and all costs
and
expenses (including reasonable attorneys’ fees and legal expenses) incurred by
the Security Trustee in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Security
Trustee, together with interest thereon from the date expended or incurred
at
the highest lawful rate then applicable to any of the Obligations, and all
such
monies expended, costs and expenses and interest thereon shall be part of the
Obligations secured by the Security Interest.
Section
16.
Insurance
Claims.
As
additional security for the payment and performance of the Obligations, the
Grantor hereby assigns to the Security Trustee any and all monies (including
proceeds of insurance and refunds of unearned premiums) due or to become due
under, and all other rights of the Grantor 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.
At any time, whether before or after the occurrence of any Event of Default,
the
Security Trustee may (but need not), in the Security Trustee’s name or in
Grantor’s name, execute and deliver proofs of
claim,
receive all such monies, indorse checks and other instruments representing
payment of such monies, and adjust, litigate, compromise or release any claim
against the issuer of any such policy. Notwithstanding any of the foregoing,
so
long as no Event of Default exists the Grantor shall be entitled to all
insurance proceeds with respect to Equipment or Inventory provided that such
proceeds are applied to the cost of replacement Equipment or Inventory.
Section
17.
The
Security Trustee’s Duties.
The
powers conferred on the Security Trustee hereunder are solely to protect its
interest and the interests of the Debentureholders in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except
for (a) the safe custody of any Collateral in its possession, (b) the accounting
for monies actually received by it hereunder, (c) filing the Financing
Statement(s) contemplated in Section 8(b) hereof, (d) subordinating its
interest in accounts receivable as contemplated in Section 4 and (e) any duty
expressly imposed on the Security Trustee by applicable Laws with respect to
any
Collateral that has not been waived by the Grantor hereunder, the Security
Trustee shall have no duty with respect to any Collateral and no implied duties
or obligations shall be read into this Agreement against the Security Trustee.
Without limiting the generality of the foregoing, the Security
Trustee shall have no duty, as to any Collateral, for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Collateral, (ii) taking
any necessary steps to preserve rights against any parties with respect to
any
Collateral or (iii) taking any action to protect against any diminution in
value
of the Collateral, whether
or not the Security Trustee has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against any
Persons or any other rights pertaining to any Collateral
but, in
each case, the Security Trustee may do so and all expenses reasonably incurred
in connection therewith shall be part of the Obligations
The
Security Trustee shall be deemed to have exercised reasonable care in the
safekeeping of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to the safekeeping which the Security Trustee
accords its own property of like kind. The Security Trustee will take action
in
the nature of exchanges, conversions, redemptions, tenders and the like
requested in writing by the Grantor with respect to the Collateral in the
Security Trustee’s possession if the Security Trustee in its reasonable judgment
determines that such action will not impair the Security Interest or the value
of the Collateral, but a failure of the Security Trustee to comply with any
such
request shall not of itself be deemed a failure to exercise reasonable care.
Section
19.
Remedies
on Default.
Without
limiting its rights and remedies as Debenture Trustee under Article 7 of the
Indenture, upon the occurrence of an Event of Default and at any time
thereafter:
19
(a)
The
Security Trustee may exercise and enforce any and all rights and remedies
available upon default to a secured party under the Uniform Commercial
Code.
19
(b)
The
Security Trustee shall have the right to enter upon and into and take possession
of all or such part or parts of the properties of the Grantor, including lands,
plants, buildings, Equipment, Inventory and other property as may be necessary
or appropriate in the judgment of the Security Trustee to permit or enable
the
Security Trustee to manufacture, produce, process, store or sell or complete
the
manufacture, production, processing, storing or sale of all or any part of
the
Collateral, as the Security Trustee may elect, and to use and operate said
properties for said purposes and for such length of time as the Security Trustee
may deem
necessary
or
appropriate for said purposes without the payment of any compensation to
Grantor
therefor. The Security Trustee may require the Grantor to, and the Grantor
hereby agrees that it will, at its expense and upon request of the Security
Trustee
forthwith, assemble all or part of the Collateral as directed by the Security
Trustee and make it available to the Security Trustee at a place or places
to be
designated by the Security Trustee.
19
(c)
Any
sale of Collateral may be in one or more parcels at public or private sale,
at
any of the Security Trustee’s offices or elsewhere, for cash, on credit, or for
future delivery, and upon such other terms as the Security Trustee may
reasonably believe are commercially reasonable. The Security Trustee shall
not
be obligated to make any sale of Collateral regardless of notice of sale having
been given, and the Security Trustee may adjourn any public or private sale
from
time to time by announcement made at the time and place fixed therefor, and
such
sale may, without further notice, be made at the time and place to which it
was
so adjourned.
19
(d)
The
Security Trustee is hereby granted a license or other right to use, without
charge, all of the Grantor’s property, including, without limitation, all of the
Grantor’s labels, trademarks, copyrights, patents and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral, and the
Grantor’s rights under all licenses and all franchise agreements shall inure to
the Security Trustee’s benefit until the Obligations are paid in
full.
19
(e)
If
notice to the Grantor 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 for the
giving of notice in Section 24
hereof
at least ten calendar days prior to the date of intended disposition or other
action, and the Security Trustee may exercise or enforce any and all other
rights or remedies available by law or agreement against the Collateral, against
the Grantor, or against any other Person or property.
Section
20.
Remedies
as to Certain Rights to Payment.
Upon
the occurrence of an Event of Default and at any time thereafter the Security
Trustee may notify any Account Debtor or other Person obligated on any Accounts
or other Collateral that the same have been assigned or transferred to the
Security Trustee and that the same should be performed as requested by, or
paid
directly to, the Security Trustee, as the case may be. The Grantor shall join
in
giving such notice, if the Security Trustee so requests. The Security Trustee
may, in the Security Trustee’s name or in the Grantor’s name, demand, xxx for,
collect or receive any money or property at any time payable or receivable
on
account of, or securing, any such Collateral or grant any extension to, make
any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligation of any such Account Debtor or other Person. If any
payments on any such Collateral are received by the Grantor after an Event
of
Default has occurred, such payments shall be held in trust by the Grantor as
the
property of the Security Trustee and shall not be commingled with any funds
or
property of the Grantor and shall be forthwith remitted to the Security Trustee
for application on the Obligations.
Section
21.
Application
of Proceeds.
Without
limiting its rights and remedies as Debenture Trustee under Article 7 of the
Indenture, all cash proceeds received by the Security Trustee in respect of
any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Security Trustee, be held by the
Security Trustee as collateral for, or then or at any time thereafter be applied
in whole or in part by the Security Trustee against, all or any part of the
Obligations
(including, without limitation, any expenses of the Security Trustee payable
pursuant to Section 22
hereof).
Section
23.
Waivers;
Remedies; Marshalling.
This
Agreement can be waived, modified, amended, terminated or discharged, and the
Security Interest can be released, only explicitly in a writing signed by the
Security Trustee. 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 and remedies available
to
the Security Trustee. All rights and remedies of the Security Trustee shall
be
cumulative and may be exercised singly in any order or sequence, or
concurrently, at the Security Trustee’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. The Grantor hereby waives all requirements of
law,
if any, relating to the marshalling of assets which would be applicable in
connection with the enforcement by the Security Trustee of its remedies
hereunder, absent this waiver.
Section
25.
Grantor
Acknowledgments.
The
Grantor hereby acknowledges that (a) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement, (b) the Security Trustee
has no fiduciary relationship to the Grantor, the relationship being solely
that
of debtor and creditor, and (c) no joint venture exists between the Grantor
and
the Security Trustee.
Section
26.
Continuing
Security Interest.
This
Agreement shall (a) create a continuing security interest in the Collateral
and
shall remain in full force and effect until payment in full of the Obligations
and the expiration of the obligations, if any, of the Security Trustee to extend
credit accommodations to the Grantor, (b) be binding upon the Grantor, its
successors and assigns, and (c) inure to the benefit of, and be enforceable
by,
the Security Trustee and its successors, transferees, and assigns.
Section
27.
Termination
of Security Interest.
Upon
payment in full of the Obligations and the expiration of any obligation of
the
Security Trustee to extend credit accommodations to the Grantor, the Security
Interest granted hereby shall terminate. Upon any such termination, the Security
Trustee will return to the Grantor such of the Collateral then in the possession
of the Security Trustee as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
Any reversion or return of Collateral upon termination of this Agreement and
any
instruments of transfer or termination shall be at the expense of the Grantor
and shall be without warranty by, or recourse on, the Security Trustee. As
used
in this Section, “Grantor” includes any assigns of Grantor, any Person holding a
subordinate security interest in any of the Collateral or whoever else may
be
lawfully entitled to any part of the Collateral.
Section
28.
Governing
Law and Construction.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICT
OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION
OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
Whenever
possible, each provision of this Agreement and any other statement, instrument
or transaction contemplated hereby or relating hereto shall be interpreted
in
such manner as to be effective and valid under such applicable law, but, if
any
provision of this Agreement or any other statement, instrument or transaction
contemplated hereby or relating hereto shall be held to be prohibited or invalid
under such applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder
of
such provision or the remaining provisions of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating
hereto.
Section
29.
Consent
to Jurisdiction.
AT THE OPTION OF THE SECURED PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY
FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK CITY, NEW YORK; AND
THE GRANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES
ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE
GRANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT
OR
CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED
BY
THIS AGREEMENT, THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE
CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR
IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
Section
30.
Waiver
of Notice and Hearing.
THE GRANTOR HEREBY WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR
TO
THE EXERCISE BY THE SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL
WITHOUT JUDICIAL PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON
THE
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT
HAS
BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS
AGREEMENT.
Section
31. Waiver
of Jury Trial.
EACH OF THE GRANTOR AND THE SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT,
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section
32.
Counterparts.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
Section
33.
General.
All
representations and warranties contained in this Agreement or in any other
agreement between the Grantor and the Security Trustee shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. The Grantor waives notice of the acceptance of
this
Agreement by the Security Trustee. Captions in this Agreement are for reference
and convenience only and shall not affect the interpretation or meaning of
any
provision of this Agreement.
IN
WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed
and
delivered by its officer thereunto duly authorized as of the date first above
written.
RED
MILE ENTERTAINMENT, INC.
By
___________________________
Title
__________________________
Address
for Grantor:
0000
Xxxxxxxxx, Xxxxx 000,
Xxxxxxxxx,
Xxxxxxxxxx 00000
Fax
Grantor’s
Tax ID # 00-0000000
Olympia
Trust Company
0000,
000
- 0xx
Xxxxxx
X.X.
Xxxxxxx,
Xxxxxxx X0X OP6
Fax
(000)
000-0000
SCHEDULE
I
to
Locations
of Equipment and Inventory as of September 30, 2006:
Raw
Materials: $53,789.79 at warehouse of Lixivian Corporation in
Minnesota;
Finished
Goods: $15,899.13 at warehouse of Lixivian Corporation in
Minnesota;
Raw
Materials and Finished Goods: $40,000 at warehouse of Zomax Corp. in
Minnesota.
Lixivian
Corporation is a third party manufacturer of PC Games; Their offices are located
at the following:
000
Xxxx
Xxxx Xxxxxx
Xxxxxxx,
XX 00000
Zomax
Corp. is a third party manufacturer of PC Games; Their offices are located
at
the following:
0000
Xxxxxx Xxxx
Xxxxxxxx,
XX 00000
SCHEDULE
II
to
Trade
Names and Trade Styles
Red
Mile’s sole registered trademark is the Red Mile Entertainment, Inc. name.
(Suggested
Exhibit for Financing Statement.
NOT
PART OF THE SECURITY AGREEMENT.)
EXHIBIT
A
TO
FINANCING STATEMENT
|
Debtor:
|
Red
Mile Entertainment, Inc.
|
|
0000
Xxxxxxxxx, Xxxxx 000,
|
|
|
Xxxxxxxxx,
Xxxxxxxxxx 00000
|
|
|
Security
Trustee:
|
Olympia
Trust Company
|
|
0000,
000 - 0xx
Xxxxxx X.X.
|
|
|
Xxxxxxx,
Xxxxxxx X0X OP6
|
This
Financing Statement covers the following types (or items) of
property:
All
of
the Debtor’s right, title, and interest in and to the following, whether now or
hereafter owned, existing, arising or acquired and wherever
located:
All
Accounts
All
Chattel Paper
All
Documents
All
Equipment
All
General Intangibles
All
Instruments
All
Inventory
To
the
extent not otherwise included in the foregoing, (i) all other rights to the
payment of money, including rents and other sums payable to the Debtor under
leases, rental agreements and other Chattel Paper and insurance proceeds; (ii)
all books, correspondence, credit files, records, invoices, bills of lading,
and
other documents relating to any of the foregoing, including, without limitation,
all tapes, cards, disks, computer software, computer runs, and other papers
and
documents in the possession or control of the Debtor or any computer bureau
from
time to time acting for the Debtor; (iii) all rights in, to and under all
policies insuring the life of any officer, director, stockholder or employee
of
the Debtor, the proceeds of which are payable to the Debtor; and (iv) all
accessions and additions to, parts and appurtenances of, substitutions for
and
replacements of any of the foregoing
To
the
extent not otherwise included, all proceeds and products of any and all of
the
foregoing.
Debtor
is
permitted to factor its accounts receivable so long as the same are sold in
the
ordinary course of business at the fair market value thereof. Accounts
receivable factored as aforesaid shall automatically, without any further act
or
deed, be released from the security interest evidenced by this financing
statement.
Debtor
is
permitted to grant to a commercial bank, financial institution or other lenders
a security interest in its accounts receivable and the Secured Party’s security
interest in such accounts receivable shall be subordinate to such creditor’s
security interest in such accounts receivable.
DEFINED
TERMS
As
used
in this Financing Statement, the following terms shall have the meanings
indicated:
“Account”
shall
mean the rights of the Debtor to payment for goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not such right has been earned by performance, all guaranties and
security therefor, and all interests in the goods the sale or lease of which
gave rise thereto, including the right to stop such goods in
transit.
“Chattel
Paper”
shall
mean a writing or writings which evidence both a monetary obligation and a
security interest in or lease of specific goods; when a transaction is evidenced
by both a security agreement or a lease and by an Instrument or a series of
Instruments, the group of writings taken together constitutes Chattel
Paper.
“Document”
shall
mean any xxxx of lading, dock warrant, dock receipt, warehouse receipt or order
for the delivery of goods, together with any other document or receipt which
in
the regular course of business or financing is treated as adequately evidencing
that the Person in possession of it is entitled to receive, hold and dispose
of
the document and the goods it covers.
“Equipment”
shall
mean all machinery, equipment, furniture, furnishings and fixtures, including
all accessions, accessories and attachments thereto, and any guaranties,
warranties, indemnities and other agreements of manufacturers, vendors and
others with respect to such Equipment.
“General
Intangibles”
shall
mean any personal property (other than goods, Accounts, Chattel Paper,
Documents, Instruments and money) including choses in action, causes of action,
contract rights, corporate and other business records, inventions, designs,
patents, patent applications, service marks, trademarks, tradenames, trade
secrets, engineering drawings, good will, registrations, copyrights, licenses,
franchises, customer lists, tax refund claims, royalties, licensing and product
rights, rights to the retrieval
from
third parties of electronically processed and recorded data and all rights
to
payment resulting from an order of any court.
“Instrument”
shall
mean a draft, check, certificate of deposit, note, xxxx of exchange, security
or
any other writing which evidences a right to the payment of money and is not
itself a security agreement or lease and is of a type which is transferred
in
the ordinary course of business by delivery with any necessary endorsement
or
assignment.
“Inventory”
shall
mean any and all goods owned or held by or for the account of the Debtor for
sale or lease, or for furnishing under a contract of service, or as raw
materials, work in process, materials incorporated in or consumed in the
production of any of the foregoing and supplies, in each case wherever the
same
shall be located, whether in transit, on consignment, in retail outlets,
warehouses, terminals or otherwise, and all property the sale, lease or other
disposition of which has given rise to an Account and which has been returned
to
the Debtor or repossessed by the Debtor or stopped in transit.
