SECURITY AGREEMENT
THE SECURITY AGREEMENT, is made as of this 31st day of October, 1996, by VIDEO
SENTRY CORPORATION, a Minnesota corporation (the "Debtor"), in favor of XXXXXX
X. XXXXX, XX., a Minnesota resident ("Secured Party").
In order to secure the payment of the Promissory Note dated October 31, 1996,
executed by the Debtor and payable to the order of Secured Party in the original
principal amount of $500,000.00 (the "Note"), and each and every other debt,
liability and obligation of every type and description which Debtor may now or
at any time hereafter owe to Secured Party (whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises
under or is evidenced by this Agreement or any other present or future
instrument or agreement or by operation of law, and whether it is or may be
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) (all such debts, liabilities and obligations of Debtor to Secured Party
herein collectively referred to as the "Secured Obligations"), Debtor hereby
agrees as follows:
1. SECURITY INTEREST AND COLLATERAL. In order to secure the payment and
performance of the Secured Obligations, Debtor hereby grants to Secured Party a
security interest (herein called the "Security Interest") in and to the
following property (hereinafter collectively referred to as the "Collateral"):
any and all furniture, fixtures, machinery, equipment,
inventory, accounts, prepaid insurance, supplies,
patents, patent rights, copyrights, trademarks, trade
names, goodwill, royalty rights, franchise rights,
chattel paper, license rights, documents, instruments,
general intangibles and any and all other goods, now
owned or hereafter acquired by the Debtor and wherever
located,
together with all substitutions and replacements for and products and proceeds
of any of the foregoing property and, in the case of all tangible Collateral,
together with (i) all accessories, attachments, parts, equipment, accessions and
repairs now or hereafter attached or affixed to or used in connection with any
such goods, and (ii) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor hereby represents and
warrants to, and covenants and agrees with, Secured Party as follows:
(a) Debtor's chief executive office is located at 0000 Xxxxxxx Xxxxx, Xxxx
Xxxxxxx, Xxxxxxxxx 00000 and it keeps and will keep all of its books
and records with respect to all of its accounts at such address.
(b) During the preceding one (1) year Debtor has not changed its name or
operated or conducted business under any trade name or "d/b/a" which
is different from its corporate name. Debtor shall promptly notify
Secured Party of any change in such name or if it operates or conducts
business under any trade name or "d/b/a" which is different from such
name.
(c) Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter acquired or arising) and will maintain absolute
title to each item of Collateral free and clear of all security
interests, liens and encumbrances, except the Security Interest, a
first priority security interest granted to Debtor's primary lender,
and such other security interests as Secured Party make consent to in
writing (the Security Interest and such other security interests are
hereinafter collectively referred to as the "Permitted Interests"),
and will defend the Collateral against all claims or demands of all
persons other than Secured Party and those holding Permitted
Interests. Debtor will not sell or otherwise dispose of the Collateral
or any interest therein except sales of inventory and/or equipment in
the ordinary course of business.
(d) Other than transportation of merchandise and inventory in the ordinary
course of business, Debtor will not permit any Collateral to be
located in any state (and, if county filing is required, in any
county) in which a financing statement covering such Collateral is
required to be, but has not in fact been, filed.
(e) All rights to payment and all instruments, documents, chattel papers
and other agreements constituting or evidencing Collateral are (or
will be when arising or issued) the valid, genuine and legally
enforceable obligation, subject to no defense, set-off or counterclaim
(other than those arising in the ordinary course of business) of each
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 any modification, amendment or cancellation of any
such obligation without Secured Party's prior written consent, and
will not subordinate any such right to payment to claims of other
creditors of such account debtor or other obligor.
(f) Debtor will (i) keep all Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to time,
replace any worn, broken or defective parts thereof; (ii) other than
taxes and other governmental charges contested in good faith and by
appropriate proceedings, 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; (iii) keep all Collateral free and clear of all security
interests, liens and encumbrances except the Permitted Interests; (iv)
at all reasonable times, permit Secured Party or its representatives
to examine or inspect any Collateral, wherever located, and to
examine, inspect and copy Debtor's books and records pertaining to the
Collateral and its business and financial condition and to discuss
with account debtors and other obligors requests for verifications of
amounts owed to Debtor; (v) keep accurate and complete records
pertaining to the Collateral and pertaining to Debtor's business and
financial condition and will submit to Secured Party such periodic
reports concerning the Collateral and Debtor's business and financial
condition as Secured Party may from time to time reasonably request;
(vi) promptly notify Secured Party of any loss or material damage to
any Collateral in excess of $10,000 or of any material adverse change,
known to Debtor, in the prospect of payment of any sums due on or
under any instrument, chattel paper or account constituting
Collateral; (vii) if Secured Party at any time so requests promptly
deliver to Secured Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by Debtor to
Secured Party; (viii) at all times keep all Collateral insured against
risks of fire (including so called extended coverage), theft,
collision (in case of collateral consisting of motor vehicles) and
such other risks and in such amounts as Secured Party may reasonably
request, with any loss payable to Secured Party to the extent of its
interest and notify the Secured Party in writing of any loss or damage
to the Collateral or any part; (ix) from time to time execute such
financing statements as Secured Party may reasonably deem required to
be filed in order to perfect the Security Interest and, if any
Collateral is covered by a certificate of title, execute such
documents as may be required to have the Security Interest properly
noted on a certificate of title; (x) pay when due or reimburse Secured
Party on demand for all costs of collection of any of the Secured
Obligations and all other out-of-pocket expenses (including in each
case all attorneys' fees) incurred by Secured Party in connection with
the creation, perfection, satisfaction or enforcement of the Security
Interest or the execution or creation, continuance or enforcement of
this Agreement or any or all of the Secured Obligations including
expenses incurred in any litigation or bankruptcy or insolvency
proceedings; (xi) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
Secured Party's rights under this Agreement, including, without
limitation, an assignment of claim with respect to any account which
is a government receivable; (xii) not use or keep any Collateral, or
permit it to be used or kept, for any unlawful purpose or in violation
of any federal, state or local law, statute or ordinance; (xiii)
permit Secured Party at any time and from time to time to send
requests (after the occurrence of an event of default under the Note
or this Security Agreement) to account debtors or other obligors for
verification of amounts owed to Debtor; and (xiv) not permit any
Collateral to become part of or to be affixed to any real property,
without first assuring to the reasonable satisfaction of Secured Party
that the Security Interest will be prior and senior to any interest or
lien then held or thereafter acquired by any mortgagee of such real
property or the owner or purchaser of any interest therein. If Debtor
at any time fails to perform or observe any agreement contained in
this Section 2(i), and if such failure shall continue for a period of
ten (10) calendar days after Secured Party gives Debtor written notice
thereof (or, in the case of the agreements contained in clauses (viii)
and (ix) of this Section 2(i), immediately upon the occurrence of such
failure, without notice or lapse of time) Secured Party may (but need
not) perform or observe such agreement on behalf and in the name,
place and stead of Debtor (or, at Secured Party's option, in Secured
Party's own name) and may (but need not) take any and all other
actions which Secured Party 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
(other than Permitted Interests), the performance of obligations under
contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing
statements, the endorsement of instruments, and the procurement of
repairs, transportation or insurance); and, except to the extent that
the effect of such payment would be to render any loan or forbearance
of money usurious or otherwise illegal under any applicable law,
Debtor shall thereupon pay Secured Party on demand the amount of all
moneys expended and all costs and expenses (including reasonable
attorneys' fees) incurred by Secured Party in connection with or as a
result of Secured Party's performing or observing such agreements or
taking such actions, together with interest thereon from the date
expended or incurred by Secured Party at the rate provided for in the
Note. To facilitate the performance or observance by Secured Party of
such agreements of Debtor, Debtor hereby irrevocably appoints (which
appointment is coupled with an interest) Secured Party, or its
delegate, 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 instruments, documents, financing statements, applications for
insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by Debtor under this Section 2.
3. ASSIGNMENT OF INSURANCE. Debtor hereby assigns to Secured Party, as
additional security for the payment of the Secured Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of Debtor
under or with respect to, any and all policies of insurance covering the
Collateral, and Debtor hereby directs the issuer of any such policy to pay any
such moneys to the Secured Party. Upon the occurrence of an event of default
under the Note or this Security Agreement, and at any time thereafter, Secured
Party may (but need not) in its own name or in Debtor's name, execute and
deliver proofs of claim, receive all such moneys (subject to Debtor's rights),
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.
4. COLLECTION OF ACCOUNTS. Pursuant to Minn. Stat. Section 336.9-502, Secured
Party may, or at Secured Party's request, Debtor shall, after the occurrence of
an event of default under the Note or this Security Agreement, and at any time
thereafter, notify any account debtor or any obligor on an instrument to make
payment directly to a post office box specified by and under the sole control of
Secured Party, whether or not Secured Party was theretofore making collections
with respect thereto, and Secured Party shall be entitled to take control of any
proceeds thereof. If so requested by Secured Party, Debtor shall insert
appropriate language on each invoice directing its customers to make payment to
such post office box. Debtor hereby authorizes and directs Secured Party to
deposit into a special collateral account to be established and maintained with
Secured Party all checks, drafts and cash payments, received in said lock box.
All deposits in said collateral account shall constitute proceeds of Collateral
and shall not constitute payment of any of the Secured Obligations. At its
option, Secured Party may, at any time, apply finally collected funds on deposit
in said collateral account to the payment of the Secured Obligations in such
order of application as Secured Party may determine, or permit Debtor to
withdraw all or any part of the balance on deposit in said collateral account.
If a collateral account is so established Debtor agrees that it will promptly
deliver to Secured Party for deposit into said collateral account, all payments
on accounts and chattel paper received by it. All such payments shall be
delivered to secured Party in the form received (except for Debtor's endorsement
where necessary). Until so deposited, all payments on accounts and chattel paper
received by the Debtor shall be held in trust by Debtor for and as the property
of Secured Party and shall not be commingled with any funds or property of
Debtor.
5. REMEDIES. Upon the occurrence of an event of default under the Note or this
Security Agreement, and at any time thereafter, Secured Party may exercise any
one or more of the following rights or remedies if any or all of the Secured
Obligations are not paid when due: (i) exercise and enforce any or all rights
and remedies available after default to a secured party under the Uniform
Commercial Code, including but not limited to the right to take possession of
any Collateral, 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 or use any or all
of the Collateral; (ii) Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties; (iii) exercise its
rights under any lessors' agreements regardless of whether or not the Debtor is
in default under such leases; and (iv) exercise or enforce any or all other
rights or remedies available to Secured Party by law or agreement against the
Collateral, against Debtor or against any other person or property. Secured
Party is hereby granted a non-exclusive, worldwide and royalty-free license to
use or otherwise exploit all trademarks, franchises, copyrights and patents of
Debtor that Secured Party deems necessary or appropriate to the disposition of
any Collateral. 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 6 hereof) at least ten (10) calendar days prior to the date of
intended disposition or other action.
6. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts or
chattel paper, and, as provided by law, Debtor is entitled to any surplus and
shall remain liable for any deficiency. This Agreement can be waived, modified,
amended, terminated or discharged, and the Security Interest can be released,
only explicitly in a writing signed by Secured Party. A waiver signed by Secured
Party shall be effective only in the specific instance and for the purpose
given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of Secured Party's rights or remedies. All rights and
remedies of Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Secured Party's option, and the exercise or enforcement of any
one 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 deposited in the United States mails, registered or
certified, postage prepaid, or personally delivered to Debtor at its address set
forth in the Paragraph 2(a) hereof. Secured Party's duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safe keeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. Secured Party shall not be obligated
to preserve any rights Debtor may have against any other party, to realize on
the Collateral at all or in any particular manner or order, or to apply any cash
proceeds of Collateral in any particular order of application. This Agreement
shall be binding upon and inure to the benefit of Debtor and Secured Party and
their respective heirs, representatives, successors and assigns and shall take
effect when signed by Debtor and delivered to Secured Party, and Debtor waives
notice of Secured Party's acceptance hereof. Secured Party may execute this
Agreement if appropriate for the purpose of filing, but the failure of Secured
Party to execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. Except to the extent otherwise required by law,
this Agreement shall be governed by the laws of the State of Minnesota and,
unless the context otherwise requires, all terms used herein which are defined
in Articles 1 and 9 of the Uniform Commercial Code, as in effect in said state
shall have the meanings therein stated and all capitalized terms used herein
which are defined in the Note shall have the meanings therein stated. If any
provision or application of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability 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 shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Secured
Obligations.
IN WITNESS WHEREOF, Debtor has executed and delivered to Secured Party this
Security Agreement as of the day and year first above written.
VIDEO SENTRY CORPORATION
By: /s/ Xxx XxXxxxx
Its V.P. Finance
