SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "AGREEMENT") is entered into as of this
6th day of Nov, 2000, by and between TELENETICS CORPORATION, a California
corporation ("DEBTOR"), and Xxxxxx Xxxxxxxx, an individual ("SECURED PARTY").
R E C I T A L S:
A. Debtor is indebted to Secured Party in the principal sum of
$530,000.00, pursuant to that certain Settlement Agreement and Mutual Release
(the "SETTLEMENT AGREEMENT") of even date herewith between the parties hereto.
B. This Security Agreement is intended by the parties hereto to create
a security interest in the collateral described herein in favor of Secured Party
to secure all of the obligations of Debtor under the Settlement Agreement.
C. The parties hereto understand and agree that the security interest
created by this Agreement is junior in status, at least with respect to the
assets of Debtor which secure Debtor's payment obligations in accordance with
the security interest created by that certain Loan and Security Agreement by and
among Debtor and Celtic Capital Corporation, dated as of April 2, 1999, (the
"LOAN AND SECURITY AGREEMENT"). In addition, the parties hereto understand and
agree that the security interest created by this Agreement is PARI PASSU in
status to the security interests created by (i) that certain Amendment to
Security Agreement by and between Debtor and Xxxxx Xxxxxxxx, doing business as
SMC Group, a sole proprietorship, dated as of March 31, 1998, which amended and
replaced that certain Security Agreement by and between Debtor and Shashani,
dated February 7, 1992, and (ii) that certain Security Agreement by and between
Debtor and SMC Communications Group, Inc., dated as of December 31, 1997
(collectively, the "PARI PASSU SECURITY AGREEMENTS").
A G R E E M E N T:
IN CONSIDERATION of the foregoing recitals, the mutual covenants herein
contained and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by each of the parties hereto, the parties hereto
do hereby agree as follows:
1. SECURITY INTEREST. As security for the performance of the obligations and
indebtedness represented by the Settlement Agreement, including renewals,
extensions, amendments and replacements thereto, Debtor hereby grants to Secured
Party a security interest in the following collateral and in other collateral of
the same class, whether now owned or hereinafter acquired by Debtor (the
"Collateral"):
All tangible and intangible assets of Debtor, including, but not
limited to, all existing and future inventory, accounts receivable,
furniture, fixtures, equipment, patents, patent applications,
trademarks, copyrights, trade secrets, and any other property interest
or proprietary right, as well as any document, instrument or drawings
embodying the same, and all additions and accessions thereto,
substitutions and replacements therefor, and all proceeds thereof.
Debtor and Secured Party agree that the security interest created
hereby has attached to the Collateral to the extent permitted by law, and that
it will attach to additional portions of the Collateral hereinafter acquired by
Debtor, as the requirements for attachment are otherwise met. The parties hereto
agree that all of the Collateral is personal property.
2. POSSESSION AND LOCATION OF COLLATERAL. Unless and until any default occurs
hereunder as set forth in Section 7 hereof, Debtor shall have possession of the
Collateral for its use and enjoyment in any lawful manner not inconsistent with
this Agreement or the Settlement Agreement. The Collateral will be kept at
Debtor's place of business with respect to such assets and will not be moved
therefrom without the prior written consent of Secured Party, except that Debtor
may make sales of inventory items in the ordinary course of business. Debtor
shall not replace or make material alterations in the Collateral without the
prior written consent of Secured Party. The consent of Secured Party required
hereby shall not be unreasonably withheld.
3. FINANCING STATEMENTS. Debtor shall join with Secured Party in executing one
or more financing statements or other documents pursuant to the provisions of
the California Uniform Commercial Code, or any other applicable law, relating to
the perfection of the Secured Party's security interest in the Collateral, in
form reasonably satisfactory to Secured Party.
4. TRANSFER, TAXES, LIENS AND ENCUMBRANCES. Debtor has title to the Collateral
free and clear of any lien, security interest or encumbrance, except for the
security interests created by this Agreement, the Pari Passu Security Agreements
and the Loan and Security Agreement. Title to the Collateral will remain in and
continue to be vested in Debtor. Debtor will defend the Collateral and will not
sell, offer to sell or otherwise transfer the Collateral, any portion thereof,
or any interest therein, without the prior written consent of Secured Party,
except that Debtor may make sales of inventory items in the ordinary course of
business. The consent of Secured Party required hereby shall not be unreasonably
withheld. Debtor shall pay all taxes, assessments and other charges made against
the Collateral. In addition, unless Secured Party shall consent otherwise in
writing, Debtor will keep the Collateral free from any lien, security interest
or encumbrance, except for the security interests created by this Agreement, the
Pari Passu Security Agreements and the Loan and Security Agreement.
5. RISK OF LOSS AND INSPECTION OF COLLATERAL. Debtor shall have all risk of loss
of the Collateral, and Debtor will keep the Collateral in good order and repair.
Secured Party shall have the right, at any reasonable time, to enter upon the
premises where the Collateral is located to examine and inspect the Collateral
in person or by agent. Any refusal to permit such entry shall be a breach of
this Agreement.
6. INSURANCE. Debtor shall keep the Collateral insured, at its own expense, in
an amount not less than its full insurable value, against loss by fire, theft,
vandalism and malicious mischief, storm, earthquake and extended coverage, and
Debtor shall cause Secured Party to be named loss payee in such insurance, and
furnish to Secured Party written evidence thereof.
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7. EVENTS OF DEFAULT. The occurrence of any of the following events or
conditions shall constitute an Event of Default:
(a) The failure of Debtor to perform any obligation or covenant set
forth herein or in the Settlement Agreement; or
(b) The failure of Debtor to pay principal and interest under the terms
of the Settlement Agreement.
(c) Debtor ceases operations, is dissolved, terminates its existence,
does or fails to do anything that allows the obligations under the Settlement
Agreement to become due before their stated maturity, or becomes insolvent,
appoints a receiver for its property, makes an assignment for the benefit of
creditors, commences any proceeding under any bankruptcy law, or is unable to
meet its debts as they mature.
8. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default hereunder,
and if, upon written notice of such default delivered to the Debtor, the
specified default is not cured within thirty (30) days of receipt of such
notice, Secured Party may, at its option, declare all amounts secured hereby
immediately due and payable and shall have the right to conduct a public or
private sale of the Collateral pursuant to and in accordance with the California
Commercial Code. Upon Debtor's default pursuant to this Section 8, the parties
hereto shall have all of the rights and remedies available to them under the
California Uniform Commercial Code.
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. All rights and remedies of Secured Party
shall be cumulative and may be exercised successively or concurrently and
without impairing Secured Party's interest in the Collateral.
9. NOTICE. All written notices required or permitted pursuant to this Agreement
shall be sent by certified mail, return receipt requested, or delivered by hand
to the parties hereto at the following address, or at any such other address
which any party hereto may, by written notice, have designated pursuant to this
section:
"Debtor": Telenetics Corporation
00000 Xxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: President
with a copy to: Xxxxx X. Xxxxxxx, Esq.
Xxxxx & Xxxxxx
000 Xxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
"Secured Party": Xxxxxx Xxxxxxxx
Xxxxxxxx & Associates
0000 Xxxxxxx Xxxxxx Xxxx., Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Facsimile: (000) 000-0000
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10. APPLICABLE LAW. This Agreement is to be construed and interpreted in
accordance with the laws of the State of California.
11. ASSIGNMENT AND WAIVER. Secured Party may assign its rights or interest under
this Agreement and, upon any such assignment, Debtor shall be obligated to
render performance to Secured Party's assignee. Debtor waives any and all claims
or defenses assertable against Secured Party and assignees thereof, except
defenses which cannot be waived under the California Uniform Commercial Code.
12. INUREMENT. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto, their successors and assigns, and may be
altered, amended or changed only by an instrument in writing signed by the
parties hereto.
13. SEVERABILITY. In the event any provision of this Agreement shall be
determined to be invalid, illegal, or unenforceable under applicable law, such
provision shall, insofar as possible, be construed or applied in such manner as
will permit enforcement; otherwise this Agreement shall be construed as though
such provision had never been made a part hereof, and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
14. BINDING AUTHORITY. Xxxxx Xxxxxx is the duly elected President of Debtor and
has the authority to bind the Debtor to the terms and provisions of this
Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
DEBTOR: TELENETICS CORPORATION,
a California corporation
By: /s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx, President
SECURED PARTY: /s/ Xxxxxx Xxxxxxxx
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Xxxxxx Xxxxxxxx
