EXHIBIT 10.4
SECURITY AGREEMENT
(Pledge of Securities)
THIS SECURITY AGREEMENT is entered into as of March 19, 1998 by and between
XXXXX X. XXXXXX, a resident of Boulder County, Colorado ("Pledgor"), and PARAGON
COYOTE TEXAS LTD., a Texas limited partnership ("Secured Party").
RECITALS
A. Secured Party has agreed to make a loan to Coyote Sports, Inc., a
Nevada corporation duly qualified to transact business in the State of Colorado
("Borrower"), in the principal amount of $6,000,000 pursuant to the terms and
conditions set forth in that certain Loan Agreement of even date herewith by and
among, inter alia, Pledgor, Secured Party and Borrower (as renewed, extended,
amended or restated, the "Loan Agreement"), the Note and the Other Transaction
Documents.
B. As a material inducement to Secured Party to make the Loan to
Borrower, Pledgor has agreed to pledge the Xxxxxx Collateral Shares to Secured
Party.
C. In as much as Pledgor is a director, executive officer and principal
shareholder of Borrower, the Loan will benefit Pledgor at least to the extent of
the value of the Xxxxxx Collateral Shares.
D. Pledgor understands that Secured Party would not be willing to make
the Loan to Borrower but for Pledgor's pledge of the Xxxxxx Collateral Shares
pursuant to this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which the parties hereto
hereby acknowledge, Pledgor and Secured Party hereby agree as follows:
1. Unless otherwise defined in this Security Agreement, undefined
capitalized terms shall have the meanings respectively ascribed to them in the
Loan Agreement.
2. Pledgor pledges, grants a security interest in, mortgages, assigns,
transfers, delivers, pledges, sets over and confirms unto Secured Party the
collateral described below (the "Collateral") to secure performance and payment
of the Indebtedness:
All securities described in Schedule l and all securities or other property
delivered to or which shall hereafter be delivered to, or come into the
possession, custody,
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or control of Secured Party in any manner for the purpose of securing the
Indebtedness during the existence of this Security Agreement, together with
any and all present and future increases in, profits on, combinations and
reclassifications of, and substitutes and replacements for, all or part of
the foregoing, and all present and future accounts, contract rights,
general intangibles, chattel paper, documents, instruments, cash and
noncash proceeds and other rights whatsoever arising from or by virtue of,
or in connection with, or from the voluntary or involuntary sale, transfer
or other disposition of, or collections with respect to, or proceeds
payable by virtue of claims against any person or entity with respect to,
all or any part of the foregoing.
3. The security interest in the Collateral created and evidenced hereby
shall secure the full and timely payment and performance of the Indebtedness.
4. Pledgor represents and warrants (with each such representation and
warranty's being conclusively and independently deemed material and relied upon
by Secured Party irrespective of whether such materiality and/or reliance
actually exists) that: (a) Pledgor owns all presently-existing Collateral, and
will acquire all hereafter-acquired Collateral, free and clear of any and all
Liens; (b) Pledgor has full and complete rights and authority to grant this
security interest in the Collateral and to perform Pledgor's obligations under
this Security Agreement; (c) all Collateral that is securities has been duly
authorized and validly issued and is fully paid and non-assessable, and the
transfer thereof is not subject to any restrictions other than restrictions
imposed by applicable securities laws; (d) none of the Collateral is
uncertificated securities; (e) no dispute, right of setoff, counterclaim or
defense exist with respect to any part of the Collateral; (f) except for any
financing statements that Secured Party has filed or may file, no financing
statement covering the Collateral or any part thereof has been filed with any
filing officer; (g) upon the delivery to Secured Party of the certificates
representing the Collateral that is securities, Secured Party will have a
perfected first-priority security interest in the Collateral, including the
proceeds and products thereof, subject to no prior Lien; (h) no other security
agreement covering the Collateral or any part thereof has been executed, and no
security interest, other than the one created by this Security Agreement, has
attached or been perfected in the Collateral or in any part thereof; (i)
Pledgor's address as set forth in the Loan Agreement is where Pledgor is
entitled to receive notices; and (j) all representations and warranties
contained in the Loan Agreement are true and correct in all respects. The
delivery at any time by Pledgor to Secured Parry of Collateral or of additional
specific descriptions of certain Collateral shall constitute a representation
and warranty by Pledgor under this Security Agreement that, with respect to such
Collateral and each item thereof, the matters heretofore warranted in this
Paragraph 4 are true and correct in all respects. All representations and
warranties set forth herein shall survive the execution and delivery of this
Security Agreement and the occurrence of the Closing and shall never terminate.
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5. Pledgor covenants and agrees: (a) to deliver to Secured Party all
certificates or instruments representing or evidencing the Collateral in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Secured Party; (b) to register (and to cooperate with Secured
Party in registering) all Collateral consisting of uncertificated securities in
the name of Secured Party on the books of the issuer thereof or on the books of
Secured Party as financial intermediary; (c) at any time and from time to time
promptly to execute and deliver to Secured Party all such other assignments,
certificates, supplemental writings and financing statements, and to do all
other acts or things, as Secured Party may request in order more fully to
evidence and perfect the security interest created by this Security Agreement
and to verify compliance with the provisions of this Security Agreement and the
accuracy of the representations and warranties made hereunder; (d) punctually
and properly to perform all of Pledgor's covenants and duties under any other
security agreement, deed of trust, collateral pledge agreement or contract of
any kind now or hereafter existing as security for or in connection with payment
of the Indebtedness or any part thereof; (e) to pay the Indebtedness in
accordance with the terms of the Note, the Loan Agreement, this Security
Agreement and any other promissory note or notes or other writing evidencing the
Indebtedness or any part thereof; (f) promptly to furnish Secured Party with any
information or writings that Secured Party may request concerning Pledgor's
financial condition or the Collateral; (g) to allow Secured Party to inspect all
records of Pledgor relating to the Collateral or to the Indebtedness and to make
and take away copies of such records; (h) promptly to notify Secured Party of
any change in any fact or circumstance as to which Pledgor has warranted or
represented in this Security Agreement or in any other writing that Pledgor has
furnished to Secured Party in connection with the Collateral or the
Indebtedness; (i) promptly to notify Secured Party of any Action that could
affect title to the Collateral or any part thereof or the security interest
herein and, at the request of Secured Party, to appear in and defend (at
Pledgor's sole cost and expense) any such Action; (j) except to the extent
prohibited by applicable law, pay any and all expenses incurred in the custody,
preservation, use or operation of the Collateral; (k) not transfer, sell,
assign, pledge, hypothecate, encumber, give or otherwise convey or dispose of
("Transfer," with such term, when used as a noun, to have a correlative meaning)
any of Pledgor's rights in the Collateral; (l) to defend Secured Party's title
against the claims and demands of all Persons; (m) not to grant, create, or
permit to attach or exist any Lien on, of or against any of the Collateral; and
(n) in the event that Pledgor or Secured Party (solely in its capacity as
pledgee hereunder) (each a "holder") must comply with the provisions of Rule 144
adopted by the Commission under the Securities Act ("Rule 144"), with respect to
sales of any such securities, and to the extent that such holder is not able to
meet all criteria applicable under Rule 144(k), if any, Pledgor shall (i) use
his best efforts to cause the issuer of such securities (A), upon receipt from
any holder of written notice that such holder intends to sell any such
securities under Rule 144, to confirm in writing that such issuer has complied
with the provisions of Rule 144 in connection with the availability of public
information with respect to such issuer or to specify the respects in which such
issuer has not so complied, and to supply such holder with such information as
such holder shall request for purposes of such sale and (B) to cooperate in good
faith with any holder who desires to sell a portion of such securities under
Rule 144, (ii) not sell (directly or indirectly), or permit any Affiliate (as
such term is defined in Rule 12b-2 under the Exchange Act) of Pledgor
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to sell (directly or indirectly), any capital stock of such issuer or any other
securities of the same class as such securities, except for sales pursuant to an
effective registration statement under the Securities Act and (iii) not enter
into any agreement with any Person that restricts the Transfer of any such
securities. Should the Collateral or any part thereof ever in any manner be
converted by its issuer or maker into another type of property or should any
money or other proceeds ever be paid or delivered to Pledgor as a result of
Pledgor's rights in the Collateral, then, in any such event, all such property,
money and other proceeds (except only ordinary cash dividends unless and until
payable to Secured Party under Paragraph 6 hereof), shall become part of the
Collateral, and Pledgor covenants promptly to deliver or pay to Secured Party
all of the same to the extent that it is susceptible of delivery and,
contemporaneously therewith, Pledgor will properly endorse or assign the same
upon Secured Party's request. With respect to any of such property that is of a
kind or type that Secured Party deems requires one or more additional security
agreements, financing statements or other writings to perfect a security
interest therein in Secured Party's favor, Pledgor will promptly execute and
deliver to Secured Party whatever Secured Party may deem necessary or
appropriate for such purpose. Should Pledgor fail to perform or observe any of
its covenants, duties or agreements in accordance with their respective terms
hereunder, Secured Party may (but shall not be obligated to) perform or attempt
to perform such covenant, duty or agreement on Pledgor's behalf, and any and all
amounts that Secured Party may expend in connection with such performance or
attempted performance shall become a part of the Indebtedness (except to the
extent prohibited by applicable law) and, at the Secured Party's request,
Pledgor agrees to pay such amount promptly to Secured Party.
6. Secured Party shall have the unilateral power and authority to have
Collateral that is securities registered in Secured Party's name, or in the name
of Secured Party's nominee, without notice to Pledgor; provided, however, that,
notwithstanding the foregoing, Secured Party shall not have the right, prior to
a Default, to have transferred into itself or its nominee any equity security
(as defined in Rule 13d-l(d) of the General Rules and Regulations under the
Exchange Act or any successor thereof) constituting the Collateral or any part
thereof. With or without such registration, upon the occurrence of an Default,
Secured Party shall have the unilateral power and authority to demand of the
obligor issuing the same, and to execute and deliver a receipt for, any and all
dividends and other distributions payable in respect thereof, regardless of the
medium in which paid and whether ordinary or extraordinary. Each obligor making
payment to Secured Party hereunder shall be fully protected in relying upon
Secured Party's written statement that it then holds a security interest that
entitles it to receive such payment, and Secured Party's receipt for such
payment shall be full acquittance therefor to the one making such payment.
7. Within five days prior to the maturity of any Collateral consisting of
Government Securities, Pledgor may provide a written notice to Secured Party to
reinvest the proceeds of such Government Securities upon their maturity in other
Government Securities and Secured Party shall make reasonable efforts to invest
such proceeds in the Government Securities requested in such notice. If Pledgor
does not provide such notice to Secured Party to reinvest the proceeds of any
Government Security, or if Secured Party is unable, after reasonable efforts, to
invest such proceeds as requested by Pledgor in its written notice to Secured
Party, Secured Party may
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reinvest such proceeds in Government Securities as it shall determine in its
sole discretion.
8. Secured Party shall have no obligation under any circumstances: (a) to
notify Pledgor of the occurrence of a Default; (b) to fix or preserve rights
against prior parties to the Collateral; or (c) to use diligence to collect any
amounts payable in respect of the Collateral. Without limiting the generality of
clause (c) of the immediately-preceding sentence, Secured Party shall be liable
only to account to Pledgor for such amounts as Secured Party may actually
collect or receive on the Collateral and shall have no responsibility for
ascertaining any maturities, calls, conversions, exchanges, offers, tenders or
similar matters relating to any of the Collateral or for informing Pledgor with
respect to any of such matters (irrespective of whether Secured Party actually
may have, or may be deemed to have, knowledge thereof). Secured Party shall
have no obligation to take any action with regard to the Collateral that Pledgor
may authorize or request unless (i) Secured Party shall determine, in its sole
discretion, that such action will not adversely affect the Collateral's value as
collateral in the hands of the Secured Party and (ii) such authorization or
request is made in writing and is actually received by Secured Party. The
foregoing provisions of this paragraph shall be fully applicable to all
securities held in pledge hereunder, irrespective of whether Secured Party may
or may not have exercised any right under Paragraph 6 above to have such other
securities registered in its name or in the name of its nominee.
9. The term "Default," as used in this Security Agreement, means: (a) an
"Event of Default" as such term is defined in the Loan Agreement; (b) any other
failure by Pledgor punctually and properly to perform any covenant, agreement or
condition contained herein or in any other security agreement, mortgage, deed of
trust, assignment or contract of any kind securing or assuming payment of the
Indebtedness or any part thereof that is not corrected to Lender's satisfaction
within five days following Lender's notice thereof to Pledgor; (c) Pledgor's
death unless, within 20 days thereafter, the personal representatives of
Pledgor's estate in a writing delivered to Secured Party in form and substance
satisfactory to Secured Party (i) endorse or reaffirm in full this Security
Agreement, the Loan Agreement, the Note, the Other Transaction Documents and
each other instrument evidencing the Indebtedness, (ii) agree that they, as such
representatives, and the Pledgor's estate shall be bound by the terms of this
Security Agreement, the Loan Agreement, the Note, the Other Transaction
Documents and each other instrument evidencing the Indebtedness to the same
extent as if they were the original signatories hereto and thereto and (iii)
acknowledge and affirm Secured Party's status as a secured creditor of the
estate with a perfected first-priority security interest in the Collateral; (d)
the levy against the Collateral or any part thereof of any execution,
attachment, sequestration, or other writ; or (e) Secured Party in good xxxxx
xxxxx itself insecure with respect to the Note or any other Indebtedness or
believes that the prospect of Pledgor's performance of any of Pledgor's
covenants, agreements or other duties hereunder might be impaired.
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10. Upon the occurrence of a Default, in addition to any and all other
rights and remedies that Secured Party may then have hereunder or under the Loan
Agreement, the Note, any Other Transaction Document, the uniform commercial code
as adopted by the State of Colorado (the "Code") as a secured party or
otherwise, Secured Party at its option may: (a) declare the entire unpaid
balance of principal of and all accrued but unpaid interest on the Indebtedness
immediately due and payable, without notice, demand or presentment, which are
hereby waived; (b) reduce its claim to judgment, foreclose or otherwise enforce
its security interest in all or any part of the Collateral by any available
judicial procedure; (c) after notification, if any, provided for in Paragraph 11
hereof, sell or otherwise dispose of, at the Secured Party's office or
elsewhere, all or any part of the Collateral as a unit or in parcels, by public
or private proceedings and/or by way of one or more contracts (its being agreed
that the sale of any part of the Collateral shall not exhaust Secured Party's
power of sale, but that such sales may be made at any time and from time to time
until all of the Collateral has been sold or until the Indebtedness has been
paid in full), and at any such sale it shall not be necessary to exhibit the
Collateral; (d) if Secured Party is entitled to do so under the Code, retain the
Collateral in satisfaction of the Indebtedness; (e) apply for the judicial
appointment of a receiver for the Collateral, or any part thereof (and Pledgor
hereby consents to any such appointment); (f) buy the Collateral at any public
sale; and (g) buy the Collateral at any private sale if the Collateral is of a
type customarily sold in a recognized market or is of a type that is the subject
of widely distributed standard price quotations. Secured Party shall be
entitled to apply the proceeds of any sale or other disposition of the
Collateral first to the payment of all of Secured Party's reasonable costs
incurred in storing, preparing for sale and selling all or any part of the
Collateral and to the payment of attorneys' fees as provided for herein or in
any note or obligation secured hereby, and to apply remaining proceeds, if any,
toward payment of the balance of the Indebtedness in such order and manner as
Secured Party, in its discretion, may deem advisable. Secured Party shall
account to Pledgor for any surplus.
11. Secured Party shall provide reasonable notice to Pledgor (and to any
other Person entitled under the Code to receive notice thereof) of the time and
place of any public sale of the Collateral, or reasonable notice of the time
after which Secured Party intends to conduct a private sale or other disposition
of the Collateral; provided, however, that, if the Collateral is perishable,
threatens to decline speedily in value or is of a type customarily sold on a
recognized market or is of a type that is the subject of widely distributed
standard price quotations, Secured Party may sell or otherwise dispose of the
Collateral without notification, advertisement or other notice of any kind.
Pledgor hereby agrees that notice given not less than five days prior to the
taking of the action to which the notice relates is reasonable notification and
notice for the purpose of this paragraph and the Code.
12. Secured Party shall have the right at any time and from time to time
to execute and file the original or a copy of this Security Agreement as a
financing statement, but the failure of Secured Party to do so shall not impair
in any respect the validity or enforceability of this Security Agreement.
13. All rights and remedies of Secured Party hereunder are cumulative of
each other
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and of every other right or remedy that Secured Party may otherwise have at law
or in equity or under any other contract or other writing for the enforcement of
the security interest herein or the collection of the Indebtedness (including
without limitation the Loan Agreement, the Note and the Other Transaction
Documents), and the Secured Party's exercise of one or more rights or remedies
shall not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies. Should Pledgor have heretofore executed or hereafter execute
any deed of trust, mortgage or any other security agreement in favor of Secured
Party, the security interest thereby created and all other rights, powers and
privileges vested in Secured Party by the terms thereof shall exist concurrently
with the security interest created hereby, and the Secured Party's exercise or
failure to exercise any right or power conferred upon it in any such instrument
shall not prejudice or impair Secured Party's rights, titles, liens and powers
existing hereunder.
14. Should any part of the Indebtedness be payable in installments, the
Secured Party's acceptance at any time and from time to time of partial payment
of the aggregate amount of all installments then matured shall not be deemed to
be a waiver of any Default then existing. No waiver by Secured Party of any
Default shall be deemed to be a continuing waiver nor a waiver of any other
subsequent Default. No delay or omission by Secured Party in exercising any
right or power hereunder, or under any other writings that Pledgor may have
executed as security for or in connection with the Indebtedness, shall impair
any such right or power to be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such right or power
preclude other or further exercise thereof or the exercise of any other right or
power of Secured Party hereunder or under such other writings.
15. If the Indebtedness or any part thereof is given in renewal or
extension or applied toward the payment of indebtedness secured by a Lien,
Secured Party shall be, and is hereby, subrogated to all of the rights, titles
and Liens securing the indebtedness so renewed, extended or paid.
16. Pledgor and Secured Party intend to conform strictly to applicable
usury laws. Therefore, the total amount of interest (as defined under applicable
law) contracted for, charged or collected with respect to the Loan shall never
exceed the Highest Lawful Rate (as defined in the Note). In the event that
Secured Party is found to have contracted for, charged or received any interest
on the Loan in excess of the Highest Lawful Rate, such occurrence shall be
deemed a mistake and Secured Party shall automatically reform the contract or
charge to conform to applicable law. In the event that Secured Party is found
to have received any interest on the Loan in excess of the Highest Lawful Rate,
Secured Party shall either refund such excess interest to Borrower or credit the
excess interest to the unpaid principal amount of the Loan. All amounts found
to constitute interest on the Loan will be spread throughout the full term of
the Loan in determining whether the interest contracted for, charged or received
thereon exceeds the Highest Lawful Rate.
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17. Because of the Securities Act and other laws or regulations, there may
be legal restrictions or limitations that could affect Secured Party's ability
to dispose of the Collateral and to enforce Secured Party's rights and remedies
hereunder. For these reasons, Pledgor hereby authorizes Secured Party, in
Secured Party's discretion, in the event of any Default hereunder (but only if
advised by counsel that Secured Party may not sell the Collateral publicly
pursuant to an effective registration statement under the Securities Act), to
sell all or any part of the Collateral at private sale pursuant to one or more
investment representation letters or in any other manner that will not require
the Collateral to be registered under the Securities Act or the rules and
regulations promulgated thereunder, or under any other law, rule or regulation,
at the best price that Secured Party reasonably is able to obtain. Pledgor
hereby further authorizes Secured Party, in Secured Party's discretion, to take
such actions, give such notices, obtain such consents and do such other things
as Secured Party may deem necessary or appropriate in the event of a sale or
disposition of part or all of the Collateral. Pledgor understands and agrees
that Secured Party, in Secured Party's discretion, may approach a limited number
of potential purchasers for part or all of the Collateral and that a sale or
sales under such circumstances might yield a lower price for such Collateral
than otherwise would be obtainable if such Collateral were registered under the
Securities Act and sold in the open market. Pledgor agrees that, if Secured
Party shall sell part or all of the Collateral at such private sale or sales
following a Default, Secured Party shall have the right to rely upon the advice
and opinion of any member firm of a national securities exchange as to the best
price reasonably obtainable upon such a private sale thereof and that such
reliance shall be conclusive evidence that Secured Party's sale of part or all
of the Collateral was conducted in a commercially reasonable manner under the
Code.
18. By his execution of this Security Agreement, Pledgor hereby makes,
constitutes and appoints Secured Party, with full power of substitution in the
premises, his true and lawful attorney-in-fact and agent, for him and in his
name, place and stead, upon the occurrence of a continuing Default or Potential
Default, to do all such acts and things that Secured Party may deem necessary or
advisable to accomplish the purposes of this Security Agreement. The power of
attorney set forth in the immediately-preceding sentence shall be deemed
irrevocable and coupled with an interest for so long as any part of the
Indebtedness remains outstanding and shall not be adversely affected by
Pledgor's incapacity.
19. This Security Agreement shall be binding upon and inure to the benefit
of Pledgor and Secured Party, and their respective heirs, personal
representatives, successors and assigns; provided, however, that Pledgor shall
not, directly or indirectly, assign or transfer, or attempt to assign or
transfer, any of his rights, duties or obligations under this Security Agreement
without Secured Party's prior express written consent.
20. This Security Agreement is a contract made under, and shall be
construed in accordance with and governed by, the laws of the State of Colorado
(exclusive of any such laws that pertain to conflicts of laws).
21. Pledgor declares that he has read this Security Agreement, the Loan
Agreement,
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the Note and the Other Transaction Documents, that he understands the terms and
conditions hereof and thereof and that he has received a copy of each of the
referenced documents.
22. THIS SECURITY AGREEMENT, THE LOAN AGREEMENT, THE NOTE AND THE OTHER
TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties have entered into this Security Agreement
as of the date first above written.
DEBTOR:
/s/ Xxxxx X. Xxxxxx
----------------------
XXXXX X. XXXXXX
SECURED PARTY: PARAGON COYOTE TEXAS LTD.,
a Texas limited partnership
By: Paragon Management Group, Inc.,
a Texas corporation, General Partner
By: /s/ Xxxx X. Xxxxxx
---------------------------------
Xxxx Xxxxxx, President
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Schedule 1 to Security Agreement
by and between
Xxxxx X. Xxxxxx and Paragon Coyote Texas Ltd.
Description of Collateral
1,170,000 shares of the Common Stock, par value $0.001 per share, of Coyote
Sports, Inc., a Nevada corporation, CUSIP number 224071 10 0, represented by the
following certificate numbers:
Certificate # Number of Shares
------------- ----------------
0124 1,035,000
0126 135,000
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