1
SECURITY AGREEMENT - SECURITIES PLEDGE
This Security Agreement - Securities Pledge (this "Agreement") dated
as of March 29, 2001, is entered into between XXXX XXXXXXXX and XXXX XXXXXXXX
(collectively or individually, "Debtor") and THE CIT GROUP/ BUSINESS CREDIT,
INC. ("Agent"), with reference to the following:
RECITALS
A. TWIN LABORATORIES INC., a Utah corporation ("TLI"), ADVANCED
RESEARCH PRESS, INC., a New York corporation ("ARP"), CHANGES INTERNATIONAL,
INC., a Florida corporation ("CII"), PR NUTRITION, INC., a California
corporation ("PR Nutrition"), HEALTH FACTORS INTERNATIONAL, INC., a Delaware
corporation ("HFI") and XXXXXXX LABORATORIES, INC., a Delaware corporation
("Xxxxxxx", and individually a "Company" and collectively with TLI, ARP, CII, PR
Nutrition and HFI, the "Companies"), the lenders signatory thereto (the
"Lenders"), and Agent, as the agent for the Lenders, have entered into that
certain Financing Agreement, dated as of even date herewith (the "Loan
Agreement");
B. In order to induce Lenders to make the financial accommodations
provided to the Companies pursuant to the Loan Agreement, Debtor has delivered a
Guaranty, of even date herewith, in favor of Agent, for the benefit of Lenders
(the "Guaranty") and desires to pledge, grant, transfer, and assign to Agent a
security interest in the Collateral (as hereafter defined) to secure Debtor's
obligations under the Guaranty, as provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. Definitions and Construction:
(a) Definitions.
"Account" means the securities account of Debtor at maintained at
Xxxxxxx Xxxxx Xxxxxx Inc., as more fully described on Schedule 1 hereto.
"Agent" shall have the meaning assigned in the recitals hereto.
"Blechmans Agreement Regarding Letters of Credit" means that certain
letter agreement, dated March 29, 2001, between Agent and Xxxxx Xxxxxxxx, Xxxx
Xxxxxxxx, Xxxx Xxxxxxxx, Xxxx Xxxxxxxx, and Xxxxx Xxxxxxxx, respecting one or
more standby letters of credit in the aggregate amount of $15,000,000 to be
issued in favor of Agent, as beneficiary.
"Control Agreement" means the Xxxxxxx Xxxxx Barney Control Agreement
entered into on or about the date hereof among Debtor, Agent and Xxxxxxx Xxxxx
Xxxxxx Inc.
1
2
"Collateral" shall have the meaning assigned in Section 2 hereof.
"Companies" shall have the meaning assigned in the recitals hereto.
"Debtor" shall have the meaning assigned in the recitals hereto.
"Event of Default" has the meaning set forth in Section 6 hereof.
"Guaranty" shall have the meaning assigned in the recitals hereto.
"Intercreditor Agreement" means the that certain Intercreditor
Agreement, dated of even date herewith, between Debtor and Agent respecting
Debtor's reimbursement rights against the Companies, and any collateral security
therefor, in connection with the Guaranty and this Agreement.
"Liquidation Event" has the meaning set forth in Section 3(b)
hereof.
"Loan Agreement" shall have the meaning assigned in the recitals
hereto.
"Secured Obligations" has the meaning set forth in Section 2 hereof.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of California; provided that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the security interest in any Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than California, "UCC" means the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such perfection or effect of perfection or
non-perfection.
All initially capitalized terms used herein and not otherwise
defined herein shall have the meaning ascribed thereto in the Guaranty, or if
not defined therein, in the Loan Agreement.
(b) Construction.
(i) Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the singular
include the plural, the part includes the whole, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to any particular provision of this
Agreement. Section, subsection, exhibit, and schedule references are to this
Agreement unless otherwise specified. All of the exhibits or schedules attached
to this Agreement shall be deemed incorporated herein by reference. Any
reference to any of the this Agreement or the Guaranty includes any and all
alterations, amendments, extension, modifications, renewals, or supplements
thereto or thereof.
2
3
(ii) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Agent or Debtor, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by the parties and their respective counsel and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the parties hereto.
(iii) In the event of any direct conflict between the express
terms and provisions of this Agreement and of the Guaranty, the terms and
provisions of this Agreement shall control.
2. Pledge: As security for the prompt payment and performance of any
and all of Debtor's presently existing or hereafter arising obligations and
liabilities owing to Agent under the Guaranty (the "Secured Obligations"),
Debtor hereby delivers, pledges, grants, transfers, and assigns to Agent a
continuing security interest in all of Debtor's right, title, and interest in
and to the following (collectively, the "Collateral"):
(a) the Account, and the investment property, investment
securities, instruments, interests, contract rights, cash, or other property or
assets of any kind or nature (the "Securities") held in the Account;
(b) Debtor's general intangible or other rights respecting the
Account; and
(c) the proceeds (including proceeds of proceeds) of each of the
foregoing including, without limitation, any and all dividends, cash,
instruments, and other property from time to time received, receivable, or
otherwise distributed in respect of or in exchange for any of the foregoing,
including any insurance proceeds payable to Debtor in respect of such assets.
3. Nature of Collateral; Collateral Maintenance; Release of
Collateral:
(a) Debtor agrees that the Securities shall consist of the assets
set forth on Schedule 2 hereto. Debtor further agrees that the aggregate market
value of the Securities in the Account shall be no less than $20,000,000 on the
Closing Date, and thereafter shall be no less than $16,000,000 (the "Minimum
Collateral Value"). Upon the request of Agent, Debtor shall deliver or cause to
be delivered to Agent a statement of the market value of the Securities held in
the Account as of the close of the immediately preceding Business Day. In the
event the aggregate market value of the Securities reflected in any such
statement (net of any accrued and unpaid investment or management fees payable
to Xxxxxxx Xxxxx Barney Inc.) is less than the Minimum Collateral Value, then
such statement shall be accompanied by evidence that additional Securities have
been transferred to the Account such that the Account holds in the aggregate
Securities (net of any accrued and unpaid investment or management fees) equal
to or greater than the Minimum Collateral Value. In addition, Debtor shall
deliver such other evidence respecting the transfer of any additional Securities
to the Account as Agent may require to ensure that its security interest in such
Securities has been adequately created and perfected. Market value shall be
determined by the market valuation set forth in the statements respecting the
Account delivered to Agent and as Agent may otherwise reasonably determine.
3
4
(b) Upon the delivery to Agent of one or more letters of credit
in the aggregate amount of $15,000,000, naming Agent as beneficiary, issued by a
bank acceptable to Agent, and otherwise in satisfaction of the terms of
conditions of the Blechmans Agreement Regarding Letter of Credit, then Agent
shall release its security interest in the Collateral; provided that in the
event such letter of credit is not so delivered on or before April 16, 2001 (the
"Liquidation Event"), Agent may exercise its rights as a secured creditor to
cause the Collateral to be liquidated and converted to cash, and such proceeds
of liquidation (to the extent of $15,000,000) shall be held by Agent as cash
collateral to secure the Secured Obligations in such account, in the name of
Agent, and at such institution all as Agent may determine, and such cash
collateral shall be deemed Collateral hereunder and shall be subject to the
exercise of Agent's rights and remedies hereunder upon the occurrence of an
Event of Default hereunder.
4. Voting Rights; Dividends; Other Rights:
(a) During the term of this Agreement, Debtor shall not be
entitled to exercise any voting and other consensual rights pertaining to the
Collateral or any part thereof, and shall not instruct Xxxxxxx Xxxxx Xxxxxx Inc.
to make trades in the Account other than sales of Securities for cash which will
be held in the Account and other than to provide additional Collateral in the
event that the market value of the Collateral falls below the Minimum Collateral
Value.
(b) Any and all dividends and distributions paid with regard to
the Collateral shall be retained in the Account and shall be added to and
constitute a part of the Collateral.
5. Representations:
Debtor represents and warrants that:
(a) there are no restrictions upon the transfer of any of the
Collateral and Debtor has the right to pledge and grant a security interest in
or otherwise transfer such Collateral free of any encumbrances or rights of
third parties including any spouse of any Debtor;
(b) all of the Collateral is and shall remain free from all
liens, claims, encumbrances, and security interests and, except as permitted
under Section 4(a), Debtor shall not sell or otherwise dispose of the
Collateral;
(c) the execution and delivery of this Agreement and the Control
Agreement creates a valid, perfected, and first priority security interest in
the Collateral in favor of Agent;
(d) no authorization or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for: (i)
the grant by Debtor of the security interest granted hereby or for the
execution, delivery, or performance of this Agreement by Debtor; (ii) the
perfection of or exercise by Agent of its rights and remedies hereunder (except
as may have been taken by or at the direction of Debtor or as may be required in
connection with a
4
5
disposition of the Collateral by laws affecting the offering
and sale of securities generally); or (iii) the exercise by Agent the rights and
remedies provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement (except as may be required in connection
with a of the Collateral by laws affecting the offering and sale of
securities generally); and
(e) Debtor has made its own arrangements for keeping informed of
changes or potential changes affecting the Collateral (including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers, and voting rights) and Debtor
agrees that Agent shall have no responsibility or liability for informing Debtor
of any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto.
6. Event of Default: Each of the following shall be considered an
Event of Default under this Agreement:
(a) The occurrence of an "Event of Default" under and as defined
in the Loan Agreement, the subsequent acceleration of the "Obligations" (as
defined in the Loan Agreement), and such Obligations shall not have been paid in
full for any reason within 90 days after such acceleration; or
(b) (i) the commencement by either party constituting Debtor of
any bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law; or (ii) the commencement against
either such party of any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under any federal or state law by creditors
of such party, which proceeding shall not have been dismissed and vacated within
sixty (60) days of commencement, or any of the actions sought in any such
proceeding shall occur or the Company shall take action to authorize or effect
any of the actions in any such proceeding;
(c) Debtor's failure to observe or perform in any material
respect any term, covenant condition, agreement or obligation to be observed or
performed by Debtor under this Agreement, the Guaranty or the Intercreditor
Agreement.
7. Remedies Upon Default: Upon the occurrence of an Event of
Default, Agent shall have the following rights with respect to the Collateral:
Agent may sell or cause the Collateral, or any part thereof, to be
sold at any public or private sale, in one or more sales or lots, at such price
as Agent may deem best, and for cash or on credit or for future delivery,
without assumption of any credit risk, and the purchaser of any or all of the
Collateral so sold shall thereafter hold the same absolutely, free from any
claim, encumbrance, or right of any kind whatsoever. Any requirements of
reasonable notice shall be met if such notice is mailed to Debtor, at the
address hereinafter set forth, ten (10) calendar days before the time of the
sale or disposition; provided that only one days' notice shall be required in
the event that the Event of Default arises from Debtor's failure to maintain the
Minimum Collateral Value in the Account.
5
6
Any sale of the Collateral on a recognized market or conducted in
conformity with reasonable commercial practices of financial institutions
disposing of property similar to the Collateral shall be deemed to be
commercially reasonable. No notice shall be required in the event of a sale on a
recognized market. Any other requirement of notice, demand or advertisement for
sale, is, to the extent permitted by law, waived by Debtor.
Notwithstanding the above, should Agent determine that, prior to any
public offering of any securities contained in the Collateral, such securities
should be registered under the Securities Act of 1933 and/or registered or
qualified under any other federal or state law, and that such registration
and/or qualification is not practical, then Debtor agrees that it will be
commercially reasonable if a private sale is arranged so as to avoid a public
offering even if offers are solicited from fewer than four (4) investors, and
even though the sales price established and/or obtained may be substantially
less than the price which would be obtained pursuant to a public offering.
Upon Agent's receipt of net cash proceeds from the disposition of
the Collateral (after paying all fees, costs, and expenses incurred by Agent in
such disposition) ("Net Proceeds") equal to the Secured Obligations, plus all
costs of collection and enforcement of Agent's rights hereunder and under the
Guaranty, but excluding any such costs already recovered by Agent in determining
the Net Proceeds, then Agent shall have no further recourse to the Collateral
and Agent shall terminate its security interest in any remaining Collateral, and
any excess proceeds from the disposition of Collateral shall be promptly
delivered to Debtor.
In addition to any other rights given by law or equity, or the
rights hereunder, Agent shall have all of the rights and remedies with respect
to the Collateral of a secured party under the California Uniform Commercial
Code (the "Code"); provided, however, that Agent shall have no recourse
hereunder to Debtor personally except as provided in the Guaranty.
8. Agent as Debtor's Attorney-in-Fact: Debtor hereby irrevocably
appoints Agent as its attorney-in-fact to arrange for the transfer, at any time
upon the occurrence of a Liquidation Event or an Event of Default, of the
Collateral to the name of Agent or its nominee. The foregoing appointment is
coupled with an interest and is irrevocable.
9. Further Assurances: Debtor agrees that it will cooperate with
Agent and shall execute and deliver, or cause to be executed and delivered, to
Agent all stock powers, proxies, assignments, financing statements, instruments,
and other documents, and shall take all further action, at the expense of
Debtor, from time to time reasonably requested by Agent, in order to maintain a
continuing, first-priority, perfected security interest in the Collateral in
favor of Agent, and to enable Agent to exercise and enforce its rights and
remedies hereunder with respect to the Collateral.
10. Miscellaneous:
(a) Except as otherwise expressly provided in this Agreement,
Debtor hereby waives diligence, demand, presentment and protest and any notices
thereof as well as notice of nonpayment. No delay or omission of the Agent or
the Debtor to exercise any right or remedy
6
7
hereunder, whether before or after the happening of any Liquidation Event or
Event of Default, shall impair any such right or shall operate as a waiver
thereof or as a waiver of any such Liquidation Event or Event of Default. No
single or partial exercise by the Agent of any right or remedy precludes any
other or further exercise thereof, or precludes any other right or remedy.
(b) This Agreement, the Guaranty and the Intercreditor Agreement
executed and delivered in connection therewith constitute the entire agreement
among the Debtor and the Agent; supersede any prior agreements; can be changed
only by a writing signed by both the Debtor and the Agent; and shall bind and
benefit the Debtor and the Agent and their respective successors and assigns.
(c) If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision shall
be fully severable, and the remaining provisions of the applicable agreement
shall remain in full force and effect and shall not be affected by such
provision's severance. Furthermore, in lieu of any such provision, there shall
be added automatically as a part of the applicable agreement a legal and
enforceable provision as similar in terms to the severed provision as may be
possible.
(d) EACH DEBTOR AND THE AGENT EACH HEREBY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREUNDER. DEBTOR HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED. IN NO EVENT WILL THE AGENT BE LIABLE
FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
(e) Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing (provided that, any
electronic communications from Debtor with respect to any request, transmission,
document, electronic signature, electronic mail or facsimile transmission shall
be deemed binding on Debtor for purposes of this Agreement, provided further
that any such transmission shall not relieve Debtor from any other obligation
hereunder to communicate further in writing), and shall be deemed to have been
validly served, given or delivered when hand delivered or sent by facsimile, or
three days after deposit in the United State mails, with proper first class
postage prepaid and addressed to the party to be notified or to such other
address as any party hereto may designate for itself by like notice, to the
addresses set forth below.
(f) THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
7
8
IN WITNESS WHEREOF, Debtor and Agent have caused this Agreement
to be executed and delivered as of the date first hereinabove set forth.
[DEBTOR SIGNATURES TO BE NOTARIZED]
____________________________________
XXXX XXXXXXXX
____________________________________
XXXX XXXXXXXX
Address for notices:
c/o Twinlab Corporation
000 Xxxxx Xxxxxxx
Xxxxxxxxx, XX 00000
STATE OF )
)
COUNTY OF )
On _________, 2001, before me, the undersigned, a notary public in and for said
State, personally appeared known to me to be Xx. Xxxx Xxxxxxxx and Xx. Xxxx
Xxxxxxxx who executed the within instrument.
WITNESS my hand and official seal.
Notary Public
THE CIT GROUP/BUSINESS CREDIT, INC.
By:_________________________________
Title:______________________________
Address for notices:
000 X. Xxxxx Xxx., 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Regional Manager
8
9
SCHEDULE 1
Securities Account
Account No. 630-18251-10-049
Maintained in the name of Xxxx Xxxxxxxx and Xxxx Xxxxxxxx
Maintained at:
Xxxxxxx Xxxxx Barney Inc.
000 Xxxxxxxx Xxxxxxxx
Xxxxxxx Xxxx, XX 00000
9
10
SCHEDULE 2
List of Securities
[TO BE PROVIDED DIRECTLY BY XXXXXXX XXXXX XXXXXX TO CIT]
10
