SECURITY AGREEMENT
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(Central Engineering Company)
THIS AGREEMENT made as of this 31st day of October, 1997, by and between
Central Engineering Company, a Minnesota corporation, of Minneapolis, Minnesota
herein called "Company") and Comerica Bank (successor in interest by reason of
merger to Manufacturers Bank, N.A., formerly known as Manufacturers National
Bank of Detroit, a Michigan banking corporation, of Detroit, Michigan (herein
called "Bank");
WITNESSETH:
WHEREAS, Xxxx Industries, Inc. ("Borrower") has requested that Bank make
certain credit available to Borrower and Bank has agreed to do so upon the
condition, among others, that Company grant Bank a security interest in certain
of Company's assets;
NOW, THEREFORE, in consideration of the premises and to induce Bank to make
such loans and extend such other credit to Company and/or Borrower and for other
valuable consideration, Company and Bank agree as follows:
1. GRANT OF SECURITY INTEREST
1.1 Company hereby assigns, transfers, mortgages, pledges and delivers to
Bank and conveys and grants to Bank a continuing security interest in the
following described property of Company whether it is now owned or existing or
hereafter arising or acquired (all of which is herein called "Collateral"):
(a) all accounts, accounts receivable, rights under contracts, chattel
paper, tax refunds, general intangibles, instruments, and all
obligations due Company for goods sold or to be sold, or leased or to
be leased, or services rendered or to be rendered, (all of the
foregoing being herein called "Accounts");
(b) all inventory, whether raw materials, work-in-process, finished goods,
parts or supplies or otherwise; all goods, merchandise and other
property held for sale or lease or to be furnished under any contract
of service;
and all documents of title covering any goods which are or are to
become inventory (all of the foregoing being herein called
"Inventory");
(c) all machinery, equipment, furniture, trade fixtures, tools, motor
vehicles, and all accessories, parts and equipment now or hereafter
affixed thereto or used in connection therewith, and all other
tangible personal property (all of the foregoing being herein called
"Equipment"); and
(d) all cash and non-cash proceeds of any of the foregoing received upon
the sale, exchange, collection or other disposition of same including
without limitation all insurance payable by reason of loss or damage
to any of the foregoing.
2. OBLIGATIONS
2.1 The Collateral shall be security for the following described
obligations and all full or part extensions and renewals thereof (all of which
is herein called "Indebtedness"):
(a) all liabilities and obligations of Borrower under that certain Second
Amended and Restated Credit Agreement dated as of October 31, 1997
made between Borrower and Bank and all present and future amendments
thereto (herein called "Loan Agreement") and the Notes issued
thereunder, excluding, however, any obligations and liabilities of
Borrower to Bank under Section 1.A of the Loan Agreement; provided,
however, upon the occurrence of a Collateral Trigger Event (as defined
in the Loan Agreement) all obligations and liabilities of Company
and/or Borrower to Bank shall constitute Indebtedness for purposes of
this Agreement;
(b) all liabilities and obligations of Company to Bank under that certain
Guaranty Agreement dated as of October 31, 1997 from Company to Bank
pursuant to which Company has guaranteed certain indebtedness and
obligations of Borrower to Bank; provided, however, Company's
obligations with respect to Borrower's obligations to Bank under
Section 1.A of the Loan
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Agreement shall not constitute Indebtedness secured hereunder until
the occurrence of a Collateral Trigger Event (as defined below);
(c) any and all other present and future liabilities and obligations of
Company and/or Borrower to Bank, including letter of credit
reimbursement obligations, howsoever evidenced, existing, arising, or
acquired by Bank, whether direct or indirect, joint or several,
absolute or contingent, due or to become due, now existing or
hereafter arising but excluding any liabilities and obligations of
Borrower to Bank under that certain promissory note dated October 31,
1997 in the principal amount of Nine Million Dollars ($9,000,000) and
any extensions or renewals thereof; provided, however, upon the
occurrence of a Collateral Trigger Event (as defined in the Loan
Agreement) all obligations and liabilities of Company and/or Borrower
to Bank shall constitute Indebtedness for purposes of this Agreement;
and
(e) any and all of Bank's costs and expenses (including reasonable
attorneys' fees and legal expenses) incurred in the preparation
hereof, the filing or recording of any financing statement or other
document, the protection or preservation of the Collateral, the
collection and/or repossession of the Collateral, or the enforcement
of its rights hereunder.
3. REPRESENTATIONS AND WARRANTIES
Company represents and warrants that:
3.1 Company owns the Collateral free and clear of all liens, encumbrances
and security interests other than in favor of Bank or as permitted by the Loan
Agreement ("Permitted Liens") and no financing statement other than to Bank or
with respect to the Permitted Liens has been given or has been filed with any
recording officer with respect to any of the Collateral. Company has full power
and right to grant the security interest granted by it under this Agreement.
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3.2 The Collateral is located at the locations listed in Exhibit A
attached hereto and in no other states or jurisdictions.
3.3 All records concerning the Collateral are located at 0000 Xxxxxxx Xxxx
Xxxxxxxxxxx, XX 00000 and at no other place.
3.4 The chattel paper is genuine, valid and subsisting, and in all
respects what it purports to be and no event has occurred or condition exists
which is or with the passage of time and/or giving of notice would be an event
of default thereunder.
3.5 The accounts and accounts receivable included in the Accounts are
genuine and valid obligations due or to become due to Company, and Company
hereby confirms that the value of same is as has been represented to Bank and
that when taken as a whole said accounts and accounts receivable are not subject
to offsets or counterclaims materially reducing the aggregate value thereof.
3.6 The Equipment is and will continue to be used by Company in the
operation of its business and is not held for sale or lease and does not
constitute inventory as such term is defined in the Uniform Commercial Code as
adopted in Michigan and does not constitute real estate fixtures under
applicable law.
4. PERFECTION OF SECURITY INTEREST
4.1 Company agrees to furnish such financing statements (and amendments
thereto and continuations thereof) as Bank may at any time request, to cause
same to be filed in all public offices deemed necessary by Bank, to pay all
costs of filing, and to do such other acts and things as Bank may at any time
request to establish and maintain for Bank a valid first priority security
interest in the Collateral.
4.2 Company agrees upon the request of Bank, to cause all certificates of
title for all motor vehicles comprising part of the Collateral to be issued
and/or reissued reflecting Bank thereon as secured party or the equivalent.
4.3 Company agrees to note the security interest of Bank, in form
satisfactory to Bank, on all items of chattel paper comprising part of the
Collateral.
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4.4 Company agrees to notify Bank of all changes in Company's name, legal
structure, or chief executive office, or in the location of the Collateral or
Company's records concerning same and to file or cause to be filed all financing
statements or amendments necessary or appropriate to establish and maintain for
Bank a valid first priority security interest in all the Collateral subject only
to Permitted Liens.
5. COVENANTS
Company covenants and agrees that so long as Bank has any obligation or
commitment to lend to Company or so long as any part of the Indebtedness remains
unpaid it will:
5.1 Keep the Collateral and all records concerning the Collateral at the
locations set forth in Sections 3.2 and 3.3 hereof.
5.2 Not permit any part of the Equipment to become or constitute a real
estate fixture under applicable law.
5.3 Maintain insurance on the Inventory and the Equipment with an
insurance company reasonably satisfactory to Bank against such risks and in such
amounts as Bank may reasonably require and which are against such risks and in
such amounts as are customary and prudent for businesses similar to Company in
size and nature with the loss payable under any such policy to Company and Bank
as their interests may appear; all said policies or copies thereof, with all
endorsements thereon, to be deposited with Bank. The proceeds of any such
insurance shall, subject to the provisions of Section 9.11 hereof, be applied,
at Bank's option, to replacement of the Collateral or payment of the
Indebtedness, whether or not then due; provided, however, if no default
hereunder then exists, proceeds of any such insurance payable with respect to a
claim which is in an amount less than $25,000 may be paid directly to Company.
5.4 Maintain the Inventory and the Equipment in good condition, ordinary
wear and tear excepted, pay all taxes and assessments applicable thereto, and
not use them or permit their use for any unlawful purpose or in any manner
likely to cause a material decline in its value. Company may, at its expense
and in its own name, in good faith contest any such taxes or
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assessments and, in the event of such contest may permit the taxes or
assessments to remain unpaid during the pendency of such contest and any appeal
therefrom unless Bank shall notify Company that, in the opinion of Bank's
counsel, by nonpayment of any such items, the lien of this Agreement will be
materially endangered or the Collateral or any part thereof may be subject to
loss or forfeiture, in which event such taxes or assessment shall be paid
promptly.
5.5 Timely perform its obligations and take all reasonable actions under
any and all contracts and agreements which are or will be part of the Collateral
to insure that all persons or parties obligated to Company thereon may not avail
themselves of defenses, offsets or counterclaims, and take all action necessary
and appropriate to enforce and collect all obligations due Company on the
Accounts or any other part of the Collateral.
5.6 Not sell, transfer, assign or otherwise dispose of any part of the
Collateral (other than Inventory, but in such case only in the ordinary course
of Company's business and Equipment which is obsolete or no longer useful in the
operation of Company's business, but in such case only in the ordinary course of
Company's business with the book value of the Equipment so disposed not to
exceed $50,000 in the aggregate during any single fiscal year of Company) or
give up possession or control thereof or create or permit to exist any lien or
encumbrance on or security interest in any part thereof except to Bank and the
Permitted Liens.
5.7 Furnish Bank such information concerning Company and the Collateral as
Bank may at any time reasonably request.
5.8 Permit Bank to, upon written request and upon reasonable notice,
through its authorized attorneys, accountants, and representatives, during
normal business hours, examine and inspect the Collateral and to inspect, audit
and make copies of and extracts from all records and documents pertaining to the
Collateral.
5.9 Promptly notify Bank of any actual or imminent material decline in the
value of the Collateral (other than a decline in value resulting from ordinary
use and depreciation or from obsolescence).
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5.10 Promptly upon Bank's request deliver to Bank, appropriately endorsed
to the order of Bank, any note, trade acceptance, chattel paper or other
instrument or writing for the payment of money which shall be received by
Company and which may at any time evidence any obligation to Company arising
from any of the Accounts.
5.11 Reimburse Bank for all costs and expenses (including reasonable
attorneys' fees and legal expenses) incurred by Bank in preserving or protecting
the Collateral (including without limitation payment of taxes, insurance
premiums, and costs of maintenance and repairs) or in seeking to collect or
enforce any rights under the Collateral or collecting the Indebtedness and
enforcing its rights hereunder, together with interest thereon from the date of
advance thereof at the highest rate per annum then borne by any part of the
Indebtedness.
6. REMITTANCE BASIS LOANS
6.1 Company agrees that at the option of Bank exercisable only after a
default described in Section 7.1 hereof, the Indebtedness shall be on a
remittance basis and the following provisions shall apply:
(a) Company shall maintain a lock box in its name with Bank and Company
shall direct account debtors to pay all accounts receivable credited
from the date hereof into such lock box. Bank shall forward to Company
all documentation received in connection with such payments.
(b) Company will forthwith, upon receipt, transmit and deliver to Bank, in
the form received, all cash, checks, drafts and other instruments for
the payment of money (properly endorsed, where required, so that such
items may be collected by Bank) which may be received by Company at
any time in full or partial payment of any of the Collateral. Any such
items which may be so received by Company will not be commingled with
any other of its funds or property, but will be held separate and
apart from its own funds or property and upon express trust for Bank
until delivery is made to Bank.
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(c) All items or accounts which are delivered by Company to Bank on
account of partial or full payment of, or any other amount payable
with respect to, any of the Collateral shall, at Bank's option, be
applied to payment of the Indebtedness whether then due or not, in
such order of application as Bank may determine or, at Bank's option,
shall be immediately deposited to the credit of the lock box account
(herein called the "Assignee Deposit Account") of Company with Bank,
as security for payment of the Indebtedness. Company shall have no
right to withdraw any funds deposited in the Assignee Deposit Account.
On each business day, Bank shall apply all or any of the balance then
representing collected funds in the Assignee Deposit Account, toward
payment of the Indebtedness, whether or not then due, in such order of
application as Bank may determine, and Bank may, from time to time, in
its discretion, release all or any of such balance to Company;
provided, however, that so long as no default shall exist hereunder,
collected funds in the Assignee Deposit Account shall be applied only
toward the part of the indebtedness evidenced by the Line of Credit
Note.
7. DEFAULTS
7.1 It shall be a default under this Agreement if any of the following
shall occur:
(a) nonpayment of any amount payable on any of the Indebtedness on the due
date thereof and expiration of any period of grace applicable thereto;
(b) the occurrence of an event of default under any other obligation
included in the Indebtedness and such event, expiration of any period
of grace applicable thereto;
(c) any failure to perform any of the obligations of Company under
Sections 4.1, 4.2, 4.3, 5.4, 5.5, 5.7, or 5.11 and continuance thereof
for five (5) days after written notice thereof by Bank to Company;
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(d) any failure to perform any of the other obligations of Company
hereunder or under any agreement secured hereby and continuance
thereof in either event beyond any applicable period of grace;
(e) failure of any representation or warranty of Company herein to be true
in all material respects when made;
(f) a material decline in the value of the Collateral or any significant
part thereof from any cause whatsoever (excluding any decline in value
from ordinary use and depreciation, from obsolescence or from an
insured casualty loss).
8. REMEDIES
8.1 In the event of a default hereunder, in addition to any rights Bank
may have under any other agreement or by law, Bank may take any or all of the
following actions:
(a) declare all of the Indebtedness immediately due and payable;
(b) require Company to assemble the Collateral or any part thereof and
deliver same to Bank at a place designated by Bank reasonably
convenient to Company;
(c) take possession of the Collateral and any records concerning same
wherever it or they may be found, with or without process of law,
using such force as may be necessary, and at Bank's option, leave any
part of the Collateral on Company's premises (rendered unusable, if
Bank shall so elect, by any reasonable means which causes no damages
to the Collateral) and dispose of the Collateral from said premises;
(d) sell, transfer and otherwise dispose of the Collateral or any part
thereof in any way permitted or not prohibited by applicable law;
(e) notify, or require Company, at Company's expense, to notify, any
person or party obligated on any of the Collateral to make payment to
Bank of any amounts due
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or to become due thereunder; enforce collection of any of the
Collateral by suit or otherwise; and surrender, release or exchange
all or any part thereof or settle, adjust or compromise or extend or
renew for any period (whether or not longer than the original period)
any claim or indebtedness thereunder or evidenced thereby; and endorse
Company's name on any commercial paper given in payment; and generally
do in Company's name, place and stead anything which Company could do
itself, all as Bank in its sole discretion shall deem necessary or
appropriate to realize on the Collateral;
(f) complete, in Bank's sole discretion, any work in process prior to
disposition thereof;
(g) make or effect any necessary repairs to or maintenance on any of the
Collateral;
(h) obtain insurance coverage, conforming to the requirements of this
Agreement, on any of the Collateral; and
(i) pay any taxes applicable to any of the Collateral.
8.2 Any disposition by Bank of the Collateral or any part thereof shall be
deemed made with reasonable and sufficient notice thereof, if Bank, at least
five (5) days prior to the specified date of disposition, shall deposit in the
mail, postage prepaid, addressed to Company's last address known to Bank, and
sent by registered or certified mail, return receipt requested, a notice of the
time, place and manner of such disposition. Company agrees that no such notice
need be given by Bank if Bank in its sole discretion determines that the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a stock or commodity exchange or other recognized
market.
9. MISCELLANEOUS
9.1 Bank shall have no duty to protect, preserve or enforce rights in or
to the Collateral or with respect to any goods evidenced thereby, other than a
duty of reasonable custodial care of the Collateral in its possession.
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9.2 Effective after the occurrence of a default as described in Section
7.1, Company makes, constitutes and appoints Bank its true and lawful attorney-
in-fact with full power of substitution to take any action in furtherance of
this Agreement, including, without limitation, the signing of financing
statements, endorsing of instruments, and the execution and delivery of all
documents and agreements necessary to obtain or accomplish any protection for or
collection or disposition of any part of the Collateral. Such appointment shall
be deemed irrevocable and coupled with an interest.
9.3 Any transferee of, or endorser, guarantor or surety or any pledgor or
other party providing security paying the Indebtedness secured hereby may take
over all or any part of the Collateral subject hereto, and shall succeed to all
rights of the Bank in respect thereto and the Bank shall be under no further
responsibility therefor, but no party shall succeed to any of the rights of Bank
so long as any part of the Indebtedness remains unpaid to Bank.
9.4 Company hereby waives all defenses otherwise available to parties
secondarily or in any other degree liable or whose property stands as security
for the Indebtedness, including, without being limited to, the following:
presentment, demand, protest and notice of dishonor and nonpayment with respect
to any of the Indebtedness, the enforcement and preservation of any lien or
right of set off otherwise held by the Bank, and the enforcement and
preservation of any of the Indebtedness or of any guaranty or other undertaking.
Company agrees that Bank may enforce any security interest granted hereunder
without being obligated first to enforce any other security interest, mortgage,
guaranty or other source of collection whether granted by Company or any other
person.
9.5 This Agreement shall not be construed in any way to obligate Bank to
take any action with respect to any of Company's obligations or duties for or
under any part of the Collateral, including without limitation all of Company's
obligations under this Agreement or under any contract or agreement which is or
will be or will give rise to any part of the Collateral.
9.6 No delay on the part of Bank in the exercise of any right or remedy
shall operate as a waiver thereof, and no single
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or partial exercise by Bank of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy.
9.7 This Agreement has been delivered at Detroit, Michigan, and shall be
construed in accordance with the laws of the State of Michigan.
9.8 Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
9.9 The rights granted Bank hereunder are cumulative and in addition to
any other rights which Bank may have by other agreement or under applicable law.
9.10 Any notice to Company, if mailed, shall be deemed to be completed upon
mailing by registered or certified mail, return receipt requested, addressed to
Company at its chief executive office, or the address set forth below, or at any
other address Company has provided to Bank.
9.11 If the Collateral or any part thereof shall be damaged, Company shall
give prompt notice of such occurrence to Bank and shall, except as otherwise
provided in Section 5.3 with respect to certain insurance claims in an amount
less than $25,000, deposit all insurance or other moneys received for such loss
with Bank. As soon as practical, but no later than 120 days after such damage,
Company shall elect in writing to Bank whether to restore or replace the
property or prepay the Indebtedness. Company may only restore or replace the
Collateral, if, in the reasonable judgment of Bank, Company has reasonably
demonstrated that it has available to it sufficient moneys to undertake such
restoration or replacement.
9.12 This Agreement shall be binding upon Company and its successors and
assigns and shall inure to the benefit of Bank and its successors and assigns.
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WITNESS the due execution hereof as of the day and year first above
written.
CENTRAL ENGINEERING COMPANY
Address: By:/s/ Xxxxxx X. Xxxxxxxx
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0000 Xxxxxxx Xxxx Its: Vice President
Xxxxxxxxxxx, XX 00000 --------------
Accepted:
COMERICA BANK
By:/s/ Xxxx X Xxxxxx
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Its: Vice President
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