EXHIBIT B
TO
AGREEMENT AND
PLAN OF REORGANIZATION
SECURITY AGREEMENT
FOR VALUE RECEIVED, and to induce the persons whose names appear on the list of
Secured Parties appended hereto as SCHEDULE A (hereinafter collectively
referred to as "Secured Parties"), to enter into the merger contemplated by the
Plan of Reorganization dated July 19, 2001 by and between KeyCom, Inc, a
Delaware corporation having an office 0000 Xxxxx Xxxxxx, Xxxxx 000, Xxxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000, (hereinafter referred to as "KeyCom"), KeyCom
Holdings Corp., a Delaware Corporation with office at 232-10711 Cambie Road,
Richmond BC and Emergent Financial Group, Inc. 232-10711 Cambie Road, Richmond
BC ("Emergent"), for an aggregate of 250,000 thousand Series E Preferred shares
with a stated value of $100 ("Preferred Shares") and further hereby agree that
Secured Parties shall collectively have the rights, remedies and benefits
hereinafter set forth, individually, jointly and severally.
ARTICLE I
DEFINITIONS
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As used in this Agreement, the following terms shall have the following
meanings:
(i) "Agent" shall mean Xxxxxx X. Xxxx, 0000 X. Xxxxxxxx Xxxx Xxxxxxxxx,
Xx. 0, Xxxxxxxx Xxxx, Xxxxxxxxxx 00000, who is the agent for Secured Parties.
(ii) "Collateral" shall mean all of the stock (20,000 shares of
common stock, par value $.001) of KeyCom Holding Corporation, a Delaware
corporation which is a wholly-owned subsidiary of Emergent. The KeyCom Holding
Stock subject of this subparagraph represents all of the issued and authorized
stock of KeyCom Holding.
(iii) "Event of Default" shall mean the occurrence or existence of any
event or condition described in in this Security Agreement, or in the Merger
Agreement, or any combination thereof.
(iv) "Obligations" shall mean the Obligations as defined in the Merger
Agreement.
(vii) "Uniform Commercial Code" shall mean the Uniform Commercial Code
of the State of California.All other terms defined in the preamble or the
recitals hereto shall have the respective meanings ascribed to them therein.
Unless the context otherwise indicates, all terms used without definition in
this Agreement shall have the meanings ascribed to them in the Uniform
Commercial Code as currently in effect, to the extent the same are used or
defined therein.
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ARTICLE II
SECURITY
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As security for the payment and performance of the Obligations, Emergent hereby
grants to Secured Parties a continuing security interest in and a first general
lien upon the Collateral
ARTICLE III
REPRESENTATIONS, WARRANTIES
AND COVENANTS OF EMERGENT
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3.1 INCORPORATION OF COVENANTS, REPRESENTATIONS AND WARRANTIES.
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All covenants and warranties set forth by Emergent in favor of Secured Parties
contained in the Merger Agreement are hereby made a part hereof and incorporated
by reference herein.
3.2 FURTHER ASSURANCES; FINANCING STATEMENTS.
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Upon request of Agent, Emergent will, at its own cost and expense, execute and
deliver to Agent, one or more financing statements pursuant to the Uniform
Commercial Code, or amendments or continuations thereof, and share certificates
representing the Collateral, including properly executed stock powers in blank,
and other documents required by Agent to further evidence, effect or perfect the
security interest granted herein or to otherwise effectuate the purposes of this
Agreement, and, to the extent permitted by applicable law, Emergent hereby
authorizes Agent to execute and file at any time or times one or more financing
statements pursuant to the Uniform Commercial Code with respect to any or all of
the Collateral, signed only by Agent. Emergent hereby agrees that a carbon,
photographic or other reproduction of this Agreement or of a financing statement
shall be sufficient as a financing statement.
3.3 COLLATERAL TO BE HELD FREE AND CLEAR OF LIENS AND ENCUMBRANCES;
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RESTRICTIONS ON SALE.
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During the term of this Agreement and until the Obligations are paid in full,
Emergent (i) shall not sell or otherwise transfer any of the Collateral except
as may be required in the ordinary course of Emergent's business and shall hold
such Collateral free and clear of all liens and encumbrances .
3.4 ACTIONS BY AGENT.
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Agent may, in his sole discretion and at any time, for the account and expense
of Emergent, pay or cause to be paid any amount or do any act required of
Emergent hereunder or requested by Agent to preserve, protect, maintain or
enforce the Obligations, the Collateral or security interest granted herein, and
which Emergent fails to do or pay, including, without limitation, payment of any
judgment against Emergent, and insurance premium, any warehouse charge and any
lien, claim or encumbrance upon or with respect to the Collateral, and any such
payment shall be added to the Obligations and shall be payable upon demand.
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3.5 ADVERSE CHANGES.
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Emergent shall promptly notify Agent in writing of any event that materially
adversely affects the value of the Collateral.
3.6 PRESERVATION OF CORPORATE EXISTENCE.
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Emergent will at all times preserve and keep in full force and effect its
corporate existence, licenses, permits, rights and franchises and those of any
of its subsidiaries, including KeyCom Holding.
ARTICLE IV
REMEDIES UPON EVENT OF DEFAULT
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4.1 ACCELERATION OF OBLIGATIONS.
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For purposes of this ARTICLE IV, upon the occurrence of an Event of Default as
set forth herein, all or any portion of the Obligations shall, at the option of
Agent or Secured Parties holding at least east 50% of the Redemption Rights as
described on Exhibit "A" hereto, and upon 30 days written notice become
immediately due and payable.
4.2 RIGHTS UNDER UNIFORM COMMERCIAL CODE.
----------------------------------------
In addition to all of their other rights and remedies under this Agreement, the
otherr Financing Agreements and any other agreement with Emergent, Secured
Parties shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code of the State of California and of any state in which
the Collateral is located from time to time.
4.3 ACTION PENDING DISPOSITION.
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Until Secured Parties are able to effect a sale or other disposition of the
Collateral, they shall have the right to use or take such action with respect to
the Collateral, or any part thereof, as they deem appropriate for the purpose of
preserving the Collateral or its value or for any other purpose deemed
appropriate by Secured Parties. Secured Parties shall have no obligation to
Emergent to maintain or preserve the rights of Emergent as against third parties
with respect to the Collateral while the Collateral is in the possession of
Secured Parties. Secured Parties may, if they so elect, seek the appointment of
a receiver or keeper to take possession of the Collateral and to enforce any of
Secured Parties' remedies with respect to such appointment without prior notice
or hearing.
4.4 DISPOSITION OF COLLATERAL.
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4.41 Right to Sell or Otherwise Dispose of Collateral. Secured Parties
shall have the right to sell or otherwise dispose of all or any of the
Collateral, at public or private sale or sales, with such notice as may be
required by law, in lots or in bulk, for cash or on credit, all as Secured
Parties, in their sole discretion, may deem advisable. Such sales may be
adjourned and continued from time to time with or without notice. To enable
Secured Parties to effect any such sale, assignment and/or transfer, Emergent
hereby makes, constitutes and appoints Agent as its true and lawful attorney, in
its name, place and stead, and for its account and risk, to make, execute and
deliver any and all assignments or other instruments which Secured Parties may
deem necessary or proper to effectuate the authority hereby conferred by signing
Emergent's name only or by signing the same as its attorney-in-fact, as may be
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deemed by Secured Parties to be necessary or proper in connection with any sale,
assignment or transfer of all or any part of the Collateral. The foregoing
power of attorney is coupled with an interest and shall be a continuing one and
irrevocable so long as any portion of the Obligations remains unpaid in whole or
in part.
4.42. Right to Purchase Collateral. Secured Parties may purchase all or any
part of the Collateral at public sale or, if permitted by law, private sale, and
in lieu of actual payment of such purchase price, may set off the amount of such
price against the Obligations.
4.43 Application of Proceeds of Sale of Collateral. Except as otherwise
provided by law, Secured Parties shall apply the proceeds realized from the sale
of any of the Collateral as follows:
First, to the reasonable costs and expenses of every kind incurred in
connection with or incidental to the care, safekeeping or otherwise of any
and all of the Collateral or in any way relating to the rights of Secured
Parties hereunder, including reasonable attorney's fees and legal expenses;
Second, to the satisfaction of the Obligations;
Third, to the payment of any other amounts required by applicable law;
Fourth, to Emergent to the extent of the surplus proceeds, if any.
4.5 WAIVER OF BOND.
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In connection with the foregoing remedies, Emergent hereby waives the posting of
any bond, which might otherwise be required.
4.6 REMEDIES CUMULATIVE.
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All rights and remedies of Secured Parties arising under this Agreement, the
other Agreements among and between the parties hereto, any other agreement with
Emergent by operation of law shall be cumulative and non-exclusive, to the
fullest extent permitted by law.
ARTICLE V
EVENTS OF DEFAULT
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5.1 Event of Default. Any one, some, all or any combination of the following
acts or omissions shall constitute an act or acts of default:
a. Default in payments or performance of Emergent's obligations hereunder
or default in payments or performance by Emergent of any provision of any
document related to or part of the transaction subject of this Security
Agreement;
x. Xxxx or proceeding against the Collateral ;
c. Commencement of bankruptcy, insolvency, arrangement, reorganization or
other debtor relief proceedings by or against or dissolution, termination
of existence or insolvency of Emergent;
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d. Any material misrepresentation by Emergent.
e. Failure to Call the balance of Class E Preferred Shares in the Company
by January 1, 2003.
5.2 Remedies to Default. The defaulting party has 30 days from the date of
written notice to remedy any default. In the event that the defaulting
party does not remedy the properly noticed default, the Secured Party may
seek to convert the series E preferred stock into the common stock of the
company equal to no less than 85% of the then outstanding stock, reduced by
the prorate percentage of series E preferred shareholders representing
shares that do not elect to convert.
ARTICLE VI
LIABILITY OF EMERGENT FOR
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SECURED PARTIES' EXPENSES AND ATTORNEYS' FEES
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Emergent will be liable to Secured Parties for any and all sums, costs and
expenses which Secured Parties may pay or incur pursuant to the provisions of
this Agreement or in defending, protecting and enforcing the security interest
granted herein or in enforcing payment of the Obligations or otherwise in
connection with the provisions hereof, including without limitation all search,
filing and recording fees, appraisal fees, taxes, levies and reasonable
attorneys' and accountants' fees and legal expenses, all fees and expenses for
the service and filing of papers, fees of marshals, sheriffs, custodians,
auctioneers and others, travel expenses, court costs and collection charges, all
expenditures in connection with the repossession, holding, preparation for sale
and sale of the Collateral, as well as all damages for breach of warranty,
misrepresentation or breach of covenant by Emergent, and all such liabilities
shall be part of the Obligations and shall be payable upon demand.
ARTICLE VI
MISCELLANEOUS
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6.1 AMENDMENT.
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This Agreement may be amended only by an instrument in writing executed by
Emergent and Agent.
6.2 ENTIRE AGREEMENT.
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This Agreement, the Financing Agreements and any exhibits, schedules,
certificates or documents referred to herein and therein, constitute the entire
agreement of the parties hereto, and supersede all prior understandings with
respect to the subject matter hereof and thereof.
6.3 WAIVERS.
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Any failure or delay by Secured Parties to require strict performance by
Emergent of any of the provisions, warranties, terms or conditions contained
herein or in any of the other Financing Agreements shall not affect Secured
Parties' right to demand strict compliance therewith and performance thereof,
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and any waiver of any default shall not waive or affect any other default,
whether prior or subsequent thereto, and whether of the same or of a different
type. None of the warranties, conditions, provisions and terms contained herein
or in any other agreement, document or instrument shall be deemed to have been
waived by any act or knowledge of Secured Parties, their agents, officers,
stockholders or employees, but only by an instrument in writing, signed by Agent
and directed to Emergent, specifying such waiver.
6.4 NOTICES.
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6.41 Procedure for Notice. Any notice, demand, consent, approval,
disapproval or statement (collectively, "Notices") required or permitted to be
given by the terms and provisions of this Agreement, or by any law or
governmental regulation, shall be in writing and, unless otherwise required by
such law or regulation, shall be personally delivered or sent by United States
mail, postage prepaid, as registered or certified mail or by nationally
recognized overnight courier service. Any Notice to Emergent shall be addressed
to such party at its address herein above set forth. Any Notice to Secured
Parties shall be addressed to them, as their addresses shall appear on EXHIBIT A
hereto with a copy to Agent at 0000 X. Xxxxxxxx Xxxx Xxxxxxxxx, Xx. 0, Xxxxxxxx
Xxxx, Xxxxxxxxxx 00000. By giving the other parties at least ten (10) days'
prior written notice, any party may, by Notice given as above provided,
designate a different address or addresses for Notices.
6.42 When Notice Deemed Given. Any Notice shall be deemed given as of the
date of delivery as indicated by affidavit in the case of personal delivery; in
the case of mailing, any Notice shall be deemed given on the fifth day after
mailing; in the case of delivery by nationally recognized overnight courier
service, any Notice shall be deemed given on the next business day after
dispatch.
6.6 SEVERABILITY.
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Wherever possible, each provision of this Agreement shall be interpreted in a
manner so as to be effective and valid under applicable law. If any provision
of this Agreement shall be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such provision
and the remaining provisions of this Agreement shall remain unaffected and in
full force and effect.
6.7 SUCCESSORS AND ASSIGNS.
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This Agreement shall be binding upon and for the benefit of the parties hereto
and their respective legal representatives, successors and assigns.
6.8 GOVERNING LAW; CONSENT TO JURISDICTION; VENUE WAIVER; WAVER OF JURY
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TRIAL.
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The validity, interpretation and effect of this Agreement shall be governed by
the laws of the State of California. Emergent hereby consents to the
non-exclusive jurisdiction of all courts in such State and hereby waive all
right to trial by jury in any action, suit or proceeding brought to enforce or
defend any rights or remedies under this Agreement.
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6.9 ARTICLES AND SECTION TITLES.
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The titles of articles and sections contained in this Agreement are merely for
convenience and shall be without substantive meaning or content.
6.10 COUNTERPARTS. This Agreement may be executed in any number of
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counterparts, each of which shall be considered and original but all of which
shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the 19th
day of July 2001.
EMERGENT FINANCIAL GROUP, INC.
by___________________________
______________________________
Xxxxxx X. Xxxx, as Agent for
Secured Parties, Shareholders of
KeyCom, Inc.
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