GENERAL SECURITY AGREEMENT
THIS GENERAL SECURITY AGREEMENT (this "Security Agreement"), dated as
of February 28, 2005, is by and among the parties identified as "Grantors" on
the signature pages hereto and such other parties as may become Grantors
hereunder after the date hereof (individually a "Grantor", and collectively the
"Grantors") and ROYNAT MERCHANT CAPITAL INC., a Delaware corporation, as secured
party (in such capacity, the "Secured Party") for the holders of the Secured
Obligations referenced below.
W I T N E S S E T H
WHEREAS, loans in the amount of $6,500,000 have been extended to Xxxxxx
Equipment, Inc. a Delaware corporation (the "Borrower"), pursuant to the terms
of that certain Debenture dated as of the date hereof (as amended, modified,
increased, extended, renewed or replaced, the "Debenture") among the Borrower
and the Secured Party as lender; and
WHEREAS, this Security Agreement is required under the terms of the
Debenture and is required by the Secured Party to induce Secured Party to make
the extensions of credit contemplated by the Debenture;
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
shall have the meanings provided in the Debenture or the Subscription Agreement.
In addition, terms defined in the UCC as in effect in the State of New York on
the date hereof are used herein as so defined.
As used herein:
"Collateral" has the meaning provided in Section 2 hereof.
"Credit Parties" means Borrower, Xxxxxx Equipment 2004 Inc.,
Xxxxxx Ventures, Inc., Pneutech Inc., Xxxxxxx Controls Inc., Hydramen
Fluid Power Ltd. and each of their Subsidiaries which becomes or is
required to become a guarantor of any of the Secured Obligations.
"Event of Default" has the meaning provided for "event of
default" set forth in Section 10 of Schedule A to the Debenture.
"Intellectual Property" means all copyright licenses,
copyrights, patent licenses, patents, trademark licenses, trademarks
and any work subject to copyright protection pursuant to Title 17 of
the United Stated Code.
"Secured Obligations" means, without duplication, (i) all of
the obligations of the Credit Parties to the Secured Party, whenever
arising, under the Debenture or any of the other Transaction Agreements
(including, but not limited to, any interest accruing after the
occurrence of any bankruptcy, insolvency, reorganization, appointment
of a receiver or any similar occurrence, regardless of whether such
interest is an allowed claim under the applicable bankruptcy laws or
any similar laws), whether now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, howsoever
evidenced, created, held or acquired, whether primary, secondary,
direct, contingent, or joint and several, as such obligations may be
amended, modified, increased, extended, renewed or replaced from time
to time, and (ii) all costs and expenses incurred in connection with
enforcement and collection of the obligations described in the
foregoing clause (i), including reasonable attorneys' fees.
"Subscription Agreement" means the Subscription Agreement
dated as of the date hereof by and among the Secured Party, the
Borrower and each of the other Credit Parties, as such may be as
amended, modified, increased, extended, renewed or replaced.
"UCC" means the Uniform Commercial Code.
2. Grant of Security Interest in the Collateral. To secure the prompt
payment and performance in full when due, whether by lapse of time,
acceleration, mandatory prepayment or otherwise, of the Secured Obligations,
each Grantor hereby grants, pledges and assigns to the Secured Party, for the
benefit of the holders of the Secured Obligations, a continuing security
interest in, and a right to set off against, any and all right, title and
interest of such Grantor in and to all personal property of the Grantors of
whatever type or description, whether now owned or existing or owned, acquired,
or arising hereafter (collectively, the "Collateral"), including the following:
(a) all Accounts;
(b) all cash and currency;
(c) all Chattel Paper (whether tangible or electronic);
(d) those Commercial Tort Claims (including those identified
on Schedule 2(d) attached hereto);
(e) all Deposit Accounts;
(f) all Documents;
(g) all Goods (including without limitation, Inventory,
Equipment and any accessions thereto);
(h) all Fixtures;
(i) all General Intangibles (including without limitation, all
Payment Intangibles and all Intellectual Property);
(j) all Instruments (including without limitation, Promissory
Notes);
(k) all Securities and Investment Property;
(l) all Letter-of-Credit Rights (whether or not the Letter of
Credit is evidenced by a writing);
(m) all Software;
(n) all Supporting Obligations;
(o) any other Contract Rights or rights to the payment of
money;
(p) Insurance Claims and proceeds; and
(q) to the extent not otherwise included, all Accessions and
all Proceeds of any and all of the foregoing.
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The Grantors and the Secured Party, on behalf of the holders of the
Secured Obligations, hereby acknowledge and agree that the security interest
created hereby in the Collateral (i) constitutes continuing collateral security
for all of the Secured Obligations, whether now existing or hereafter arising
and (ii) is not to be construed as an assignment of any Intellectual Property.
The Secured Party acknowledges for the benefit of the holders of the Secure
Obligations that the attachment of its security interest in and commercial tort
claim as original collateral is subject to compliance by the Grantors with
Section 4(m). The security interests granted herein are granted as security only
and shall not subject the holders of the Secured Obligations to, or in any way
affect or modify, any obligation or liability of the Grantors or any other
obligor with respect to any of the Collateral or any transaction which gave rise
thereto.
3. Representations and Warranties. Each Grantor hereby represents and
warrants to the Secured Party, for the benefit of the holders of the Secured
Obligations, that so long as any of the Secured Obligations remains outstanding
and until all of the commitments relating thereto have been terminated:
(a) Legal Name; Chief Executive Office. As of the date hereof,
each Grantor's exact legal name, type of organization, state of
incorporation or formation, principal place of business, tradenames,
chief executive office and, to the extent required by law,
organizational identification number (or accurately states that the
Grantor has none) are (and for the prior four months have been) as set
forth on Schedule 3(a) attached hereto.
(b) Ownership. Each Grantor is the legal and beneficial owner
of its Collateral and has the right to pledge, sell, assign or transfer
the same, free from any right or claim of any person or any adverse
lien, security interest or other encumbrance, except for the security
interest created by this Security Agreement and other liens permitted
by the Debenture.
(c) Security Interest/Priority. This Security Agreement
creates a valid security interest in favor of the Secured Party, for
the benefit of the holders of the Secured Obligations, in the
Collateral of such Grantor and, when properly perfected by filing or
other appropriate method, shall constitute a valid perfected security
interest in such Collateral, to the extent such security interest can
be perfected by filing under the UCC, free and clear of all liens
except for Permitted Encumbrances.
(d) Types of Collateral. None of the Collateral consists of,
is an Accession of or is Proceeds of, As-Extracted Collateral, Consumer
Goods, Farm Products, Manufactured Homes, or Standing Timber.
(e) Accounts. (i) Each Account of the Grantors and the papers
and documents relating thereto are genuine and in all material respects
what they purport to be, (ii) each Account arises out of (A) a bona
fide sale of goods sold and delivered by such Grantor (or is in the
process of being delivered) or (B) services theretofore actually
rendered by such Grantor to, the account debtor named therein, (iii) no
Account of a Grantor is evidenced by any Instrument or Chattel Paper
unless such Instrument or Chattel Paper has been theretofore endorsed
over and delivered to, or submitted to the control of, the Secured
Party and (iv) no surety bond was required or given in connection with
any Account of a Grantor or the contracts or purchase orders out of
which they arose.
(f) Inventory. No Inventory is held by any Person other than a
Grantor pursuant to consignment, sale or return, sale on approval or
similar arrangement.
(g) Intellectual Property. To the best of each Grantor's
knowledge, all of its Intellectual Property is valid, subsisting,
unexpired, enforceable and has not been abandoned, and none is the
subject of any licensing or franchise agreement or assignment.
4. Covenants. Each Grantor covenants that, so long as any of the
Secured Obligations remains outstanding and until all of the commitments
relating thereto have been terminated, such Grantor shall:
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(a) Other Liens. Defend the Collateral against the claims and
demands of all other parties claiming an interest therein, keep the
Collateral free from all liens, except for Permitted Encumbrances, and
not sell, exchange, transfer, assign, lease or otherwise dispose of the
Collateral or any interest therein, except as permitted under the
Debenture.
(b) Location of Collateral. The Collateral, to the extent not
delivered to the Secured Party, will be kept at those locations listed
on Schedule 3(a) attached hereto and the Grantors shall not remove the
Collateral from such location, without providing at least ten days
prior written notice to the Secured Party.
(c) Preservation of Collateral. Keep the Collateral in good
order, condition and repair and not use the Collateral in violation of
the provisions of this Security Agreement or any other agreement
relating to the Collateral or any policy insuring the Collateral or any
applicable statute, law, bylaw, rule, regulation or ordinance.
(d) Instruments/Tangible Chattel Paper/Documents. If any
amount payable under or in connection with any of the Collateral shall
be or become evidenced by any Instrument or Tangible Chattel Paper, or
if any property constituting Collateral shall be stored or shipped
subject to a Document, such Grantor shall ensure that such Instrument,
Tangible Chattel Paper or Document is either in the possession of such
Grantor at all times or, if requested by the Secured Party, is
immediately delivered to the Secured Party, duly endorsed in a manner
satisfactory to the Secured Party. Such Grantor shall ensure that any
Collateral consisting of Tangible Chattel Paper is marked with a legend
acceptable to the Secured Party indicating the Secured Party's security
interest in such Tangible Chattel Paper.
(e) Change in Structure, Location or Type. Not, without
providing ten days prior written notice to the Secured Party and
without filing such financing statements and amendments to any
previously filed financing statements as the Secured Party may require,
change its name, its place of business or, if more than one, its chief
executive office, or its mailing address or organizational
identification number (if it has one) or state of formation or be party
to a merger, consolidation or other change in structure or use any
trade name other than as set forth on Schedule 3(a) attached hereto. If
a Grantor does not have an organizational number and later obtains one,
such Grantor shall promptly notify the Secured Party of such
organizational identification number. No Grantor will change its type
of organization or legal structure except as expressly permitted by the
Debenture.
(f) Inspection. Upon reasonable notice, and during reasonable
business hours, at all times allow the Secured Party or its
representatives to visit and inspect the Collateral as set forth in
Section 4.3 of the Debenture.
(g) Perfection of Security Interest. Execute and deliver to
the Secured Party such agreements, assignments or instruments
(including affidavits, notices, reaffirmations and amendments and
restatements of existing documents, as the Secured Party may reasonably
request) and do all such other things as the Secured Party may
reasonably deem necessary, appropriate or convenient (i) to assure to
the Secured Party the effectiveness and priority of its security
interests hereunder, including such financing statements (including
renewal statements), amendments and supplements or such other
instruments as the Secured Party may from time to time reasonably
request in order to perfect and maintain the security interests granted
hereunder in accordance with the UCC or other applicable law, (ii) to
consummate the transactions contemplated hereby and (iii) to otherwise
protect and assure the Secured Party of its rights and interests
hereunder. To that end, each Grantor agrees that the Secured Party may
file one or more financing statements (with collateral descriptions
broader and/or less specific than the description of the Collateral
contained herein) disclosing the Secured Party's security interest in
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any or all of the Collateral of such Grantor without such Grantor's
signature thereon, and further each Grantor also hereby irrevocably
makes, constitutes and appoints the Secured Party, its nominee or any
other Person whom the Secured Party may designate, as such Grantor's
attorney-in-fact with full power and for the limited purpose to sign in
the name of such Grantor any such financing statements (including
renewal statements), amendments and supplements, notices or any similar
documents that in the Secured Party's reasonable discretion would be
necessary, appropriate or convenient in order to perfect and maintain
perfection of the security interests granted hereunder, such power,
being coupled with an interest, being and remaining irrevocable so long
as the Secured Obligations remain unpaid and until the commitments
relating thereto shall have been terminated. Each Grantor hereby agrees
that a carbon, photographic or other reproduction of this Security
Agreement or any such financing statement is sufficient for filing as a
financing statement by the Secured Party without notice thereof to such
Grantor wherever the Secured Party may in its sole discretion desire to
file the same. In the event for any reason the law of any jurisdiction
other than New York becomes or is applicable to the Collateral of any
Grantor or any part thereof, or to any of the Secured Obligations, such
Grantor agrees to execute and deliver all such instruments and to do
all such other things as the Secured Party in its sole discretion
reasonably deems necessary, appropriate or convenient to preserve,
protect and enforce the security interests of the Secured Party under
the law of such other jurisdiction (and, if a Grantor shall fail to do
so promptly upon the request of the Secured Party, then the Secured
Party may execute any and all such requested documents on behalf of
such Grantor pursuant to the power of attorney granted hereinabove). If
any Collateral is in the possession or control of a Grantor's agents
and the Secured Party so requests, such Grantor agrees to notify such
agents in writing of the Secured Party's security interest therein and,
upon the Secured Party's request, instruct them to hold all such
Collateral for the account of the holders of the Secured Obligations
and subject to the Secured Party's instructions. Each Grantor agrees to
xxxx its books and records to reflect the security interest of the
Secured Party in the Collateral.
(h) Control. Execute and deliver all agreements, assignments,
instruments or other documents as the Secured Party shall reasonably
request for the purpose of obtaining and maintaining control within the
meaning of the UCC with respect to any Collateral consisting of Deposit
Accounts, Investment Property, Letter-of-Credit Rights and Electronic
Chattel Paper.
(i) Collateral held by Warehouseman, Bailee, etc. If any
Collateral is at any time in the possession or control of a
warehouseman, bailee, agent or processor of such Grantor, (i) notify
the Secured Party of such possession or control, (ii) notify such
Person of the Secured Party's security interest in such Collateral,
(iii) instruct such Person to hold all such Collateral for the Secured
Party's account and subject to the Secured Party's instructions and
(iv) use its best efforts to obtain an acknowledgment from such Person
that it is holding such Collateral for the benefit of the Secured
Party.
(j) Treatment of Accounts. Not grant or extend the time for
payment of any Account, or compromise or settle any Account for less
than the full amount thereof, or release any Person or property, in
whole or in part, from payment thereof, or allow any credit or discount
thereon, other than as normal and customary in the ordinary course of a
Grantor's business or as required by law.
(k) Insurance. Insure, repair and replace the Collateral of
such Grantor as set forth in the Debenture. The proceeds of any
casualty insurance in respect of any casualty loss of any of the
Collateral shall be distributed in accordance with the Debenture.
(l) Commercial Tort Claims. Promptly notify the Secured Party
in writing of the initiation of any Commercial Tort Claim before any
governmental authority by or in favor of such Grantor or any of its
Subsidiaries.
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5. Advances by Secured Party. On failure of any Grantor to perform any
of the covenants and agreements contained herein, the Secured Party may, at its
sole option and in its sole discretion, perform the same and in so doing may
expend such sums as the Secured Party may reasonably deem advisable in the
performance thereof, including, without limitation, the payment of any insurance
premiums, the payment of any taxes, a payment to obtain a release of a lien or
potential lien, expenditures made in defending against any adverse claim and all
other expenditures that the Secured Party or the holders of the Secured
Obligations may make for the protection of the security hereof or that may be
compelled to make by operation of law. All such sums and amounts so expended
shall be repayable by the Grantors on a joint and several basis (subject to
Section 24 hereof) promptly upon timely notice thereof and demand therefor,
shall constitute additional Secured Obligations and shall bear interest from the
date said amounts are expended at the default rate specified in the Notes. No
such performance of any covenant or agreement by the Secured Party or the
holders of the Secured Obligations on behalf of any Grantor, and no such advance
or expenditure therefor, shall relieve the Grantors of any default under the
terms of this Security Agreement, the other Transaction Agreements or any other
documents relating to the Secured Obligations. The holders of the Secured
Obligations may make any payment hereby authorized in accordance with any xxxx,
statement or estimate procured from the appropriate public office or holder of
the claim to be discharged without inquiry into the accuracy of such xxxx,
statement or estimate or into the validity of any tax assessment, sale,
forfeiture, tax lien, title or claim except to the extent such payment is being
contested in good faith by a Grantor in appropriate proceedings and against
which adequate reserves are being maintained in accordance with
generally-accepted accounting principles (GAAP).
6. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during the continuation thereof, the Secured Party and the
holders of the Secured Obligations shall have, in addition to the
rights and remedies provided herein, in the Transaction Agreements, in
any other documents relating to the Secured Obligations, or by law
(including, without limitation, levy of attachment and garnishment),
the rights and remedies of a secured party and second lienholder under
the UCC of the jurisdiction applicable to the affected Collateral and,
further, the Secured Party may, with or without judicial process or the
aid and assistance of others, (i) enter on any premises on which any of
the Collateral may be located and, without resistance or interference
by the Grantors, take possession of the Collateral, (ii) dispose of any
Collateral on any such premises, (iii) require the Grantors to assemble
and make available to the Secured Party at the expense of the Grantors
any Collateral at any place and time designated by the Secured Party
that is reasonably convenient to both parties, (iv) remove any
Collateral from any such premises for the purpose of effecting sale or
other disposition thereof, and/or (v) without demand and without
advertisement, notice, hearing or process of law, all of which each of
the Grantors hereby waives to the fullest extent permitted by law, at
any place and time or times, sell and deliver any or all Collateral
held by or for it at public or private sale, by one or more contracts,
in one or more parcels, for cash, upon credit or otherwise, at such
prices and upon such terms as the Secured Party deems advisable, in its
sole discretion (subject to any and all mandatory legal requirements).
Each of the Grantors acknowledges that any private sale referenced
above may be at prices and on terms less favorable to the seller than
the prices and terms that might have been obtained at a public sale and
agrees that such private sale shall be deemed to have been made in a
commercially reasonable manner. To the extent permitted by applicable
law, neither the Secured Party's compliance with applicable law nor its
disclaimer of warranties relating to the Collateral shall be considered
to adversely affect the commercial reasonableness of any sale. In
addition to all other sums due the Secured Party and the holders of the
Secured Obligations with respect to the Secured Obligations, the
Grantors shall pay the Secured Party and each of the holders of the
Secured Obligations all reasonable documented costs and expenses
incurred by the Secured Party or any such holder of the Secured
Obligations, including, but not limited to, reasonable attorneys' fees,
the allocated cost of internal counsel and court costs, in obtaining or
liquidating the Collateral, in enforcing payment of the Secured
Obligations, or in the prosecution or defense of any action or
proceeding by or against the Secured Party or the holders of the
Secured Obligations or the Grantors concerning any matter arising out
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of or connected with this Security Agreement, any Collateral or the
Secured Obligations, including, without limitation, any of the
foregoing arising in, arising under or related to a case under the
Bankruptcy Code. To the extent the rights of notice cannot be legally
waived hereunder, each Grantor agrees that any requirement of
reasonable notice shall be met if such notice is personally served on
or mailed, postage prepaid, to the Borrower in accordance with the
notice provisions of Article 17 of the Subscription Agreement at least
ten Business Days before the time of sale or other event giving rise to
the requirement of such notice. The Secured Party and the holders of
the Secured Obligations shall not be obligated to make any sale or
other disposition of the Collateral regardless of notice having been
given. To the extent permitted by law, any holder of the Secured
Obligations may be a purchaser at any such sale. To the extent
permitted by applicable law, each of the Grantors hereby waives all of
its rights of redemption with respect to any such sale. Subject to the
provisions of applicable law, the Secured Party and the holders of the
Secured Obligations may postpone or cause the postponement of the sale
of all or any portion of the Collateral by announcement at the time and
place of such sale, and such sale may, without further notice, to the
extent permitted by law, be made at the time and place to which the
sale was postponed, or the Secured Party and the holders of the Secured
Obligations may further postpone such sale by announcement made at such
time and place.
(b) Remedies relating to Accounts. Upon the occurrence of an
Event of Default and during the continuation thereof, whether or not
the Secured Party has exercised any or all of its rights and remedies
hereunder, each Grantor will promptly upon request of the Secured Party
instruct all account debtors to remit all payments in respect of
Accounts to a mailing location selected by the Secured Party. In
addition, during the continuance of any Event of Default, the Secured
Party shall have the right to enforce any Grantor's rights against its
customers and account debtors, and the Secured Party or its designee
may notify any Grantor's customers and account debtors that the
Accounts of such Grantor have been assigned to the Secured Party or of
the Secured Party's security interest therein, and may (either in its
own name or in the name of a Grantor or both) demand, collect
(including without limitation by way of a lockbox arrangement),
receive, take receipt for, sell, xxx for, compound, settle, compromise
and give acquittance for any and all amounts due or to become due on
any Account, and, in the Secured Party's discretion, file any claim or
take any other action or proceeding to protect and realize upon the
security interest of the holders of the Secured Obligations in the
Accounts. Each Grantor acknowledges and agrees that the Proceeds of its
Accounts remitted to or on behalf of the Secured Party in accordance
with the provisions hereof shall be solely for the Secured Party's own
convenience and that such Grantor shall not have any right, title or
interest in such Accounts or in any such other amounts except as
expressly provided herein. The Secured Party and the holders of the
Secured Obligations shall have no liability or responsibility to any
Grantor for acceptance of a check, draft or other order for payment of
money bearing the legend "payment in full" or words of similar import
or any other restrictive legend or endorsement or be responsible for
determining the correctness of any remittance. Each Grantor hereby
agrees to indemnify the Secured Party and the holders of the Secured
Obligations from and against all liabilities, damages, losses, actions,
claims, judgments, costs, expenses, charges and reasonable attorneys'
fees (including the allocated cost of internal counsel) suffered or
incurred by the Secured Party or the holders of the Secured Obligations
(each, an "Indemnified Party") because of the maintenance of the
foregoing arrangements except as relating to or arising out of the
gross negligence or willful misconduct of an Indemnified Party or its
officers, employees or agents. In the case of any investigation,
litigation or other proceeding, the foregoing indemnity shall be
effective whether or not such investigation, litigation or proceeding
is brought by a Grantor, its directors, shareholders or creditors or an
Indemnified Party or any other Person or any other Indemnified Party is
otherwise a party thereto.
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(c) Access. In addition to the rights and remedies hereunder,
upon the occurrence of an Event of Default and during the continuation
thereof, the Secured Party shall have the right to enter and remain
upon the various premises of the Grantors without cost or charge to the
Secured Party, and use the same, together with materials, supplies,
books and records of the Grantors for the purpose of collecting and
liquidating the Collateral, or for preparing for sale and conducting
the sale of the Collateral, whether by foreclosure, auction or
otherwise. In addition, during the continuance of any Event of Default,
the Secured Party may remove Collateral, or any part thereof, from such
premises and/or any records with respect thereto, in order to
effectively collect or liquidate such Collateral.
(d) Nonexclusive Nature of Remedies. Failure by the Secured
Party or the holders of the Secured Obligations to exercise any right,
remedy or option under this Security Agreement, any other Transaction
Agreement, any other documents relating to the Secured Obligations, or
as provided by law, or any delay by the Secured Party or the holders of
the Secured Obligations in exercising the same, shall not operate as a
waiver of any such right, remedy or option. No waiver hereunder shall
be effective unless it is in writing, signed by the party against whom
such waiver is sought to be enforced and then only to the extent
specifically stated, which in the case of the Secured Party or the
holders of the Secured Obligations shall only be granted as provided
herein. To the extent permitted by law, neither the Secured Party, the
holders of the Secured Obligations, nor any party acting as attorney
for the Secured Party or the holders of the Secured Obligations, shall
be liable hereunder for any acts or omissions or for any error of
judgment or mistake of fact or law other than their gross negligence or
willful misconduct hereunder. The rights and remedies of the Secured
Party and the holders of the Secured Obligations under this Security
Agreement shall be cumulative and not exclusive of any other right or
remedy that the Secured Party or the holders of the Secured Obligations
may have.
(e) Retention of Collateral. To the extent permitted under
applicable law, in addition to the rights and remedies hereunder, upon
the occurrence of an Event of Default, the Secured Party may, after
providing the notices required by Sections 9-620 and 9-621 of the UCC
or otherwise complying with the requirements of applicable law of the
relevant jurisdiction, accept or retain all or any portion of the
Collateral in satisfaction of the Secured Obligations. Unless and until
the Secured Party shall have provided such notices, however, the
Secured Party shall not be deemed to have accepted or retained any
Collateral in satisfaction of any Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which
the Secured Party or the holders of the Secured Obligations are legally
entitled, the Grantors shall be jointly and severally liable for the
deficiency (subject to Section 24 hereof), together with interest
thereon at the default rate specified in the Debenture, together with
the costs of collection and reasonable attorneys' fees (including the
allocated cost of internal counsel). Any surplus remaining after the
full payment and satisfaction of the Secured Obligations shall be
returned to the Grantors or to whomsoever a court of competent
jurisdiction shall determine to be entitled thereto.
7. Release of Collateral. Upon request, the Secured Party shall
promptly deliver to the Grantor (at the Grantor's expense) appropriate release
documentation to the extent the release of Collateral is permitted under, and on
the terms and conditions set forth in, the Debenture; provided that any such
release, or the substitution of any of the Collateral for other Collateral, will
not alter, vary or diminish in any way the force, effect, lien, pledge or
security interest of this Security Agreement as to any and all Collateral not
expressly released or substituted, and this Security Agreement shall continue as
a first priority lien (subject to Permitted Encumbrances) on any and all
Collateral not expressly released or substituted.
8. Rights of the Secured Party.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Grantor hereby designates and appoints the
Secured Party, on behalf of the holders of the Secured Obligations, and
each of its designees or agents, as attorney-in-fact of such Grantor,
irrevocably and with power of substitution, with authority to take any
or all of the following actions upon the occurrence and during the
continuation of an Event of Default:
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(i) to demand, collect, settle, compromise and
adjust, and give discharges and releases concerning the
Collateral, all as the Secured Party may reasonably deem
appropriate;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any of the Collateral and
enforcing any other right in respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Secured Party may reasonably deem appropriate;
(iv) to receive, open and dispose of mail addressed
to a Grantor and endorse checks, notes, drafts, acceptances,
money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral on behalf
of and in the name of such Grantor, or securing, or relating
to such Collateral;
(v) to pay or discharge taxes, liens, security
interests or other encumbrances levied or placed on or
threatened against the Collateral;
(vi) to direct any parties liable for any payment in
connection with any of the Collateral to make payment of any
and all monies due and to become due thereunder directly to
the Secured Party or as the Secured Party shall direct;
(vii) to receive payment of and receipt for any and
all monies, claims, and other amounts due and to become due at
any time in respect of or arising out of any Collateral;
(viii) to sell, assign, transfer, make any agreement
in respect of, or otherwise deal with or exercise rights in
respect of, any Collateral or the goods or services that have
given rise thereto, as fully and completely as though the
Secured Party were the absolute owner thereof for all
purposes;
(ix) to adjust and settle claims under any insurance
policy relating thereto;
(x) to execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, security and pledge agreements,
affidavits, notices and other agreements, instruments and
documents that the Secured Party may reasonably deem
appropriate in order to perfect and maintain the security
interests and liens granted in this Security Agreement and in
order to fully consummate all of the transactions contemplated
therein;
(xi) to institute any foreclosure proceedings that
the Secured Party may reasonably deem appropriate; and
(xii) to do and perform all such other acts and
things as the Secured Party may reasonably deem appropriate or
convenient in connection with the Collateral.
9
This power of attorney is a power coupled with an interest and
shall be irrevocable for so long as any of the Secured Obligations
shall remain outstanding and until all of the commitments relating
thereto shall have been terminated. The Secured Party shall be under no
duty to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Secured
Party in this Security Agreement, and shall not be liable for any
failure to do so or any delay in doing so. The Secured Party shall not
be liable for any act or omission or for any error of judgment or any
mistake of fact or law in its individual capacity or its capacity as
attorney-in-fact except acts or omissions resulting from its gross
negligence or willful misconduct. This power of attorney is conferred
on the Secured Party solely to protect, preserve and realize upon its
security interest in the Collateral.
(b) Performance by the Secured Party of Obligations. If any
Grantor fails to perform any agreement or obligation contained herein,
the Secured Party itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Secured Party incurred
in connection therewith shall be payable by the Grantors on a joint and
several basis (subject to Section 24 hereof).
(c) The Secured Party's Duty of Care. Other than the exercise
of reasonable care to assure the safe custody of the Collateral while
being held by the Secured Party hereunder, the Secured Party shall have
no duty or liability to preserve rights pertaining thereto, it being
understood and agreed that the Grantors shall be responsible for
preservation of all rights in the Collateral, and the Secured Party
shall be relieved of all responsibility for the Collateral upon
surrendering it or tendering the surrender of it to the Grantors. The
Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which the
Secured Party accords its own property, which shall be no less than the
treatment employed by a reasonable and prudent agent in the industry,
it being understood that the Secured Party shall not have
responsibility for taking any necessary steps to preserve rights
against any parties with respect to any of the Collateral. Except as
may be required by applicable law, in the event of a public or private
sale of Collateral pursuant to Section 7 hereof, the Secured Party
shall have no obligation to clean, repair or otherwise prepare the
Collateral for sale.
9. Rights of Lenders. All rights of the Secured Party hereunder, if
not exercised by the Secured Party, may be exercised by the other Lenders.
10. Application of Proceeds. Upon the occurrence and during the
continuation of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral, when received by the Secured
Party or any of the holders of the Secured Obligations in cash or its
equivalent, will be applied in reduction of the Secured Obligations in the order
set forth in the Debenture or other document relating to the Secured
Obligations, and each Grantor irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that the
Secured Party shall have the continuing and exclusive right to apply and reapply
any and all such payments and proceeds in the Secured Party's sole discretion,
notwithstanding any entry to the contrary upon any of its books and records.
11. Costs of Counsel. At all times hereafter, whether or not upon the
occurrence of an Event of Default, the Grantors agree to promptly pay upon
demand any and all reasonable costs and expenses (including, without limitation,
attorneys' fees) of the Secured Party and the holders of the Secured Obligations
(a) as required under Section 8.3 of the Debenture and (b) as necessary to
protect the Collateral or to exercise any rights or remedies under this Security
Agreement or with respect to any of the Collateral. All of the foregoing costs
and expenses shall constitute Secured Obligations hereunder.
12. Continuing Agreement.
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(a) This Security Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any
of the Secured Obligations remains outstanding and until all of the
commitments relating thereto have been terminated (other than any
obligations with respect to the indemnities and the representations and
warranties set forth in the Transaction Agreements and any other
payment or contingent liabilities that are not due and payable on the
date the Secured Obligations are paid in full). Upon such payment and
termination, this Security Agreement shall be automatically terminated
and the Secured Party and the holders of the Secured Obligations shall,
upon the request and at the expense of the Grantors, forthwith release
all of its liens and security interests hereunder and shall execute and
deliver all UCC termination statements and/or other documents
reasonably requested by the Grantors evidencing such termination.
Notwithstanding the foregoing, all releases and indemnities provided
hereunder shall survive termination of this Security Agreement.
(b) This Security Agreement shall continue to be effective or
be automatically reinstated, as the case may be, if at any time
payment, in whole or in part, of any of the Secured Obligations is
rescinded or must otherwise be restored or returned by the Secured
Party or any holder of the Secured Obligations as a preference,
fraudulent conveyance or otherwise under any bankruptcy, insolvency or
similar law, all as though such payment had not been made; provided
that in the event payment of all or any part of the Secured Obligations
is rescinded or must be restored or returned, all reasonable costs and
expenses (including, without limitation, attorneys' fees, the allocated
cost of internal counsel and disbursements) incurred by the Secured
Party or any holder of the Secured Obligations in defending and
enforcing such reinstatement shall be deemed to be included as a part
of the Secured Obligations.
13. Amendments and Waivers. This Security Agreement and the provisions
hereof may not be amended, waived, modified, changed, discharged or terminated
except as set forth in Section 12 of the Debenture. No delay or omission on the
part of the Lender in exercising any right or remedy shall operate as a waiver
of such right or remedy or any other right or remedy. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion. All rights and remedies of the holders of the Secured Party
with respect to the Secured Obligations or the Collateral, whether evidenced
hereby or by any other instrument or papers, shall be cumulative and may be
exercised singularly, alternatively, successively or concurrently at such time
or at such times as the Secured Party deems expedient.
14. Successors in Interest. This Security Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Grantor, its successors and assigns, and shall inure, together with the rights
and remedies of the Secured Party and the holders of the Secured Obligations
hereunder, to the benefit of the Secured Party and the holders of the Secured
Obligations and their successors and permitted assigns; provided, however, that
none of the Grantors may assign its rights or delegate its duties hereunder
without the prior written consent of the Secured Party and each other lender
under the Debenture. To the fullest extent permitted by law, each Grantor hereby
releases the Secured Party and each holder of the Secured Obligations, their
respective successors and assigns and their respective officers, attorneys,
employees and agents, from any liability for any act or omission or any error of
judgment or mistake of fact or of law relating to this Security Agreement or the
Collateral, except for any liability arising from the gross negligence or
willful misconduct of the Secured Party or such holder, or their respective
officers, attorneys, employees or agents.
15. Notices. All notices required or permitted to be given under this
Security Agreement shall be given as provided in Section 8.9 of the Debenture.
16. Counterparts. This Security Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
11
17. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
18. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Security Agreement may
be brought in the state or federal courts located in New York County,
New York and, by execution and delivery of this Security Agreement,
each Grantor hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of such
courts. Each Grantor further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to it at the address for notices pursuant to
Section 8.9 of the Debenture, such service to become effective three
days after such mailing. Nothing herein shall affect the right of the
Secured Party to serve process in any other manner permitted by law or
to commence legal proceedings or to otherwise proceed against any
Grantor in any other jurisdiction.
(b) Each Grantor hereby irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Security Agreement brought in the courts referred to in subsection
(a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
19. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Severability. If any provision of this Security Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
21. Entirety. This Security Agreement, the other Transaction Agreements
and the other documents relating to the Secured Obligations represent the entire
agreement of the parties hereto and thereto, and supersede all prior agreements
and understandings, oral or written, if any, including any commitment letters or
correspondence relating to the Transaction Agreements, any other documents
relating to the Secured Obligations, or the transactions contemplated herein and
therein.
22. Survival. All representations and warranties of the Grantors
hereunder shall survive the execution and delivery of this Security Agreement,
the other Transaction Agreements and the other documents relating to the Secured
Obligations, the delivery of the Notes and the extension of credit thereunder or
in connection therewith.
12
23. Other Security. To the extent that any of the Secured Obligations
are now or hereafter secured by property other than the Collateral (including,
without limitation, real property and securities owned by a Grantor), or by a
guarantee, endorsement or property of any other Person, then the Secured Party
shall have the right to proceed against such other property, guarantee or
endorsement upon the occurrence of any Event of Default, and the Secured Party
shall have the right, in its sole discretion, to determine which rights,
security, liens, security interests or remedies the Secured Party shall at any
time pursue, relinquish, subordinate, modify or take with respect thereto,
without in any way modifying or affecting any of them or the Secured Obligations
or any of the rights of the Secured Party or the holders of the Secured
Obligations under this Security Agreement, under any of the other Transaction
Agreements or under any other document relating to the Secured Obligations.
24. Joint and Several Obligations of Grantors.
(a) Subject to subsection (c) of this Section 24, each of the
Grantors is accepting joint and several liability hereunder in
consideration of the financial accommodation to be provided by the
holders of the Secured Obligations, for the mutual benefit, directly
and indirectly, of each of the Grantors and in consideration of the
undertakings of each of the Grantors to accept joint and several
liability for the obligations of each of them.
(b) Subject to subsection (c) of this Section 24, each of the
Grantors jointly and severally hereby irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and
several liability with the other Grantors with respect to the payment
and performance of all of the Secured Obligations arising under this
Security Agreement, the other Credit Documents and any other documents
relating to the Secured Obligations, it being the intention of the
parties hereto that all the Secured Obligations shall be the joint and
several obligations of each of the Grantors without preferences or
distinction among them.
(c) Notwithstanding any provision to the contrary contained
herein, in any other of the Transaction Agreements or in any other
documents relating to the Secured Obligations, the obligations of each
Guarantor under the Debenture and the other Transaction Agreements
shall be limited to an aggregate amount equal to the largest amount
that would not render such obligations subject to avoidance under
Section 548 of the Bankruptcy Code or any comparable provisions of any
applicable state law.
25. Supremacy of Security Agreement. Notwithstanding any other
provision hereof, in the event of a conflict between any provision in this
Security Agreement and Section 6 of the Debenture (including the defined terms
and sections referenced therein necessary for the interpretation of such
Section), the provisions of this Security Agreement shall control and supersede
Section 6 of the Debenture.
[remainder of page intentionally left blank]
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Each of the parties hereto has caused a counterpart of this General
Security Agreement to be duly executed and delivered as of the date first above
written.
GRANTORS: XXXXXX EQUIPMENT, INC., a
Delaware corporation
By:/s/ XXXXXXXX XXXX
-----------------
Name: Xxxxxxxx Xxxx
Title: President
XXXXXX VENTURES, INC., a
Delaware corporation
By: /s/ XXXXXXXX XXXX
-----------------
Name: Xxxxxxxx Xxxx
Title: President
Accepted and agreed to as of the date first above written.
ROYNAT MERCHANT CAPITAL INC., a
Delaware corporation
By: /s/ XXXXX XXXXXX
----------------
Name: Xxxxx Xxxxxx
Title: President
SCHEDULES
Schedule 2(d) Commercial Tort Claims
Schedule 3(a) Legal Name, State of Formation, Principal Place of Business,
Tradename, Chief Executive Office
