Exhibit 99.6
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of December 2, 2003,
is made by and among SBM Financial, LLC (formerly known as State Bond &
Mortgage, LLC), a Maryland limited liability company (the "Company"), Xxxx X.
Xxxxxx, in his capacity as Escrow Agent (as those terms are defined herein), and
each of the individuals listed on Exhibit A to this Agreement (each a
"Noteholder" and collectively the "Noteholders"). The Company, Escrow Agent and
the Noteholders may be referred to herein individually as a "Party" and
collectively as the "Parties."
RECITALS
Whereas, Geneva Capital Partners LLC ("Geneva") has purchased 7,500,000
shares ("Shares") of 1st Atlantic Guaranty Corporation ("1st Atlantic") from the
bankruptcy estate of Xxxx Xxxxxxxx ("Xxxxxxxx") pursuant to the terms of a
Settlement and Release Agreement ("Settlement Agreement") approved by the United
States Bankruptcy Court for the District of Maryland (the "Bankruptcy Court");
WHEREAS, pursuant to the Settlement Agreement, Geneva agreed to and has
caused the Company, its wholly owned indirect subsidiary, to issue to each
Noteholder a promissory note (each a "Note" and collectively the "Notes") in the
principal amount set forth next to each Noteholder's name on Exhibit A hereto
(the "Debt"), and
WHEREAS, pursuant to the Settlement Agreement, the Notes are to be secured
by certain assets of the Company under the terms set forth hereinafter.
NOW, THEREFORE, in consideration of the mutual agreements,
covenants, representations and warranties herein contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties, intending to be legally bound, hereby agree as
follows:
AGREEMENT
SECTION 1. Repayment of Debt. The Debt of each Noteholder shall be
evidenced by and repaid in accordance with the terms of each Note. This
Agreement and the Notes shall be collectively referred to herein as the "Loan
Documents."
SECTION 2. Grant of Pledge. The Company hereby assigns and pledges
to the Noteholders as collateral, and hereby grants to each Noteholder, a
security interest in (i) all of the Company's right, title, and interest in and
to all presently existing rights to 100% of the stock of its wholly-owned
subsidiary, SBM Certificate Company ("SBM") (the "Pledged Interest"); (ii) any
certificates evidencing such Pledged Interest (including any rights incident
thereto) (the "Stock Certificates"); and (iii) subject to Section 9 hereof, all
dividends, cash, instruments, and other property from time to time received,
receivable or otherwise distributed in respect of or in
1
exchange for the Pledged Interest or any portion thereof (collectively, the
"Pledged Property"). The Noteholders agree that the Escrow Agent (defined below)
shall release five percent (5%) of the Pledged Interest on each payment date
under the Notes, provided the Company has paid the amounts then due under the
Notes, and provided further that the aggregate amount of SBM shares released
pursuant to this provision shall not exceed 49% of all SBM shares placed in
escrow. The Company agrees that while any Note remains outstanding, no new
shares of SBM will be issued unless immediately after such issuance the
percentage of SBM shares that are issued and outstanding and that constitute the
Pledged Interest remains the same as it was immediately prior to such issuance.
The Company may maintain such percentage by, among other things, substituting
collateral pursuant to Section 7 hereof, or accelerating the release of the
Pledged Interest by pre-paying one or more installments under the Notes. The
Company agrees to cooperate in the release of the Pledged Interest by issuing if
necessary, and from time to time, new stock certificate(s) evidencing the SBM
shares constituting the Pledged Interest after such release.
SECTION 3. Security for Obligations. This Agreement and the Pledged
Property secure the prompt and complete payment and performance of all
obligations of the Company to the Noteholders now or hereafter existing under,
in respect of, or in connection with the Loan Documents, (collectively, the
"Obligations").
SECTION 4. Delivery of Stock Certificates. Contemporaneously with
the execution of this Agreement, the Company shall deliver the Stock
Certificates to Xxxx X. Xxxxxx (the "Escrow Agent"). The Escrow Agent shall hold
and dispose of the Stock Certificates in accordance with the terms of this
Agreement.
SECTION 5. Perfection of Security Interest. The Escrow Agent shall
be entitled to take any steps necessary to perfect the Noteholder's first
priority security interest in the Pledged Property. The Company shall provide
reasonable assistance to the Noteholders with respect to the perfection of the
Noteholders' security interest in the Pledged Property.
SECTION 6. Remedies upon an Event of Default. If an Event of Default
(as defined under any Note) shall have occurred and be continuing, upon written
notice, certified by any Noteholder, the Escrow Agent shall be entitled, upon
written instruction by any Noteholder, to sell the Pledged Property in
accordance with the terms of the Maryland Uniform Commercial Code, and
distribute the cash proceeds from such sale to each Noteholder on a pro rata
basis; provided, however, that any surplus of any cash proceeds obtained by the
Escrow Agent in connection therewith and remaining after payment in full of all
the Obligations and any expenses of such sale shall be paid over to the Company
or to whomsoever may be lawfully entitled to receive such surplus. Escrow Agent
shall be entitled to exercise all voting rights with respect to the Shares
following an Event of Default and prior to the sale of the Pledged Property. The
sale of substantially all of the assets of SBM, not in the ordinary course of
business, shall trigger the acceleration of any balances due under the Notes
and, if unpaid, shall constitute an Event of Default.
SECTION 7. Substitution of Pledged Property. The Company shall have
the right, at any time, to substitute alternate forms of collateral (the
"Substitute Pledged Property") for the release of 100% of the Pledged Property
then held in escrow by the Escrow Agent. The
2
Substitute Pledged Property shall be (i) if liquid or readily liquidatable,
valued in an amount equal to the amounts then outstanding under the Notes, or
(ii) if illiquid or not readily liquidatable, valued in an amount equal to 150%
of the aggregate amount then outstanding under the Notes; provided, however,
that all Substitute Pledged Property shall be reasonably acceptable to Xxxx X.
Xxxxxx, the representative of the Noteholders designated for approval of such
matters. Upon substitution of the Pledged Property in accordance with this
Section 7, the Substitute Pledge Property shall be held by the Escrow Agent as
if "Pledged Property" in accordance with the terms of this Agreement and the
Escrow Agreement.
SECTION 8. Further Assurances. From time to time, at its own
expense, each Party will promptly execute and deliver any further instruments or
documents, and take any further action that may be reasonably necessary or
desirable to carry out the purposes of this Agreement.
SECTION 9. Voting Rights; Dividends; etc.
So long as no Event of Default shall have occurred and be
continuing:
(i) the Company shall be entitled to exercise any and all
voting and other consensual rights (including, without
limitation, the right to give consents, waivers and
notifications in respect of the Pledged Property)
pertaining to the Pledged Property or any part thereof;
and
(ii) the Company shall be entitled to receive and retain any
and all distributions, ordinary dividends, and interest
paid in respect of the Pledged Property; provided,
however, that any and all:
(A) dividends paid or payable other than in cash in
respect of, and instruments and other property received,
receivable, or otherwise distributed in respect of, or
in exchange for, any Pledged Property; and
(B) dividends hereafter paid or payable in cash in
respect of any Pledged Property in connection with a
partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus,
or paid-in-surplus;
shall be, and shall be forthwith delivered to the Escrow
Agent to hold as, Pledged Property and shall, if
received by the Company, be received in trust for the
benefit of the Noteholders, be segregated from the other
property or funds of the Company, and be forthwith
delivered to the Escrow Agent as Pledged Property in the
same form as so received (with any necessary
endorsement).
3
(iii) Cash paid, payable, or otherwise distributed in
redemption of, or in exchange for, any Pledged Property
shall be forthwith delivered to the Noteholders, on a
pro rata basis, as payment against amounts due under the
Notes.
(iv) The Escrow Agent shall execute and deliver (or cause to
be executed and delivered) to the Company all such
proxies and other instruments as the Company may
reasonably request for the purpose of enabling the
Company to exercise the voting and other rights which it
is entitled to exercise and to receive the dividends,
interest payments, or other distributions that it is
authorized to receive and retain.
SECTION 10. Transfers and Other Liens. The Company shall not sell,
assign (by operation of law or otherwise), or otherwise dispose of any of the
Pledged Property, or create or suffer to exist any lien, security interest, or
other charge or encumbrance upon or with respect to any of the Pledged Property
to secure obligations to any other person. Notwithstanding the foregoing, the
Company shall have the right to sell, assign, pledge, or otherwise dispose of
any of the Pledged Property, without the consent of the Noteholders, so long as
all of the Notes are paid in full in connection with such sale, assignment,
pledge or disposition of the Pledged Property.
SECTION 11. Escrow Agent Action in Event of Default. The Company and
the Noteholders hereby authorize Escrow Agent from time to time after the
occurrence and during the continuation of an Event of Default, in Escrow Agent's
discretion, to take any action and to execute any instrument that Escrow Agent
may deem necessary or advisable to accomplish the purposes of this Agreement to
the extent permitted by law, including without limitation the Maryland Uniform
Commercial Code.
SECTION 12. Escrow Agent May Perform. If the Company or the
Noteholders fail to perform any of their respective obligations under this
Agreement, Escrow Agent may itself perform, or cause performance of such
obligation, and the reasonable expenses of Escrow Agent incurred in connection
therewith shall be payable by the Company or the Noteholders, as the case may be
and, in the case of the Company, shall constitute Obligations secured hereunder.
SECTION 13. Duties of Escrow Agent. The powers conferred on Escrow
Agent hereunder are solely to protect the Noteholders' interest in the Pledged
Property and shall not impose any additional duty upon Escrow Agent to exercise
any such powers.
SECTION 14. Possession; Reasonable Care; Indemmification. Escrow
Agent shall hold in its possession all Pledged Property pledged, assigned, or
transferred hereunder and from time to time constituting a portion of the
Pledged Property, except as from time to time any documents or instruments may
be required for recordation or for the purpose of enforcing or realizing upon
any right or value thereby represented. Escrow Agent shall exercise reasonable
4
care in the performance of its duties hereunder and shall not be liable for a
breach of its duties hereunder except in those instances resulting from the
Escrow Agent's gross negligence or willful misconduct. The Company shall
indemnify the Escrow Agent for any and all claims, liabilities, or expenses
(including reasonable attorney's fees), incurred as a result of any failure by
the Company to perform or abide by any of its respective obligations under this
Agreement. The Noteholders shall indemnify the Escrow Agent for any and all
claims, liabilities, or expenses (including reasonable attorney's fees),
incurred as a result of any failure by the Noteholders to perform or abide by
any of their respective obligations under this Agreement.
SECTION 15. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Pledged Property and shall (i)
remain in full force and effect until payment in full of the Obligations; (ii)
be binding upon the Company, its successors and assigns; and (iii) inure to the
benefit of the Noteholders and their permitted successors, transferees and
assigns. The foregoing notwithstanding, however, neither Party shall be
permitted to assign or otherwise transfer any of its rights or obligations under
the Loan Documents without first obtaining the written consent of the other
Party.
SECTION 16. Escrow Agent Compensation; Replacement. Escrow Agent
shall be entitled to reasonable compensation, at his then prevailing hourly
rate, for taking actions hereunder. Except as may otherwise be provided
hereunder, (i) the Company shall be responsible for paying any such compensation
due to Escrow Agent resulting from actions taken with respect to matters caused
by the Company, and (ii) the Noteholders shall be responsible for paying any
such compensation due to Escrow Agent resulting from actions taken with respect
to matters caused by the Noteholders . In the event Escrow Agent no longer is
able or willing to serve as such, the Escrow Agent shall deliver the Pledged
Property to a court of competent jurisdiction and request that court to appoint
a new Escrow Agent, unless the other Parties reach a mutual written agreement as
to the Escrow Agent's successor within a reasonable amount of time after
receiving written notice of the Escrow Agent's inability or unwillingness to
serve.
SECTION 17. Termination. Upon the indefeasible cash payment in full
of the Obligations, the pledge and security interest granted hereby shall
terminate and all rights in the Pledged Property shall revert to the Company.
Upon such termination, Escrow Agent or any Noteholder, as applicable, shall
execute and deliver to the Company such documents as the Company shall
reasonably request to evidence such termination.
SECTION 18. General Provisions.
(a) Limitation by Law. All rights, remedies, and powers provided in
this Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable mandatory provision of law, and
all of the provisions of this Agreement are intended (i) to be subject to
all applicable mandatory provisions of law which may be controlling, and
(ii) to be limited to the extent necessary so that they will not render
this Agreement invalid, unenforceable, in whole or in part, or not
entitled to be recorded, registered, or filed under the provisions of any
applicable law.
5
(b) Severability. If any term of this Agreement shall be judicially
declared to be invalid, unenforceable or void, such decision shall not
have the effect of invalidating or voiding the remainder of this
Agreement, and the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and
the remainder will have the same force and effectiveness as if such part
or parts had never been included herein. Each covenant contained in this
Agreement shall be construed (absent an express contrary provision herein)
as being independent of each other covenant contained herein, and
compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with one or more other
covenants.
(c) Captions. The captions and headings in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatsoever in construing the terms and provisions of this
Agreement.
(d) No Waiver; Remedies. No failure on the part of any Party to
exercise, and no delay in exercising, any right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
(e) Amendments. No modification, amendment, waiver, termination, or
discharge of this Agreement or any of the provisions hereof, nor any
consent to any departure by the Company herefrom, shall in any event be
effective unless the same shall be in writing and signed by all Parties,
and then such writing shall be effective only in the specific instance and
for the specific purpose for which given.
(f) Final Agreement. This Agreement and the Notes represent the full
and entire understanding and final agreement between the Parties and
supersedes the Term Sheet and all other prior understandings, negotiations
and prior agreements between the Noteholders and the Company with regard
to the subjects hereof.
(g) Notices.
(i) All notices and other communications provided for
hereunder shall be in writing (including, without
limitation, telegraphic, telex, telecopy or cable
communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered by hand, to the
addresses set forth below, or to such other address as
shall be designated in a written notice to the other
Party.
Company: _______________________
_______________________
_______________________
Tel: ________________
Fax: ________________
Attn: ________________
6
with a copy to:
Xxxxx Xxxxx L.L.P.
The Warner
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxx Xxxxx, Esq.
Noteholders: _______________________
_______________________
_______________________
Tel: ________________
Fax: ________________
Attn: ________________
Escrow Agent: _______________________
_______________________
_______________________
Tel: ________________
Fax: ________________
Attn: ________________
(ii) All such notices and communications shall, when mailed,
telegraphed, telexed, telecopied, cabled or delivered,
be effective when deposited in the mails, delivered to
the telegraph company, confirmed by telex answerback,
telecopied with confirmation of receipt, delivered to
the cable company or delivered by hand to the addressee
or its agent.
(h) Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the Parties shall be governed by, the
laws of the State of Maryland, without regard to principles of conflict of
laws
(i) Jurisdiction; Venue. Any legal action or proceeding with respect
to the Loan Documents, or any document related thereto may be brought in
any Maryland state court or federal court located in the State of
Maryland, and by execution and delivery of this Agreement, the Parties
hereby submit themselves, and their property, generally and
unconditionally, to the jurisdiction of aforesaid courts. Each Party
hereby irrevocably waives any objection, including without limitation, any
objection to venue or based on forum non conveniens, which it may now or
hereafter have to the bringing of such action or proceeding in such
respective jurisdictions.
7
(j) No Third Party Beneficiaries. Nothing in this Agreement shall
convey any rights upon any person or entity that is not a Party or
permitted designee of a Party to this Agreement.
(k) Waiver of Jury Trial. Each of the Parties waives any right it
may have to trial by jury in respect of any litigation based on, or
arising out of, under or in connection with the Loan Documents, or any
course of conduct, course of dealing, verbal or written statement, or
action of any party hereto.
(l) Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different Parties in separate counterparts,
each of which when so executed shall be deemed to be an original and all
of which taken together shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
IN WITNESS WHEREOF, the Parties hereto caused this Agreement to be
duly executed and delivered as of the date first above written.
SBM FINANCIAL, LLC
By: /s/ Xxxx Xxxxxxxx
----------------------
Name: Xxxx Xxxxxxxx
Title: CFO
ESCROW AGENT
By: /s/ Xxxx X. Xxxxxx
----------------------
Name: Xxxx X. Xxxxxx
Title: Escrow Agent
NOTEHOLDERS
/s/ Xxxxxx X. Forky /s/ Xxxxxx Xxxx
-------------------------------- --------------------------------
Xxxxxx Xxxxxx Xxxxxx Xxxx
/s/ Xxxx X. Xxxxxx /s/ xxxxx Xxxxxx
-------------------------------- --------------------------------
Xxxx Xxxxxx Xxxxx Xxxxxx
/s/ Xxxxxx X. Xxxxx /s/ Xxxxxxxxx Xxxxxx
-------------------------------- --------------------------------
Xxxxxx Xxxxx Xxxxxxxxx Xxxxxx
/s/ Xxxxx Xxxxxxx by Xxxxx Xxxxxxx POA
--------------------------------------
Xxxxx Xxxxxxx
9
EXHIBIT A
Principal
Individual Amount
---------- ------
Xxxxx Xxxxxxx $ 990,000.00
Xxxx and Xxxxxxxxx Xxxxxx $ 84,699.95
Xxxx Xxxxxx $ 18,707.38
Xxxxx Xxxxxx $ 22,310.27
Xxxxxx Xxxxxx $ 137,754.06
Xxxxxx Xxxx $ 67,821.74
Xxxxxx Xxxx $ 3,438.85
Xxxxxx Xxxxx $ 241,805.68
Xxxxxxxxx Xxxxxx $ 50,233.96
-------------
Total: $1,616,771.89
10
