SECURITY AGREEMENT
This Security Agreement ("Security Agreement") is made this __th day of
May 2006,by and between Aspatuck Funding LLC, a New York limited liability
company ("Secured Party"), and DTLL, Inc., a Minnesota corporation ("DTLL" or
the" Debtor" or the "Borrower").
Recitals:
Pursuant to that certain 12% Senior Secured Convertible Promissory Note
dated May 1, 2006 (the "Note") of Debtor to Secured Party and Loan Agreement
entered into this date between the Secured Party and the Debtor, and to secure
the Obligations (as defined below), Debtor agrees to grant to Secured Party a
first security interest in the Collateral (as defined below) of Debtor.
This Security Agreement provides the terms and conditions upon which the
Obligations are secured by a security interest to Secured Party in the
Collateral described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows
1. DEFINITIONS.
A. "Collateral": any and all property of the Borrower, of any kind
or description, tangible or intangible, wherever now or hereafter
located or whether now existing or hereafter arising or acquired,
including, but not limited to, the following property, along with the
products and proceeds therefrom,
(i) all Accounts and all Goods whose sale, lease or
other disposition by Borrower has given rise to
Accounts and have been returned to or repossessed or
stopped in transit by the Borrower;
(ii) all chattel paper, instruments, documents and
general intangibles (including all patents, patent
applications, trademarks, trademark applications,
trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, tax refund
claims, claims against carriers and shippers,
guarantee claims, contracts rights, security
interests, security deposits and any rights to
indemnification);
(iii) all Inventory;
(iv) all goods (other than Inventory), including
Equipment, vehicles and fixtures;
(v) all investment property;
-1-
(vi) all deposits and cash and any other property of
the Borrower now or hereafter in the possession,
custody or control of the Secured Party or any agent
or any parent, affiliate or subsidiary of the Secured
Party or any participant with the Secured Party in
the Loans for any purpose (whether for safekeeping,
deposit, collection, custody, pledge, transmission or
otherwise); and
(vii) all letter of credit rights;
(viii) all additions and accessions to, substitutions
for, and replacements, products and proceeds of the
foregoing property, including proceeds of all
insurance policies insuring the foregoing property,
and all of the Borrower's books and records relating
to any of the foregoing and to Borrower's business.
B. The "Obligations": the indefeasible payment in full when due,
whether at stated maturity, by acceleration or otherwise, of all
obligations of Debtor now or hereafter existing under the Note, whether
for principal, interest, fees, expenses or otherwise, and all
obligations of Debtor now or hereafter existing under this Agreement or
any Related Agreement in each case, direct or indirect, absolute or
contingent and whether or not evidenced by any note or written
instrument
(i) all amounts owed under any modifications,
renewals or extensions of any of the foregoing
obligations; and
(ii) any of the foregoing that arises after the
filing of a petition by or against Debtor or DTLL
under the Bankruptcy Code, even if the obligations do
not accrue because of the automatic stay under
Bankruptcy Code ss. 362 or otherwise.
C. Any term used in the Uniform Commercial Code ("UCC") and not
defined in this Security Agreement has the meaning given to the term in
the UCC.
D. "Related Agreement shall have the meaning in the Loan
Agreement
2. GRANT OF SECURITY INTEREST.
A. GENERAL. As security for the payment or performance of the
Obligations, the Borrower does hereby pledge, assign, transfer and deliver to
the Secured Party, and grant the Secured Party a security interest in the
Collateral. The security interest is a first-in-priority security interest with
respect to all existing or future security interests.
-2-
B. PERFECTION OF SECURITY authorizes Secured Party to file a
financing statement (the "Financing Statement") describing the
Collateral as further provided herein.
C. Debtor shall have possession of the Collateral, except where
expressly otherwise provided in this Security Agreement or where
Secured Party chooses to perfect its security interest by possession in
addition to the filing of a financing statement.
D. Where the Collateral is in the possession of a third party, Debtor
will join with Secured Party in notifying the third party of Secured
Party's security interest and obtaining an acknowledgment from the
third party that it is holding the Collateral for the benefit of
Secured Party.
3. CERTAIN COVENANTS AND RIGHTS CONCERNING COLLATERAL. In addition to other
agreements herein:
A. The parties to this Security Agreement may inspect any Collateral
in the other party's possession at any time upon reasonable notice.
B. Secured Party shall have the right at any time to enforce Debtor's
rights against the account debtors and obligors.
C. Limitations on Obligations Concerning Maintenance of Collateral.
(i) Debtor has the risk of loss of the Collateral.
(ii) Secured Party has no duty to collect any income
accruing on the Collateral.
D. Secured Party does not authorize, and Debtor agrees not to:
(i) Make any sales of any of the Collateral, or
(ii) Grant any other security interest in any of the
Collateral other than the Permitted Liens and
security interests subordinate to Secured Party.
4. REPRESENTATIONS AND COVENANTS OF BORROWER. Debtor agrees, covenants, and
acknowledges that Lender is reasonably relying upon these agreements and
covenants as follows:
-3-
A The execution, delivery, and performance of this Agreement and
related Agreements and the execution and payment of the Note is within the power
of the Debtor and such acts have been duly authorized, are not in contravention
of law or the terms of the Debtor' articles of organization or operating
agreement or of any indenture, agreement, or undertaking to which any Debtor is
a Party or by which it is bound.
B. It has rights in and the power to transfer the Collateral and the
title to the Collateral is free of all liens, adverse claims, security interests
and restrictions on transfer or pledge, except as created by this Security
Agreement
5. GENERAL PROVISIONS
A. DEBTORS REMAIN LIABLE Anything herein to the contrary
notwithstanding: (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein (only to
the extent such contracts and agreements are part of the Assumed Liabilities) to
perform all of its duties and obligations thereunder to the same extent as if
this Security Agreement had not been executed; (b) the exercise by Secured Party
of any of the rights hereunder shall not release Debtor from any of its duties
or obligations under such contracts and agreements included in the Collateral;
and (c) Secured Party shall have no obligation or liability under such contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of Debtor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
B. The Lender is hereby irrevocably appointed the true and lawful
attorney-in-fact of the Debtor in the Debtor's name and stead, to make all
necessary deeds, bills of sale and instruments of assignment and transfer of the
Collateral thus sold and for such other purposes as are necessary or desirable
to effectuate the provisions of this Agreement, and for that purpose it may
execute and deliver all necessary deeds, bills of sale and instruments of
assignment and transfer, and may substitute one or more persons or entities with
like power, the Debtor hereby ratifying and confirming all that its said
attorney, or such substitute or substitutes, shall lawfully do by virtue hereof;
but if so requested by the Lender or by any purchaser, the Debtor shall ratify
and confirm any such sale or transfer by executing and delivering to the Lender
or such purchaser all property, deeds, bills of sale, instruments of assignment
and transfer and releases as may be designated in any such request; All right,
title, interest, claim and demand whatsoever, either in law or in equity or
otherwise, of the Debtor of, in and to the Collateral so sold shall be divested
and such sale shall be a perpetual bar both at law and in equity against the
Debtor, its successors and assigns, and against any and all persons or entities
claiming or who may claim the Collateral sold or any part thereof, from, through
or under the Debtor or such entities, its successors or assigns. The receipt of
the Lender or of the officers thereof making such sale or such assignment shall
be a sufficient discharge to the purchaser or purchasers at such sale for his or
their purchase money, and such purchaser or purchasers, and his, its or their
assigns or personal representatives shall not, after paying such purchase money
and receiving such receipt of the Lender or of such officers thereof, be
obligated to see to the application of such purchase money or be in anywise
answerable for any loss, misapplication or non-application, thereof. The Debtor
shall remain liable for any deficiency resulting from a sale of the Collateral
and shall pay any such deficiency forthwith on demand.
-4-
C. TAXES AND ASSESSMENTS.
Debtor will pay or cause to be paid promptly when due all taxes and assessments
on the Collateral. Debtor may, however, withhold payment of any tax assessment
or claim if a good faith dispute exists as to the obligation to pay so long as
funds sufficient to pay the taxes and assessments are set aside for such purpose
either in cash or by surety bond issued in favor of the appropriate taxing
authority.
D. PROTECTION OF SECURITY.
If Debtor fails to perform the covenants and agreements contained or
incorporated in this Agreement, or if any action or proceeding is commenced
which affects the Collateral or title thereto or the interest of Lender therein
including but not limited to, eminent domain, insolvency, code enforcement, or
arrangements or proceedings involving a bankruptcy or decedent, then Lender may
make such appearance, disburse such sums, and take such action as Lender deems
necessary in its sole discretion, to protect Lender's interest, including, but
not limited to the following: (i) disbursement of attorneys' fees and (ii)
procurement of satisfactory insurance. Any amounts disbursed by Lender pursuant
to this Section with interest thereon, shall become additional indebtedness of
Debtor under the Notes, secured by this Agreement. Unless Debtor and Lender
agree to other term of payment, such amounts shall be immediately due and
payable and shall bear interest from the date of disbursement at the default
rate stated in the Notes unless collection of interest at such rate would be
contrary to applicable law. Nothing contained in this shall require Lender to
incur any expense or take any action.
E. SECURITY INTEREST NOT RELEASED. From time to time, Lender may, at
Lender's option, without giving notice to or obtaining the consent of Debtor or
its successors or assigns or of any other lienholders, without liability on
Lender's part, and notwithstanding a breach by Debtor of any covenant or
agreement set forth in this Agreement, extend the time for payment of said
indebtedness or any part thereof, reduce the payments thereon, release anyone
liable on any of said indebtedness, accept a renewal Note or Notes therefore,
modify the terms and the time of payment of said indebtedness, release from the
security interest of this Agreement any part of the Col1ateral, take or release
other or additional security, and reconvey any part of the Collateral and take
any action under the Affiliated Parties Guaranty, or in the alternative forebear
from taking any action under the Affiliated Parties Guaranty Any actions taken
by Lender pursuant to the terms of this Section, shall not affect the obligation
of Debtor or any of their successors or assigns to pay the sums secured by this
Agreement and to observe the covenants of Debtor contained herein shall not
affect the guaranty of any person corporation, partnership, or other entity for
payment of the indebtedness secured hereby, and shall not affect the lien or
priority of security interest hereof on the Collateral.
-5-
F. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.
This Agreement is intended to be a security agreement pursuant to the Uniform
Commercial Code for each of the items specified as Collateral and Debtor as
provided above. Debtor agrees to execute and allow Lender to file financing
statements, as well as extensions, renewals and amendments thereof, and
reproductions of this Agreement, and do whatever may be necessary under the
applicable Uniform Commercial Code in the state where the Collateral is located
to perfect and continue Lender's interest in the Collateral. The Parties agree
that such financing statements will be filed in the name of the Lender. Debtor
shall pay all costs of filing such financing statements and any extensions,
renewals, amendments, and releases thereto; and shall pay all reasonable costs
and expenses of any record searches for financing statements requested by
Lender. Except as provided herein, without the prior written consent of Lender,
Debtor shall not create or allow to be created pursuant to the Uniform
Commercial Code, any other statute, a security interest in the Collateral senior
in priority to that of Lender including replacements and additions thereto. Upon
the occurrence of an event of default, Lender shall have the remedies of a
secured party under the Uniform Commercial Code and, at Lender's option, may
also invoke any other remedy provided for in this Agreement. In exercising any
of said remedies, Lender may proceed against any part of the Collateral
separately or together and in any order whatsoever without in any way affecting
the availability of Lender's remedies under the Uniform Commercial Code, or of
Lender's other remedies provided in this Agreement
G. Upon default, Lender shall be entitled, in its own name or in the
name of the Debtor, or otherwise, but at the expense and cost of the Debtor, to
collect, demand, receive, xxx for and/or compromise any and all of the
Collateral including, without limitation, any and all Accounts Receivable due or
to become due from present or future subscribers or customers of any service
provided by the Debtor and to give good and sufficient releases therefore, to
endorse any checks, drafts or other orders for the payment of monies payable in
payment thereof and, in its discretion, to file any claims or take any action or
proceeding, either in its own name or in the name of the Debtor, or otherwise,
which the Lender may deem necessary or advisable. It is expressly understood and
agreed, however, that the Lender shall not be required or obligated in any
manner to make any inquiries as to the nature or sufficiency of any payment
received by any of them or to present or file any claims or take any other
action to collect or enforce a payment of any amounts which may have been
assigned to any bank or to which any bank may be entitled hereunder at any time
or times. Lender may sell all or any part of the Collateral, as reasonably
necessary to satisfy the obligations of Debtor hereunder to Lender, either by
public auction, private sale, or any other reasonable method of disposition.
Nothing in this Section shall be construed to limit any of Lender's rights in
connection with any of the Collateral as provided herein.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall, at the
option of Secured Party, be an "Event of Default":
-6-
Debtor's failure to comply with any of the provisions of, or
the incorrectness of any representation or warranty contained
in, this Security Agreement , the Note, the Loan Agreement or
in any of the other agreements forming a part of the
Obligations;
Transfer or disposition of the Collateral, except as expressly
permitted by this Security Agreement;
Attachment, execution or levy on the Collateral to collect a
judgment; or
Secured Party shall receive at any time following the Closing
evidence that the Secured Party's security interest is not
prior to all other security interests in the Collateral other
than the Permitted Liens.
7. DEFAULT COSTS. Should an Event of Default occur, Debtor will pay to
Secured Party all costs reasonably incurred by the Secured Party for the
purpose of enforcing its rights hereunder, including:
INFORMATION TO BE ADDED?
8. ADDITIONAL FORECLOSURE PROCEDURES. The following shall apply to
foreclosure proceedings in addition to those provided above.
No delay or omission by Secured Party to exercise any right or remedy accruing
upon any Event of Default shall: (a) impair any right or remedy, (b) waive any
default or operate as an acquiescence to the Event of Default or (c) affect
any subsequent default of the same or of a different nature.
A. Secured Party shall give Debtor such notice of any public or
private sale as may be required by the UCC.
B. Secured Party has no obligation to clean up or otherwise prepare
the Collateral for sale.
C. Secured Party has no obligation to attempt to satisfy the
Obligations by collecting them from any other person liable for
them and Secured Party may release, modify, or waive any
collateral provided by any other person to secure any of the
Obligations, all without affecting Secured Party's rights against
Debtor. Debtor waives any right it may have to require Secured
Party to pursue any third person for any of the Obligations.
D. Secured Party may comply with any applicable state or federal law
requirements in connection with the disposition of the Collateral
and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.
E. Secured Party will sell the Collateral without giving any
warranties as to the Collateral. Secured Party may specifically
disclaim any warranties of title or the like. This procedure will
not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral.
-7-
F. If Secured Party sells any of the Collateral upon credit, Debtor
will be credited only with payments actually made by the
purchaser, received by Secured Party and applied to the
indebtedness of the purchaser. In the event the purchaser fails to
pay for the Collateral, Secured Party may resell the Collateral
and Debtor shall be credited with the proceeds of the sale.
G. In the event Secured Party purchases any of the Collateral being
sold, Secured Party may pay for the Collateral by crediting some
or all of the Obligations of the Debtor.
H. Secured Party has no obligation to marshal any assets in favor of
Debtor, or against or in payment of: Any of the Obligations; or
Any other obligation owed to Secured Party by Debtor.
9. MISCELLANEOUS. JEN NOTE CONTINUATION OF LETTERING SHOULD BE NEW A FOR
THIS NUMBERED PARA
A. This Security Agreement shall bind and shall inure to the benefit
of the heirs, legatees, executors, administrators, successor and
assigns of Secured Party and shall bind all persons who become
bound as a debtor to this Security Agreement.
B. Secured Party does not consent to any assignment by Debtor except
as expressly provided in this Security Agreement.
C. Secured Party may assign its rights and interests under this
Security Agreement. If an assignment is made, Debtor shall render
performance under this Security Agreement to the assignee. Debtor
waives and will not assert against any assignee any claims,
defenses or set-offs which Debtor could assert against Secured
Party except defenses which cannot be waived.
D. Should any provision of this Security Agreement be found to be
void, invalid or unenforceable by a court or panel of arbitrators
of competent jurisdiction, that finding shall only affect the
provisions found to be void, invalid or unenforceable and shall
not affect the remaining provisions of this Security Agreement.
E. Any notices required by this Security Agreement shall be deemed to
be delivered when a record has been (a) deposited in any United
States postal box if postage is prepaid, and the notice is
properly addressed to the intended recipient, (b) received by
telecopy, (c) received through the Internet, and (d) when
personally delivered.
F. This Security Agreement is being executed and delivered and is
intended to be performed in the State of Illinois and shall be
construed and enforced in accordance with the laws of the State of
Illinois, except to the extent that the UCC provides for the
application of the law of another state.
-8-
G. Integrations and Modifications.
(i)This Security Agreement is the entire agreement of Debtor
and Secured Party concerning its subject matter
(ii)Any modification to this Security Agreement must be made
in writing and signed by the party adversely affected.
H. Any party to this Security Agreement may waive enforcement of any
provision to the extent the provision is for its benefit.
I. Debtor agrees to execute any further documents, and to take any further
actions, reasonably requested by Secured Party to evidence or perfect
the security interest granted herein, to maintain the first priority of
the security interests, subject to the Permitted Liens, or to
effectuate the rights granted to Secured Party herein. Without limiting
the generality of the foregoing, Debtor will execute and file such
financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as
Secured Party may reasonably request, in order to perfect and preserve
the security interests granted or purported to be granted hereby.
Where there is a conflict between two provisions herein the interpretation most
favorable to Secured Party shall apply.
The Caption names are a guide and are not conclusive as to the contents
[Signature on following page]
-9-
The parties have signed this Security Agreement as of the day and year first
above written.
Aspatuck Funding LLC,
By:
-----------------------------------------
Its:
----------------------------------------
DTLL INC.
By:
-----------------------------------------
Its:
----------------------------------------
-10-
