EXHIBIT 10.24
SUBORDINATED SECURITY AGREEMENT
THIS SUBORDINATED SECURITY AGREEMENT (this "Agreement"), dated as of September
19, 2000, is made and entered into by and among EDUCATIONAL INSIGHTS, INC., a
California corporation with its principal place of business at 00000 Xxxxxx
Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000-0000 (the "Debtor"), and XXXXXX and XXXXX X.
XXXXXX, Co-trustees, Xxxxxx Family Trust UTD May 4, 1989, residing at 00 Xxxxx
Xxxxxx Xxxxx Xxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 (the "Secured Party"), with
reference to and incorporation of the following:
RECITALS:
A. Debtor is executing and delivering to Secured Party a Subordinated Secured
Promissory Note of even date in the principal amount of One Million Dollars
($1,000,000.00) payable to the order of Secured Party (the "Note");
B. In order to secure the payment and performance of the obligations of Debtor
to Secured Party under the Note, Secured Party requires that Debtor grant to
Secured Party a security interest in the Collateral, subordinate in all to the
rights of the holders of Senior Indebtedness (as defined in the Note), as
provided herein:
NOW, THEREFORE, in consideration of the foregoing Recitals, the following mutual
agreements and promises, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SECURITY INTEREST.
1.1. CREATION. Subject to the provisions of Article 2, Debtor hereby grants
to Secured Party a security interest in all of Debtor's right, title and
interest in and to the Collateral (as defined in Section 1.2 below), in order to
secure the payment and performance of the obligations of Debtor to Secured Party
under the Note (the "Secured Obligation").
1.2. COLLATERAL. As used herein, the term "Collateral" shall include the
following, and any other property hereafter added thereto or substituted or
replaced therefor, or other property to which Debtor is or may hereafter become
entitled to receive on account of such Collateral:
(a) All personal property, including, without limitation, all goods,
supplies, work in process, signs, equipment, furniture, furnishings,
fixtures, machinery, motor vehicles, inventory and construction materials
which Debtor now or hereafter owns or in which Debtor now or hereafter
acquires an interest or right, including, without limitation, those which
are now or hereafter located on or affixed to the real property now or
hereafter occupied by Debtor or any improvements situated thereon (the
"Real Property") or used or useful in the operation, use or occupancy
thereof or the construction of any improvements thereon, including, without
limitation, any interest of Debtor in and to personal property which is
leased or subject to any superior security interest, or which is being
manufactured or assembled for later installation into the improvements to
be located or constructed at the Real Property, wherever located, and all
books, records, leases and other documents, of whatever kind or character,
relating to the Real Property;
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(b) All fees, income, rents, issues, profits, earnings, receipts,
royalties and revenues which, after the date hereof and while any portion
of the indebtedness secured hereby remains unpaid, may accrue from such
goods, fixtures, furnishings, equipment and building materials or any part
thereof or from the Real Property or any part thereof, or which may be
received by Debtor from any hiring, using, letting, leasing, subhiring,
subletting, or subleasing therefor;
(c) All of Debtor's present and future rights to receive payments of
money, services or property including, without limitation, accounts
receivable, deposit accounts, chattel paper, documents, letters of credit,
hedging or similar agreement, instruments, general intangibles and
principal, interest and notes, drafts, contract rights (including, without
limitation, all rights under any interest rate payments due on account of
goods sold, services rendered, loans made or credit extended), together
with title or interest in all documents evidencing or securing the same;
(d) All proceeds from sale or disposition of the aforesaid
Collateral;
(e) Debtor's rights under all insurance policies covering any of the
aforesaid Collateral (whether or not required by any loan documents
executed by Debtor), and all proceeds, loss payments and premium refunds
payable regarding the same; and
(f) All causes of action, claims, compensation and recoveries for any
damage to or taking any of the aforesaid Collateral, or for any conveyance
in lieu thereof, whether direct or consequential, or for any damage or
injury to the aforesaid Collateral, or for any loss or diminution in value
of the aforesaid Collateral.
2. SUBORDINATION. The payment of principal and interest on this Note is
subordinated in right of payment and collection according to the terms of the
Note. The security interest in the Collateral granted to Secured Party hereunder
is hereby subordinated to the security interests of the holders of any Senior
Indebtedness (as defined in the Note) in the same Collateral, whether existing
on this date or hereafter created, as hereinafter specified. This subordination
is on the following terms:
(a) In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings
pertaining to Debtor, or to its property, or in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of Debtor, then the
holders of Senior Indebtedness holding security interests in the Collateral
shall be entitled to full enjoyment of their interests before the Secured Party
is entitled to enforcement of its interests in or to the Collateral hereunder
and, to that end, such holders of Senior Indebtedness shall be entitled to
receive on application any payment or disbursement of any kind or character,
whether in cash or in property or securities which may be payable or deliverable
in any such proceedings in respect to the Collateral, except securities of
Debtor as reorganized or readjusted or securities of Debtor, or any other
company, provided for by a plan of reorganization or readjustment, the payment
of which is subordinate to the payment of all Senior Indebtedness which may at
the time be outstanding;
(b) In the event that the Note is declared due and payable before its
express maturity on the occurrence of an Event of Default as defined in the Note
(under such circumstances that the provisions of Section 2(a) are not
applicable), Secured Party will be entitled to pursue the Collateral only
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after such holders of the Senior Indebtedness outstanding at the time the Note
becomes due and payable because of such Event of Default are fully paid all
principal and interest becoming due and payable under the Senior Indebtedness,
whether according to its terms, by acceleration or otherwise, or payment has
been provided therefor in a manner satisfactory to the holders of such Senior
Indebtedness.
(c) No present or future holder of Senior Indebtedness will be prejudiced
in its right to enforce the subordination provisions of this Agreement Note by
any act or failure to act on the part of Debtor. The provisions of this Section
2 are solely for the purpose of defining the relative rights in or to the
Collateral of such holders of Senior Indebtedness, on the one hand, and the
Secured Party, on the other hand, and nothing in this Agreement will, as between
Debtor and Secured Party, impair the obligation of Debtor to otherwise perform
its obligations hereunder, nor will anything in this Agreement otherwise prevent
Secured Party from exercising all remedies otherwise permitted by applicable law
upon default hereunder subject only to the rights, if any, under this Section 4
of holders of Senior Indebtedness to receive cash, property or securities
otherwise payable or deliverable to Secured Party.
(d) Secured Party shall, as required by the holders of Senior Indebtedness
holding or desiring to hold security interests in the Collateral from time to
time, execute and deliver to them all additional documents and instruments of
subordination as are not inconsistent with the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor hereby represents and
warrants to Secured Party that:
(a) All corporate action on the part of Debtor necessary for the execution
and delivery of this Agreement has been duly authorized by Debtor's Board of
Directors. This Agreement constitutes a valid and legally binding obligation of
Debtor and creates a security interest enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy laws, laws affecting
creditors' rights and court decisions limiting the availability of specific
performance and other equitable remedies. Debtor has full corporate power and
corporate authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby; and
(b) The execution or delivery of this Agreement or the taking of any
action in compliance with it, will not violate or breach any law, regulation,
rule or judicial action binding on Debtor or agreement to which Debtor is a
party.
4. COVENANTS OF DEBTOR. Until payment of all obligations due under the Note,
Debtor agrees that, unless Secured Party shall have otherwise consented in
writing:
(a) Debtor shall execute and take such action as may reasonably be
requested from time to time by Secured Party, including the execution and
delivery of financing statements and certificates of title, and the filing of
financing statements, as may be necessary to perfect and maintain the security
interest granted to Secured Party hereby;
(b) Debtor shall make timely payments to Secured Party of all amounts then
due and payable under the Note according to its terms;
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(c) Debtor shall maintain the Collateral in good repair in all material
respects, ordinary wear, tear and obsolescence excepted;
(d) To the extent and in amounts customary for entities engaged in
business activities comparable to those of Debtor, Debtor shall at all times
keep the Collateral insured against all insurable hazards in amounts equal to
the full cash value of the Collateral;
(e) Debtor shall keep appropriate records and, upon written request of
Secured Party, will give Secured Party any information it may reasonably require
with respect to the condition and status of the Collateral and will permit
Secured Party to inspect the Collateral upon reasonable prior notice and during
normal business hours;
(f) Debtor shall not sell, lease, transfer or otherwise encumber or
dispose of the Collateral, except for sales made in the ordinary course of
business or to dispose of obsolete or replaced Collateral;
(g) Debtor shall notify Secured Party within ten (10) days of any change
in (1) Debtor's corporate name, (2) Debtor's business or legal structure, (3)
Debtor's place of business or chief executive office if the Debtor has more than
one place of business, or (4) location of Collateral.
5. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an "Event of Default":
(a) If Debtor shall:
(1) Admit in writing its inability to pay its debts generally as they
become due;
(2) File a voluntary petition in bankruptcy or to take advantage of
any insolvency act;
(3) Make an assignment for the benefit of its creditors;
(4) Consent to the appointment of a receiver of the whole or any
substantial part of its property;
(5) Have an involuntary petition in bankruptcy filed against it which
is not dismissed within sixty (60) day of the filing thereof;
(6) Fail to perform any obligation imposed on it under that "Loan
Commitment Agreement" among Debtor and Secured Party dated September 15,
2000 (the Loan Commitment Agreement") and such non-performance is uncured
and continuing at the expiration of ten (10) days following Debtor's
receipt of written notice of such failure; or
(7) Fail to perform any obligation imposed on it under this Agreement
and such non-performance is uncured and continuing at the expiration of ten
(10) days following Debtor's receipt of written notice of such failure;
(b) If any installment required to be paid under the Note shall not be
paid within ten (10) days after Debtor's receipt of written notice of this Event
of Default;
(c) If Debtor shall fail to acquire the HvB Option (as that term is
defined in the Loan Commitment Agreement) within ninety (90) days following the
date first above written.
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6. SECURED PARTY'S RIGHTS AND REMEDIES. Subject in all respects to the
provisions of Article 2:
(a) Upon the occurrence of an Event of Default, Secured Party may exercise
all rights or remedies that Secured Party may have as a secured party under the
Uniform Commercial Code as adopted in the State of California;
(b) Upon the occurrence of any Event of Default, Secured Party may sell,
lease or otherwise dispose of all or any part of the Collateral upon any terms
which are commercially reasonable; Secured Party shall give ten (10) days' prior
written notice to Debtor of the time and place of any public sale of the
Collateral, or of the time after which a private sale or other disposition of
the Collateral is to be made; and
(c) All proceeds from the sale or other disposition of the Collateral, and
all other amounts received by Secured Party pursuant to the terms of this
Agreement, unless otherwise expressly required by law or regulation, shall be
applied as follows:
(1) First, to the payment of all expenses reasonably incurred by
Secured Party in connection with any sale or disposition of the Collateral,
including, but not limited to, the expenses of taking, delivering or
preserving the Collateral to be sold, and all court costs and all
reasonable legal fees of Secured Party in connection therewith;
(2) Second, to the payment of all obligations of Debtor to Secured
Party arising under the Note, including any interest thereon; and
(3) Third, the balance, if any, to Debtor.
(d) No delay or omission by Secured Party in exercising any right or
remedy hereunder or with respect to any obligation of Debtor to Secured Party
secured hereunder shall operate as a waiver thereof or of any other right or
remedy available to Secured Party, and no single or partial exercise thereof
shall preclude any other or further exercise thereof or the exercise of any
other right or remedy. Secured Party, in its sole discretion, on at least three
(3) days' prior written notice to Debtor, may (but shall have no obligation to)
remedy any Event of Default by Debtor hereunder or with respect to any
obligation of Debtor to Secured Party or any other person, firm, corporation or
other entity in any reasonable manner without waiving the Event of Default
remedied and without waiving any other prior or subsequent Event of Default by
Debtor, and shall be reimbursed for its necessary and reasonable out-of-pocket
expenses in so remedying any of such Event of Default. All rights and remedies
of Secured Party hereunder are cumulative.
7. GENERAL PROVISIONS.
7.1. SUCCESSORS AND ASSIGNS. This Agreement is not assignable by either
party. Subject to the foregoing, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties. Except as provided in Article 2, nothing in this Agreement,
expressed or implied, is intended to confer upon any party other than the
parties hereto or their respective successors any rights, remedies, obligations,
or liabilities under or by reason of this Agreement.
7.2. GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California.
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7.3. NOTICES. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered in person or mailed, certified, return-receipt requested, postage
prepaid:
If to Debtor: Educational Insights, Inc., at its address as first
appearing above
Attention: X. Xxxx Xxxxxxx, President
and, if to
Secured Party: Xxxxxx Xxxxxx, at his address as first appearing above
Any party hereto may from time to time, by ten (10) days' advance written notice
to the other parties, designate a different address, which shall be substituted
for the one specified above for such party. If any notice or other document is
sent by certified or registered mail, return receipt requested, postage prepaid,
properly addressed as aforementioned, the same shall be deemed served or
delivered seventy-two (72) hours after mailing thereof. If any notice is sent by
facsimile machine ("fax") to a party, it will be deemed to have been delivered
on the date the fax thereof is actually received, provided the original thereof
is sent by mail in the manner set forth above, within twenty-four (24) hours
after the fax is sent.
7.4. AMENDMENTS, WAIVERS AND CONSENTS. Any term of this Agreement to the
contrary notwithstanding, changes in or additions to this Agreement may be made,
and compliance with any covenant or provision or breach of any representation or
warranty herein or therein set forth may be omitted or waived, if the Debtor
shall obtain consent thereto in writing from Secured Party. Any waiver or
consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7.5. WAIVER. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or be construed as a further or continuing waiver of any such
term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
7.6. FURTHER ASSURANCES. Each party hereto agrees to execute and deliver
such other documents and instruments as the other party may reasonably request
to better evidence or effectuate the rights and obligations of the parties
hereto and the transactions contemplated hereunder, provided that no party
shall, as a result thereof, be required to assume any further obligation or
relinquish any of its rights hereunder.
7.7. ATTORNEYS' FEES. In the event of any litigation of any nature between
the parties hereto, regarding the rights and obligations of the parties under
this Agreement or any obligations secured hereby, the prevailing party in such
litigation shall be entitled to recover reasonable attorneys' fees as determined
by the court.
7.8. ENTIRE AGREEMENT. This Agreement, the Note and the Loan Commitment
Agreement constitute the entire understanding between the parties with respect
to the subject matter hereof, superseding all negotiations, prior discussions
and preliminary agreements with respect thereto.
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IN WITNESS WHEREOF, the parties have, by the undersigned thereunto duly
authorized, executed and delivered this Subordinated Security Agreement as of
the date first above written.
"Debtor" "Secured Party"
Educational Insights, Inc.
/s/ XXXXXX XXXXXX
--------------------------
Xxxxxx Xxxxxx, Trustee,
By: /s/ X. XXXX XXXXXXX
----------------------------
X. Xxxx Calcott, President and
/s/ XXXXX X. XXXXXX
--------------------------
Xxxxx X. Xxxxxx, Trustee,
Xxxxxx Family Trust UTD May 4, 1989
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