EXHIBIT 10.13
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of January 26,
2005 between Barrington Bank International Limited, a Bahamian banking company
(hereinafter referred to as "Secured Party"), and Adsero Corp., a corporation
existing under the laws of the State of Delaware (hereinafter referred to as
"Debtor").
WHEREAS, Teckn-O-Laser Company, a Nova Scotia unlimited liability
company (the "Borrower") is the borrower under that certain loan agreement in
the principal amount of Cdn.$2,000,000 by and among, INTER ALIA, the Borrower,
as borrower, and Secured Party, as lender (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Agreement") and
collectively with the various documents and instruments evidencing the terms of
such financings, the "Loan Documents");
WHEREAS Debtor has issued to Secured Party (on a joint and several
basis with certain of its Affiliates) a guaranty dated as of even date herewith,
pursuant to which, INTER ALIA, Debtor has guaranteed the obligations of the
Borrower under the Loan Documents (as amended, restated or supplemented from
time to time, the "Guaranty"); and
WHEREAS Debtor has also agreed to execute this Agreement in favor of
Secured Party as security for all amounts owing at any time and from time to
time by Debtor under the Guaranty and the other Obligations (as defined in
Section 2(b) hereof);
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, Debtor and, by its acceptance hereof, Secured
Party hereby agree as follows:
1. RECITALS. The foregoing recitals are hereby incorporated herein by reference
as though set forth at length herein, and form an integral part of this
Agreement.
2. GRANT OF SECURITY INTEREST; OBLIGATIONS SECURED.
(a) Debtor hereby grants to Secured Party a lien on and security
interest in, and right of set-off against all right, title and interest of
Debtor, whether now owned or existing or hereafter created, acquired or arising,
in and to all personal property of Debtor, including without limitation all of
the following:
(i) Accounts (including Health-Care-Insurance Receivables, if
any);
(ii) Chattel Paper;
(iii) Instruments (including Promissory Notes);
(iv) Documents;
(v) General Intangibles (including Payment Intangibles and
Software);
(vi) Letter-of-Credit Rights;
(vii) Supporting Obligations;
(viii) Deposit Accounts;
-1-
(ix) Investment Property (including certificated and uncertificated
Securities), Securities Accounts, Security Entitlements,
Commodity Accounts, and Commodity Contracts;
(x) Inventory;
(xi) Equipment (including all software, whether or not the same
constitutes embedded software, used in the operation thereof);
(xii) Money;
(xiii) Fixtures;
(xiv) All rights to merchandise and other goods (including rights to
returned or repossessed Goods and rights of stoppage in
transit) which is represented by, arises from, or relates to
any of the foregoing;
(xv) All personal property and interests in personal property of
Debtor of any kind or description now held by Secured Party or
at any time hereafter transferred or delivered to, or coming
into the possession, custody, or control of, Secured Party, or
any agent or affiliate of Secured Party, whether expressly as
collateral security or for any other purpose (whether for
safekeeping, custody, collection or otherwise), and all
dividends and distributions on or other rights in connection
with any such property;
(xvi) All supporting evidence and documents relating to any of the
foregoing, including, without limitation, computer programs,
disks, tapes and related electronic data processing media, and
all rights of Debtor to retrieve the same from third parties,
written applications, credit information, account cards,
payment records, correspondence, delivery and installation
certificates, invoice copies, delivery receipts, notes, and
other evidences of indebtedness, insurance certificates and
the like, together with all books of account, ledgers, and
cabinets in which the same are reflected or maintained;
(xvii) All Accessions and additions to, and substitutions and
replacements of, any and all of the foregoing; and
(xviii) All Proceeds and products of the foregoing, and all insurance
of the foregoing and proceeds thereof;
all of the foregoing being herein sometimes referred to as the "Collateral". All
terms which are used herein that are defined in the Uniform Commercial Code of
the State of New York. ("UCC") shall have the same meanings herein as such terms
are defined in the UCC, unless this Agreement shall otherwise specifically
provide. For purposes of this Agreement, the term "Receivables" means all rights
to the payment of a monetary obligation, whether or not earned by performance,
and regardless of whether evidenced by an Account, Chattel Paper, Instrument or
a General Intangible.
(b) This Agreement is made and given to secure, and shall secure, the
prompt payment and performance when due of (i) any and all indebtedness,
obligations and liabilities of Debtor to Secured Party under or in connection
with the Guaranty and any other document, agreement or instrument, whether now
existing or hereafter arising, due or to become due, direct or indirect,
absolute or contingent, and howsoever evidenced, held or acquired and (ii) any
and all expenses
-2-
and charges, legal (including, without limitation, attorneys' fees) or
otherwise, suffered or incurred by Secured Party and its agents and
representatives, in collecting or enforcing any of such indebtedness,
obligations and liabilities or in realizing on or protecting or preserving any
security therefor, including, without limitation, the Lien granted hereby (all
of the indebtedness, obligations, liabilities, expenses and charges described in
(i) and (ii) above being hereinafter referred to as the "Obligations").
(c) Notwithstanding anything in this Agreement to the contrary, the
right of recovery against Debtor under this Agreement shall not exceed $1.00
less than the lowest amount which would render Debtor's obligations under this
Agreement void or voidable under applicable law, including fraudulent conveyance
laws such as 11 U.S.C. ss.548 and any corresponding federal, state or provincial
law.
3. COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Debtor hereby
covenants and agrees with, and represents and warrants to, Secured Party that:
(a) Debtor's organizational registration number is set forth on
Schedule A attached hereto, and its chief executive office and principal place
of business located at the address listed on Schedule A attached hereto. Debtor
has no other executive offices or places of business other than those listed on
Schedule A. The Collateral owned or leased by Debtor is and shall remain in
Debtor's possession or control at the location listed on Schedule A
(collectively the "Permitted Collateral Locations"), except as to any Collateral
sold or otherwise disposed of as permitted under this Agreement, including the
last sentence of this paragraph. If for any reason any Collateral is at any time
kept or located at a location other than a Permitted Collateral Location,
Secured Party shall nevertheless have and retain a Lien on and security interest
therein. Debtor shall not move its chief executive office or maintain a place of
business other than at a Permitted Collateral Location or permit any Collateral
to be located at a location other than a Permitted Collateral Location (other
than as specified in the second sentence of this paragraph), in each case
without first providing Secured Party at least 30 days prior written notice
thereof.
(b) Debtor's legal name and state of organization is correctly set
forth in the first paragraph of this Agreement. Debtor shall not change its
legal name or transact business under any other trade name without first
providing Secured Party at least 30 days prior written notice thereof.
(c) The Collateral and every part thereof is and shall be free and
clear of all security interests, Liens (other than Permitted Liens and the Lien
granted hereunder) of every kind, nature and description and whether voluntary
or involuntary. Debtor shall warrant and defend the Collateral against any
claims and demands of all parties at any time claiming the same or any interest
in the Collateral adverse to Secured Party (other than Permitted Liens ).
(d) Debtor agrees it will not waste or destroy the Collateral or any
part thereof and will not be negligent in the care or use of any Collateral,
except to the extent that, in the reasonable business judgment of Debtor, any
such Collateral is no longer necessary for the proper conduct of the business of
Debtor. Debtor agrees it will not use, manufacture, sell or distribute any
Collateral in violation of any statute, ordinance or other governmental
requirement. Debtor will
-3-
perform in all material respects its obligations under any contract or other
agreement constituting part of the Collateral, it being understood and agreed
that Secured Party has no responsibility to perform such obligations.
(e) Subject to any restrictions in or pursuant to this Agreement and
any other document, agreement or instrument between Debtor and Secured Party,
Debtor agrees it will not, without Secured Party's prior written consent, sell,
assign, mortgage, lease or otherwise dispose of the Collateral or any interest
therein, except for sales of inventory in the ordinary course of business
pursuant to Section 6(b).
(f) Debtor will at all times allow Secured Party and its
representatives free access to and right of inspection of the Collateral and all
books and records of Debtor relating to the Collateral, at such reasonable times
during normal business hours, and upon reasonable notice and intervals as
Secured Party may designate. Without in any way limiting the preceding sentence,
during reasonable business hours and upon reasonable notice and intervals,
Secured Party or its agents shall have the right to examine its Collateral and
review and copy any and all information and data relating to such property, or
to any related transactions, wherever and however such information and data may
be stored. In the event that the use of a computer system is required for access
to which Secured Party is entitled, including without limitation, access to any
premises, place, Collateral, books of account, records, reports, information or
data, it shall allow Secured Party the use of its computer system for such
purpose and shall provide reasonable assistance in that regard, including,
without limitation, making known to Secured Party any password, access number or
other code required for such access. If for any reason the information and data
cannot be accessed and retrieved at its premises, Secured Party may remove the
medium in which such information or data is stored from such premises to any
other place for the purpose of giving Secured Party the opportunity to retrieve,
record or copy such information and data. Secured Party shall be entitled to
reproduce and retain a copy of any such information and data in any format
whatsoever. If any of the above items is in the possession of a third party,
Debtor shall take all reasonable steps to allow Secured Party the access and
retrieval to which it is entitled.
(g) If any Collateral is in the possession or control of any agents or
processors of Debtor and Secured Party so requests, Debtor agrees to notify such
agents or processors in writing of Secured Party's security interest therein and
instruct them to, and use their best efforts to obtain agreements that they
will, hold all such Collateral for Secured Party's account and subject to
Secured Party's instructions. Debtor will, upon the request of Secured Party,
authorize and instruct all bailees and any other parties, if any, at any time
processing, labeling, packaging, holding, storing, shipping or transferring all
or any part of the Collateral to permit Secured Party and its representatives
during normal business hours and upon reasonable notice and intervals to examine
and inspect any of the Collateral then in such party's possession and to verify
from such party's own books and records any information concerning the
Collateral or any part thereof which Secured Party or its representatives may
seek to verify. As to any premises not owned by Debtor wherein any of the
Collateral is located, if any, Debtor shall, upon Secured Party's request, use
all commercially reasonable efforts to cause each party having any right, title
or interest in, or Lien on, any of such premises to enter into an agreement
whereby such party disclaims any right, title and interest in, and Lien on, the
Collateral, allowing the removal of such
-4-
Collateral by Secured Party or its agents or representatives and otherwise in
form and substance reasonably acceptable to Secured Party.
(h) Upon Secured Party's reasonable request, Debtor agrees from time to
time to deliver to Secured Party such evidence of the existence, identity and
location of its Collateral and of its availability as collateral security
pursuant hereto (including, without limitation, schedules describing all
Receivables created or acquired by Debtor, copies of customer invoices or the
equivalent and original shipping or delivery receipts for all merchandise and
other goods sold or leased or services rendered by it, together with Debtor's
warranty of the genuineness thereof, and reports stating the book value of its
Inventory and Equipment by major category and location), in each case as Secured
Party may reasonably request. Further to paragraph (g), Secured Party shall have
the right to verify all or any part of the Collateral in any reasonable manner,
and through any reasonable medium, and Debtor agrees to furnish all assistance
and information, and perform any acts, which Secured Party may reasonably
require in connection therewith.
(i) Debtor shall keep all of its assets and property insured and shall
maintain commercial general liability coverage, and such other coverages
required by the Senior Loan Documents (including, but not limited to, earthquake
coverage and insurance against flood), by insurers, in amounts and in the form
specified in the Senior Loan Documents. Upon request of Secured Party, Debtor
shall provide certificates relating to such policies and/or copies of such
policies (including any amendments, renewals, or modifications thereto), as
requested by Secured Party. At the request of Secured Party at any time when
there are any Obligations outstanding, Secured Party shall be named as an
additional insured and as a loss payee under Debtor's insurance policies,
subject to the rights of the Senior Lender. In case of loss or damage by fire or
other casualty, Debtor shall give prompt written notice thereof to the insurers
and to Secured Party and, casualty insurance proceeds that are not applied to
reduce the Senior Loan or restore the assets in accordance with the Senior Loan
Documents shall be applied to reduce the Obligations or restore the assets as
determined by Secured Party.
(j) Debtor will comply in all material respects with the terms and
conditions of any and all leases, easements, right-of-way agreements and other
agreements binding upon Debtor or affecting the Collateral, in each case which
cover the premises wherein the Collateral is located, and any orders,
ordinances, laws or statutes of any city, state or other governmental entity,
department or agency having jurisdiction with respect to such premises or the
conduct of business thereon.
(k) Schedule B attached hereto contains a true, complete, and current
listing of all copyrights, copyright applications, trademarks, trademark rights,
tradenames, patents, patent rights or licenses, patent applications and other
intellectual property rights owned by Debtor, whether or not registered with any
governmental authority, including without limitation the U.S. Copyright Office
or the U.S. Patent and Trademark Office. Debtor shall promptly notify Secured
Party in writing of Debtor's acquisition of any additional intellectual property
rights after the date hereof, or the acquisition or development of any other
intellectual property rights that (when acquired or developed) do not become
subject to a perfected security interest in favor of Secured Party. Debtor shall
submit to Secured Party a supplement to Schedule B to reflect such additional
intellectual property rights acquired or developed by Debtor (provided Debtor's
failure to do so shall not impair Secured Party's security interest therein).
-5-
(l) Debtor agrees to execute and deliver to Secured Party (or authorize
Secured Party to file, in the case of (i) below, as described below in this
paragraph) such further agreements, assignments, instruments and documents, and
to do all such other things, as Secured Party may reasonably deem necessary or
appropriate to assure Secured Party its Lien hereunder, and the ability to
enforce its rights hereunder, including without limitation, (i) such financing
statements or other instruments and documents as Secured Party may from time to
time reasonably require to comply with the UCC and any other applicable law, and
(ii) such assignment agreements as Secured Party may from time to time
reasonably require with respect to the intellectual property in Section 3(j) to
comply with the filing requirements of the United States Patent and Trademark
Office and the United States Copyright Office, and (iii) such control agreements
with respect to all Deposit Accounts, Securities Accounts, Letter-of-Credit
Rights, and electronic Chattel Paper. Debtor agrees to use all commercially
reasonable efforts to cause the relevant depository institutions, financial
intermediaries, letter of credit issuers and other relevant Persons (as defined
in Section 3(o)(vii)) or entities to execute and deliver such control
agreements, as Secured Party may from time to time reasonably require. Debtor
hereby agrees that a carbon, photographic or other reproduction of this
Agreement or any such financing statement is sufficient for filing as a
financing statement by Secured Party without notice thereof to Debtor wherever
Secured Party in its sole discretion desires to file the same. Debtor hereby
authorizes Secured Party to file any and all financing statements covering the
Collateral or any part thereof as Secured Party may require, including financing
statements describing the Collateral as "all assets now or hereinafter acquired"
or "all personal property" or words of like meaning. Secured Party may order
lien searches from time to time against Debtor and the Collateral, and Debtor
shall promptly reimburse Secured Party for all reasonable costs and expenses
incurred in connection with such lien searches. In the event for any reason the
law of any jurisdiction other than New York or Delaware becomes or is applicable
to the Collateral or any part thereof, or the respective rights and/or
priorities therein, or to any of the Obligations, Debtor agrees to execute and
deliver all such instruments and documents and to do all such other things as
Secured Party deems necessary or appropriate to preserve, protect and enforce
the security interest and relative priority of Secured Party and Secured Party's
security interest under the laws of such other jurisdiction.
(m) On failure of Debtor to perform any of the covenants and agreements
herein contained, Secured Party may, at its option, perform the same and in so
doing may expend such sums as Secured Party deems advisable in the performance
thereof, including, without limitation, the payment of any insurance premiums,
the payment of any taxes, Liens, reasonable expenditures made in defending
against any adverse claims, and all other expenditures which Secured Party may
be compelled to make by operation of law or which Secured Party may make by
agreement or otherwise for the protection of the security hereof. All such sums
and amounts so expended shall be repayable by Debtor immediately upon demand,
shall constitute additional Obligations secured hereunder, and shall bear
interest from the date said amounts are expended at the rate per annum equal to
the annual rate at which interest accrued under the Loan Agreement during the
existence of a Default (being hereinafter referred to as the "Default Rate" for
such Obligation). No such performance of any covenant or agreement by Secured
Party on behalf of Debtor, and no such advancement or expenditure therefor,
shall relieve Debtor of any default under the terms of this Agreement or in any
way obligate Secured Party to take any further or future action with respect
thereto. Secured Party in making any payment hereby
-6-
authorized may do so according to 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, or title or claim.
Secured Party in performing any act hereunder shall be the sole judge of whether
Debtor is required to perform the same under the terms of this Agreement.
(n) Each of the Accounts, Chattel Paper, Instruments and Documents
constituting Collateral is genuine and enforceable in accordance with its terms
against the party obligated to pay thereunder (individually, an "Account Debtor"
and collectively, the "Account Debtors").
(o) The amount represented by Debtor to Secured Party from time to time
as owing by each of its Account Debtors to the best of Debtor's knowledge is the
correct amount actually and unconditionally owing by such Account Debtor or
Account Debtors, save and except for normal cash discounts where applicable and
a reasonable reserve for bad debts.
(p) Unless compliance with the following covenants is waived by Secured
Party in writing or unless non-compliance with any such covenants is otherwise
consented to by Secured Party in writing, Debtor covenants and agrees that:
(i) it shall maintain its corporate existence in good standing
as a Delaware corporation and shall ensure that it has, at all times,
full power and corporate authority to carry on the activities conducted
by it and to perform its obligations under this Agreement;
(ii) it shall keep the Collateral in good working order and
condition, normal wear and tear excepted;
(iii) it shall not use the Collateral in violation of this
Agreement or any other agreement relating to its Collateral or any
policy insuring its Collateral or any applicable statute, law, by-law,
rule, regulation, court order or ordinance;
(iv) it shall promptly notify Secured Party of:
(A) any claim, Lien or charge made or asserted
against any of the Collateral; and
(B) any suit, action or proceeding affecting any of
its Collateral;
and it shall, at its own expense, defend its Collateral against any and
all such claims, Liens, or charges and against any and all such suits,
actions or proceedings;
(v) it shall give immediate written notice to Secured Party of
any failure of Debtor in payment or performance of obligations due to
it which may have a material adverse effect with respect to Secured
Party's rights in its Collateral;
(vi) Debtor shall at all times keep, or cause to be kept,
accurate and complete records of the Collateral as well as proper books
of account for its business all in accordance with U.S. generally
accepted accounting principles, consistently applied, and shall
maintain the currency of registration of its intellectual property
rights; and
(vii) it shall not change the nature of its business;
amalgamate, combine, merge or consolidate with or into any Person, or
change its incorporating jurisdiction, or permit
-7-
all of or a substantial portion of its property to become the property
of any other Person, whether in one or a series of transactions, and it
shall not do any act or thing that would materially adversely affect
its business, property, prospects or financial condition or permit any
corporation of which it is the majority shareholder to do any of the
foregoing. For purposes of this Agreement, a "Person" means a natural
person or a legal person, including without limitation a trust,
business trust, corporation, partnership, limited liability company,
non-stock entity, or any other entity of any type.
4. SPECIAL PROVISIONS RE: RECEIVABLES.
(a) As of the time any Receivable becomes subject to the security
interest provided for hereby and at all times thereafter, Debtor shall be deemed
to have warranted as to each and all of its Receivables that all warranties of
Debtor set forth in this Agreement are true and correct in all material respects
with respect to each such Receivable; that each of its Receivables and all
papers and documents relating thereto are genuine and in all material respects
what they purport to be; that each of its Receivables is valid and subsisting;
and that no surety bond was required or given in connection with such Receivable
or the contracts or purchase orders out of which the same arose.
(b) If any Receivable arises out of a contract with the United States
of America or any of its departments, agencies or instrumentalities, the
relevant Debtor agrees to, at the request of Secured Party, execute whatever
instruments and documents are required by Secured Party in order that such
Receivable shall be assigned to Secured Party and that proper notice of such
assignment shall be given under the federal Assignment of Claims Act, any
successor statute or any similar statute relating to the assignment of such
Receivables.
(c) Unless and until an default occurs and is continuing hereunder,
under the Guaranty or under any other document, agreement or instrument
involving Debtor and/or Borrower or any of their Affiliates and Secured Party
(each, an "Event of Default"), any merchandise or other goods which are returned
by a customer or account debtor or otherwise recovered may be resold by Debtor
in the ordinary course of its business as presently conducted in accordance with
Section 6(b) hereof. Upon the occurrence and during the continuation of an Event
of Default, such merchandise and other goods shall be set aside at the request
of Secured Party and held by Debtor as trustee for Secured Party and shall
remain part of the Collateral. Unless and until such an Event of Default occurs
and is continuing, Debtor may settle and adjust disputes and claims with its
customers and account debtors, handle returns and recoveries and grant
discounts, credits and allowances in the ordinary course of its business as
presently conducted for amounts and on terms which Debtor in good faith
considers advisable. Upon the occurrence and during the continuation of an Event
of Default, if Secured Party so requests, Debtor shall notify Secured Party
promptly of all returns and recoveries and, on Secured Party's request, deliver
any such merchandise or other goods to Secured Party. Upon the occurrence and
during the continuation of an Event of Default, at Secured Party's request
Debtor shall also notify Secured Party promptly of all disputes and claims and
settle or adjust them at no expense to Secured Party hereunder, but no discount,
credit or allowance other than on normal trade terms in the ordinary course of
business as presently conducted shall be granted to any customer or account
debtor and no returns of merchandise or other goods shall be accepted by Debtor
without Secured Party's consent (such consent not to be unreasonably withheld or
delayed). Secured Party may, at all
-8-
times upon the occurrence and during the continuation of such a default, settle
or adjust disputes and claims directly with customers or account debtors for
amounts and upon terms which Secured Party reasonably considers advisable.
(d) All tangible Chattel Paper and Instruments shall be delivered to
Secured Party or, if Secured Party consents (which consent may be withheld in
the sole discretion of Secured Party) and subject to subsection 5(b)(i), such
Chattel Paper and Instruments may be retained by Debtor but shall thereafter
contain a legend acceptable to Secured Party indicating that such Chattel Paper
or Instrument is subject to the security interest of Secured Party contemplated
by this Agreement.
5. COLLECTION OF RECEIVABLES.
(a) Except as otherwise provided in this Agreement, Debtor shall
collect all of its Receivables and use the same to carry on its business in
accordance with sound business practice and otherwise subject to the terms
hereof. At the request of Secured Party, Debtor shall deliver to Secured Party
all Instruments and Chattel Paper at any time constituting part of the
Receivables (including any postdated checks), upon receipt by Debtor, together
with any endorsements or assignments requested by Secured Party.
(b) Upon the occurrence and during the continuation of an Event of
Default, whether or not Secured Party has exercised any or all of its rights
under other provisions of this Section 5, in the event Secured Party requests
Debtor to do so, Debtor shall instruct all of its customers and account debtors
to remit all payments in respect of its Receivables to a lockbox or lockboxes
under the sole custody and control of Secured Party and which are maintained at
post offices selected by Secured Party.
(c) Upon the occurrence and during the continuation of any Event of
Default hereunder, whether or not Secured Party has exercised any or all of its
rights under other provisions of this Section 5, Secured Party or its designee
may notify Debtor's customers and account debtors at any time that Receivables
have been assigned to Secured Party or of Secured Party's security interest
therein, and either in its own name, or Debtor's name, or both, demand, collect
(including, without limitation, through a lockbox analogous to that described in
Section 5(b) hereof), receive, receipt for, xxx for, compound and give
acquittance for any or all amounts due or to become due on Receivables, and in
Secured Party's discretion file any claim or take any other action or proceeding
which Secured Party may deem necessary or appropriate to protect and realize
upon the security interest of Secured Party in the Receivables. Secured Party
shall endeavor to provide contemporaneous notice of any of such actions to
Debtor with respect to its customers, but the failure to do so shall not affect
Secured Party's rights hereunder.
(d) Any proceeds of Receivables or other Collateral transmitted to or
otherwise received by Secured Party pursuant to any of the provisions of
Sections 5(a) - 5(c) hereof during the existence of any Event of Default
hereunder may be handled and administered by Secured Party in and through a
remittance account or accounts maintained at Secured Party or by Secured Party
at a commercial bank or banks selected by Secured Party (collectively the
"Depositary Banks" and individually a "Depositary Bank"), and Debtor
acknowledges that the maintenance of such remittance accounts by Secured Party
is solely for Secured Party's convenience and that Debtor does not have any
right, title or interest in such remittance accounts or any amounts at any time
-9-
standing to the credit thereof. Secured Party may apply all or any part of any
proceeds of Receivables or other Collateral received by it during the existence
of any Event of Default hereunder from any source to the payment of the
Obligations (whether or not then due and payable), such applications to be made
in such amounts, in such manner and order and at such intervals as Secured Party
may from time to time in its discretion determine. Secured Party need not apply
or give credit for any item included in proceeds of Receivables or other
Collateral until the Depositary Bank has received final payment therefor at its
office in cash or final solvent credits current at the site of deposit
acceptable to Secured Party and the Depositary Bank as such. However, if Secured
Party does permit credit to be given for any item prior to a Depositary Bank
receiving final payment therefor and such Depositary Bank fails to receive such
final payment or an item is charged back to Secured Party or any Depositary Bank
for any reason, Secured Party may at its election in either instance charge the
amount of such item back against any such remittance accounts or any account of
Debtor maintained with Secured Party, together with interest thereon at the
Default Rate. Concurrently with each transmission of any proceeds of Receivables
or other Collateral to any such remittance account, upon Secured Party's
request, Debtor shall furnish Secured Party with a report in such form as
Secured Party shall reasonably require identifying the particular Receivable or
such other Collateral from which the same arises or relates. Debtor hereby
indemnifies Secured Party from and against all liabilities, damages, losses,
actions, claims, judgments, and all reasonable costs, expenses, charges and
attorneys' fees suffered or incurred by Secured Party because of the maintenance
of the foregoing arrangements; provided, however, that Debtor shall not be
required to indemnify Secured Party for any of the foregoing to the extent they
arise from the gross negligence or willful misconduct of the Person seeking to
be indemnified. Secured Party shall have no liability or responsibility to
Debtor for Secured Party or any other Depositary Bank accepting any 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
whatsoever or be responsible for determining the correctness of any remittance.
6. SPECIAL PROVISIONS FOR INVENTORY AND EQUIPMENT.
(a) Debtor shall at its own cost and expense maintain, keep and
preserve its Inventory in good and merchantable condition and keep and preserve
its Equipment in good repair, working order and condition, ordinary wear and
tear excepted, and, without limiting the foregoing, make all necessary and
proper repairs, replacements and additions to its Equipment so that the
efficiency thereof shall be fully preserved and maintained.
(b) Debtor may, until an Event of Default has occurred and is
continuing and thereafter until otherwise notified by Secured Party, use,
consume and sell the Inventory in the ordinary course of its business, but a
sale in the ordinary course of business shall not under any circumstance include
any transfer or sale in satisfaction, partial or complete, of a debt owing by
Debtor.
(c) Debtor may, until an Event of Default has occurred and is
continuing and thereafter until otherwise notified by Secured Party, sell or
otherwise dispose of any Equipment to the extent permitted by this Agreement or
any other document, agreement or instrument between Debtor and Secured Party.
-10-
(d) As of the time any Inventory or Equipment of Debtor becomes subject
to the security interest provided for hereby and at all times thereafter, Debtor
shall be deemed to have warranted as to any and all of such Inventory and
Equipment that all warranties of Debtor set forth in this Agreement are true and
correct with respect to such Inventory and Equipment; that all of such Inventory
and Equipment is located at, or in transit to, a Permitted Collateral Location
or at a job site where installation is to take place. Debtor warrants and agrees
that none of its Inventory is or will be consigned to any other Person or entity
without Secured Party's prior written consent.
(e) Upon Secured Party's request, Debtor shall at its own cost and
expense cause the Lien of Secured Party in and to any portion of its Collateral
subject to a certificate of title law to be duly noted on such certificate of
title or to be otherwise filed in such manner as is prescribed by law in order
to perfect such Lien and will cause all such certificates of title and evidences
of Lien to be deposited with Secured Party.
(f) Except for Equipment from time to time located on the Real Property
or subject to a mortgage, deed of trust or other like instrument in favor of
Secured Party, none of the Equipment is or will be attached to real estate in
such a manner that the same may become a fixture.
(g) If any of the Inventory is at any time evidenced by a document of
title, such document shall be promptly delivered by Debtor to Secured Party.
7. SPECIAL PROVISIONS FOR INVESTMENT PROPERTY AND DEPOSITS.
(a) Unless and until an Event of Default has occurred and is continuing
and thereafter until notified to the contrary by Secured Party pursuant to
Section 9(c) hereof:
(i) Debtor shall be entitled to exercise all voting and/or
consensual powers pertaining to its Investment Property or any part
thereof, for all purposes not inconsistent with the terms of this
Agreement and any document, agreement or instrument evidencing or
relating to any Obligation; and
(ii) Debtor shall be entitled to receive and retain all cash
dividends paid upon or in respect of its Investment Property. Stock or
other non-cash proceeds of Investment Property shall be delivered to
Secured Party immediately upon receipt by Debtor.
(b) Debtor shall not sell all or any part of the Investment Property
without the prior written consent of Secured Party (which consent may be
withheld in Secured Party's sole discretion).
8. POWER OF ATTORNEY. In addition to any other powers of attorney contained
herein, Debtor hereby appoints Secured Party, its nominee, or any other Person
whom Secured Party may designate as Debtor's attorney-in-fact, with full power
after the occurrence of any Event of Default, to sign Debtor's name on
verifications of Receivables and other Collateral; to send requests for
verification of Collateral to other parties; to endorse Debtor's name on any
checks, notes or other Instruments that may come into Secured Party's
possession; to endorse the Collateral in blank or to the order of Secured Party
or its nominee; to sign Debtor's name on any invoice or xxxx of lading relating
to any Collateral, on claims to enforce collection of any Collateral, on notices
to and drafts against customers and account debtors and other obligors, on
-11-
schedules and assignments of Collateral, on notices of assignment and on public
records; to notify the post office authorities to change the address for
delivery of Debtor's mail to an address designated by Secured Party; to receive,
open and dispose of all mail addressed to Debtor; and to do all things necessary
to carry out and enforce its rights under this Agreement. Secured Party shall
endeavor to provide contemporaneous notice of any of such actions to Debtor, but
the failure to do so shall not affect Secured Party's rights hereunder. Debtor
hereby ratifies and approves all acts of any such attorney and agrees that
neither Secured Party nor any such attorney will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law other than
such Person's gross negligence or willful misconduct. Secured Party may file one
or more financing statements disclosing its security interest in any or all of
the Collateral without Debtor's signature appearing thereon, and Debtor also
hereby grants Secured Party a power of attorney to execute any such financing
statements, or amendments and supplements to financing statements, on behalf of
Debtor without notice thereof to any Debtor. The foregoing powers of attorney,
being coupled with an interest, are irrevocable until the Obligations have been
fully and indefeasibly paid and satisfied.
9. DEFAULTS AND REMEDIES.
(a) Upon the occurrence and during the continuation of any Event of
Default, Secured Party shall have, in addition to all other rights provided
herein or by law, the rights and remedies of a secured party under the UCC
(regardless of whether the UCC is the law of the jurisdiction where the rights
or remedies are asserted and regardless of whether the UCC applies to the
affected Collateral). Furthermore, Secured Party may, without demand and without
advertisement, notice, hearing or process of law, all of which Debtor hereby
waives to the maximum extent permitted by applicable law, at any time or times,
sell and deliver any or all Collateral held by or for it at public or private
sale, at any securities exchange or broker's board or at Secured Party's office
or elsewhere, for cash, upon credit or otherwise, at such prices and upon such
terms as Secured Party deems advisable, in its sole discretion. Upon the
occurrence and during the continuation of any Event of Default, in addition to
any other right or remedies set forth herein or by applicable law, Secured Party
may by written demand direct any securities intermediary, commodities
intermediary, or other financial intermediary at any time holding any Investment
Property, or any issuer thereof, to deliver such Collateral, or any part
thereof, to Secured Party and/or liquidate such Collateral, or any part thereof,
and deliver the proceeds thereof to Secured Party. In the exercise of any such
remedies, Secured Party may sell the Collateral as a unit even though the sales
price thereof may be in excess of the amount remaining unpaid on the
Obligations. In addition to all other sums due Secured Party hereunder, Debtor
shall pay Secured Party all costs and expenses incurred by Secured Party,
including reasonable attorneys' fees and court costs, in obtaining, liquidating
or enforcing payment of Collateral or the Obligations or in the prosecution or
defense of any action or proceeding by or against Secured Party or any Debtor
concerning any matter arising out of or connected with this Agreement, the
Collateral, the Loan Documents or any other document, agreement or instrument
between Debtor and Secured Party, including, without limitation, any of the
foregoing arising in, arising under or related to a case under the United States
Bankruptcy Code (or any successor statute). Any requirement of reasonable notice
shall be met if such notice is personally served on or mailed, postage prepaid,
to Debtor in accordance with Section 13(b) hereof at least 10 days before the
time of sale or other event giving rise to the requirement of such notice;
provided, however, no notification need be given to Debtor if Debtor has signed,
after an Event of Default hereunder
-12-
has occurred, a statement renouncing any right to notification of sale or other
intended disposition. Secured Party shall not be obligated to make any sale or
other disposition of the Collateral regardless of notice having been given. To
the maximum extent permitted under applicable law, Debtor hereby waives all of
its rights of redemption from any such sale. Secured Party 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, be made at the time and place to which the sale was postponed or
Secured Party may further postpone such sale by announcement made at such time
and place. In the event any of the Collateral shall constitute restricted
securities within the meaning of any applicable securities laws, any disposition
thereof in compliance with such laws shall not render the disposition
commercially unreasonable. Secured Party has no obligation to prepare the
Collateral for sale. Secured Party may sell or otherwise dispose of the
Collateral without giving any warranties as to the Collateral or any part
thereof, including disclaimers of any warranties of title or merchantability and
the like, and Debtor acknowledges and agrees that the absence of such warranties
shall not render the disposition commercially unreasonable.
(b) Without in any way limiting the foregoing, upon the occurrence and
during the continuation of any Event of Default hereunder, Secured Party shall
have the right, in addition to all other rights provided herein or by law, to
take physical possession of any and all of the Collateral and anything found
therein, the right for that purpose to enter without legal process any premises
where the Collateral may be found (provided such entry be done lawfully, without
breach of the peace and without abridgment of applicable contractual
restrictions), and the right to maintain such possession on Debtor's premises
(Debtor hereby agreeing, to the extent it may lawfully and without abridgment of
applicable contractual restrictions do so, to lease such premises without cost
or expense to Secured Party or its designee if Secured Party so requests) or to
remove the Collateral or any part thereof to such other places as Secured Party
may desire. Upon the occurrence and during the continuation of any Event of
Default hereunder, Secured Party shall have the right to exercise any and all
rights with respect to all Deposit Accounts of Debtor, including, without
limitation, the right to direct the disposition of the funds in each Deposit
Account and to collect, withdraw and receive all amounts due or to become due or
payable under each such Deposit Account. Upon the occurrence and during the
continuation of any Event of Default hereunder, Debtor shall, upon Secured
Party's demand, promptly assemble the Collateral and make it available to
Secured Party at a place designated by Secured Party. If Secured Party exercises
its right to take possession of the Collateral, Debtor shall also at its expense
perform any and all other steps requested by Secured Party to preserve and
protect the security interest hereby granted in the Collateral, such as placing
and maintaining signs indicating the security interest of Secured Party,
appointing overseers for the Collateral and maintaining Collateral records.
(c) Without in any way limiting the foregoing, and in addition to and
not in limitation of the pledges referred to in Section 7 hereof, upon the
occurrence and during the continuation of any Event of Default at any time when
any Obligation is, or has been declared to be, due and payable, all rights of
Debtor to exercise the voting and/or consensual powers which it is entitled to
exercise pursuant to Section 7(a)(i) hereof and/or to receive and retain the
distributions which it is entitled to receive and retain pursuant to Section
7(a)(ii) hereof, shall, at the option of Secured Party, cease and thereupon
become vested in Secured Party, which, in addition to all
-13-
other rights provided herein or by law, shall then be entitled solely and
exclusively to exercise all voting and other consensual powers pertaining to the
Investment Property (including, without limitation, the right to deliver notice
of control with respect to any Investment Property held in a securities account
or commodity account) and deliver all entitlement orders with respect thereto
and/or to receive and retain the distributions which Debtor would otherwise have
been authorized to retain pursuant to Section 7(a)(ii) hereof and shall then be
entitled solely and exclusively to exercise any and all rights of conversion,
exchange or subscription or any other rights, privileges or options pertaining
to any Investment Property as if Secured Party were the absolute owner thereof
including, without limitation, the rights to exchange, at its discretion, any
and all of the Investment Property upon the merger, consolidation,
reorganization, recapitalization or other readjustment of the respective issuer
thereof or upon the exercise by or on behalf of any such issuer or Secured Party
of any right, privilege or option pertaining to any Investment Property and, in
connection therewith, to deposit and deliver any and all of the Investment
Property with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as Secured Party may determine.
(d) Without in any way limiting the foregoing, Debtor hereby grants to
Secured Party a royalty-free irrevocable license and right to use all of
Debtor's patents, patent applications, patent licenses, trademarks, trademark
registrations, trademark licenses, trade names, trade styles, and similar
intangibles in connection with any foreclosure or other realization by Secured
Party on all or any part of the Collateral to the extent permitted by law (to
the extent not prohibited by the terms of the contracts creating Debtor's rights
in the foregoing). The license and right granted Secured Party hereby shall be
without any royalty or fee or charge whatsoever.
(e) Failure by Secured Party to exercise any right, remedy or option
under this Agreement or any other document, agreement or instrument between
Debtor and Secured Party or provided by law, or delay by Secured Party in
exercising the same, shall not operate as a waiver; and no waiver 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.
Neither Secured Party, nor any party acting as attorney for Secured Party, shall
be liable hereunder for any acts or omissions or for any error of judgment or
mistake of fact or law other than and to the extent of their gross negligence or
willful misconduct. The rights and remedies of Secured Party under this
Agreement shall be cumulative and not exclusive of any other right or remedy
which Secured Party may have.
(f) Supremacy Clause. By its acceptance hereof, Secured Party
acknowledges that its rights and remedies hereunder are subject to the Senior
Loan, as set forth in the Intercreditor Agreement.
10. APPLICATION OF PROCEEDS. The proceeds of the Collateral at any time received
by Secured Party upon the occurrence and during the continuation of any Event of
Default shall, when received by Secured Party in cash or its equivalent, be
applied by Secured Party in reduction of, or held as collateral security for,
the Obligations, in the order set forth in the Loan Agreement. Debtor shall
remain liable to Secured Party for any deficiency. Any surplus remaining after
the full payment and satisfaction of the Obligations shall be returned to
Secured Party or to whomsoever it designates.
-14-
11. CONTINUING AGREEMENT. This Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect until all of the
Obligations, both for principal and interest, have been fully and indefeasibly
paid and satisfied. Upon such termination of this Agreement, Secured Party
shall, upon the request and at the expense of Debtor, forthwith release its
security interest hereunder.
12. MISCELLANEOUS.
(a) This Agreement cannot be changed or terminated orally. This
Agreement shall create a continuing Lien on the Collateral and shall be binding
upon Debtor, its successors and assigns and shall inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors and permitted assigns; provided, however, that Debtor may not
assign its rights or delegate its duties hereunder without Secured Party's prior
written consent, which may be withheld in Secured Party's sole discretion.
Without limiting the generality of the foregoing, and subject to the provisions
of any document, agreement or instrument between Debtor and Secured Party,
Secured Party may assign or otherwise transfer any indebtedness held by it
secured by this Agreement to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to such
Secured Party herein or otherwise.
(b) Any notice, report, demand, approval or other instrument authorized
or required by this Agreement to be given or furnished shall be in writing and
shall be deemed given or furnished when given or furnished as set forth in the
Loan Agreement.
(c) In the event that any provision hereof shall be deemed to be
invalid or unenforceable by reason of the operation of any law or by reason of
the interpretation placed thereon by any court, this Agreement shall be
construed as not containing such provision, but only as to such jurisdictions
where such law or interpretation is operative, and the invalidity or
unenforceability of such provision shall not affect the validity of any
remaining provisions hereof, and any and all other provisions hereof which are
otherwise lawful and valid shall remain in full force and effect.
(d) The Lien herein created and provided for stand as direct and
primary security for the Obligations arising under or otherwise relating to the
Guaranty and any of the other Obligations secured hereby. Debtor acknowledges
that the Lien hereby created and provided are absolute and unconditional and
shall not in any manner be affected or impaired by any acts of omissions
whatsoever of Secured Party or any other holder of any Obligations, and without
limiting the generality of the foregoing, the Lien hereunder shall not be
impaired by any acceptance by Secured Party of any other security for (or
guarantors upon) any of the Obligations or by any failure, neglect or omission
on the part of Secured Party or any other holder of any Obligations to realize
upon or protect any of the Obligations or any collateral or security therefor
(including, without limitation, impairment of collateral or failure to perfect
security interest in collateral). The Lien granted herein shall not in any
manner be impaired or affected by (and Secured Party, without notice to anyone,
is hereby authorized to make from time to time) any surrender, compromise,
settlement, release, renewal, extension, indulgence, alteration, substitution,
exchange, change in or modification, or any pledge, sale or other disposition of
any of the Obligations or of any collateral or security therefor, or of any
guaranty thereof, or of any instrument or agreement setting forth the terms and
conditions pertaining to any of the foregoing
-15-
until the Obligations have been fully paid and satisfied. Furthermore, all of
the waivers set forth in the Guaranty are hereby incorporated herein by
reference. In order to realize hereon and to exercise the rights granted Secured
Party hereunder and under applicable law, there shall be no obligation on the
part of Secured Party or any other holder of any Obligations at any time to
first resort for payment to resort to any particular collateral, security,
property, Liens or any other rights or remedies whatsoever, or any guaranty, and
Secured Party shall have the right to enforce this Agreement against Debtor or
any of its Collateral irrespective of whether or not other proceedings or steps
seeking resort to or realization upon or from any of the foregoing are pending.
(e) This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each
constituting an original, but all together one and the same agreement.
(f) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New YORK, without regard to conflicts of laws
principles (other than Section 5-1401 of the New York General Obligation Laws).
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning of any provision hereof.
(g) Jurisdiction; Waiver of Jury Trial; etc.
i. All disputes arising out of or relating to this Agreement
and all actions to enforce this Agreement shall be adjudicated in the
State courts of New York or the federal courts sitting in the City of
New York, or the courts of the District of Montreal and Province of
Quebec (and for purposes of any action in Canada, Section 2(k) to
Schedule I to the Loan Agreement is hereby incorporated herein by
reference) and Debtor and (by its acceptance hereof) Secured Party each
hereby irrevocably submits to the jurisdiction of such courts in any
suit, action or proceeding arising out of or relating to this Agreement
or in any action to enforce this Agreement. So far as is permitted
under applicable law, this consent to personal jurisdiction shall be
self-operative and no further instrument or action, other than service
of process in one of the manners specified in this section, or as
otherwise permitted by law, shall be necessary in order to confer
jurisdiction over Debtor and/or Secured Party in any such court.
ii. Provided that service of process is effected upon Debtor
or Secured Party in one of the manners hereafter specified or as
otherwise permitted by law, Debtor and (by its acceptance hereof)
Secured Party irrevocably waives, to the fullest extent permitted by
law, and agrees not to assert, by way of motion, as a defense or
otherwise (i) any objection which it may have or may hereafter have to
the laying of the venue of any such suit, action or proceeding brought
in any court which is mentioned in this section or (ii) any claim that
any such suit, action or proceeding brought in such a court has been
brought in an inconvenient forum. Provided that service of process is
effected upon Debtor in one of the manners specified in this section or
as otherwise permitted by law, Debtor agrees that any final judgment
from which Debtor has not or may not appeal or further appeal in any
such suit, action or proceeding brought in such a
-16-
court shall be conclusive and binding upon Debtor and may, so far as is
permitted under the applicable law, be enforced in any domestic or
foreign courts to the jurisdiction of which Debtor is subject.
iii. Debtor and (by its acceptance hereof) Secured Party
hereby consents to process being served in any suit, action or
proceeding relating to this Agreement either by (i) the mailing of a
copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to Debtor and Secured Party, as applicable, at the
address referenced in Section 12(b) hereof or (ii) personal delivery of
a copy thereof to Debtor and Secured Party, as applicable, on a
Business Day at the address referenced in Section 12(b) hereof.
iv. Nothing in this Section shall affect the right of Secured
Party or Debtor to serve process in any manner permitted by law or
limit the right of Secured Party pursuant to applicable law to bring
proceedings against the other in the courts of any jurisdiction or
jurisdictions.
v. DEBTOR AND, BY ITS ACCEPTANCE HEREOF, SECURED PARTY HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
[The remainder of this page intentionally left blank.]
-17-
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement
to be duly executed and delivered as of the date first above written.
DEBTOR:
ADSERO CORP.
By: /s/ Xxxxxxx Xxxxx
-----------------
Name: Xxxxxxx Xxxxx
Title:
-18-
SCHEDULE A
CORPORATE INFORMATION/ LOCATIONS
NAME OF DEBTOR,
FEDERAL TAX I.D.
NUMBER, AND
STATE ADDITIONAL
IDENTIFICATION CHIEF EXECUTIVE PLACE OF JURISDICTION OF
NUMBER) OFFICE BUSINESS ORGANIZATION
------------------ ----------------------- ---------- ---------------
ADSERO CORP. 0000 Xxxxxxxxxx Xxxxxx,
XXX: 00-0000000 Xxxxx 000, Xxxxxxxxxxx,
Xxxxxxxx Xxxx. Xx. Xxxxxxx
0000000 X0X 0X0 Delaware
-19-
SCHEDULE B
INTELLECTUAL PROPERTY RIGHTS
NONE
-20-
