Security Agreement
This Security Agreement ("Agreement") is made and entered into between
Soy Environmental Products, Inc., a Delaware corporation, and its wholly-owned
subsidiary, Delta Environmental, Inc., a Delaware corporation (collectively
"Debtor"), and Fox & Company Investments, Inc. or its nominee ("Secured Party")
effective as of July 3, 1997.
1. Grant of Security Interest. Subject to the terms and conditions of
this Agreement, Debtor, for consideration, and to secure the full and prompt
payment, observance and performance when due of all present and future
obligations and indebtedness of Debtor to Secured Party, whether at the stated
time, by acceleration or otherwise, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, whether or not of the same
or similar class or of like kind to any indebtedness incurred contemporaneously
with the execution of this Agreement, and whether now or hereafter existing, or
due or to become due, and whether such indebtedness from time to time is reduced
and thereafter increased, or entirely extinguished and thereafter reincurred,
including without limitation, the following:
(a) Any and all amounts owed by Debtor under, in connection
with, and/or pursuant to the indebtedness evidenced by that certain
Note Agreement of even date herewith, providing for the issuance from
time to time of up to $900,000 original principal amount of Notes
("Notes"), with interest thereon according to the provisions thereof,
and all obligations thereunder, in connection therewith and/or pursuant
to any and all agreements and other documents in connection therewith;
and
(b) All sums advanced or expenses or costs paid or incurred
(including without limitation reasonable attorneys' fees and other
legal expenses) by Secured Party pursuant to or in connection with the
Notes or any other agreements and documents in connection therewith
plus applicable interest on such sums, expenses or costs; and
(c) Any extensions, modifications, changes, substitutions,
restatements, renewals or increases or decreases of any or all of the
indebtedness referenced above; and
(d) Any and all other indebtedness, obligations and
liabilities of any kind, of Debtor to Secured Party, now or hereafter
existing, absolute or contingent, joint and/or several, due or not due,
secured or unsecured, arising by operation of law or otherwise, direct
or indirect, including without limitation indebtedness, obligations and
liabilities of Debtor to Secured Party as a member of any partnership,
syndicate or association or other group and whether incurred by Debtor
as principal, surety, endorser, guarantor, accommodation party or
otherwise, and any obligations which give rise to an equitable remedy
for breach of performance if such breach gives rise to an obligation by
Debtor to pay Secured Party;
hereby grants to Secured Party a security interest in the collateral described
in Exhibit A to this Agreement and made a part hereof (hereinafter collectively
called the "Collateral"). The grant of this security interest in and to the
Collateral is for the benefit of all holders of the Notes and the rights
hereunder shall be exercised on behalf of such holders by Secured Party under
the terms of the Note Agreement.
2. Representations, Warranties and Covenants of Debtor. Debtor
expressly represents, warrants and covenants as follows:
(a) The address appearing with Debtor's signature below is the address
of Debtor's chief executive office. The Collateral shall be located at Debtor's
address appearing below.
(b) Debtor shall keep the records concerning the Collateral and
concerning accounts, general intangibles, mobile goods and contract rights at
the address appearing below.
(c) Debtor will give Secured Party 60 days prior written notice of any
change in (i) Debtor's chief executive office or (ii) the ownership of Debtor's
business, (iii) the principals responsible for the management of Debtor's
business, (iv) Debtor's corporate structure or identity, or (v) Debtor's name or
trade name, or prior to commencing to use an assumed name not set forth in this
Agreement.
(d) If any of the Collateral is to be or has been attached to real
estate, the legal description of the real estate is attached to this Agreement
as Exhibit B and made a part hereof.
(e) If Debtor does not have a record interest in the real estate
described above, the record owner is indicated on the attached Exhibit B.
(f) Without the prior written consent of Secured Party, Debtor will not
move, sell, lease, permit any encumbrance on or otherwise dispose of the
Collateral, other than its inventory in the ordinary course of its business.
Debtor represents and warrants that Debtor is the sole owner of the Collateral,
free and clear of all liens, charges, interests, and encumbrances, other than in
favor of Secured Party, that no other person or other entity has any interest in
the Collateral whatsoever, and that Debtor will defend same against all adverse
claims and demands.
(g) Debtor will keep the Collateral insured by such companies, in such
amounts and against such risks as shall be acceptable to Secured Party, with
loss payable and additional insured clauses in favor of Secured Party as are
satisfactory to Secured Party. Debtor will deposit such insurance policies with
Secured Party. Debtor hereby assigns to Secured Party and grants to Secured
Party a security interest in any return of unearned premium due upon
cancellation of any such insurance and directs the insurer thereunder to pay to
Secured Party all amounts so due. All amounts received by Secured Party in
payment of insurance losses or return of unearned premium may, at Secured
Party's option, be applied to the indebtedness by Secured Party, or all or any
part thereof may be used for the purpose of repairing, replacing or restoring
the Collateral. If Debtor
2
fails to maintain satisfactory insurance, Secured Party shall have the option,
but not the obligation, to obtain such insurance in such amounts as Secured
Party deems necessary, and Debtor agrees to repay, with interest at the highest
rate applicable to any indebtedness which this Agreement secures, all amounts so
expended by Secured Party.
(h) Debtor represents and warrants to Secured Party that all financial
statements and credit applications delivered by Debtor to Secured Party
accurately reflect the financial condition and operations of Debtor at the times
and for the periods therein stated. So long as this Agreement is in force and
effect, Debtor agrees to deliver the following information to Secured Party:
1. Within sixty days after the end of each quarterly fiscal
period (beginning September 30, 1997), the Debtor shall furnish to
Secured Party a copy of:
(i) consolidated balance sheets of Debtor and its
subsidiaries as of the close of such quarterly fiscal period,
and
(ii) consolidated statements of income and
consolidated statement of cash flows of Debtor and its
subsidiaries for such quarterly fiscal period and for the
portion of the fiscal year ending with such period,
2. Within 120 days after the end of each fiscal year of
Debtor, Debtor shall furnish to Secured Party:
(i) audited consolidated balance sheets of Debtor and
its subsidiaries as of the close of such fiscal year, and
(ii) audited consolidated statements of income,
audited consolidated statements of stockholders' equity and
audited consolidated statement of cash flows of Debtor and its
subsidiaries for such fiscal year.
All financial information shall be prepared in accordance with generally
accepted accounting principles. Concurrently with the submission of required
financial information, Debtor shall also submit a certificate of its president
or chief financial officer to the effect that such officer is not aware of any
condition or event that constitutes a default under this Agreement or a default
under any agreement to which Debtor is a party, or under any notes or other
obligations of Debtor or which, with the mere passage of time or notice, or
both, would constitute a default under this Agreement or a default under any
such agreement or under any notes or other obligations of Debtor.
(i) Secured Party shall not be deemed to have waived any of its rights
in any Collateral unless such waiver is in writing and signed by an authorized
representative of Secured Party. No delay or omission by Secured Party in
exercising any of Secured Party's rights shall operate as a waiver thereof or of
any other rights. Secured Party shall have, in addition to all other rights and
3
remedies provided by this Agreement or applicable law, the rights and remedies
of a secured party under the Uniform Commercial Code.
(j) Debtor will maintain the Collateral in good condition and repair
and will pay promptly all taxes, levies, and encumbrances and all repair,
maintenance and preservation costs pertaining to the Collateral. If Debtor fails
to make such payments, Secured Party shall have the option, but not the
obligation, to pay the same and Debtor agrees to repay, with interest at the
highest rate applicable to any indebtedness which this Agreement secures, all
amounts so expended by Secured Party. Debtor will at any time and from time to
time, upon request of Secured Party, give any representative of Secured Party
access during normal business hours to inspect the Collateral or the books and
records thereof.
(k) Debtor agrees to pay to Secured Party on demand all expenses,
including reasonable attorney fees and expenses, incurred by Secured Party in
protecting or enforcing its rights in the Collateral or otherwise under this
Agreement. After deducting all said expenses, the remainder of any proceeds of
sale or other disposition of the Collateral shall be applied to the indebtedness
due Secured Party in such order of preference as Secured Party shall determine.
(l) Debtor hereby agrees to faithfully preserve and protect Secured
Party's security interest in the Collateral at all times, and further agrees to
execute and deliver, from time to time, any and all further or other documents,
instruments, continuation statements and perform or refrain from performing such
acts, as Secured Party may reasonably request to effect the purposes of this
Agreement and to secure to Secured Party the benefits of all the rights,
authorities and remedies conferred upon Secured Party by the terms of this
Agreement. Debtor shall permit, or cause to be permitted, at Debtor's expense,
representatives of Secured Party to inspect and make copies of the books and
records of Debtor relating to the Collateral at any reasonable time or times
upon prior notice.
3. Defaults. The occurrence of any of the following events shall
constitute a default hereunder:
(a) The failure of Debtor to make any payment when due on any
indebtedness to Secured Party whether pursuant to the Note or any other
obligation to Secured Party, or a default in any provision of the Note
or any other agreement or document secured hereby or any other
encumbrance or agreement securing the Note;
(b) The breach of or failure to perform promptly any
obligation or covenant set forth in this Agreement, the Note or any
other agreement secured hereby or securing the Note;
(c) The suspension of business, insolvency, failure generally
to pay debts as they became due, or the commission of any act
constituting or resulting in a business failure, in each case on the
part of Debtor's business; the concealment or removal of any
4
substantial portion of Debtor's property with the intent to hinder,
delay or defraud any one or more creditors, or the making of any other
transfer which is fraudulent or otherwise voidable under the Bankruptcy
Code or other applicable federal or state law; the existence or
creation of any lien, including without limitation any tax or judgment
lien, upon the Collateral or any substantial part of Debtor's property;
an assignment for the benefit of creditors; the commencement of any
proceedings by or against Debtor (under the Bankruptcy Code or
otherwise) seeking to adjudicate it bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or seeking the appointment of a
receiver, trustee or custodian for Debtor or for the Collateral or a
substantial part of the property of Debtor; or the institution by
Debtor or any other person or entity of any liquidation, dissolution or
reorganization proceedings with respect to Debtor;
(d) The failure to effectively and promptly discharge, stay or
indemnify against, to Secured Party's satisfaction, any lien or
attachment against any of Debtor's property or the Collateral;
(e) Any representation or warranty contained herein or in any
other document delivered by or on behalf of Debtor to Secured Party
shall be false or misleading when made;
(f) The occurrence of any default or event of default under
any other document or agreement securing or guaranteeing any of the
obligations secured by the Agreement; or the occurrence of any default
or event of default due to any material indebtedness or obligation of
Debtor to any third party that causes such third party to declare such
indebtedness or other obligation due prior to its scheduled date of
maturity; or
(g) The occurrence of any default or event of default under or
with respect to any obligation of Debtor to any affiliate of Secured
Party. For the purposes of this subparagraph, "affiliate" shall have
the meaning set forth in the Note Agreement.
4. Remedies.
(a) Upon the occurrence of any default under this Agreement, Secured
Party is authorized in its discretion to declare any or all of the indebtedness
to be immediately due and payable without demand or notice to Debtor, and may
exercise any one or more of the rights and remedies granted pursuant to this
Agreement or given to a secured party under applicable law, including without
limitation the Uniform Commercial Code, such rights and remedies to include
without limitation the right to take possession and sell, lease or otherwise
dispose of the Collateral. If reasonable notice of any disposition of Collateral
or other enforcement is required, such requirement will be met if such notice is
mailed, postage pre-paid, to the address of Debtor shown below Debtor's
signature on this Agreement at least 15 days prior to the time of disposition or
5
other enforcement. Debtor agrees that upon demand by Secured Party after
default, Debtor will promptly assemble the Collateral and make the Collateral
available to Secured Party at a place convenient to Secured Party.
(b) Debtor agrees that all of the Collateral and all of the other
security which may be granted to Secured Party in connection with the
obligations secured hereby constitute equal security for all of the obligations
secured hereby, and agrees that Secured Party shall be entitled to sell, retain
or otherwise deal with any or all of the Collateral, in any order or
simultaneously as Secured Party shall determine in its sole and absolute
discretion, free of any requirement for the marshaling of assets or other
restriction upon Secured Party in dealing with the Collateral or such other
security.
(c) Upon the occurrence of any default under this Agreement, Debtor
hereby irrevocably constitute and appoints Secured Party (and any employee or
agent of Secured Party) as Debtor's true and lawful attorney-in-fact with full
power of substitution, in Secured Party's name or Debtor's name or otherwise,
for Secured Party's sole use and benefit, at Debtor's cost and expense, to
exercise the following powers with respect to the Collateral:
1. To demand, xxx for collection, receive, and give
acquittance for any and all monies due or owing with respect to the
Collateral;
2. To receive, take, endorse Debtor's name on, assign and
deliver any checks, notes, drafts, documents or other instruments taken
or received by Secured Party in connection with the Collateral;
3. To settle, compromise, prosecute, or defend any action or
proceeding with respect to the Collateral;
4. To sell, transfer, assign or otherwise deal in or with the
Collateral or the proceeds thereof, as fully as if Secured Party were
the absolute owner thereof.
5. To sign Debtor's name to and file financing statements or
such other documents and instruments as Secured Party may deem
appropriate.
6. To take any and all action that Secured Party deems
necessary or proper to preserve its interest in the Collateral,
including without limitation, the payment of debts of Debtor that might
impair the Collateral or Secured Party's security interest therein, the
purchase of insurance on the Collateral, the repair or safeguard of the
Collateral, or the payment of taxes thereon.
7. To notify account debtors of Secured Party's security
interest in Debtor's accounts and to instruct them to make payment
directly to Secured Party.
6
(d) Debtor agrees that the powers of attorney granted herein are
coupled with an interest and shall be irrevocable until full, final and
irrevocable payment and performance of the indebtedness secured hereby; and that
neither Secured Party nor any officer, director, employee or agent of Secured
Party shall be liable for any act or omission, or for any mistake or error of
judgment, in connection with any such powers.
(e) Notwithstanding the foregoing, Secured Party shall be under no duty
to exercise any such powers, or to collect any amount due on the Collateral, to
realize on the Collateral, to keep the Collateral, to make any presentment,
demand or notice of protest in connection with the Collateral, or to perform any
other act relating to the enforcement, collection or protection of the
Collateral.
(f) This Agreement shall not prejudice the right of Secured Party at
its option to enforce the collection of any indebtedness secured hereby or any
other instrument executed in connection with this transaction, by suit or in any
other lawful manner. No right or remedy is intended to be exclusive of any other
right or remedy, but every such right or remedy shall be cumulative to every
other right or remedy herein or conferred in any other agreement or document for
the benefit of Secured Party, or now or hereafter existing at law or in equity.
5. Miscellaneous.
(a) This Agreement and the security interest in the Collateral created
hereby shall terminate when the indebtedness has been fully, finally and
irrevocably paid and all other obligations of Debtor to Secured Party have been
performed in full. Prior to such termination, this shall be a continuing
agreement.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ARIZONA IN ALL RESPECTS, INCLUDING MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE EXTENT THE LAWS OF ANOTHER
JURISDICTION ARE MANDATORILY APPLICABLE. DEBTOR CONSENTS TO THE NON-EXCLUSIVE
PERSONAL JURISDICTION OF THE COURTS OF THE STATE OF ARIZONA, AND THE FEDERAL
COURTS LOCATED IN ARIZONA, SO THAT SECURED PARTY MAY XXX DEBTOR IN ARIZONA TO
ENFORCE THIS AGREEMENT. DEBTOR AGREES NOT TO CLAIM THAT ARIZONA IS AN
INCONVENIENT PLACE FOR TRIAL. AT SECURED PARTY'S OPTION, THE VENUE (LOCATION) OF
ANY SUIT TO ENFORCE THIS AGREEMENT MAY BE IN MARICOPA COUNTY, ARIZONA. DEBTOR
HEREBY IRREVOCABLY AGREES AND CONSENTS THAT, IN ADDITION TO ANY METHODS OF
SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN
ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, DIRECTED TO DEBTOR AT THE ADDRESS PROVIDED FOR NOTICES
UNDER THIS AGREEMENT.
7
(c) This Agreement shall inure to the benefit of Secured Party, its
successors and assigns and to any other holder who derives from Secured Party
title to or an interest in the indebtedness which this Agreement secures, and
shall be binding upon Debtor, its successors and assigns.
(d) In case any one or more of the provisions of this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had not been included.
(e) Any provision to the contrary notwithstanding contained herein or
in the Note or in any other instrument now or hereafter evidencing, securing or
otherwise relating to any secured indebtedness, neither Secured Party nor any
other holder of the secured indebtedness shall be entitled to receive or
collect, nor shall Debtor be obligated to pay, interest on any of the secured
indebtedness in excess of the maximum rate of interest at the particular time in
question, if any, which, under applicable law, may be charged to Debtor (herein
the "Maximum Rate"), provided that the Maximum Rate shall be automatically
increased or decreased, as the case may be, without notice to Debtor from time
to time as of the effective time of each change in the Maximum Rate, and if any
provision herein or in the Note or in such other instrument shall ever be
construed or held to permit the collection or to require the payment of any
amount of interest in excess of that permitted by applicable law, the provisions
of this paragraph shall control and shall override any contrary or inconsistent
provision herein or in the Note or in such other instrument. The intention of
the parties being to conform strictly to the usury limitations under applicable
law. The Note, this Agreement, and each other instrument now or hereafter
evidencing or relating to any secured indebtedness shall be held subject to
reduction to the amount allowed under said applicable law as now or hereafter
construed by the courts having jurisdiction.
(f) All notices pursuant to this Security Agreement shall be in writing
and shall be directed to the addresses set forth below or such other address as
may be specified in writing, by certified or registered mail, return receipt
requested by the party to which or whom notices are to be given. Notices shall
be deemed to be given three days after mailing by depositing same in any United
States post office station or letter box in a post-paid envelope.
(g) The singular used herein shall include the plural.
(h) If more than one party shall execute this Agreement as "Debtor,"
the term "Debtor" shall mean all such parties executing this Agreement, and all
such parties shall be jointly and severally obligated hereunder.
(i) A photocopy or other reproduction of this Agreement or of any
financing statement is sufficient as a financing statement and may be filed as a
financing statement in any government office.
8
In Witness Whereof, the undersigned have executed this Agreement as of
the date first written above.
Debtor:
Soy Environmental Products, Inc., a
Delaware corporation
By____________________________
Its___________________________
Address of Debtor:
0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Delta Environmental, Inc., a
Delaware corporation
By____________________________
Its___________________________
Address of Debtor:
0000 Xxxxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxx 00000
Secured Party:
Fox & Company Investments, Inc.
By____________________________
9
Its___________________________
Address of Secured Party:
0000 Xxxxx 00xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
10
Exhibit A
All Property
This is Exhibit A to the Security Agreement dated July 3, 1997, between Secured
Party and Debtor. The collateral covered by this financing statement consists of
the Debtor's interest in all of the following property, whether in all cases
whether now owned or hereafter owned, presently existing or hereafter created,
acquired or arising, and wherever located:
(A) All accounts, contract rights, chattel paper, instruments
(including certificated securities), letters of credit and
documents;
(B) All stock, partnership interests, membership interests or
other evidence of ownership of any entity including
specifically, any interest in Interwest, L.L.C. an Iowa
limited liability company
(C) All inventory, including without limitation: all goods
intended for sale or lease by the Debtor, or for display or
demonstration; all work in process; all raw materials and
other materials and supplies of every nature and description
used or which might be used in connection with the
manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used
or consumed in the Debtor's business; and all documents
evidencing and general intangibles relating to any of the
foregoing (referred to collectively as "Inventory");
(D) All equipment, machinery, apparatus, fittings, furniture,
fixtures, motor vehicles and other tangible personal property
(other than inventory) of every kind and description owned by
the Debtor or in which the Debtor has an interest, and all
parts, accessories and special tools, including, but not
limited to, the equipment listed on Schedule 1 attached
hereto;
(E) All general intangibles, including without limitation: all
choses in action, causes of action, corporate or other
business records, deposit accounts, inventions, designs,
patents, patent applications, formulas, processes, trademarks,
trademark applications, trade names, trade secrets, goodwill,
copyrights, copyright applications, registration, licenses,
franchises, customer lists, tax refund, refund claims, and
computer programs; all claims under guaranties, security
interests or other security held by or granted to the Debtor
to secure payment of any obligation
11
owed to the Debtor; all rights to indemnification; and all
other intangible property of every kind and nature (other than
accounts);
(F) All monies and other property of any kind, now or at any time
or times hereafter, in the possession or under the control of
the Secured Party or a bailee of the Secured Party;
(G) All accessions to, substitutions for, and all replacements,
products and cash and non-cash proceeds of (A), (B), (C), (D)
and (E), above, including, without limitation, proceeds of,
unearned premiums with respect to insurance policies insuring
any of such property or interest; and
(H) All books and records (including, without limitation, customer
lists, credit files, computer programs, print-outs, and other
computer materials and records) of the Debtor pertaining to
any of (A), (B), (C), (D), (E) or (F), above.
12
Exhibit B
Description of Real Property
Leased by Debtor
This is Exhibit B to the Security Agreement dated July __, 1997, between Secured
Party and Debtor.
Real Property Leased by Debtor is located at:
Owner of the Leased Real Property:
13
