SECURITY AGREEMENT
Exhibit
10.3
This Security Agreement is entered into
as of July ____, 2008, by and between a21, Inc. a Delaware Corporation
(“Debtor”), with a principal place of business at 0000 Xxxxxxxxx Xxxxxxx,
Xxxxxxxxxxxx, Xxxxxxx 00000, and APPLEJACK ART PARTNERS, INC., a Vermont
Corporation with a principal place of business in Sunderland, Vermont (“Secured
Party”).
1. Grant of Security
Interest. Debtor hereby grants to Secured Party, for itself and each of
the Noteholders, a continuing lien on and security interest in the property
described or referred to in Paragraph 2 below (collectively, the “Collateral”)
to secure prompt payment and full performance of the liabilities described in
Paragraph 3 below (collectively, the “Liabilities”).
2. Collateral. The
Collateral consists of all personal property and assets now or hereafter owned
by Debtor or in which Debtor otherwise has any rights, whether now existing or
hereafter arising, including but not limited to the following: (a) all accounts,
contract rights and general intangibles, receivables and claims of Debtor
whether now or hereafter arising, all guaranties and security therefor and all
of Debtor’s right, title and interest in the goods purchased and represented
thereby including all of Debtor’s rights in and to returned goods and rights of
stoppage in transit, replevin and reclamation as unpaid vendor; (b) all chattel
paper including electronic chattel paper and tangible chattel paper; (c) all
documents and instruments including but not limited to, promissory notes
(together with all property securing such documents and instruments); (d) all
letters of credit and letter-of-credit rights; (e) all supporting obligations;
(f) all deposit accounts; (g) all investment property and financial assets; (h)
all inventory and all accessions thereto and products thereof and documents
therefor; (i) all furniture, fixtures, equipment and machinery, wherever located
and whether now or hereafter existing, and all parts thereof, accessions
thereto, and replacements therefor and all documents and general intangibles
covering or relating thereto; (j) all general intangibles (including but not
limited to, all payment intangibles); (k) all books and records pertaining to
the foregoing, including but not limited to computer programs, data,
certificates, records, circulation lists, subscriber lists, advertiser lists,
supplier lists, customer lists, customer and supplier contracts, sales orders,
and purchasing records; (l) all commercial tort claims; and (m) all proceeds of
the foregoing, including without limitation proceeds of insurance
policies.
3. Liabilities. The
liabilities (“Liabilities”) secured under this Security Agreement are all debts,
liabilities and obligations of Debtor to Secured Party under the Promissory Note
dated July ____, 2008 (as amended, restated, supplemented or modified from time
to time, the “Note”) and any and all amendments, replacements, modifications and
supplements thereto, and this Security Agreement.
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4.
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Covenants of
Debtor. Until the Liabilities are paid in full, Debtor agrees that
it shall:
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a) not sell
or otherwise dispose of the Collateral except in the ordinary course of
business;
b) except
for liens which come into being by operation of law, not create, incur, assume
or permit to exist any liens, encumbrances, security interests, levies,
assessments or charges (collectively, “Liens”) on or in any of the
Collateral;
c) appear in
and defend, at Debtor’s own expense, any action or proceeding which may affect
Debtor’s title to or Secured Party’s interest in the Collateral;
d) procure
or execute and deliver, from time to time, in form and substance satisfactory to
Secured Party in its discretion reasonably exercised, any endorsements,
assignments, financing statements or other writings deemed necessary or
appropriate by Secured Party to perfect, maintain or protect Secured Party’s
security interest in the Collateral and the priority thereof, and take such
other action and deliver such other documents, instruments and agreements
pertaining to the Collateral as Secured Party may reasonably request to
effectuate the intent of this Security Agreement. In addition, Debtor hereby
authorizes Secured Party to file UCC Financing Statements against Debtor
describing the Collateral as “all assets” or the like of Debtor;
e) notify
Secured Party in writing at least thirty (30) days prior to any change in
Debtor’s name, identity or business structure, or any addition or change to the
address of the chief executive office or principal place of business of Debtor
specified in the introductory paragraph hereof and, in connection therewith,
take any and all actions reasonably requested by Secured Party under Section
4(d) above;
f) keep
separate, accurate and complete records of the Collateral ;
g) provide
Secured Party during normal business hours with reasonable access to the
Collateral upon reasonable notice to the Debtor;
h) maintain
and preserve its existence, and all rights, privileges, and other authority
necessary for the conduct of its business the failure of which to maintain or
preserve could reasonably be expected to result in a material adverse effect on
the business or financial condition of the Debtor or on a material portion of
the Collateral; and
i) continue
operations in substantially the same form and structure of business as currently
conducted, and not (x) merge or consolidate with or acquire or be acquired by
any other corporation, partnership, entity or person or (y) incorporate in
another jurisdiction, in any such instance without the prior consent of the
Secured Party.
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5.
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Authorized Action By
Secured Party.
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a) After the
occurrence and during the continuance of any “Event of Default” (as
defined below), Debtor hereby irrevocably appoints Secured Party as its
attorney-in-fact to do (but Secured Party shall not be obligated to and shall
not incur any liability to Debtor or any third party for failure so to do) any
act which Debtor is obligated by this Security Agreement to do, and to exercise
such rights and powers as Debtor might exercise with respect to the Collateral,
including, without limitation, the right to:
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(i)
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collect
by legal proceedings or otherwise and endorse, receive and receipt for all
payments, proceeds and other sums and property now or hereafter payable on
or on account of the Collateral;
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(ii)
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enter
into any extension, deposit or other agreement pertaining to, or deposit,
surrender, accept, hold or apply other property in exchange for, the
Collateral;
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(iii)
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process
and preserve the Collateral; and
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(iv)
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make
any reasonable compromise, settlement or adjustment, and take any action
it deems advisable, with respect to the Collateral upon five Business
Days’ prior written notice to
Debtor.
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b) If Debtor
is not engaging in any act that Debtor is obligated by the Security Agreement to
perform., Debtor agrees to reimburse Secured Party upon demand for any
reasonable costs and expenses, including reasonable attorneys’ fees, Secured
Party may incur while acting as Debtor’s attorney-in-fact hereunder, all of
which costs and expenses are included in the Liabilities secured hereby and are
payable upon demand.
c) It is
further agreed and understood between the parties hereto that such care as
Secured Party gives to the safekeeping of its own property of like kind shall
constitute reasonable care of the Collateral when in Secured Party’s possession;
provided, however, that Secured Party shall not be required to make any
presentment, demand or protest, or give any notice and need not take any action
to preserve any rights against any prior party or any other person in connection
with the Liabilities or with respect to the Collateral.
d) If
Debtor’s records are prepared or retained by a computer service company or any
accountant or accounting service, so long as any Liabilities are outstanding,
Debtor grants Secured Party the absolute and irrevocable right, with reasonable
notice to Debtor, to inspect such records (including Debtor’s internal work
papers), receive duplicate copies of all information furnished to Debtor and
prepared by such company, accountant or accounting service, and agrees to
furnish such consents as may be necessary to effectuate the same. Debtor further
agrees to promptly notify Secured Party of the name and address of such company,
accountant or accounting service and of any change in respect
thereof.
e) All the
foregoing powers authorized herein, being coupled with an interest, are
irrevocable so long as any Liabilities are outstanding.
f) Default. The
occurrence of any of the following events or conditions (herein “Events of Default”)
shall constitute an Event of Default hereunder:
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(i)
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breach,
violation or nonperformance of any covenant on Debtor’s part
hereunder;
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(ii)
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any
Event of Default under and as defined in the
Note.
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Any Event of Default that shall have
occurred hereunder or under the Note at any time shall be deemed continuing
unless such Event of Default is (i) cured, provided that an
Event of Default may only be cured within the time-frame and only if so
expressly permitted under the terms of this Agreement or the Note, as applicable
or (ii) waived in writing by the Secured Party.
6. Remedies. Upon the
occurrence and during the continuation of any Event of Default, Secured Party
may, at its option, with prompt subsequent notice but without demand on Debtor,
declare all Liabilities immediately due and payable, and Secured Party shall
have all the default rights and remedies of a secured party under Article 9 of
the Vermont Uniform Commercial Code (the “UCC”) and other applicable law as well
as the following rights and remedies, all of which may be exercised with or
without further notice to Debtor (other than notices which Debtor is not
permitted to waive under the UCC):
a) to the
extent permitted by law, to notify any and all obligors and account debtors on
the Collateral that the same has been assigned to Secured Party and that all
payments thereon are to be made directly to Secured Party;
b) to
settle, compromise or release, on terms reasonably acceptable to Secured Party,
in whole or in part, any amounts owing on the Collateral, and to extend the time
of payment, make allowances and adjustments and to issue credits in Secured
Party’s name or in the name of Debtor in respect thereof;
c) to sell
or otherwise dispose of the Collateral or any part thereof, for cash, on credit
or otherwise, with or without representations or warranties, and upon such terms
as shall be acceptable to Secured Party;
d) to
require the Debtor to assemble the Collateral and to make it available to the
Secured Party for retrieval/repossession;
e) In the
event the Debtor fails to comply with subsection 6(d) above, to enter any
premises where any Collateral may be located and to take possession of
and
remove
the Collateral, with or without judicial process; to remove from any premises
where the same may be located, any and all documents, instruments, files and
records relating to the Collateral (provided, that
Secured Party agrees to (i) give receipts for such items to Debtor and (ii) use
the same standard of care for such documents, instruments files and records as
Secured Party would use for its own property of a similar nature); provided further, that Secured
Party shall incur no liability with respect to the foregoing subparagraphs (b)
and (c) except in the case of its gross negligence or willful misconduct), and
Secured Party may, at Debtor’s expense, use the supplies and space of Debtor at
its places of business as may be necessary to properly administer and control
the Collateral or the handling of collections and realizations thereon;
and
f) to take
or bring, in Secured Party’s name or in the name of Debtor, all
steps, actions, suits or proceedings deemed by Secured Party necessary or
desirable to effect collection of or to realize upon the
Collateral;
all at
Secured Party’s sole option and as Secured Party in its sole discretion may deem
advisable.
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7.
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Manner of
Sale. Unless the Collateral is perishable or threatens
to decline speedily in value or is of a type customarily sold on a
recognized market, Debtor shall be given ten (10) business days prior
notice of the time and place of any public sale or of the time and place
of any private sale or other intended disposition of Collateral, which
notice Debtor hereby agrees shall be deemed reasonable notice
thereof.
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8.
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Application of
Proceeds of Collateral. The net cash proceeds resulting from the
collection, liquidation, sale or other disposition of the Collateral shall
be applied first to the expenses (including all reasonable attorneys’
fees) of retaking, holding, processing and preparing for sale, selling,
collecting, liquidating and the like, and then to the satisfaction of all
Liabilities secured hereby, application as to any particular obligation or
indebtedness or against principal or interest to be in Secured Party’s
discretion. Debtor shall be liable to Secured Party and shall pay to
Secured Party on demand any deficiency which may remain after such sale,
disposition, collection or liquidation of
Collateral.
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9.
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Cumulative
Rights. The rights, powers and remedies of Secured Party under this
Security Agreement shall be in addition to all rights, powers and remedies
given to Secured Party under any statute or rule of law or any other
document, instrument or agreement, all of which rights, powers and
remedies shall be cumulative and may be exercised successively or
concurrently.
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10.
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Waiver. Any
forbearance, failure or delay by Secured Party in exercising any right,
power or remedy shall not preclude the further exercise thereof, and every
right, power or remedy of Secured Party shall continue in full force and
effect until such right, power or remedy is specifically waived in a
writing executed by Secured Party. Debtor waives any right to require
Secured Party to proceed against any person
or
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to
exhaust any Collateral or to pursue any remedy in Secured Party’s power prior to
pursuing Debtor in respect of the Liabilities.
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11.
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Binding Upon
Successors. All rights of Secured Party under this Security
Agreement shall inure to the benefit of its successors and assigns, and
all obligations of Debtor shall bind the representatives, administrators,
successors and assigns of the Debtor; provided that
Debtor may not transfer or assign its obligations hereunder. Any transfer
or assignment by Debtor in violation of the foregoing shall be null and
void.
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12.
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Entire Agreement;
Severability. This Security Agreement together with the Note
contains the entire security agreement between Secured Party and Debtor
with respect to the Collateral. If any of the provisions of this Security
Agreement shall be held invalid or unenforceable, this Security Agreement
shall be construed as if not containing those provisions and the rights
and obligations of the parties hereto shall be construed and enforced
accordingly.
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13.
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References. The
captions or titles of the paragraphs of this Security Agreement are for
convenience of reference only and shall not define or limit the provisions
hereof.
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14.
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Choice of Law.
This Security Agreement and all matters arising out of or relating hereto
shall be governed by and enforced in accordance with the internal laws of
the State of Vermont, without reference to conflict of law
principles. The parties shall participate in mediation to
attempt to resolve any dispute, controversy or claim that arises in
relation to this Agreement. Any unresolved controversy, claim or dispute
arising out of or in relation to this Agreement, or the breach thereof,
will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment
upon the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof. Any arbitration hearings will be conducted in
Albany, New York.
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15.
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Notice. Any
written notice, consent or other communication provided for in this
Security Agreement shall be given and deemed received as provided in the
Note.
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16.
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Counterparts.
This Security Agreement may be executed in any number of counterparts, and
by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same
instrument.
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The
undersigned have entered into this Security Agreement as of the date first above
written.
SECURED
PARTY: DEBTOR:
APPLEJACK
ART PARTNERS,
INC a21,
INC
By:_______________________________ By:______________________________________
