EXHIBIT 10.3
SECURITY AGREEMENT
This Security Agreement is entered into as of December 29, 2000, by and
among MCSi-CALIFORNIA, INC. (formerly known as "West Lake Acquisition
Corporation"), a Maryland corporation ("MCI"), DIGITAL NETWORKS CORPORATION
(formerly known as "Agoura Hills Corporation"), a Maryland corporation ("DNC")
and MCSi-TEXAS, INC. (formerly known as "MCSi-IG-PV, Inc."), a Texas corporation
("MTI") (each a "Guarantor" and collectively, "Guarantors"), with an address for
notices at c/o MCSi, Inc., 0000 Xxxxxxxxx Xxxxxxx Xxxxx, Xxxxxx, Xxxx 00000, and
ZENGINE, INC. ("Secured Party"), located at 0000 Xxxxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxxxx 00000.
1. GRANT OF SECURITY INTEREST. MCI, DNC and MTI (the "Borrower") have
borrowed $8,500,000.00 from Secured Party in order to facilitate the purchase by
them of certain assets of the Intellisys Group, Inc. In order to secure such
loan, each Guarantor hereby grants to Secured Party 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 of Guarantors' now owned
and hereafter acquired accounts, inventory, equipment, fixtures, contract
rights, general intangibles, chattel paper, instruments, documents, and other
personal property; including without limitation, the property described below
and the proceeds and products thereof:
(a) all goods of Guarantors, including without limitation, machinery,
equipment, furniture, furnishings, fixtures, tools, parts, supplies and motor
vehicles of every kind and description and all improvements thereto which the
Guarantors now own or in which Guarantors may have or may hereafter acquire any
interest, together with all customer lists and records of Guarantors' business;
(b) all inventory of Guarantors, including, but not limited to, all
merchandise, raw materials, parts, supplies, work in process, and finished
products intended for sale, of every kind and description now or at any time
hereafter owned by and in the custody or possession actual or constructive, of
Guarantors, including such inventory as is temporarily out of Guarantors'
custody or possession and including insurance proceeds, resulting from the sale
and disposition of any of the foregoing, including, among other things, but not
limited to, raw materials and merchandise, materials, parts, supplies, work in
process, inventories and finished products intended for sale by Guarantors
including inventory temporarily removed from said premises and items in transit;
(c) all contract rights and general intangibles of Guarantors,
including without limitation, goodwill, trademarks, trade styles, trade names,
patents, patent applications, copyrights, bank deposits, deposit accounts,
income tax refunds and property in the possession, deposited with or under the
control of Secured Party or any of its affiliates;
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(d) all present and future accounts, accounts receivable and other
receivables and all books and records relating thereto;
(e) all documents, instruments, deposit accounts, investment property
and chattel paper; and
(f) all the products and proceeds of the foregoing, and any
replacements, additions, accessions, or substitutions thereof, all after
acquired property, all accounts or proceeds arising from the sale or disposition
of any inventory of Guarantors including any returns thereof and including,
where applicable, the proceeds of insurance covering said Collateral or tort
claims in connection with the Collateral;
whether such Collateral shall be presently in existence or whether it shall be
acquired or created by Guarantors at any time hereafter, wherever located, to
remain in force so long as Guarantors are obligated to Secured Party under the
Loan Agreement and/or the Secured Continuing Corporate Guaranties (defined
below).
3. LIABILITIES. The liabilities ("Liabilities") secured under this
Security Agreement are all obligations of the Borrower and the Guarantors to
Secured Party pursuant to that certain Loan Agreement of even date herewith
among the Borrower, Guarantors and Secured Party, and any and all amendments,
replacements, modifications and supplements thereto (the "Loan Agreement") and
all obligations of the Guarantors under each Secured Continuing Corporate
Guaranty.
4. COVENANTS OF GUARANTORS. Until the Liabilities are paid in full, the
Borrower and Guarantors agree that they shall:
(a) not sell or otherwise dispose of the Collateral except for
the sale of inventory in the ordinary course of business and the disposition of
obsolete equipment;
(b) 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, without Secured Party's consent other
than Liens permitted under the Loan Agreement;
(c) appear in and defend, at Guarantors' own expense, any
action or proceeding which may affect Guarantors' 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, 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;
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(e) notify Secured Party in writing at least thirty (30) days
prior to any change in Guarantors' name, identity or business structure, or any
addition or change to the address of Guarantors specified in the introductory
paragraph hereof;
(f) keep separate, accurate and complete records of the
Collateral and provide Secured Party upon prior notice and during normal
business hours with access thereto and to Guarantors' financial records, in each
case with the right to make extracts therefrom as set forth in the Loan
Agreement;
(g) provide Secured Party upon prior notice and during normal
business hours with access to the Collateral, and with such other information as
Secured Party may reasonably request from time to time;
(h) maintain and preserve their existence, and all rights,
privileges, franchises and other authority necessary for the conduct of their
business; and
(i) continue operations in the same form and structure of
business as currently conducted, and not merge or consolidate with or acquire or
be acquired by any other corporation, partnership, entity or person, without
Secured Party's prior written consent.
5. AUTHORIZED ACTION BY SECURED PARTY. (a) After the occurrence and
during the continuance of any "Event of Default" (as defined below) and while it
is continuing, Guarantors hereby irrevocably appoint Secured Party as its
attorney-in-fact to do (but Secured Party shall not be obligated to and shall
not incur any liability to the Borrower or any Guarantor or any third party for
failure so to do) any act which any Guarantor is obligated by this Security
Agreement to do, and to exercise such rights and powers as a Guarantor might
exercise with respect to the Collateral, including, without limitation, the
right to:
(i) 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;
(ii) enter into any extension, deposit or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for, the Collateral;
(iii) process and preserve the Collateral; and
(iv) make any compromise, settlement or adjustment, and take
any action it deems advisable, with respect to the Collateral.
(b) the Borrower and Guarantors agree to reimburse Secured
Party upon demand for any costs and expenses, including reasonable attorneys'
fees, Secured Party may incur while acting as Guarantors' attorney-in-fact
hereunder, all of which costs and expenses
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are included in the Liabilities secured hereby and are payable upon demand, with
interest thereon at the rate then applicable to the obligations of the Borrower
to Secured Party pursuant to the terms of the Loan Agreement.
(c) It is further agreed and understood among 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) After the occurrence of an Event of Default, the Borrower
and Guarantors agree that Secured Party may at any time send verification
requests to any account debtor of the Collateral.
(e) If the Borrower's or Guarantors' records are prepared or
retained by a computer service company or any accountant or accounting service,
so long as any Liabilities are outstanding, the Borrower and Guarantors grant
Secured Party the absolute and irrevocable right, with reasonable prior notice
to the Borrower and Guarantors, to inspect such records (including the
Borrower's and Guarantors' internal work papers), receive duplicate copies of
all information furnished to the Borrower and Guarantors and prepared by such
company, accountant or accounting service, and agrees to furnish such consents
as may be necessary to effectuate the same. The Borrower and Guarantors further
agree to promptly notify Secured Party of the name and address of such company,
accountant or accounting service and of any change in respect thereof.
(f) All the foregoing powers authorized herein, being coupled
with an interest, are irrevocable so long as any Liabilities are outstanding.
Secured Party agrees to be bound by the obligations of confidentiality set forth
in the Loan Agreement.
6. DEFAULT. The occurrence of any of the following events or conditions
(herein "Events of Default") shall constitute an Event of Default hereunder:
(a) any Event of Default under and as defined in the Loan
Agreement;
(b) non-payment of any of the Liabilities as and when due and
payable to Secured Party after giving of any required notice and expiration of
any applicable grace period;
(c) any bankruptcy or other insolvency proceeding is commenced
by Guarantors, or any such proceeding is commenced against Guarantors or the
Borrower and remains undischarged or unstayed for forty-five (45) days; or
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7. 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 the Borrower or Guarantors, declare all Liabilities
immediately due and payable, and Secured Party shall have all the default rights
and remedies of a secured party under Chapter 5 of Division 9 of the California
Uniform Commercial Code and other applicable law as well as the following rights
and remedies, all of which may be exercised with or without further notice to
the Borrower or Guarantors:
(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 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 Guarantors in respect thereof;
(c) to enter any premises where any Collateral may be located
and to take possession of and remove the Collateral, with or without judicial
process;
(d) 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;
(e) to remove from any premises where the same may be located,
any and all documents, instruments, files and records relating to the
Collateral, and Secured Party may, at Guarantors' and the Borrower's expense,
use the supplies and space of the Borrower or any Guarantor at its places of
business as may be necessary to properly administer and control the Collateral
or the handling of collections and realizations thereon;
(f) receive, open and dispose of all mail addressed to
Guarantors and notify postal authorities to change the address for delivery
thereof to such address as Secured Party may designate; and
(g) take or bring, in Secured Party's name or in the name of
the Borrower or Guarantors, 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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8. 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. The Borrower 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.
9. 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.
10. 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. The Borrower and Guarantors waive any
right to require Secured Party to proceed against any person or to exhaust any
Collateral or to pursue any remedy in Secured Party's power prior to pursuing
the Borrower or Guarantors in respect of the Liabilities.
11. SETOFF. The Borrower and Guarantors agree that Secured Party may
exercise its rights of setoff with respect to the Liabilities in the same manner
as if the Liabilities were unsecured.
12. 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 the Borrower and Guarantors shall bind the representatives,
successors and assigns of the Borrower and the Guarantors, respectively.
13. ENTIRE AGREEMENT; SEVERABILITY. This Security Agreement contains
the entire security agreement between Secured Party, the Borrower and Guarantors
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.
14. 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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15. CHOICE OF LAW. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California, and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the California Uniform Commercial Code. THE BORROWER
AND GUARANTORS IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE JURISDICTION OF THE
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF ALAMEDA OR THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, AS SECURED
PARTY MAY DEEM APPROPRIATE, OR IF REQUIRED, THE MUNICIPAL COURT OF THE STATE OF
CALIFORNIA FOR THE COUNTY OF ALAMEDA IN CONNECTION WITH ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, AND THE
BORROWER AND GUARANTORS WAIVE ANY OBJECTION RELATING TO THE BASIS FOR PERSONAL
OR IN REM JURISDICTION OR TO VENUE WHICH IT MAY NOW OR HEREAFTER HAVE IN ANY
SUCH SUIT, ACTION OR PROCEEDING. THE BORROWER, GUARANTORS AND SECURED PARTY
WAIVE ANY RIGHT TO TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW.
16. ATTORNEYS' FEES. If any legal action or proceeding shall be
commenced at any time by any party to this Agreement in connection with the
interpretation of this Agreement or the enforcement of any rights or remedies
hereunder, the prevailing party or parties in such action or proceeding shall be
entitled to reimbursement of its reasonable attorneys' fees and costs in
connection therewith, in addition to all other relief to which the prevailing
party or parties may be entitled.
17. NOTICE. All notices hereunder shall be governed by the provisions
of the Loan Agreement.
18. 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.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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SECURED PARTY:
ZENGINE, INC.
By: /s/ XXX XXXXXXXX
-----------------------------------
Name: Xxx Xxxxxxxx
Its: Chief Executive Officer
BORROWER AND GUARANTORS:
MCSi-CALIFORNIA, INC. (formerly known as
"West Lake Acquisition Corporation")
By: /s/ XXX X. XXXXXXX
-------------------------------------
Name: Xxx X. Xxxxxxx
Its: Vice President
DIGITAL NETWORKS CORPORATION
(formerly known as "Agoura Hills
Corporation")
By: /s/ XXX X. XXXXXXX
-------------------------------------
Name: Xxx X. Xxxxxxx
Its: Vice President
MCSi-TEXAS, INC. (formerly known
as "MCSi-IG-PV, Inc.")
By: /s/ XXX X. XXXXXXX
-------------------------------------
Name: Xxx X. Xxxxxxx
Its: Vice President
