Exhibit 10.59
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into effective
the 25th day of March, 1999, by and between Consolidated Eco-Systems, Inc., an
Idaho corporation (the "Debtor") formerly known as Exsorbet Industries, Inc.,
and American Physicians Service Group, Inc., a Texas corporation (the "Secured
Party").
R E C I T A L S:
A. Debtor executed and delivered that certain Promissory Note dated
November 6, 1997 (as amended, supplemented, or modified, and including any
replacement thereof or substitution therefore, the "Note") in the original
principal amount of Three Million Seven Hundred Eighty-Eight Thousand Five
Hundred Eighty Dollars ($3,788,580) payable to the order of Secured Party.
B. The Note was issued pursuant to a Master Refinancing Agreement of
even date with the Note (the "Loan Agreement") between Debtor, its subsidiaries
and Secured Party. The obligations of Debtor under the Note and the Loan
Agreement are guaranteed by certain guaranty agreements executed by the
subsidiaries of Debtor, and are secured pursuant to the terms of certain
security agreements, pledges and other agreements and instruments entered into
by Debtor and certain subsidiaries of Debtor. The Loan Agreement and all such
guarantees, security agreements, pledges and other agreements and instruments
are collectively referred to herein as the "Original Security Documents."
C. Debtor will, concurrently with its execution of this Agreement,
execute and deliver that certain Master Restructuring Agreement (the "Second
Loan Agreement"), of even date herewith, by and between Debtor, all of Debtor's
wholly or partially owned subsidiaries, and Secured Party, along with other
guarantees, security agreements, pledges, documents, agreements, contracts,
instruments and certificates contemplated therein or executed and delivered in
connection therewith (collectively, including the Second Loan Agreement and this
Agreement, the "New Security Documents").
D. Debtor has received, and will continue to receive, valuable
consideration as a result of the transactions evidenced by, or related to, the
Note, the Original Security Documents, the New Security Documents and this
Agreement.
E. Debtor has agreed to pledge the Collateral (as defined below) to
secure certain obligations and liabilities, including without limitation (i)
Debtor's obligations under the Note, (ii) Debtor's and Debtor's subsidiaries'
performance of the covenants and agreements set forth in the Original Security
Documents, (iii) Debtor's and Debtor's subsidiaries' performance of the
covenants and agreements set forth in the New Security Documents, and (iv)
Debtor's performance of the covenants more fully set forth herein.
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AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which Debtor acknowledges, Debtor and Secured Party
agree as follows:
ARTICLE I
AGREEMENT; INDEBTEDNESS
1.1 Security Interest. Debtor assigns and transfers to Secured Party,
and grants to Secured Party a continuing security interest in and lien upon (the
"Security Interest"), the Collateral (as defined in Article II below) to secure
the payment and the performance of the Indebtedness (as hereinafter defined).
1.2 Indebtedness. The following indebtedness and obligations
(collectively, the "Indebtedness") are secured by this Agreement and the
Security Interest:
(a) All debt, obligations, liabilities, and agreements of
Debtor and/or any of Debtor's subsidiaries, to Secured Party, now or
hereafter existing, arising directly between Debtor and Secured Party
and/or any of Debtor's subsidiaries and Secured Party, or acquired
outright, conditionally, or as collateral security from another by
Secured Party, absolute or contingent, joint or several, secured or
unsecured, due or not due,
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contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, including,
without limitation, all obligations and amounts due under the Note and
the Original Security Documents, the New Security Documents, and all
renewals, extensions, modifications, or rearrangements of any of the
foregoing.
(b) Secured Party's participation in any debt of Debtor to
another person.
(c) All costs incurred by Secured Party to obtain, preserve,
perfect, and enforce this Agreement and the Security Interest, to
collect the Indebtedness, and to maintain, preserve, collect, and
enforce the Collateral, including but not limited to taxes,
assessments, insurance premiums, repairs, reasonable attorney's fees
and legal expenses, rent, storage costs and expenses of sale.
(d) Interest on the above amounts as agreed between Secured
Party and Debtor, or if there is no agreement, at the highest lawful
rate.
ARTICLE II
COLLATERAL
The Security Interest is granted in the following, whether now owned or
hereafter acquired, and wherever located (the "Collateral"):
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(a) All accounts (whether or not earned by performance),
letters of credit, contract rights, chattel paper, instruments,
securities, documents, securities accounts, security entitlements,
commodity contracts, commodity accounts, investment property and all
other forms of obligations at any time owing to such borrower, all
guaranties and other security therefor, all merchandise returned or
repossessed by Debtor, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party
(collectively referred to herein as "Accounts").
(b) All goods, merchandise or other personal property, to be
furnished under any contract of service or held for sale or lease
(including without limitation all raw materials, work in process,
finished goods and goods in transit, and including without limitation
all farm products), and all materials and supplies of every kind and
description used in Debtor's operations or owned by Debtor and any
interests in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to
any of the foregoing, wherever located (collectively referred to herein
as "Inventory").
(c) All machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles,
tools, parts, dies, jigs, goods and other goods (other than Inventory)
of every kind and description used in Debtor's operations or owned by
Debtor and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, or
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improvements, to any of the foregoing, wherever located (collectively
referred to herein as "Equipment").
(d) Investment Property, as defined in Chapter 9 of the Texas
UCC (as hereinafter defined).
(e) All choses in action, contract rights, documents or
certificates of title, causes of action, corporate or other business
records, Deposit Accounts, Investment Property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the
goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation
presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter
arising therefrom, all claims of such Debtor against the Secured Party,
rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies
and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance
and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guarantees security interests or
other security held by or granted to such Debtor, all rights to
indemnification and all other intangible property of every kind and
nature (other than Accounts) (collectively referred to herein as
"General Intangibles"), including without limitation, all of such
Debtor deposit accounts, as defined in Chapter 9 of the Texas UCC, and
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all money and all property now or at any time in the future in the
Secured Party's possession (including claims and credit balances)
(f) All security for the payment of any of the foregoing, and
all goods which gave or will give rise to any of the foregoing or are
evidenced, identified, or represented therein or thereby.
(g) All real estate or other real property now or hereafter
acquired by Debtor.
(h) All assets or other property similar to any of the
foregoing hereafter acquired by Debtor.
(i) All other assets or property of Debtor not otherwise
described above, whether now owned or hereafter acquired.
(j) All proceeds of any of the foregoing (including proceeds
of any insurance policies, proceeds of proceeds, and claims against
third parties), all products of any of the foregoing, and all books and
records related to any of the foregoing.
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ARTICLE III
DEBTOR'S WARRANTIES
Debtor represents and warrants to Secured Party as follows:
3.1 Financing Statements. No statement covering the Collateral is or
will be on file in any public office, except the financing statements relating
to this Security Interest and the financing statements relating to the Permitted
Liens (as hereinafter defined). In the past five (5) years, Debtor has not used
or done business under any name other than its legal name which is set forth on
the first page of this Agreement.
3.2 Ownership. Debtor owns the Collateral free from any setoff, claim,
restriction, lien, security interest, or encumbrance except liens for taxes not
yet due, the Security Interest and the Permitted Liens.
3.3 Fixtures and Accessions. Except for Collateral of nominal value,
none of the Collateral is affixed to real estate or is an accession to any
goods, or will become a fixture or accession, except as expressly set out
herein. All real property owned by Debtor is described, by legal description and
street address, on Schedule I hereto, all of which shall be deemed included in
the Collateral.
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3.4 Claims of Debtors on Collateral. No account debtors and other
obligors whose debts or obligations are part of the Collateral have any right to
setoffs, counterclaims, or adjustments, or any defenses in connection therewith.
3.5 Liens. Neither Debtor nor any person acting on Debtor's behalf has,
or shall have any right, power, or authority to and shall not create, incur, or
permit to be placed or imposed upon the Collateral, any lien of any type or
nature whatsoever superior to the liens in favor of Secured Party provided
herein; provided those certain liens described on Schedule II hereof in
existence on the date hereof (the "Permitted Liens") may remain in existence
subject to the terms and conditions of this Agreement.
3.6 Accuracy of Financial Statements. All balance sheets, earnings
statements, and other financial data which have been or hereafter may be
furnished to Secured Party to induce it to permit the Indebtedness or to make
this Agreement or in conjunction herewith truly represent or shall truly
represent the financial condition and operations of Debtor as of the dates and
for the periods shown thereon; and all other information, reports, papers, and
data furnished to Secured Party are or shall be, at the time furnished, accurate
and correct in all respects and complete insofar as necessary to give Secured
Party a true and accurate knowledge of the subject matter.
3.7 Power and Authority. Debtor has full power and authority to enter
into and perform this Agreement.
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3.8 Principal Place of Business. Debtor's chief executive office is at
Debtor's address stated above in Little Rock, Pulaski County, Arkansas, and such
address is also where Debtor keeps its books and records.
3.9 Location of Collateral. All of Debtor's Inventory and Equipment is
located at Debtor's principal place of business located at 0000 Xxxx 00xx
Xxxxxx, Xxxxxx Xxxx, Xxxxxxxx 00000. Debtor has exclusive possession and control
of its Inventory and Equipment.
3.10 Perfection. Upon the filing of the UCC financing statements with
the Office of the Alabama Secretary of State, the Office of the Arkansas
Secretary of State, the Office of the Louisiana Secretary of State, the Office
of the Mississippi Secretary of State and the Office of the Texas Secretary of
State, the Security Interest will constitute a valid and perfected lien upon and
security interest in the Collateral superior to all other liens, claims or
encumbrances except the Permitted Liens.
3.11 Solvency. As of the date hereof, and after giving effect to this
Agreement and the completion of all other transactions contemplated by Debtor at
the time of the execution of this Agreement, (i) Debtor is and will be solvent,
(ii) the fair saleable value of Debtor's assets exceeds and will continue to
exceed Debtor's liabilities (both fixed and contingent), (iii) Debtor is paying
and will continue to be able to pay its debts as they mature or within
forty-five (45) days thereafter, and (iv) if Debtor is not an individual, Debtor
has and will have sufficient capital to carry on Debtor's businesses and all
businesses in which Debtor is about to engage.
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ARTICLE IV
DEBTOR'S COVENANTS
Debtor covenants and agrees that:
4.1 Indebtedness and This Agreement. Debtor shall pay, or cause the
payment of, the Indebtedness, and any indebtedness secured by the Permitted
Liens, in accordance with its terms and shall promptly perform all of its
agreements herein and in any other agreements between it and Secured Party or
between it and the holder of any Permitted Liens.
4.2 Ownership of Collateral. At the time Debtor grants to Secured Party
a security interest in any Collateral, Debtor shall be the absolute owner
thereof and shall have the right to grant such security interest. Debtor shall
defend the Collateral against all claims and demands of all persons at any time
claiming any interest therein adverse to Secured Party. Debtor shall keep the
Collateral free from all liens and security interests except those for taxes not
yet due, the Security Interest and the Permitted Liens. Debtor shall not allow
any of the Permitted Liens to secure any indebtedness or obligations other than
the specific indebtedness or obligations outstanding, and only to the extent
outstanding, on the date this Agreement is entered into that are expressly
secured by the applicable Permitted Liens as of such date. Debtor will not incur
or permit any increase in any indebtedness or obligation secured by any of the
Permitted Liens and will not enter into, consent to, grant, agree to or permit
any amendment modification or waiver of any right of Debtor or of any security
agreement contract, understanding or other agreement of any kind which creates,
grants or otherwise gives risk to any of the Permitted Liens.
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4.3 Insurance. Debtor shall insure the Collateral with companies
acceptable to Secured Party against such casualties and in such amounts as
Secured Party shall require. All insurance policies shall be written for the
benefit of Debtor and Secured Party as their interests may appear, or in other
form satisfactory to Secured Party, and such policies or certificates evidencing
the same shall be furnished to Secured Party. All policies of insurance shall
provide for written notice to Secured Party simultaneously with any notice of
cancellation or other termination being given to Debtor, and in any event at
least 10 days prior to cancellation or other termination. Risk of loss or damage
is Debtor's to the extent of any deficiency in any effective insurance coverage.
Secured Party is appointed Debtor's attorney-in-fact to collect any return or
unearned premiums or the proceeds of such insurance and to endorse any draft or
check payable to Debtor therefor.
4.4 Maintenance. Debtor shall keep and maintain the Collateral in good
condition, reasonable wear and tear excepted.
4.5 Secured Party's Costs. Debtor shall pay all costs necessary to
obtain, preserve, perfect, defend, and enforce the Security Interest, collect
the Indebtedness, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Party's
possession, and without any obligation to do so and without waiving Debtor's
default for failure to make any such payment, Secured Party at its option may
pay any such costs and expenses, discharge encumbrances on the Collateral, and
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pay for insurance of Collateral, and such payment shall be a part of the
Indebtedness. Debtor agrees to reimburse Secured Party on demand for any costs
so incurred.
4.6 Information and Inspection. Debtor shall (i) furnish Secured Party
any financial statements of Debtor or reports to Debtor by accountants or others
pertaining to Debtor's business as soon as available, and any information with
respect to the Collateral requested by Secured Party; (ii) allow Secured Party
to inspect the Collateral, at any time and wherever located, and to inspect and
copy, or furnish Secured Party with copies of, all records relating to the
Collateral and the Indebtedness; (iii) furnish Secured Party such information as
Secured Party may request to identify inventory, accounts, and general
intangibles in Collateral, at the time and in the form requested by Secured
Party; and (iv) deliver upon request to Secured Party shipping and delivery
receipts evidencing the shipment of goods and invoices evidencing the receipt
of, and the payment for, inventory in Collateral.
4.7 Further Assurances. Debtor shall execute and deliver any documents
or instruments (including without limitation any financing statements or deeds
of trust) furnished by Secured Party, and take such further action, at Debtor's
sole cost and expense, which are necessary in the judgment of Secured Party to
obtain, maintain, and perfect the Security Interest and to enable Secured Party
to comply with the Federal Assignment of Claims Act or any other federal or
state law in order to obtain or perfect Secured Party's interest in Collateral
or to obtain proceeds of Collateral.
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4.8 Parties Liable on Collateral. Debtor will preserve the liability of
all obligors on any Collateral and will preserve the priority of all security
therefor. Secured Party shall have no duty to preserve such liability or
security, but may do so at the expense of Debtor, without waiving Debtor's
default.
4.9 Modification of Collateral. Without the written consent of Secured
Party, which consent shall not be unreasonably withheld, Debtor shall not agree
to any modification of any of the terms of any accounts, contracts, chattel
paper, general intangibles, or instruments constituting part of the Collateral.
4.10 Right of Secured Party to Notify Debtors. At any time, whether
Debtor is or is not in default under this Agreement, Secured Party may notify
persons obligated on any Collateral to make payments directly to Secured Party
and Secured Party may take control of all proceeds of any Collateral. Until
Secured Party elects to exercise such rights, Debtor, as agent of Secured Party,
shall collect and enforce all payments owed on Collateral.
4.11 Delivery of Receipts of Secured Party; Rejected Goods. Upon
Secured Party's demand, Debtor shall deposit, upon receipt and in the form
received, with any necessary endorsement, all payments received as proceeds of
Collateral, in a special bank account in a bank of Secured Party's choice over
which Secured Party alone shall have power of withdrawal. The funds in said
account shall secure the Indebtedness. Secured Party is authorized to make any
endorsement in Debtor's name and behalf. Pending such deposit, Debtor shall not
mingle any such payments with any of Debtor's other funds or property, but will
hold them separate and
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upon an express trust for Secured Party. Secured Party
may from time to time apply the whole or any part of the funds in the special
account against the Indebtedness. Unless Secured Party notifies Debtor in
writing that it dispenses with any one or more of the following requirements,
Debtor shall:
(a) inform Secured Party immediately of the rejection of
goods, delay in delivery or performance, or claim made, in regard to
any Collateral;
(b) keep returned goods segregated from Debtor's other
property, and hold the goods as trustee for Secured Party until it has
paid Secured Party the amount loaned against the related account or
chattel paper and deliver the goods on demand to Secured Party; and
(c) pay Secured Party the unpaid amount of any account in
Collateral (i) if the account is not paid when due; (ii) if purchaser
rejects the goods or services covered by the account; or (iii) if
Secured Party shall at any time reject the account as unsatisfactory.
Secured Party may retain the account in Collateral. Secured Party may
charge any deposit amount of Debtor with any such amounts.
4.12 Records of Collateral. Debtor at all times will maintain accurate
books and records covering the Collateral. Debtor immediately will xxxx all
books and records with an entry showing the absolute assignment of all accounts
in Collateral to Secured Party and Secured Party is hereby given the right to
audit the books and records of Debtor relating to Collateral at any time and
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from time to time. The amounts shown as owed to Debtor on Debtor's books and on
any assignment schedule will be the undisputed amounts owing and unpaid. Debtor
shall disclose to Secured Party all agreements modifying any account,
instrument, or chattel pater.
4.13 Disposition of Collateral. Debtor will not sell, transfer,
mortgage, or otherwise encumber any Collateral or impair the value thereof in
any manner without Secured Party's prior written consent, which Secured Party is
under no obligation whatsoever to give, including without limitation by
purchase, lease, barter, trade, payment deferral, or the creation, assumption or
guarantee of indebtedness or other lending of credit; provided, however, the
foregoing shall not be applicable to Debtor with respect to (i) inventory sold,
leased, manufactured, processed, or consumed in the ordinary course of business,
and (ii) unsecured open account trade debts to unrelated parties incurred by
Debtor in the ordinary course of business. Secured Party's written consent to
any sale, mortgage, transfer, or encumbrance shall not be construed to be a
waiver of this provision with respect to any subsequent proposed sale, mortgage,
transfer, or encumbrance. If disposition of any Collateral gives rise to an
account, chattel paper, or instrument, Debtor immediately shall notify Secured
Party, and upon request of Secured Party shall assign or endorse the same to
Secured Party.
4.14 Accounts Receivable. Each account receivable constituting
Collateral will represent the valid and legally enforceable obligation of third
parties and shall not be evidenced by any instrument or chattel paper. In the
event any account shall give rise to any instrument or chattel paper, Debtor
shall immediately endorse the same to Secured Party and deliver all original
such instruments and chattel paper to Secured Party.
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4.15 Location of Accounts and Inventory. Debtor shall give Secured
Party written notice of each office of Debtor in which records of Debtor
pertaining to accounts in Collateral are kept, and each location at which
inventory in Collateral is or will be kept, and of any change of any such
location. If no such notice is given, all records of Debtor pertaining to
accounts and all inventory are and shall be kept at Debtor's address shown
above.
4.16 Notice of Changes. Debtor will notify Secured Party immediately of
any material change in the Collateral, of a change in Debtor's residence or
location, of a change in any matter warranted or represented by Debtor in this
Agreement or furnished to Secured Party, and of any Event of Default (as defined
in Section 6.1 hereof).
4.17 Use and Removal of Collateral. Debtor will not use the Collateral
illegally nor, except for Collateral of nominal value, permit the Collateral to
be affixed to real or personal property without the prior written consent of
Secured Party. Debtor will not permit any of the Collateral to be removed from
the locations specified herein without the written consent of Secured Party.
4.18 Possession of Collateral. If the Collateral is chattel paper,
documents, instruments, or investment securities or other instruments, Secured
Party may deliver a copy of this Agreement to the broker or seller thereof, or
any person in possession thereof, and such delivery shall constitute notice to
such person of Secured Party's security interest therein and shall constitute
Debtor's instruction to such person to deliver to Secured Party certificates or
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other evidence of the same as soon as available. Debtor will deliver all
investment securities, other instruments, documents, and chattel paper which are
part of the Collateral and in Debtor's possession to the Secured Party
immediately, or if hereafter acquired, immediately following acquisition,
appropriately endorsed to Secured Party's order, or with appropriate, executed
powers. Debtor waives presentment, demand, notice of dishonor, protest, and all
other notices with respect thereto.
4.19 Chattel Paper. Debtor has perfected or will perfect a security
interest by means satisfactory to Secured Party in goods covered by chattel
paper in Collateral.
4.20 Consumer Credit. If any Collateral or proceeds includes
obligations of third parties to Debtor, the transactions giving rise to the
Collateral shall conform in all respects to the applicable state or federal
consumer credit law. DEBTOR SHALL HOLD HARMLESS AND INDEMNIFY SECURED PARTY
AGAINST ANY COST, LOSS, OR EXPENSE INCLUDING ATTORNEY'S FEES, ARISING FROM
DEBTOR'S BREACH OF THIS COVENANT.
4.21 Change of Name. Debtor shall not change its name (or any assumed
name or other name under which Debtor does business) or its corporate structure
without Secured Party's prior written consent, which shall not be unreasonably
withheld. Debtor will not change its principal place of business, chief
executive office, or the place where it keeps its books and records unless
Debtor (i) shall have given Secured Party thirty (30) days prior written notice
thereof, and (ii) shall have taken all action deemed necessary or desirable by
Secured Party to cause the Security Interest to be and remain perfected with the
priority required by this Agreement. Debtor shall
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execute all such documents and
agreements (including without limitation security agreements, financing
statements, and amendments to financing statements) as Secured Party may
reasonably request in connection with any such name change.
4.22 Notation on Title Certificates. If certificates of title are
issued or outstanding with respect to any of the Collateral, Debtor will cause
the Security Interest to be properly noted therein and deliver such certificates
to Secured Party.
4.23 Power of Attorney. Debtor appoints Secured Party as Debtor's
attorney-in-fact with full power in Debtor's name and behalf to do every act
which Debtor is obligated to do or may be required to do hereunder; however,
nothing in this section shall be construed to obligate Secured Party to take any
action hereunder.
4.24 Debtor's Waivers. Debtor waives notice of the creation, advance,
increase, existence, extension, or renewal of, and of any indulgence with
respect to, the Indebtedness; waives notice of intent to accelerate, notice of
acceleration, notice of intent to demand, presentment, demand, notice of
dishonor, and protest; waives notice of the amount of the Indebtedness
outstanding at any time, notice of any change in financial condition of any
person liable for the Indebtedness or any part thereof, notice of any Event of
Default, and all other notices respecting the Indebtedness; and agrees that
maturity of the Indebtedness and any part thereof may be accelerated, extended,
or renewed one or more times by Secured Party in its discretion, without notice
to Debtor.
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4.25 Other Parties and Other Collateral. No renewal or extension of or
any other indulgence with respect to the Indebtedness or any part thereof, no
release of any security, no release of any person (including any maker,
endorser, guarantor, or surety) liable on the Indebtedness, no delay in
enforcement of payment, and no delay or admission or lack of diligence or care
in exercising any right or power with respect to the Indebtedness or any
security therefor or guaranty thereof or under this Agreement shall in other
manner impair or affect the rights of Secured Party under the law, under this
Agreement, or under any other agreement pertaining to the other security for the
Indebtedness, before foreclosing upon the Collateral for the purpose of paying
the Indebtedness. Debtor waives any right to the benefit of or to require or
control application of any other security or proceeds thereof, and Debtor agrees
that Secured Party shall have no duty or obligation to Debtor to apply to the
Indebtedness any such other security or proceeds thereof.
ARTICLE V
RIGHTS AND POWERS OF SECURED PARTY
Secured Party, after default, without liability to Debtor, may: obtain
from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
require Debtor to give possession or control of any Collateral to Secured Party;
endorse as Debtor's agent any instruments, documents, or chattel paper in
Collateral or representing proceeds of Collateral; contact account debtors
directly to verify information furnished by Debtor; take control of proceeds;
release Collateral in its possession to any Debtor temporarily or otherwise;
require additional collateral; reject as unsatisfactory any property hereafter
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offered by Debtor as Collateral; set standards from time to time to govern what
may be used as after-acquired collateral; designate, from time to time, a
certain percent of the Collateral as the loan value and require Debtor to
maintain the Indebtedness at or below such figure; take control of funds
generated by the Collateral, such as cash dividends, interest, and proceeds or
refunds from insurance, and use same to reduce any part of the Indebtedness and
exercise all other rights which an owner of such Collateral may exercise, except
the right to vote or dispose of Collateral before an Event of Default; at any
time transfer any of the Collateral or evidence thereof into its own name of
that of its nominee; and demand, collect, convert, redeem, receipt for, settle,
compromise, adjust, xxx for, foreclose, or realize upon Collateral, in its own
name or in the name of Debtor, as Secured Party may determine in its sole and
absolute discretion. Secured Party shall not be liable for failure to collect
any account or instrument, or for any act or omission on the part of the Secured
Party, its officers, agents, or employees, except willful misconduct. The
foregoing rights and powers of Secured Party will be in addition to, and not a
limitation upon, any rights and powers of Secured Party given by law, elsewhere
in this Agreement, or otherwise. If Debtor fails to maintain any required
insurance, to the extent permitted by applicable law Secured Party may (but is
not obligated to) purchase single interest insurance coverage for the Collateral
which insurance may at Secured Party's option (i) protect only Secured Party and
not provide any remuneration or protection for Debtor directly and (ii) provide
coverage only after the Indebtedness has been declared due as herein provided.
The premiums for any such insurance purchased by Secured Party shall be a part
of the Indebtedness and shall bear interest as provided in Section 1.2(d) above.
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ARTICLE VI
DEFAULT
6.1 Events of Default. The following are events of default under this
Agreement ("Events of Default"):
(a) default, by Debtor or any subsidiary of Debtor, in the
timely payment of any part of the Note or other Indebtedness or any
breach or default in performance or observance of the terms and
conditions herein, in any of the Original Security Documents, in any of
the New Security Documents, or in any other agreement between Debtor or
any of Debtor's subsidiaries on the one hand and Secured Party on the
other hand;
(b) any warranty, representation, or statement made or
furnished to Secured Party by Debtor or any of Debtor's subsidiaries
proves to have been false in any material respect when made or
furnished;
(c) acceleration of the maturity of debt of Debtor or
any of Debtor's subsidiaries to any other person;
(d) substantial change in any fact warranted or represented in
this Agreement or in any other agreement between Debtor and Secured
Party or in any statement, schedule, or other writing furnished in
connection therewith;
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(e) sale, loss, theft, destruction, incurrence of an
encumbrance upon, or transfer of any Collateral in violation hereof, or
substantial damage to any Collateral;
(f) belief by Secured Party that the prospect of payment of
the Indebtedness or performance of this Agreement is impaired;
(g) dissolution, merger, or consolidation, termination of
existence, insolvency or business failure of Debtor or any person
liable on the Indebtedness; commencement of proceedings for the
appointment of a receiver for any property of Debtor; commencement of
any proceeding under any bankruptcy or insolvency law by or against
Debtor (or any corporate action taken to effect same), or any
partnership of which Debtor is a partner, or by or against any person
liable upon the Indebtedness or any part thereof, or liable upon
Collateral;
(h) levy on, seizure, or attachment of any property
of Debtor or any of Debtor's subsidiaries;
(i) a judgment against Debtor in excess of $1,000 becomes
final and remains unsatisfied and unappealed for thirty (30) calendar
days;
(j) any liability or agreement of third parties to or with
Debtor on or relating to the Collateral shall not be paid or performed
in accordance with the terms thereof; or
23
(k) any breach or default by Debtor under any agreement giving
rise to any of the Permitted Liens or under any indebtedness or
obligation secured thereby, or any action by any holder of any of the
Permitted Liens is taken or instituted to enforce the rights of such
holder with respect to any such Permitted Liens.
6.2 Remedies of Secured Party Upon Default. When an Event of Default
occurs, and at any time thereafter, Secured Party without notice or demand may
declare the Indebtedness in whole or part immediately due and may enforce
payment of the same and exercise any rights under the Texas UCC, rights and
remedies of Secured Party under this Agreement, or otherwise. Secured Party may
require Debtor to assemble the Collateral and make it available to Secured Party
at a place which is reasonably convenient to both parties. Unless the Collateral
is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or other intended disposition thereof is to be
made. Expenses of retaking, holding, preparing for sale, selling, leasing, or
the like shall include Secured Party's reasonable attorney's fees and legal
expenses. Secured Party shall be entitled to immediate possession of all books
and records evidencing any accounts or general intangibles or pertaining to
chattel paper covered by this Agreement and shall have the authority to enter
upon any premises upon which any of the same, or any Collateral, may be situated
and remove the same therefrom without liability. Secured Party may surrender any
insurance policies in Collateral and receive the unearned premium thereon.
Debtor shall be entitled to any surplus after payment of the Indebtedness and
shall be liable to Secured Party for
24
any deficiency. The process of any
disposition after default available to satisfy the Indebtedness shall be applied
to the Indebtedness in such order and in such manner as Secured Party in its
discretion shall decide. If, in the opinion of Secured Party, there is any
question that a public sale or distribution of any Collateral will violate any
state or federal securities law, Secured Party (i) may offer and sell securities
privately to purchasers who will agree to take them for investment purposes and
not with a view to distribution and who will agree to imposition of restrictive
legends on the certificates representing the security, or (ii) may sell such
securities in an intrastate offering under Section 3(a)(11) of the Securities
Act of 1933, and no sale so made in good faith by Secured Party shall be deemed
to be not "commercially reasonable" because so made.
ARTICLE VII
GENERAL
7.1 Parties Bound; No Liability of Secured Party. Secured Party's
rights under this Agreement and the Security Interest shall inure to the
benefits of its successors and assigns. All representations, warranties, and
agreements of Debtor if more than one are joint and several, and all shall be
binding upon the personal representatives, heirs, successors, and assigns of
Debtor. Debtor may not assign this Agreement or any of its rights or obligations
hereunder without the express prior written consent of Secured Party in each
instance. Neither the acceptance of this Agreement by Secured Party, nor the
exercise of any rights hereunder by Secured Party, shall be construed in any way
as an assumption by Secured Party of any obligations, responsibilities, or
duties of Debtor arising in connection with the Collateral assigned hereunder or
25
otherwise bind Secured Party to the performance of any obligations respecting
the Collateral, it being expressly understood that Secured Party shall not be
obligated to perform, observe, or discharge any obligation, responsibility,
duty, or liability of Debtor in respect of any of the Collateral, including
without limitation appearing in or defending any action, expending any money or
incurring any expense in connection therewith.
7.2 Waiver. No delay of Secured Party in exercising any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise of
any other power or right. No waiver by Secured Party of any right hereunder of
any default by Debtor shall be binding upon Secured Party unless in writing, and
no failure by Secured Party to exercise any power or right hereunder or waiver
of any default by Debtor shall operate as a waiver of any other or further
exercise of such right or power of any further default.
7.3 Agreement Continuing. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Secured Party and Debtor shall be closed at any time, shall
be equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties.
26
7.4 Definitions. Unless the context indicates otherwise, definitions in
the Texas UCC apply to words and phrases in this Agreement; if Texas UCC
definitions conflict, Chapter 9 definitions apply.
7.5 Notice; Terms Commercially Reasonable. Notice shall be deemed
reasonable if mailed postage prepaid at least 5 days before the related action
(or if the Texas UCC elsewhere specifies a longer period, such longer period) to
Debtor's address shown above. The terms of this Agreement shall be deemed
commercially reasonable within the meaning of the Texas UCC.
7.6 Interest. No agreement relating to the Indebtedness shall be
construed to be a contract for or to authorize charging or receiving, or require
the payment or permit the collection of, interest at a rate or in an amount
above that authorized by law. Interest payable under any agreement above that
authorized by law shall be reduced automatically to the highest amount permitted
by law.
7.7 Modifications. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by Debtor and Secured Party, nor by course of
conduct, usage of trade, or by the law merchant.
7.8 Severability. The unenforceability of any provision of this
Agreement shall not affect the enforceability or validity of any other
provision.
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7.9 Gender and Number. Where appropriate, the use of one gender shall
be construed to include the others or any of them; and the singular number shall
be construed to include the plural, and vice versa.
7.10 Applicable Law and Venue. THIS AGREEMENT SHALL BE CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF
AMERICA APPLICABLE TO TRANSACTIONS IN THE STATE OF TEXAS. Except at otherwise
stated, this Agreement and the Security Interest shall be construed in
accordance with the Uniform Commercial Code as in effect in the State of Texas
("Texas UCC"). This Agreement is performable by Debtor in the county of Secured
Party's address set out above.
7.11 Financing Statement. A carbon, photographic, or other reproduction
of this security agreement or any financing statement covering the Collateral
shall be sufficient as a financing statement.
7.12 Limitations of Law. If any law prohibits or limits any charge or
expense provided for in this Agreement in connection with any loan secured
hereby, such charge or expense will not be made or incurred in connection with
such loan beyond the limits permitted by such law.
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EXECUTED this 25th day of March, 1999.
DEBTOR:
CONSOLIDATED ECO-SYSTEMS, INC.
By: /s/ Xxxxx Xxxxxxxx
Name: Xxxxx Xxxxxxxx
Title: President
SECURED PARTY: AMERICAN PHYSICIANS SERVICE
GROUP, INC.
By: /s/ Xxxxx X. Xxxx, Xx.
Name: Xxxxx X. Xxxx, Xx.
Title: VP
29
1
SCHEDULE I
DESCRIPTION OF REAL PROPERTY
1
SCHEDULE II
DESCRIPTION OF PERMITTED LIENS
---------------------------- ------------------------------------------- -------
Description, Outstanding Balance
Name and Address of and Maturity Date of Secured
Secured Party Description of Collateral Obligation
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