Exhibit 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of December 22, 2003 (this
"Agreement"), by and between KNIGHTSBRIDGE FINE WINES, INC., a Nevada
corporation (the "Company"), and GRYPHON MASTER FUND, L.P., a Bermuda limited
partnership ("Gryphon").
W I T N E S S E T H:
WHEREAS, in connection with the Purchase Agreement (such
capitalized term and all other capitalized terms used herein having the
respective meanings provided herein), the Company has agreed to grant to Gryphon
a security interest in the Company's properties and assets to secure the payment
of the Note;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Gryphon hereby agree as follows:
1. REFERENCE TO NOTE. This Agreement is being executed and delivered in
connection with that certain 7.5% Secured Convertible Note due 2006, in the
original principal amount of $2,000,000, issued by the Company to Gryphon
pursuant to the Purchase Agreement (the "Note").
2. INCORPORATION OF NOTE. The terms, conditions, and provisions of the
Note are incorporated herein by reference, the same as if set forth herein
verbatim, which terms, conditions, and provisions shall continue to be in full
force and effect hereunder until the Note is paid and performed in full.
3. CERTAIN DEFINITIONS. As used herein, the following terms have the
meanings indicated:
"Collateral" means any and all assets and properties (real, personal
or mixed) of the Company, whether now owned or hereafter acquired, including,
without limitation, all replacements, substitutions and additions thereto, and
the accounts, notes and any other proceeds therefrom.
"Event of Default" shall have the meaning provided in the Note.
"Obligation" means the Company's payment and performance duties and
obligations under the Note, together with any and all renewals, extensions, and
modifications of the same, and all costs of collection thereunder.
"Obligor" means any person obligated with respect to any of the
Collateral, whether as an account debtor, obligor on an instrument, issuer of
securities, or otherwise.
"Purchase Agreement" means the Purchase Agreement, dated as of
December 22, 2003, by and between the Company and Gryphon.
"Security Interests" means the security interests granted and the
pledges and assignments made under Section 4.
"Security Document" means any security agreement, financing
statement, mortgage, deed of trust or other similar security document.
"UCC" means the Uniform Commercial Code as enacted in the State of
Nevada or other applicable jurisdiction, as amended at the time in question.
4. SECURITY INTERESTS. In order to secure the full and complete payment
and performance of the Obligation when due, the Company hereby grants to Gryphon
a first priority security interest in and to the Collateral and pledges and
assigns the Collateral to Gryphon, all upon and subject to the terms and
conditions of this Agreement; provided, however, that Gryphon shall have a
second priority security interest in and to the Collateral described on SCHEDULE
A attached hereto. Such security interests are granted and such pledges and
assignments are made as security only and shall not subject Gryphon to, or
transfer or in any way affect or modify, any obligation of the Company with
respect to any of the Collateral or any transaction involving or giving rise
thereto.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(A) REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
The Company represents and warrants that (i) it has all requisite power and
authority to enter into this Agreement; (ii) except for any Security Documents
that may be filed by (A) Gryphon with respect to the Collateral, or (B) other
parties with respect to the Collateral described on SCHEDULE A attached hereto,
no Security Document covering the Collateral, or any part thereof, has been
filed with any filing officer, agency, instrumentality or authority; (iii)
except for Security Documents covering the Collateral described on SCHEDULE A
attached hereto, no other Security Document covering the Collateral, or any part
thereof, has been made and no security interests, other than the ones created
hereby or by Security Documents covering the Collateral described on SCHEDULE A
attached hereto, have attached to or been perfected in the Collateral or in any
part thereof; and (iv) no dispute, right of setoff, counterclaim, or defense
exists with respect to any part of the Collateral.
(B) AFFIRMATIVE COVENANTS OF THE COMPANY. The Company covenants and
agrees to each and all of the following: (i) to execute and deliver promptly to
Gryphon all such other Security Documents, assignments, certificates, and
supplemental writings, and to do all other acts or things, as Gryphon may
reasonably request in order more fully to evidence and perfect the Security
Interests; (ii) to assist Gryphon, at its request from time to time, in
perfecting the Security Interests in each applicable foreign and domestic
jurisdiction; (iii) to furnish Gryphon promptly with any information or writing
that Gryphon may reasonably request concerning the Collateral; (iv) to allow
Gryphon to inspect all books and records of the Company relating to the
Collateral or the Note, and to make and take away copies of such books and
records at Gryphon's expense; (v) to notify Gryphon promptly of any change in
any material fact or circumstance warranted or represented by the Company in
this Agreement or in any other writings furnished by the Company to Gryphon in
connection with the Collateral; (vi) to notify Gryphon promptly of any claim,
action, or proceeding affecting title to the Collateral, or any part thereof, or
any of the Security Interests, and at the request of Gryphon, to appear in and
defend, at the Company's sole cost and expense, any action or proceeding; and
(vii) to pay to Gryphon promptly the amount of all court costs and reasonable
attorney's fees incurred by Gryphon in the enforcement of its rights hereunder.
(C) NEGATIVE COVENANTS OF THE COMPANY. The Company covenants and
agrees that, without the prior written consent of Gryphon (which consent may be
granted or withheld in the sole and absolute discretion of Gryphon), the Company
will not create any other security interest in, mortgage, or otherwise encumber
the Collateral or any part thereof, or permit the Collateral to be or become
subject to any lien, attachment, execution, sequestration, other legal or
equitable process, or any encumbrance of any kind or character, except for (i)
the Security Interests, and (ii) first priority security interests in and to the
Collateral described on SCHEDULE A attached hereto.
6. DEFAULT; REMEDIES. Should an Event of Default occur and be
continuing, Gryphon may, at its election, exercise any and all rights available
to Gryphon under the UCC, in addition to any and all other rights afforded by
this Agreement, at law, in equity, or otherwise, including, without limitation,
(a) requiring the Company to assemble all or part of the Collateral and make it
available to Gryphon at a place to be designated by Gryphon which is reasonably
convenient to the Company and Gryphon, (b) surrendering any policies of
insurance on all or part of the Collateral and receiving and applying the
unearned premiums as a credit on the Obligation, (c) applying by appropriate
judicial proceedings for appointment of a receiver for all or part of the
Collateral (and the Company hereby consents to any such appointment), and (d)
applying to the Obligation any cash held by Gryphon under this Agreement.
(A) NOTICE. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be
made, shall be sent to the Company and to any other person entitled to notice
under the UCC; provided that if any of the Collateral threatens to decline
speedily in value or is of the type customarily sold on a recognized market,
Gryphon may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than three (3) calendar days prior to the taking of the action to
which the notice relates is reasonable notification and notice for the purposes
of this subsection.
(B) SALES OF SECURITIES. In connection with the sale of any
Collateral that is securities, Gryphon is authorized, but not obligated, to
limit prospective purchasers to the extent deemed necessary or desirable by
Gryphon to render such sale exempt from the registration requirements of the
Securities Act of 1933, as amended, and any applicable state securities laws,
and no sale so made in good faith by Gryphon shall be deemed not to be
"commercially reasonable" because so made.
(C) APPLICATION OF PROCEEDS. Gryphon shall apply the proceeds of any
sale or other disposition of the Collateral under this Section 6 in the
following order: First, to the payment of all its expenses incurred in retaking,
holding, and preparing any of the Collateral for sale(s) or other disposition,
in arranging for such sale(s) or other disposition, and in actually selling or
disposing of the same (all of which are part of the Obligation); second, toward
repayment of amounts expended by Gryphon under Section 7; and third, toward
payment of the balance of the Obligation in such order and manner as Gryphon, in
its discretion, may deem advisable. Any surplus remaining shall be delivered to
the Company or as a court of competent jurisdiction may direct.
7. OTHER RIGHTS OF GRYPHON.
(A) PERFORMANCE. In the event the Company shall fail to pay when due
all taxes on any of the Collateral, or to preserve the priority of the Security
Interests in any of the Collateral, or otherwise fail to perform any of its
obligations under this Agreement with respect to the Collateral, then Gryphon
may, at its option, but without being required to do so, pay such taxes,
prosecute or defend any suits in relation to the Collateral, or take all such
other action which the Company is required, but has failed or refused, to take
under this Agreement. Any sum which may be expended or paid by Gryphon under
this subsection (including, without limitation, court costs and attorneys' fees)
shall bear interest from the dates of expenditure or payment at the highest
lawful rate until paid and, together with such interest, shall be payable by the
Company to Gryphon upon demand and shall be part of the Obligation.
(B) COLLECTION. Upon notice from Gryphon, each Obligor with respect
to any payments on any of the Collateral (including, without limitation,
dividends and other distributions with respect to securities and insurance
proceeds payable by reason of loss or damage to any of the Collateral) is hereby
authorized and directed by the Company to make payment directly to Gryphon,
regardless of whether the Company was previously making collections thereon.
Subject to Section 7(e) hereof, until such notice is given, the Company is
authorized to retain and expend all payments made on the Collateral. Gryphon
shall have the right in its own name or in the name of the Company to compromise
or extend time of payment with respect to all or any portion of the Collateral
for such amounts and upon such terms as Gryphon may determine; to demand,
collect, receive, receipt for, xxx for, compound, and give acquaintances for any
and all amounts due or to become due with respect to the Collateral; to take
control of cash and other proceeds of any Collateral; to endorse the name of the
Company on any notes, acceptances, checks, drafts, money orders, or other
evidences of payment on the Collateral that may come into the possession of
Gryphon; to sign the name of the Company on any invoice or xxxx of lading
relating to any Collateral, on any drafts against Obligors or other persons
making payment with respect to the Collateral, on assignments and verifications
of accounts or other Collateral and on notices to Obligors making payment with
respect to the Collateral; to send requests for verification of obligations to
any Obligor; and to do all other acts and things necessary to carry out the
intent of this Agreement. If any Obligor fails or refuses to make payment on any
Collateral when due, Gryphon is authorized, in its sole discretion, either in
its own name or in the name of the Company, to take such action as it shall deem
appropriate for the collection of any amounts owed with respect to the
Collateral or upon which a delinquency exists. Regardless of any other provision
hereof, however, Gryphon shall never be liable for their failure to collect, or
for its failure to exercise diligence in the collection of, any amounts owed
with respect to the Collateral, nor shall it be under any duty whatever to
anyone except the Company to account for funds that it shall actually receive
hereunder. Without limiting the generality of the foregoing, Gryphon shall have
no responsibility for ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to any Collateral, or
for informing the Company with respect to any of such matters (irrespective of
whether Gryphon actually has, or may be deemed to have, knowledge thereof). The
rights granted Gryphon under this subsection may be exercised at any time,
whether or not an Event of Default has occurred and is continuing.
(C) RECORD OWNERSHIP OF SECURITIES. Whether or not an Event of
Default has occurred and is continuing, Gryphon at any time may have any
Collateral that is securities and that is in the possession of Gryphon, or its
nominee or nominees, registered in its name, or in the name of its nominee or
nominees, as pledgee; and, as to any securities so registered, Gryphon shall
execute and deliver (or cause to be executed and delivered) to the Company all
such proxies, powers of attorney, dividend coupons or orders, and other
documents as the Company may reasonably request for the purpose of enabling the
Company to exercise the voting rights and powers which it is entitled to
exercise under this Agreement and to receive the dividends and other payments in
respect of securities which it is authorized to receive and retain under this
Agreement.
(D) VOTING OF SECURITIES. As long as an Event of Default has not
occurred and is not continuing, the Company shall be entitled to exercise all
voting rights pertaining to any Collateral that is securities. After the
occurrence and during the continuance of an Event of Default, the right to vote
any Collateral that is securities shall be vested exclusively in Gryphon. To
this end, the Company hereby irrevocably constitutes and appoints Gryphon the
proxy and attorney-in-fact of the Company, with full power of substitution, to
vote, and to act with respect to, any and all Collateral that is securities
standing in the name of the Company or with respect to which the Company is
entitled to vote and act, subject to the understanding that such proxy may not
be exercised unless an Event of Default has occurred and is continuing. The
proxy herein granted is coupled with an interest, is irrevocable, and shall
continue until the Obligation has been paid and performed in full.
(E) CERTAIN PROCEEDS. Notwithstanding any provision of this
Agreement to the contrary, any and all stock dividends or distributions in
property made on or in respect of any Collateral that is securities, and any
proceeds of any Collateral that is securities, whether such dividends,
distributions, or proceeds result from a subdivision, combination, or
reclassification of the outstanding capital stock of any issuer thereof or as a
result of any merger, consolidation, acquisition, or other exchange of assets to
which any issuer may be a party, or otherwise, shall be part of the Collateral
hereunder, shall, if received by the Company, be held in trust for the benefit
of Gryphon, and shall forthwith be delivered to Gryphon (accompanied by proper
instruments of assignment and/or stock and/or bond powers executed by the
Company in accordance with Gryphon's instructions) to be held subject to the
terms of this Agreement. Any cash proceeds of Collateral which come into the
possession of Gryphon (including, without limitation, insurance proceeds) may,
at Gryphon's option, be applied in whole or in part to the Obligation (to the
extent then due), be released in whole or in part to or on the written
instructions of the Company for any general or specific purpose, or be retained
in whole or in part by Gryphon as additional Collateral. Any cash Collateral in
the possession of Gryphon may be invested by Gryphon in certificates of deposit
issued by any state or national bank having combined capital and surplus greater
than $10,000,000, or in securities issued or guaranteed by the United States of
America or any agency thereof. Gryphon shall never be obligated to make any such
investment and shall never have any liability to the Company for any loss that
may result therefrom. All interest and other amounts earned from any investment
of Collateral may be dealt with by Gryphon in the same manner as other cash
Collateral. The provisions of this subsection shall be applicable whether or not
an Event of Default has occurred and is continuing.
(F) SUBROGATION. If any of the Obligation is given in renewal or
extension or applied toward the payment of indebtedness secured by any lien,
Gryphon shall be, and is hereby, subrogated to all of the rights, titles,
interests, and liens securing the indebtedness so renewed, extended, or paid.
(G) INDEMNIFICATION. The Company hereby assumes all liability for
the Collateral, for the Security Interests, and for any use, possession,
maintenance, and management of, all or any of the Collateral, including, without
limitation, any taxes arising as a result of, or in connection with, the
transactions contemplated herein, and agrees to assume liability for, and to
indemnify and hold Gryphon harmless from and against, any and all claims, causes
of action, or liability, for injuries to or deaths of persons and damage to
property, howsoever arising from or incident to such use, possession,
maintenance, and management, whether such persons be agents or employees of the
Company or of third parties, or such damage be to property of the Company or of
others. The Company agrees to indemnify, save, and hold Gryphon harmless from
and against, and covenants to defend Gryphon against, any and all losses,
damages, claims, costs, penalties, liabilities, and expenses, including, without
limitation, court costs and attorneys' fees, howsoever arising or incurred
because of, incident to, or with respect to Collateral or any use, possession,
maintenance, or management thereof.
8. MISCELLANEOUS.
(A) TERM. Upon full and final payment and performance of the
Obligation, this Agreement shall thereafter terminate upon receipt by Gryphon of
the Company's written notice of such termination; provided that no Obligor, if
any, on any of the Collateral shall ever be obligated to make inquiry as to the
termination of this Agreement, but shall be fully protected in making payment
directly to Gryphon.
(B) ACTIONS NOT RELEASES. The Security Interests and the Company's
obligations and Gryphon's rights hereunder shall not be released, diminished,
impaired, or adversely affected by the occurrence of any one or more of the
following events: (i) the taking or accepting of any other security or assurance
for any or all of the Obligation; (ii) any release, surrender, exchange,
subordination, or loss of any security or assurance at any time existing in
connection with any or all of the Obligation; (iii) the modification of,
amendment to, or waiver of compliance with any terms of this Agreement without
the notification or consent of the Company, except as required herein (the right
to such notification or consent being herein specifically waived by the
Company); (iv) the insolvency, bankruptcy, or lack of corporate, partnership or
trust power of any party at any time liable for the payment of any or all of the
Obligation, whether now existing or hereafter occurring; (v) any renewal,
extension, or rearrangement of the payment of any or all of the Obligation,
either with or without notice to or consent of the Company, or any adjustment,
indulgence, forbearance, or compromise that may be granted or given by Gryphon
to the Company; (vi) any neglect, delay, omission, failure, or refusal of
Gryphon to take or prosecute any action in connection with this Agreement or any
other agreement, document, guaranty, or instrument evidencing, securing, or
assuring the payment of all or any of the Obligation; (vii) any failure of
Gryphon to notify the Company of any renewal, extension, or assignment of the
Obligation or any part thereof, or the release of any security, or of any other
action taken or refrained from being taken by Gryphon against the Company or any
new agreement between Gryphon and the Company, it being understood that Gryphon
shall not be required to give the Company any notice of any kind under any
circumstances whatsoever with respect to or in connection with the Obligation,
including, without limitation, notice of acceptance of this Agreement or any
Collateral ever delivered to or for the account of Gryphon hereunder; (viii) the
illegality, invalidity, or unenforceability of all or any part of the Obligation
against any party obligated with respect thereto by reason of the fact that the
Obligation, or the interest paid or payable with respect thereto, exceeds the
amount permitted by law, the act of creating the Obligation, or any part
thereof, is ultra xxxxx, or the officers, partners, or trustees creating same
acted in excess of their authority, or for any other reason; or (ix) if any
payment by any party obligated with respect thereto is held to constitute a
preference under applicable laws or for any other reason Gryphon is required to
refund such payment or pay the amount thereof to someone else.
(C) WAIVERS. Except to the extent expressly otherwise provided
herein, the Company waives (i) any right to require Gryphon to proceed against
any other person, to exhaust its rights in the Collateral, or to pursue any
other right which Gryphon may have; (ii) with respect to the Obligation,
presentment and demand for payment, protest, notice of protest and nonpayment,
and notice of the intention to accelerate; and (iii) all rights of marshaling in
respect of any and all of the Collateral.
(D) FINANCING STATEMENT. Gryphon shall be entitled at any time to
file this Agreement or a carbon, photographic, or other reproduction of this
Agreement, as a financing statement or other Security Document, but the failure
of Gryphon to do so shall not impair the validity or enforceability of this
Agreement.
(E) AMENDMENTS. This Agreement may be amended only by an instrument
in writing executed jointly by the Company and Gryphon, and supplemented only by
documents delivered or to be delivered in accordance with the express terms
hereof.
(F) MULTIPLE COUNTERPARTS. This Agreement may be executed in a two
identical counterparts, each of which shall be deemed an original for all
purposes and both of which will constitute, collectively, one agreement; but, in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
(G) PARTIES BOUND; ASSIGNMENT. This Agreement shall be binding on
the Company and the Company's successors and assigns and shall inure to the
benefit of Gryphon and Gryphon's successors and assigns. The Company may not,
without the prior written consent of Gryphon (which consent may be granted or
withheld in the sole and absolute discretion of Gryphon), assign any rights,
duties, or obligations hereunder. In the event of an assignment of all or part
of the Obligation, the Security Interests and other rights and benefits
hereunder, to the extent applicable to the part of the Obligation so assigned,
shall be transferred therewith.
(H) GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the internal laws of the State of Nevada and the
laws of the United States of America. The parties hereby agree that all actions
or proceedings arising directly or indirectly from or in connection with this
Agreement shall be litigated only in the United States District Court for the
Northern District of Texas located in Dallas County, Dallas, Texas. Each party
consents and submits to the jurisdiction and venue of the foregoing court and
consents that any process or notice of motion or other application to said court
or a judge thereof may be served inside or outside the State of Texas or the
Northern District of Texas (but such consent shall not be deemed a general
consent to jurisdiction and service for any third parties) by registered mail,
return receipt requested, directed to the parties at their respective addresses
provided in or pursuant to the Purchase Agreement (and service so made shall be
deemed complete three (3) days after the same has been posted as aforesaid) or
by personal service or in such other manner as may be permissible under the
rules of said court. The Company hereby waives any right to a jury trial in
connection with any litigation pursuant to this Agreement.
(I) COMPLETE AGREEMENT. This Agreement, the Purchase Agreement, the
Note, and all other agreements, instruments or documents executed and/or
delivered in connection herewith and therewith are intended by the Company and
Gryphon as a final expression of their agreement with respect to the subject
matter hereof and thereof, and supersede all prior agreements and understandings
whether oral or written with respect to the subject matter hereof and thereof.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
THE COMPANY:
KNIGHTSBRIDGE FINE WINES, INC.
By: /s/ Xxxx Xxxxxxx
------------------------------------------
Name: Xxxx Xxxxxxx
Title: President & CEO
GRYPHON:
GRYPHON MASTER FUND, L.P.
By: Gryphon Partners, L.P., its General Partner
By: Gryphon Management Partners, L.P.,
its General Partner
By: Gryphon Advisors, LLC,
its General Partner
By: /s/ Xxxxxx X. Garden
---------------------------------------------
Xxxxxx X. Garden, Authorized Agent
