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EXHIBIT 10.6
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SECURITY AGREEMENT
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THIS SECURITY AGREEMENT, dated as of July 27, 1999 (this "Security
Agreement"), is made by XXXXXX GREETINGS, INC., a Delaware corporation (the
"Company"), in favor of BANK ONE, INDIANA, N.A., a national banking association
formerly known as NBD Bank, N.A., as agent (in such capacity, the "Agent") for
the benefit of itself and the lenders (the "Banks") now or hereafter parties to
the Credit Agreement described below.
RECITALS
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A. The Company has entered into the Amended and Restated Credit
Agreement, dated as of May 11, 1999 (as amended or modified from time to time,
including any agreement entered into in substitution therefor, the "Credit
Agreement"), with the Banks and the Agent pursuant to which the Banks may make
Loans (as therein defined) to the Company.
B. Pursuant to an amendment to the Credit Agreement dated as of even
date herewith, the Company has agreed to grant to the Agent, for the benefit of
itself and the Banks, a first-priority security interest in and to the
Collateral hereinafter described.
AGREEMENT
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To secure (a) the prompt and complete payment of all indebtedness and
other obligations of the Company now or hereafter owing to the Banks or the
Agent under or on account of the Credit Agreement, any Security Document or any
promissory notes or other instruments issued to the Agent or the Banks pursuant
thereto, and (b) the performance of the covenants under the Credit Agreement and
the Security Documents and any monies expended by the Agent in connection
therewith (all of the aforesaid indebtedness, obligations and liabilities of the
Company being herein called the "Secured Obligations", and all of the documents,
agreements and instruments among the Company, the Agent, the Banks, or any of
them, evidencing or securing the repayment of, or otherwise pertaining to, the
Secured Obligations, including without limitation the Credit Agreement, the
Notes and the Security Documents, being herein collectively called the
"Operative Documents"), for value received and pursuant to the Credit Agreement,
the Company hereby grants, assigns and transfers to the Agent for the benefit of
the Banks and the Agent a first-priority security interest in and to the
following described property whether now owned or existing or hereafter acquired
or arising and wherever located (all of which is herein collectively called the
"Collateral"):
(i) All of the Company's present and future accounts
receivable;
(ii) All of the Company's present and future inventory of
every type, wherever located, including but not limited to raw
materials, work in process, finished goods and all inventory that is
available for leasing or leased to others by the Company;
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(iii) All books, records, files, correspondence, computer programs,
tapes, disks, cards, accounting information and other data of the Company
related in any way to the Collateral described in clauses (i) and (ii) above,
including but not limited to any of the foregoing necessary to administer, sell
or dispose of any of the Collateral;
(iv) All substitutions and replacements for, and all additions and
accessions to, any and all of the foregoing; and
(v) All products and all proceeds of any and all of the foregoing, and,
to the extent not otherwise included, all payments under insurance (whether or
not the Agent is the loss payee thereof), and any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing.
1. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The Company
further represents, warrants, covenants, and agrees with the Agent for the
benefit of the Agent and the Banks as follows:
(a) OWNERSHIP OF COLLATERAL; SECURITY INTEREST PRIORITY. At
the time any Collateral becomes subject to a security interest of the Agent
hereunder, unless the Agent shall otherwise consent, the Company shall be deemed
to have represented and warranted that (i) the Company is the lawful owner of
such Collateral and has the right and authority to subject the same to the
security interest of the Agent; (ii) other than Liens permitted under the Credit
Agreement, none of the Collateral is subject to any Lien other than that in
favor of the Agent and there is no effective financing statement or other filing
covering any of the Collateral on file in any public office, other than in favor
of the Agent. This Security Agreement creates in favor of the Agent a valid
first-priority security interest in the Collateral enforceable against the
Company and all third parties and securing the payment of the Secured
Obligations. All financing statements necessary to perfect such security
interest in the Collateral have been delivered by the Company to the Agent for
filing.
(b) LOCATION OF OFFICES, RECORDS AND FACILITIES. The Company's
chief executive office and chief place of business and the office where the
Company keeps its records concerning its accounts receivable ("Receivables") are
located in the State of Ohio, County of Xxxxxxxx at 0000 Xxxxxxx Xxxx,
Xxxxxxxxxx, Xxxx 00000. The Company will provide the Agent with prior written
notice of any proposed change in the location of its chief executive office. The
Company's only other offices and facilities are at the locations set forth in
Schedule 1(b) hereto. The Company will provide the Agent with prior written
notice of any change in the locations of its other offices and the facilities.
The tax identification number of the Company is 00-0000000. The name of the
Company is Xxxxxx Greetings, Inc., and the Company operates under no other
names, except as disclosed in writing to the Agent from time to time. The
Company shall not change its name without the prior written consent of the
Agent.
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SECURITY AGREEMENT
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(c) LOCATION OF INVENTORY. All Collateral consisting of
inventory is, and will be, located at the locations listed on Schedule 1(c)
hereto, and at no other locations without the prior written consent of the
Agent. If the Collateral is kept at leased locations or warehoused, the Company
has obtained appropriate landlord's lien waivers or appropriate warehousemen's
notices have been sent, each satisfactory to the Agent, unless waived by the
Agent.
(d) LIENS, ETC. The Company will keep the Collateral free at
all times from any and all liens, security interests or encumbrances other than
those described in paragraph 1(a)(ii) and those consented to in writing by the
Required Lenders. The Company will not, without the prior written consent of the
Agent, sell, lease, license, transfer, assign or otherwise dispose, or permit or
suffer to be sold, leased, licensed, transferred, assigned or otherwise
disposed, any of the Collateral, except for, prior to an Event of Default only
(notwithstanding any other agreement), as permitted in accordance with the terms
of the Credit Agreement. The Agent or its attorneys may at any and all
reasonable times inspect the Collateral and for such purpose may enter upon any
and all premises where the Collateral is or might be kept or located.
(e) INSURANCE. The Company shall keep the tangible Collateral
insured at all times against loss by theft, fire and other casualties. Said
insurance shall be issued by a company satisfactory to the Agent and shall be in
amounts sufficient to protect the Agent against any and all loss or damage to
the Collateral. The policy or policies which evidence said insurance shall be
delivered to the Agent upon request, shall contain a lender loss payable clause
in favor of the Agent, shall name the Agent for the benefit of the Banks as an
additional insured, as its interest may appear, shall not permit amendment,
cancellation or termination without giving the Agent at least 30 days prior
written notice thereof, and shall otherwise be in form and substance
satisfactory to the Agent. Reimbursement under any liability insurance
maintained by the Company pursuant to this paragraph 1(e) may be paid directly
to the person who shall have incurred liability covered by such insurance. In
case of any loss involving loss to tangible Collateral when the next succeeding
sentence is not applicable, the Company shall make or cause to be made the
necessary repairs to or replacements of such tangible Collateral and any
proceeds of insurance maintained by the Company pursuant to this paragraph 1(e)
shall be paid to the Company as reimbursement for the costs of such repairs or
replacements. Upon the occurrence and during the continuance of an Event of
Default or the actual or constructive total loss of any tangible Collateral, all
insurance payments in respect of such tangible Collateral shall be paid to the
Agent and, if elected by the Required Lenders, applied to the Secured
Obligations.
(f) TAXES, ETC. The Company will pay promptly, and within the
time that they can be paid without interest or penalty, any taxes, assessments
and similar imposts and charges, not being contested in good faith, which are
now or hereafter may become a Lien upon any of the Collateral. If the Company
fails to pay any such taxes, assessments or other imposts or charges in
accordance with this paragraph, the Agent shall have the option to do so and the
Company agrees to repay forthwith all amounts so expended by the Agent with
interest at the Default Rate.
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SECURITY AGREEMENT
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(g) FURTHER ASSURANCES. The Company will do all acts and
things and will execute all financing statements and writings reasonably
requested by the Agent to establish, maintain and continue a perfected and valid
security interest of the Agent in the Collateral, and will promptly on demand
pay all reasonable costs and expenses of filing and recording all instruments,
including the costs of any searches deemed necessary by the Agent, to establish
and determine the validity and the priority of the Agent's security interests. A
carbon, photographic or other reproduction of this Security Agreement or any
financing statement covering the Collateral shall be sufficient as a financing
statement.
(h) SPECIAL RIGHTS REGARDING RECEIVABLES. The Agent or any of
its agents may, at any time and from time to time in its sole discretion and
irrespective of the existence of any Event of Default under this Security
Agreement, verify, directly with each person (collectively, the "Obligors") that
owes any Receivables to the Company, the Receivables in any manner. The Agent or
any of its agents may, at any time from time to time in its sole discretion,
notify the Obligors of the security interest of the Agent in the Collateral
and/or direct such account debtors that all payments in connection with such
obligations and the Collateral be made directly to the Agent in the Agent's
name. If the Agent or any of its agents shall collect such obligations directly
from the Obligors, the Agent or any of its agents shall have the right to
resolve any disputes relating to returned goods directly with the Obligors in
such manner and on such terms as the Agent or any of its agents shall deem
appropriate. The Company directs and authorizes any and all of its present and
future account debtors to comply with requests for information from the Agent,
the Agent's designees and agents and/or auditors, relating to any and all
business transactions between the Company and the Obligors. The Company further
directs and authorizes all of its Obligors upon receiving a notice or request
sent by the Agent or the Agent's agents or designees to pay directly to the
Agent any and all sums of money or proceeds now or hereafter owing by the
Obligors to the Company, and any such payment shall act as a discharge of any
debt of such Obligor to the Company in the same manner as if such payment had
been made directly to the Company. The Company agrees to take any and all action
as the Agent may reasonably request to assist the Agent in exercising the rights
described in this Section.
2. EVENTS OF DEFAULT. The occurrence of any Event of Default under the
Credit Agreement shall be deemed an Event of Default under this Security
Agreement.
3. REMEDIES. Upon the occurrence of any Event of Default under this
Security Agreement, the Agent shall have and may exercise any one or more of the
rights and remedies provided to it under this Security Agreement or any of the
other Operative Documents or provided by law, including but not limited to all
of the rights and remedies of a secured party under the Uniform Commercial Code,
and the Company hereby agrees to assemble the Collateral and make it available
to the Agent at a place to be designated by the Agent which is reasonably
convenient to both parties, authorizes the Agent to take possession of the
Collateral with or without demand and with or without process of law and to sell
and dispose of the same at public or private sale and to apply the proceeds of
such sale to the costs and expenses thereof (including reasonable attorneys'
fees and disbursements, incurred by the Agent) and then to the payment and
satisfaction of the
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SECURITY AGREEMENT
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Secured Obligations. Any requirement of reasonable notice shall be met if the
Agent sends such notice to the Company, by registered or certified mail, at
least 5 days prior to the date of sale, disposition or other event giving rise
to a required notice. The Agent or any Bank may be the purchaser at any such
sale. The Company expressly authorizes such sale or sales of the Collateral in
advance of and to the exclusion of any sale or sales of or other realization
upon any other collateral securing the Secured Obligations. The Agent shall have
no obligation to preserve rights against prior parties. The Company hereby
waives as to the Agent and each Bank any right of subrogation or marshaling of
such Collateral and any other collateral for the Secured Obligations. To this
end, the Company hereby expressly agrees that any such collateral or other
security of the Company or any other party which the Agent may hold, or which
may come to any of the Banks or any of their possession, may be dealt with in
all respects and particulars as though this Security Agreement were not in
existence. The parties hereto further agree that public sale of the Collateral
by auction conducted in any county in which any Collateral is located or in
which the Agent or the Company does business after advertisement of the time and
place thereof shall, among other manners of public and private sale, be deemed
to be a commercially reasonable disposition of the Collateral. The Company shall
be liable for any deficiency remaining after disposition of the Collateral.
4. SPECIAL REMEDIES CONCERNING CERTAIN COLLATERAL.
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(a) Upon the occurrence of any Event of Default, the Company
shall, if requested to do so in writing, and to the extent so requested (i)
promptly collect and enforce payment of all amounts due the Company on account
of, in payment of, or in connection with, any of the Collateral, (ii) hold all
payments in the form received by the Company as trustee for the Agent, without
commingling with any funds belonging to the Company, and (iii) forthwith deliver
all such payments to the Agent with endorsement to the Agent's order of any
checks or similar instruments.
(b) Upon the occurrence of any Event of Default, the Company
shall, if requested to do so, and to the extent so requested, notify all
Obligors and other persons with obligations to the Company on account of or in
connection with any of the Collateral of the security interest of the Agent in
the Collateral and direct such account debtors and other persons that all
payments in connection with such obligations and the Collateral be made directly
to the Agent. The Agent itself may, upon the occurrence of an Event of Default,
so notify and direct any such account debtor or other person that such payments
are to be made directly to the Agent.
(c) Upon the occurrence of any Event of Default, for purposes
of assisting the Agent in exercising the rights and remedies provided to it
under this Security Agreement, the Company (i) hereby irrevocably constitutes
and appoints the Agent its true and lawful attorney, for and in the Company's
name, place and stead, to collect, demand, receive, xxx for, compromise, and
give good and sufficient releases for, any monies due or to become due on
account of, in payment of, or in connection with the Collateral, (ii) hereby
irrevocably authorizes the Agent to endorse the name of the Company, upon any
checks, drafts, or similar items which are received in payment of,
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SECURITY AGREEMENT
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or in connection with, any of the Collateral, and to do all things necessary in
order to reduce the same to money, (iii) with respect to any Collateral, hereby
irrevocably assents to all extensions or postponements of the time of payment
thereof or any other indulgence in connection therewith, to each substitution,
exchange or release of Collateral, to the addition or release of any party
primarily or secondarily liable, to the acceptance of partial payments thereon
and the settlement, compromise or adjustment (including adjustment of insurance
payments) thereof, all in such manner and at such time or times as the Agent
shall deem advisable and (iv) hereby irrevocably authorizes the Agent to notify
the post office authorities to change the address for delivery of the Company's
mail to an address designated by the Agent, and the Agent may receive, open and
dispose of all mail addressed to the Company. Notwithstanding any other
provisions of this Security Agreement, it is expressly understood and agreed
that the Agent shall have no duty, and shall not be obligated in any manner, to
make any demand or to make any inquiry as to the nature or sufficiency of any
payments received by it or to present or file any claim or take any other action
to collect or enforce the payment of any amounts due or to become due on account
of or in connection with any of the Collateral.
5. REMEDIES CUMULATIVE. No right or remedy conferred upon or reserved
to the Agent under any Operative Document is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy of the Agent under any
Operative Document or under applicable law may be exercised from time to time
and as often as may be deemed expedient by the Agent. To the extent that it
lawfully may, the Company agrees that it will not at any time insist upon,
plead, or in any manner whatever claim or take any benefit or advantage of any
applicable present or future stay, extension or moratorium law, which may affect
observance or performance of any provisions of any Operative Document; nor will
it claim, take or insist upon any benefit or advantage of any present or future
law providing for the valuation or appraisal of any security for its obligations
under any Operative Document prior to any sale or sales thereof which may be
made under or by virtue of any instrument governing the same; nor will the
Company, after any such sale or sales, claim or exercise any right, under any
applicable law to redeem any portion of such security so sold.
6. CONDUCT NO WAIVER. No waiver of default shall be effective unless in
writing executed by the Agent and waiver of any default or forbearance on the
part of the Agent in enforcing any of its rights under this Security Agreement
shall not operate as a waiver of any other default or of the same default on a
future occasion or of such right.
7. GOVERNING LAW; CONSENT TO JURISDICTION; DEFINITIONS. This Security
Agreement is a contract made under, and shall be governed by and construed in
accordance with, the law of the State of Indiana applicable to contracts made
and to be performed entirely within such State and without giving effect to
choice of law principles of such State. The Company agrees that any legal action
or proceeding with respect to this Security Agreement or the transactions
contemplated hereby may be brought in any court of the State of Indiana, or in
any court of the United States of America sitting in Indiana, and the Company
hereby submits to and accepts generally and
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SECURITY AGREEMENT
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unconditionally the jurisdiction of those courts with respect to its person and
property, and irrevocably appoints the chief financial officer of the Company,
at the Company's address set forth in the Credit Agreement, as its agent for
service of process and irrevocably consents to the service of process in
connection with any such action or proceeding by personal delivery to such agent
or to the Company or by the mailing thereof by registered or certified mail,
postage prepaid to the Company at its address set forth in the Credit Agreement.
Nothing in this paragraph shall affect the right of the Agent to serve process
in any other manner permitted by law or limit the right of the Agent to bring
any such action or proceeding against the Company or its property in the courts
of any other jurisdiction. The Company hereby irrevocably waives any objection
to the laying of venue of any such suit or proceeding in the above described
courts. Terms used but not defined herein shall have the respective meanings
ascribed thereto in the Credit Agreement. Unless otherwise defined herein or in
the Credit Agreement, terms used in Article 9 of the Uniform Commercial Code in
the State of Indiana are used herein as therein defined on the date hereof. The
headings of the various subdivisions hereof are for convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
8. NOTICES. All notices, demands, requests, consents and other
communications hereunder shall be delivered in the manner described in the
Credit Agreement.
9. RIGHTS NOT CONSTRUED AS DUTIES. The Agent neither assumes nor shall
it have any duty of performance or other responsibility under any contracts in
which the Agent has or obtains a security interest hereunder. If the Company
fails to perform any agreement contained herein, the Agent may but is in no way
obligated to itself perform, or cause performance of, such agreement, and the
reasonable expenses of the Agent incurred in connection therewith shall be
payable by the Company under paragraph 12. The powers conferred on the Agent
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and accounting for monies actually received
by it hereunder, the Agent shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral.
10. AMENDMENTS. None of the terms and provisions of this Security
Agreement may be modified or amended in any way except by an instrument in
writing executed by each of the parties hereto.
11. SEVERABILITY. If any one or more provisions of this Security
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected, impaired or prejudiced thereby.
12. EXPENSES.
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SECURITY AGREEMENT
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(a) The Company agrees to indemnify the Agent from and against
any and all claims, losses and liabilities growing out of or resulting from this
Security Agreement (including, without limitation, enforcement of this Security
Agreement), except claims, losses or liabilities resulting from the Agent's
gross negligence or willful misconduct.
(b) The Company will, upon demand, pay to the Agent an amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Security Agreement, (ii)
the custody, preservation, use or operation of, or the sale of, collection from
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Agent hereunder or under the Operative
Documents, or (iv) the failure of the Company to perform or observe any of the
provisions hereof.
13. SUCCESSORS AND ASSIGNS; TERMINATION. This Security Agreement shall
create a continuing security interest in the Collateral and shall be binding
upon the Company, its successors and assigns, and shall inure, together with the
rights and remedies of the Agent hereunder, to the benefit of the Agent and its
successors, transferees and assigns. Upon the payment in full in immediately
available funds of all of the Secured Obligations, the termination of all
commitments to lend under the Operative Documents and the termination or
expiration of all letters of credit issued thereunder, the security interest
granted hereunder shall terminate and all rights to the Collateral shall revert
to the Company.
14. WAIVER OF JURY TRIAL. The Agent and the Banks, in accepting this
Security Agreement, and the Company, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right any of them may have to a trial by jury in any litigation based
upon or arising out of this Security Agreement or any related instrument or
agreement or any of the transactions contemplated by this Security Agreement or
any course of conduct, dealing, statements (whether oral or written) or actions
of any of them. Neither the Agent, the Banks nor the Company shall seek to
consolidate, by counterclaim or otherwise, any such action in which a jury trial
has been waived with any other action in which a jury trial cannot be or has not
been waived. These provisions shall not be deemed to have been modified in any
respect or relinquished by either the Agent, the Banks or the Company except by
a written instrument executed by all of them.
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SECURITY AGREEMENT
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IN WITNESS WHEREOF, the Company has caused this Security Agreement to
be duly executed as of the day and year first set forth above.
XXXXXX GREETINGS, INC.
By: /s/ Xxxxx X. Xxxxxx
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Its: Chief Financial Officer
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SECURITY AGREEMENT
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SCHEDULE 1(b) TO SECURITY AGREEMENT
LIST OF OTHER OFFICE AND FACILITY LOCATIONS
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TYPE OF OFFICE OF FACILITY ADDRESS CITY COUNTY STATE
-------------------------- ------- ---- ------ -----
See Schedule 1(c) attached hereto and any additional locations identified below:
None
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SECURITY AGREEMENT
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SCHEDULE 1(c) TO SECURITY AGREEMENT
LIST OF INVENTORY LOCATIONS
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ADDRESS CITY COUNTY STATE If Leased or Warehoused,
------- ---- ------ ----- Name and Address of
LESSOR/WAREHOUSEMAN
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1. 0000 Xxxxxxx Xxxx Xxxxxxxxxx Xxxxxxxx Xxxx Corporate
Property Associates W.P.
Xxxxx & Co., Inc. Managing
General Partner
00 Xxxxxxxxxxx Xxxxx Xxx
Xxxx, XX 00000
2. 0000 Xxxxxxx Xxxx Xxxxxxxxx Xxxxxx Xxxxxxxx X/X
3. Walnut Meadow Road Berea Madison Kentucky See item 1 above.
4. 0000 Xxxxx Xxxxxxx Xxxxxxxx Xxxxx Xxxxxxxx XX Xxxxxxx Xxxxx, Inc.
PNC Center
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxx, Xxxx 00000
5. 00000 Xxxxx Xxxxx Xxxxxx Cucamonga San Bernardino California Xxxxxx Land Company
00000 Xxxxx Xxxxxxxxxx
Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
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SCHEDULE 1(c) TO SECURITY AGREEMENT (cont.)
6.* Temporary leased warehouses for seasonal and Silly Slammer
inventory. Maximum inventory value $4,000,000.
7.* Raw material and work in process inventory located at outside
vendors, manufacturers and converters in the normal course of business. Maximum
inventory value $25,000,000.
8.* Finished goods consignment inventory. Maximum inventory value
$4,000,000.
9. Other locations the aggregate maximum inventory value with respect
to which does not at any time exceed $500,000.
*Within 10 days after the date of this Security Agreement, the Company shall
provide to the Agent an updated Schedule 1(c) identifying the specific addresses
for temporary warehouses, outside vendors, manufacturers and converters and all
locations of consignment inventory referred to in items 6, 7 and 8 above,
together with such other information regarding such locations, and, without
limitation, executed UCC financing statements related thereto, as the Agent may
reasonably request.
Acknowledged and agreed:
XXXXXX GREETINGS, INC.
By: /S/ Xxxxx X. Xxxxxx
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Its: Chief Financial Officer
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