SECURITY AGREEMENT
SECURITY
AGREEMENT, dated January 4, 2008, made by DOCUMENT SECURITY SYSTEMS, INC. (the
“Borrower”), in favor of FAGENSON & CO., INC. (“Agent”).
WITNESSETH:
WHEREAS,
the Agent and the Borrower are parties to a Credit Agreement, dated as of the
date hereof (such agreement, as amended, restated or otherwise modified from
time to time, being hereinafter referred to as the “Credit
Agreement”);
WHEREAS,
pursuant
to the Credit Agreement, the Agent has agreed to make certain term loans (each
a
“Loan” and collectively, the “Loans”) on behalf of the Lenders (as
defined in the Credit Agreement) to
the
Borrower
in an
aggregate principal amount at any one time outstanding not to exceed the Maximum
Revolving Commitment (as defined in the Credit Agreement);
WHEREAS,
it is a condition precedent to the Agent making any Loan to the Borrower
pursuant to the Credit Agreement, that the Borrower shall have executed and
delivered to the Agent a security agreement providing for the grant to Agent
for
the benefit of the Lenders of a security interest in all of the stock of the
Company’s wholly owned subsidiary Plastic Printing Professionals,
Inc.;
NOW,
THEREFORE, in consideration of the premises and the agreements herein and in
order to induce the Agent to make and maintain the Loans pursuant to the Credit
Agreement, the Company hereby jointly and severally agrees with the Agent as
follows:
SECTION
1. Definitions.
(a) Reference
is hereby made to the Credit Agreement for a statement of the terms thereof.
All
terms used in this Agreement and the recitals hereto which are defined in the
Credit Agreement or in Article 9 of the Uniform Commercial Code (the “Code”) as
in effect from time to time in the State of New York and which are not otherwise
defined herein shall have the same meanings herein as set forth therein;
provided
that
terms used herein which are defined in the Code as in effect
in
the State of New York on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as Agent
may
otherwise determine.
(b) As
used
in this Agreement, the following terms shall have the respective meanings
indicated below, such meanings to be applicable equally to both the singular
and
plural forms of such terms:
SECTION
2. Grant
of Security Interest .
As
collateral security for all of the Obligations (as defined in Section 3 hereof),
the Company hereby pledges and assigns to the Agent for the benefit of the
Lenders, and grants to the Agent for the benefit of the Lenders, a continuing
security interest in all of the stock of its wholly owned subsidiary Plastic
Printing Professionals, Inc., whether now outstanding or issued at a future
date
(the “Collateral”).
SECTION
3. Security
for Obligations.
The
security interest created hereby in the Collateral constitutes continuing
collateral security for all of the following obligations, whether now existing
or hereafter incurred (the “Obligations”):
(a) the
prompt payment by the Company, as and when due and payable (by scheduled
maturity, required prepayment, acceleration, demand or otherwise), of all
amounts from time to time owing by it in respect of the Credit Agreement and
the
other Loan Documents, including, without limitation, (i) principal of and
interest on the Loans (including, without limitation, all interest that accrues
after the commencement of any Insolvency Proceeding of the Company, whether
or
not the payment of such interest is unenforceable or is not allowable due to
the
existence of such Insolvency Proceeding), and (ii) all fees, commissions,
expense reimbursements, indemnifications and all other amounts due or to become
due under any Loan Document; and
(b) the
due
performance and observance by the Company of all of its other obligations from
time to time existing in respect of the Loan Documents.
SECTION
4. Representations
and Warranties.
The
Company represents and warrants as follows:
(a) The
Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its organization,
(ii) has all requisite power and authority to execute, deliver and perform
this Agreement and each other Loan Document to be executed and delivered by
it
pursuant hereto and to consummate the transactions contemplated hereby and
thereby, and (iii) is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the properties owned or leased
by
it or in which the transaction of its business makes such qualification
necessary.
(b) The
execution, delivery and performance by the Company of this Agreement and each
other Loan Document to which the Company is a party or will be a party (i)
have
been duly authorized by all necessary action, (ii) do not and will not
contravene its charter or by-laws, or any applicable law or any contractual
restriction binding on or otherwise materially affecting the Company, (iii)
do
not and will not result in or require the creation of any Lien upon or with
respect to any of its properties and (iv) do not and will not result in any
default, noncompliance, suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to
it or
its operations or any of its properties.
(c) This
Agreement is, and each other Loan Document to which the Company is or will
be a
party, when executed and delivered pursuant hereto, will be, a legal, valid
and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws.
(d) The
Company is and will be at all times the sole and exclusive owners of, or
otherwise have and will have adequate rights in, the Collateral free and clear
of any Lien except for (i) the Lien created by this Agreement and
(ii) the Permitted Liens. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is
on
file in any recording or filing office except (A) such as may have been
filed in favor of Agent relating to this Agreement and (B) such as may have
been filed to perfect or protect any security interests or Liens permitted
by
the Credit Agreement.
(e) This
Agreement creates in favor of Agent a legal, valid and enforceable security
interest in the Collateral, as security for the Obligations.
SECTION
5. Covenants
as to the Collateral.
So long
as any of the Obligations shall remain outstanding and the Credit Agreement
and
the other Loan Documents shall not have expired or terminated, unless Agent
shall otherwise consent in writing:
(a) Further
Assurances.
The
Company will at its expense, at any time and from time to time, promptly execute
and deliver all further instruments and documents and take all further action
that may be necessary or desirable or that Agent may request in order to
(i) perfect and protect the security interest purported to be created
hereby; (ii) enable Agent to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) otherwise effect the
purposes of this Agreement.
(b) Transfers
and Other Liens.
(i) Except
to
the extent expressly permitted by the Credit Agreement, the Company will not
sell, assign (by operation of law or otherwise), lease, license, exchange or
otherwise transfer or dispose of any of the Collateral.
(ii) Except
to
the extent expressly permitted by the Credit Agreement, the Company will not
create, suffer to exist or grant any Lien upon or with respect to any
Collateral.
SECTION
6. Additional
Provisions Concerning the Collateral.
(a) The
Company hereby (i) authorizes Agent to file, one or more financing or
continuation statements, and amendments thereto, relating to the Collateral
and
(ii) ratifies such authorization to the extent that Agent has filed any
such financing or continuation statements, or amendments thereto, prior to
the
date hereof. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(b) The
Company hereby irrevocably appoints Agent as its attorney-in-fact and proxy,
with full authority in the place and stead of the Company and in the name of
the
Company or otherwise, from time to time in Agent’s discretion, to take any
action and to execute any instrument which Agent may deem necessary or advisable
to accomplish the purposes of this Agreement (subject to the rights of the
Company under Section 5 hereof), including, without limitation, to execute
assignments, licenses and other documents to enforce the rights of Agent and
the
Agent with respect to any Collateral. This power is coupled with an interest
and
is irrevocable until all of the Obligations are indefeasibly paid in full after
the termination of the Credit Agreement and the other Loan
Documents.
(c) The
powers conferred on Agent hereunder are solely to protect its interest 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 the
accounting for moneys actually received by it hereunder, 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.
SECTION
7. Remedies
Upon Default.
If any
Event of Default shall have occurred and be continuing:
(a) Agent
may
exercise in respect of the Collateral, in addition to any other rights and
remedies provided for herein or otherwise available to it, all of the rights
and
remedies of a secured party upon default under the Code (whether or not the
Code
applies to the affected Collateral), and also may (i) take absolute control
of the Collateral, including, without limitation, transfer into Agent’s name or
into the name of its nominee or nominees (to the extent Agent has not
theretofore done so) and thereafter receive, for the benefit of Agent, all
payments made thereon, give all consents, waivers and ratifications in respect
thereof and otherwise act with respect thereto as though it were the outright
owner thereof, (ii) without notice except as specified below and without
any obligation to prepare or process the Collateral for sale, sell the
Collateral or
any
part thereof in one or more parcels at public or private sale, at any of Agent’s
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as Agent may deem commercially
reasonable. all
Cash
Proceeds received by Agent in respect of any sale of or collection from, or
other realization upon, all or any part of the Collateral may, in the discretion
of Agent, be held by Agent as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to Agent pursuant
to
Section 8 hereof) in whole or in part by Agent against, all or any part of
the
Obligations in such order as Agent shall elect, consistent with the provisions
of the Credit Agreement and the Intercreditor Agreements. Any surplus of such
cash or Cash Proceeds held by Agent and remaining after the indefeasible payment
in full of all of the Obligations after the termination of the Credit Agreement
and the other Loan Documents shall be paid over to whomsoever shall be lawfully
entitled to receive the same or as a court of competent jurisdiction shall
direct.
(b) In
the
event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which Agent and the Agent are legally
entitled, the Company shall be liable for the deficiency, together with interest
thereon at the highest rate specified in any applicable Loan Document for
interest on overdue principal thereof or such other rate as shall be fixed
by
applicable law, together with the costs of collection and the reasonable fees,
costs, expenses and other client charges of any attorneys employed by Agent
to
collect such deficiency.
(c) The
Company hereby acknowledges that if Agent complies with any applicable state
or
federal law requirements in connection with a disposition of the Collateral,
such compliance will not adversely effect the commercial reasonableness of
any
sale or other disposition of the Collateral.
SECTION
8. Indemnity
and Expenses.
(a) The
Company agrees to defend, protect, indemnify and hold Agent harmless from and
against any and all claims, damages, losses, liabilities, obligations,
penalties, fees, costs and expenses (including, without limitation, reasonable
legal fees, costs, expenses, and disbursements of Agent’s counsel) to the extent
that they arise out of or otherwise result from this Agreement (including,
without limitation, enforcement of this Agreement), except claims, losses or
liabilities resulting solely and directly from Agent’s gross negligence or
willful misconduct, as determined by a final judgment of a court of competent
jurisdiction.
(b) The
Company will upon demand pay to Agent the amount of any and all costs and
expenses, including the reasonable fees, costs, expenses and disbursements
of
counsel for Agent and of any experts and Agent (including, without limitation,
any collateral trustee which may act as agent of Agent), which Agent may incur
in connection with (i) the preparation, negotiation, execution, delivery,
recordation, administration, amendment, waiver or other modification or
termination of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Collateral, (iii) the exercise or enforcement of any of the rights of Agent
hereunder, or (iv) the failure by the Company to perform or observe any of
the provisions hereof.
SECTION
9. Notices,
Etc.
All
notices and other communications provided for hereunder shall be in writing
and
shall be mailed (by certified mail, postage prepaid and return receipt
requested), telecopied or delivered, if to the Company or to Agent, to it at
its
address specified in the Credit Agreement; or as to any such Person, at such
other address as shall be designated by such Person in a written notice to
such
other Person complying as to delivery with the terms of this Section 9. All
such
notices and other communications shall be effective (i) if mailed (by
certified mail, postage prepaid and return receipt requested), when received
or
three (3) Business Days after deposited in the mails, whichever occurs first,
(ii) if telecopied, when transmitted and confirmation is received, provided
same is on a Business Day and, if not, on the next Business Day; or
(iii) if delivered, upon delivery, provided same is on a Business Day and,
if not, on the next Business Day.
SECTION
10. Miscellaneous.
(a) No
amendment of any provision of this Agreement shall be effective unless it is
in
writing and signed by the Company and Agent, and no waiver of any provision
of
this Agreement, and no consent to any departure by the Company therefrom, shall
be effective unless it is in writing and signed by Agent, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
(b) No
failure on the part of Agent to exercise, and no delay in exercising, any right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right preclude any other
or
further exercise thereof or the exercise of any other right. The rights and
remedies of Agent or any Agent provided herein and in the other Loan Documents
are cumulative and are in addition to, and not exclusive of, any rights or
remedies provided by law. The rights of Agent or any Agent under any Loan
Document against any party thereto are not conditional or contingent on any
attempt by such Person to exercise any of its rights under any other Loan
Document against such party or against any other Person, including but not
limited to, the Company.
(c) Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
(d) This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of (A) the
indefeasible payment in full of the Obligations and (B) the termination of
the
Credit Agreement and the other Loan Documents and (ii) be binding on the Company
and all other Persons who become bound as debtor to this Agreement in accordance
with Section 9-203(d) of the Code and shall inure, together with all rights
and
remedies of Agent and the Agent hereunder, to the benefit of Agent and the
Agent
and their respective permitted successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
without notice to the Company, Agent and the Agent may assign or otherwise
transfer their rights and obligations under this Agreement and any other Loan
Document, to any other Person and such other Person shall thereupon become
vested with all of the benefits in respect thereof granted to Agent and the
Agent herein or otherwise. Upon any such assignment or transfer, all references
in this Agreement to Agent or any such Agent shall mean the assignee of Agent
or
such Agent. None of the rights or obligations of the Company hereunder may
be
assigned or otherwise transferred without the prior written consent of Agent,
and any such assignment or transfer shall be null and void.
(e) Upon
the
satisfaction in full of the Obligations and the termination of the Credit
Agreement and the other Loan Documents, (i) this Agreement and the security
interests created hereby shall terminate and all rights to the Collateral shall
revert to the Company and (ii) Agent will, upon the Company’s request and at the
Company’s expense, (A) return to the Company such of the Collateral as shall not
have been sold or otherwise disposed of or applied pursuant to the terms hereof
and (B) execute and deliver to the Company such documents as the Company shall
reasonably request to evidence such termination, all without any representation,
warranty or recourse whatsoever.
f) THIS
AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE
LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF
LAW
AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION
AND
THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED
HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW
YORK.
g) ANY
LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT
RELATED THERETO MAY BE BROUGHT IN XXX XXXXXX XX XXX XXXXX XX XXX XXXX IN THE
COUNTY OF MONROE, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY
HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS,
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT
OR
PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF
SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.
h) THE
COMPANY AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) AGENT WAIVES
ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON,
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN
STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.
(i) The
Company irrevocably consents to the service of process of any of the aforesaid
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company at its address provided herein, such service
to
become effective 10 days after such mailing.
(j) Nothing
contained herein shall affect the right of Agent to serve process in any other
manner permitted by law or commence legal proceedings or otherwise proceed
against the Company or any property of the Company in any other
jurisdiction.
(k) The
Company irrevocably and unconditionally waives any right it may have to claim
or
recover in any legal action, suit or proceeding referred to in this Section
any
special, exemplary, punitive or consequential damages.
(l) Section
headings herein are included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
(m) This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which taken together constitute one in the same
Agreement.
(n) All
of
the obligations of the Company hereunder are joint and several. Agent may,
in
its sole and absolute discretion, enforce the provisions hereof against any
of
the Company and shall not be required to proceed against the Company or seek
payment from the Company. In addition, Agent may, in its sole and absolute
discretion, select the Collateral of any one or more of the Company for sale
or
application to the Obligations, without regard to the ownership of such
Collateral, and shall not be required to make such selection ratably from the
Collateral owned by all of the Company.
[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
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DOCUMENT
SECURITY SYSTEMS, INC.
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| By: | /s/ Xxxxxxx Xxxxx | |
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Name:
Xxxxxxx Xxxxx
Title:
Chief Executive Officer
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