SECURITY AND PLEDGE AGREEMENT
Exhibit 3
This Security and Pledge Agreement (“Pledge Agreement” or “Agreement”) is dated as
of August 11, 2006 by and between 540 INVESTMENT COMPANY LIMITED PARTNERSHIP, a Delaware limited partnership
(“Secured Party”), and Xxx X. XXXXX (“Debtor”).
R E C I T A L S:
A. Debtor is the legal and beneficial owner of one thousand nine hundred fifty (1,950) Class
II Membership Interests and five hundred (500) Class III Membership Interests in Xxxxxx X. Xxxxx
Limited Liability Company, an Ohio limited liability company (“IISLLC”), which Class II Membership
Interests and Class III Membership Interests collectively constitute a twenty-four and one-half
percent (24.5%) equity interest in IISLLC and are hereinafter referred to collectively as the
“Assigned Membership Interests”.
B. Debtor is indebted to Secured Party in the original principal amount of Two Million Five
Hundred Thousand Dollars ($2,500,000), which indebtedness is evidenced by a promissory note dated
as of the date hereof from Debtor, as maker, in favor of Secured Party, as payee (the “Note”).
C. Debtor is also indebted to XXXXXX XXXXX XXXXX, in her capacity as sole Trustee of the
Xxxxxx X. Xxxxx Trust originally dated April 21, 1947, as amended (“Senior Secured Party”) in the
amount of Three Million Three Hundred Eight Thousand Nine Hundred Fifty Dollars ($3,308,950), which
indebtedness is evidenced by a promissory noted dated as of the date hereof from Debtor, as maker,
in favor of Senior Secured Party, as payee (the “Senior Note”), which Senior Note is secured by a
first security interest in and pledge of the Assigned Membership Interests in accordance with the
terms and provisions set forth in that certain Security and Pledge Agreement dated as of the date
hereof from Debtor in favor of Senior Secured Party (the “Senior Pledge Agreement”).
D. To secure Debtor’s obligations under the Note, Debtor has agreed to grant to Secured Party
a second security interest in and pledge of the Assigned Membership Interests upon the terms and
provisions set forth in this Pledge Agreement.
E. Debtor and Secured Party have agreed that the Note shall at all times be subject and
subordinate to the payment of all obligations evidenced by the Senior Note and Senior Pledge
Agreement and that the security interest granted by this Pledge Agreement in the Assigned
Membership Interests shall be subject and subordinate to the security interest granted by Debtor to
Senior Secured Party in the Senior Pledge Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, Debtor and Secured Party
agree to the following:
1. Grant of Security Interest. To secure the Secured Obligations (as defined in
Section 2), Debtor hereby pledges, assigns and grants to Secured Party a security interest in the
Assigned Membership Interests, and all proceeds thereof and substitutions therefore (hereafter
referred to as the “Pledged Interests”), which security interest shall at all times be subject
and subordinate to the security interest in the Pledged Interests (as defined in the Senior Pledge
Agreement) granted to the Senior Secured Party pursuant to the Senior Pledge Agreement. .
2. Secured Obligations. This Pledge Agreement secures the following obligations (the
“Secured Obligations”): (a) the payment, performance and observance of all of Debtor’s covenants,
agreements, obligations, terms and conditions under the Note, including without limitation,
Debtor’s obligation to pay the principal amount and all interest thereon; and (b) all obligations
of Debtor under this Pledge Agreement.
3. Events of Default. The occurrence of any event of default under the Note, the
breach of any representation or warranty by Debtor hereunder, or the failure of Debtor to comply
with any covenant or agreement hereunder shall constitute an event of default hereunder (each such
event hereinafter referred to as an “Event of Default”).
4. Remedies. Subject to the provisions of Section 18 below, upon the occurrence of an
Event of Default, and at any time thereafter, Secured Party may do any one or more of the
following:
(a) Exercise its rights as a secured party under Ohio law, including, without limitation,
under the Ohio Uniform Commercial Code.
(b) Commence and prosecute an action to foreclose Debtor’ equity of redemption in the Pledged
Interests or any portion thereof.
(c) Without notice, apply the cash, if any, then held by it as security to the payment of
amounts due to Secured Party.
(d) Receive all cash and/or other distributions with respect to the Pledged Interests and
apply them to payment of amounts due to Secured Party.
(e) Without waiving any prior or subsequent default, waive any default or, with or without
waiving any default, remedy any default.
(f) Give instructions to IISLLC on account of the Pledged Interests, including, without
limitation, to make distributions on the Pledged Interests to the Secured Party.
5. Powers of Secured Party. Subject to the provisions of Section 18 below, Secured
Party shall have the following powers in exercising its rights:
(a) Any sale of any of the Pledged Interests may be public or private, for cash, upon credit,
or for future delivery.
(b) Secured Party may impose such restrictions on the sale of any Pledged Interests as Secured
Party deems desirable to meet the requirements of federal or state securities laws or any
exemptions thereto.
(c) Ten (10) days’ written notice of intention to make any sale that states the time and place
of sale shall be conclusively deemed commercially reasonable, but shall not preclude any other
commercially reasonable notice of sale.
(d) Any public sale shall be held at such time or times within the ordinary business hours and
at such place or places as Secured Party may fix in the notice of sale.
(e) The Pledged Interests may be sold in one block or in separate blocks.
(f) Secured Party shall not be obligated to make any sale pursuant to any notice of sale.
Secured Party may, without notice, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the sale. Any sale
adjourned may be made at any time or place to which the same may have been adjourned.
(g) In any sale on credit or for future delivery, Secured Party may retain the Pledged
Interests so sold until the sale price has been paid by the purchaser, but Secured Party shall not
be liable for the failure of any purchaser to pay for the Pledged Interests. If any purchaser of
the Pledged Interests fails to pay the purchase price in full, the Pledged Interests may again be
sold.
(h) After deducting all costs and expenses of exercising any remedy, including the costs and
expenses of any sale and delivery, reasonable attorneys’ fees and other costs and expenses of
collection, Secured Party shall apply the residue of any proceeds first to the payment of any costs
Secured Party may pay or incur in enforcing its rights hereunder and second to the payment of any
sums otherwise due from Debtor to Secured Party pursuant to the Note, this Pledge Agreement or
otherwise.
(i) Secured Party shall not be required to sell the Pledged Interests, except to the extent
required by applicable law. Secured Party may purchase the Pledged Interests at any public sale.
6. Covenants. Debtor covenants and agrees to (a) prevent IISLLC from amending its
Operating Agreement, or other governing or organizational documents to provide that the ownership
interests of IISLLC (including the Pledged Interests) are to be treated as securities governed by
Article 8 of the Uniform Commercial Code (“UCC”); (b) prevent IISLLC from issuing any certificates
evidencing any of the Pledged Interests; (c) defend the right, title and security interest of
Secured Party in and to the Pledged Interests, and (d) not sell, assign, transfer or otherwise
dispose of the Pledged Interests unless such purchaser, assignee or transferee agrees to take the
Pledged Interests subject to and be bound by this Pledge Agreement.
7. Representations. Debtor represents and warrants to the Secured Party that: (a)
Debtor is and will be the sole legal and beneficial owner of the Pledged Interests free and clear
of any adverse claim, lien or other right, title or interest of any party, other than the security
interest granted in favor of Senior Secured Party pursuant to the Senior Pledge Agreement; (b) this
Pledge Agreement creates a valid, perfected and second priority security interest in one hundred
percent (100%) of the Pledged Interests in favor of the Secured Party securing payment of the
Secured Obligations; (c) the Assigned Membership Interests constitutes 24.5% of all the fully
diluted issued and outstanding capital ownership interests of IISLLC; (d) the Pledged
Interests are not “securities” governed by Article 8 of the UCC; (e) Debtor has the full right and
power to pledge the Pledged Interests hereunder; (f) Debtor has received good and valuable
consideration for this Pledge Agreement and this Pledge Agreement is the legal, valid and binding
obligation of Debtor, enforceable against it in accordance with its terms, (g) the Pledged
Interests are not subject to any right of first refusal, option, or other restriction or right that
prevents the grant of the security interests hereunder, and (h) Debtor’s exact legal name is
“Xxx X. Xxxxx.”
8. Appointment as Attorney-in-Fact. Debtor hereby irrevocably constitutes and
appoints Secured Party with the full power of substitution, as Debtor’s true and lawful
attorney-in-fact with full irrevocable power and authority in the place and stead of Debtor and in
the name of Debtor or in Secured Party’s own name, from time to time in Secured Party’s discretion,
for the purpose of carrying out the terms of this Pledge Agreement, to take any and all appropriate
action and to execute any and all documents and instruments that may be necessary or desirable to
accomplish the purpose of this Pledge Agreement. Debtor hereby ratifies all that Secured Party
shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
9. Waivers. Debtor agrees that Secured Party assumes no responsibility and shall not
be held liable for loss or damage for failure to collect or realize upon or to preserve any rights
pertaining to the Pledged Interests. Further, Debtor waives presentment of any kind, notice of
dishonor, payment and any other notice or demand of any kind whatsoever with respect to the Note or
other Secured Obligations. Debtor waives acceptance of this Pledge Agreement.
10. Release of Pledged Interests. After all payments due under the Note and under
this Pledge Agreement have been made and all covenants, agreements, obligations, terms and
conditions under the Note and under this Pledge Agreement have been performed, satisfied or waived,
Secured Party shall deliver to Debtor such instruments as may be necessary to cancel this Pledge
Agreement and revest the Pledged Interests in Debtor free and clear of the lien hereof.
11. Notices. All notices or other communications required or permitted by this Pledge
Agreement shall be in writing and delivered by certified mail or overnight courier, postage or
delivery cost prepaid, or sent by electronic or facsimile transmission (with confirmation of
transmittal), or delivered by hand to the address listed below.
12. Expenses. Debtor defends and holds Secured Party harmless from and against
expenses arising in connection with the enforcement of this Pledge Agreement, including but not
limited to, reasonable attorneys’ and professional fees and disbursements.
13. Applicable Law. This Pledge Agreement is being delivered and is to be construed
and enforced under the laws of the State of Ohio, and all rights and remedies of Secured Party as a
secured party under Ohio law (including under the Uniform Commercial Code of the State of Ohio)
shall be cumulative to all other rights and remedies of Secured Party.
14. Successors and Assigns. This Pledge Agreement shall be binding and inure to the
benefit of Secured Party and Debtor and their respective heirs, personal representatives,
successors and assigns.
15. Security. Subject to the provisions of Section 18 below, this Pledge Agreement
shall not prejudice the rights of Secured Party to enforce collection of amounts due under the Note
or performance or observance of any covenants, agreements, obligations, terms or conditions under
the Note by suit or in any lawful manner. The enumeration of certain rights and remedies in this
Pledge Agreement shall not be construed as a waiver of, nor an impairment in any way of, other
rights and remedies of Secured Party. No waiver or consent granted by Secured Party in respect of
this Pledge Agreement shall be binding upon Secured Party unless specifically granted in writing,
which writing shall be strictly construed. No course of dealing in respect of, nor omission or
delay in the exercise of, any right, power or privilege by Secured Party shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any further or other exercise
thereof, as each right, power and privilege may be exercised by Secured Party either independently
or concurrently with other rights, powers and privileges and as often and in such order as Secured
Party may deem expedient.
16. Further Assurances. Debtor agrees to take all further action that may be
reasonably requested by Secured Party to perfect and protect the security interest granted hereby
and to enable Secured Party to exercise its remedies hereunder, including, without limitation,
causing IISLLC to comply with Secured Party’s instructions upon the occurrence of an Event of
Default. Debtor authorizes Secured Party to file such financing statements as Secured Party deems
necessary to perfect its security interest in the Pledged Interests.
17. Severability. The parties intend this Pledge Agreement to comply with all laws,
and this Pledge Agreement shall be construed to be consistent with all laws to the extent possible.
If any provision of this Pledge Agreement or the application of any provision to any party or
circumstance cannot be so construed, and is adjudged invalid or unenforceable, the application of
the provision to other parties or circumstances and the application of the remainder of this Pledge
Agreement shall not be affected. Each provision of this Pledge Agreement shall be valid and
enforceable to the fullest extent permitted by law. This Agreement shall be governed by the laws
of the State of Ohio.
18. Subordination. Secured Party covenants and agrees, and each holder of the Note
and each assignee of this Pledge Agreement, by its acceptance of such Note and Pledge Agreement,
covenants and agrees, that notwithstanding anything to the contrary contained in the Note or this
Pledge Agreement, the payment of any and all of the indebtedness evidenced by the Note and/or
Secured by this Pledge Agreement shall be subordinate and subject in right and time of payment, to
the extent and in the manner herein set forth, to the final payment of the Senior Note and any and
all amounts due under the Senior Pledge Agreement.
Notwithstanding anything contained in this Pledge Agreement to the contrary, unless the written
consent of Senior Secured Party is first obtained, Debtor hereby agrees that it shall not make, and
Secured Party agrees that it will not accept, any payment or distribution with respect to any
indebtedness evidenced by the Note or the Pledge Agreement, until the indebtedness evidenced by the
Senior Note and Senior Pledge Agreement is paid in full. Moreover, until the
indebtedness evidenced by the Senior Note and/or the Senior Pledge Agreement is paid in full,
Secured Party shall not, without the prior written consent of Senior Secured Party, exercise any of
the remedies provided herein.
19. Counterparts. This Pledge Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together shall be but one and the
same document.
20. Non-Recourse. Notwithstanding anything contained in this Pledge Agreement to the
contrary, this Pledge Agreement is non-recourse, and Debtor shall have no personal liability for
any of the obligations contained in this Pledge Agreement. Rather, in the Event of Default, and
subject to the provisions of Section 18 above, Secured Party’s only recourse shall be to proceed
against, foreclose upon or otherwise take action with respect to the Pledged Interests as provided
in this Pledge Agreement.
IN WITNESS WHEREOF, Debtor and Secured Party have executed and delivered this Security and
Pledge Agreement as of the date first above written.
Address:
|
Debtor: | |
Xxx Xxxxxxxx Xxxx |
||
Xxxxxxxxx, Xxxx 00000
|
/s/ Xxx Xxxxx | |
| Xxx X. Xxxxx | ||
| Secured Party: | ||
Address:
|
540 INVESTMENT COMPANY LIMITED | |
| PARTNERSHIP | ||
Xxx Xxxxxxxx Xxxx |
||
Xxxxxxxxx, Xxxx 00000
|
By: 540 General Corp., General Partner | |
| By: /s/ Xxxxx Xxxxx | ||
| Xxxxx Xxxxx, President |
