SECURITY AGREEMENT
(under the Uniform Commercial Code of California)
March 16, 1999
Business Factors, Inc. dba BFI Business Finance
0000 Xxx Xxxxxxx
Xxx Xxxx, XX 00000
To: BFI Business Finance:
This will confirm our understanding and agreement regarding the loan we
have requested you to make to us on the terms and conditions of this agreement.
1. You shall from time to time in your sole discretion advance to us,
the undersigned Borrower, up to eighty percent (80%) of the net face amount of
our prime accounts, as defined below in Paragraph 6, and such other sums as you
may determine, but in no event shall our aggregate indebtedness to you at any
one time exceed without your prior written approval the sum of Six Hundred
Thousand and No/100 Dollars ($600,000.00). In the event that the balance owing
under this Security Agreement exceeds the sum set forth in this Paragraph 1, or
in the event that said balance exceeds the percentage set forth above of the
value of prime accounts, as determined by you, the undersigned understands and
agrees that you shall make no further advances to the undersigned unless and
until the undersigned pays you the amount of such excess (the "Overadvance"),
and the undersigned hereby promises to pay such excess to you upon your demand.
2. Each advance and our total indebtedness to you shall be paid by us
as follows: (a) the delivery to you of all collections received by us on
accounts receivable assigned to you; (b) the delivery to you from time to time
on demand of a sum equal to the net face amount of all accounts assigned to you
and which remain uncollected more than sixty (60) days from the date of each
invoice or which are more than thirty (30) days past due. In addition, our
entire unpaid indebtedness, whenever and however created, shall become
immediately due and payable on the occurrence of an event of default as defined
in Paragraph 18 or in the case of termination, as set forth in Paragraph 20,
whether by notice, lapse of time or otherwise, whichever occurs first.
3. Advances by you to us shall bear interest, on the outstanding
average daily balance, at the rate of four percentage (4%) points per annum over
and above the so-called "base rate" of Comerica Bank-California which is in
effect from time to time, provided that the minimum amount of interest payable
by us shall not be less than Sixty Six Thousand Two Hundred and No/100 Dollars
($66,200.00) per annum. In the event that the base rate is changed, the
adjustment in the interest rate charged by you shall be made on the day such
change occurs. The base rate is a rate used by Comerica Bank-California as one
of its index rates and serves as a basis upon which effective rates of interest
are calculated for loans making reference thereto and may not be the lowest of
Comerica Bank-California's index rates. Interest shall be computed on the basis
of a 360-day year for the actual number of days elapsed. Interest shall be due
and payable to you monthly on the first day of each month, and if not so paid,
shall bear interest at the rate hereinabove specified. At your option, accrued
interest may be charged to our account as an advance. Notwithstanding anything
to the contrary contained in this agreement, no payment made by check shall be
deemed made to you until three (3) business days after receipt by you thereof to
allow for, and subject to, clearance of such checks. Each accounting rendered by
you to us shall be deemed correct and binding unless we notify you in writing to
the contrary within thirty (30) days after the date of each accounting rendered
by you.
4. At the time of execution hereof, we agree to pay you a loan
initiation fee of Five Thousand and No/100 Dollars ($5,000.00) of the sum
referred to in paragraph 1 hereof as the maximum aggregate indebtedness. In
addition, while any indebtedness remains outstanding to you pursuant to this
Agreement, on or before the first day of each month we agree to pay you an
administrative fee (the "Administrative Fee") equal to .4% per month of the
outstanding average daily balance during the month. For purposes of computing
the outstanding average daily balance outstanding during the month and the
Administrative Fee payable on account thereof, no payment made by
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check shall be deemed made to you until three (3) business days after receipt of
such checks to allow for, and subject to, clearance of such checks.
5. All of your advances and charges hereunder, together with all of our
other obligations and indebtedness to you, however and whenever created, shall
be secured by (a) a continuing security interest in all of our present and
hereafter acquired inventory, including, but not by way of limitation, raw
materials, work in process and finished goods of all nature and description; (b)
all present and hereafter acquired plant, office and/or other equipment,
including, but not limited to machinery and all attachments and appurtenances
hereto, tools, dies, molds, jigs, bores, patterns, appliances, fixtures,
furniture and furnishings; (c) assignment and pledge (hereafter sometimes called
"assignment" or "assigned") of all our accounts (as defined by Section 9106 of
the California Commercial Code) now existing or hereafter arising during the
term hereof; (d) all present and hereafter acquired contracts, contract rights,
purchase orders, chattel paper, negotiable documents, insurance policies and
proceeds; (e) all cash, cash in banks, savings institutes, certificates of
deposit, etc., now owned or hereafter acquired, and proceeds thereof; (f) all
present and hereafter acquired general intangibles, including, but not by way of
limitation to the name and goodwill of debtor, trademarks, tradenames,
copyrights, processes, patents, patent rights, patent applications, licenses,
inventions, royalties and/or commissions; (g) such other security as shown by
separate written instruments which we now or hereafter give you, and (h) any and
all other property of ours coming into your possession or under your control;
all of which security interests, assignments and pledges we hereby grant to you
in accordance with and subject to Division 9 of the California Commercial Code.
Each new advance (and all prior advances, indebtedness or liabilities) shall be
covered by all security agreements which we have then given or caused to be
given to you.
6. As used in this agreement, unless otherwise indicated by the
context, the term "prime accounts" means accounts (as defined above in Paragraph
5) which: (a) are acceptable to you; (b) have been validly assigned to you; (c)
as of the date of determining whether an account is "prime," is not more than
sixty (60) days past due; and (d) strictly comply with all our warranties and
representations to you; the term "inventory" means all goods as defined by
Section 9109(4) of the California Commercial Code and now owned or hereafter
acquired by us (or as described in any financing statement which you have been
authorized to file) and/or now or hereafter located on our premises at 000
Xxxxxxx'x Xxxxxx Xxxx., Xxx. 000, Xxx Xxxxx, Xxxxxxxxxx, 00000, or wherever
located; and the term "value" means the lower of cost or fair market value.
7. So long as we are indebted to you, we warrant, represent and agree
that: (a) all collateral security given or caused to be given by us to you is
and will be a first security interest on the property described in each such
security agreement (except insofar as we have notified you to the contrary in
writing); (b) the property covered by all security agreements given or caused to
be given by us to you is solely owned by us or the party described in such
security agreement; (c) the property covered by all security given or caused to
be given by us to you (except for sales of inventory in the ordinary course of
business) is free and clear of all liens, encumbrances, security interest and
adverse claims other than created by such security agreements; (d) the property
covered by all security agreements given or caused to be given by us to you is
kept in good condition and repair, is not subject to waste, will not (except for
sales of inventory in the ordinary course of business) be sold, transferred or
assigned or removed from the premises described in such security agreements
without first obtaining your prior written consent; (e) all accounts when
assigned to you will be prime accounts and will have been created by absolute
sales of our merchandise or services, will be genuine, bona fide and
collectible, and we will have and convey good, unencumbered and absolute title
to you free of all third party claims; (f) accounts assigned to you will not be
subject to any dispute, right of offset, counterclaim, or right of cancellation
or return; (g) at the time of assignment of accounts to you, all property giving
rise to such accounts will have been delivered (from our premises in the United
States) to, and unconditionally accepted by, each account debtor; (h) prior to
the assignment and pledge of an account to you, we will have performed all
things required of us by the terms of all agreements or purchase orders giving
rise to such accounts; (i) at the time of assignment to you, all accounts will
be due and unconditionally payable on terms of thirty (30) days or less, or on
such other terms (as are acceptable to you) which are expressly set forth on the
face of all invoices, copies of which shall be delivered to you, and no account
will then be past due; (j) all facts, figures, representations given, or caused
to be given by us to you in connection with the value of the property given to
you as security or regarding each advance or account or pertaining to anything
done under this agreement shall be true and correct; (k) our books and records
fully and accurately reflect all of our assets and
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liabilities (absolute and contingent), are kept in the ordinary course of
business in accordance with generally accepted accounting principles
consistently applied and all information contained therein is true and correct;
(l) the fair market value of the property covered by all security agreements
given by us to you, is and shall at all times be, not less than the price which
we paid therefor (less normal depreciation caused by ordinary wear and tear) and
as represented to you; (m) we will not borrow any money except under this
agreement without first notifying you; (n) we will not sell or assign any of our
accounts or pledge, encumber, hypothecate, first mortgage or otherwise create or
give any security interest on any of our property without notifying you; (o) all
taxes of any governmental or taxing authority due or payable by, or imposed or
assessed against us, have been paid and shall be paid in full before
delinquency; (p) there are no actions or proceedings pending by or against us
before any court or administrative agency, and there are no pending, threatened,
or known to be imminent litigations, governmental investigations, or claims,
complaints, or prosecutions involving us except as heretofore disclosed in
writing to you; (q) we have the legal power and authority to enter into this
agreement and to perform and discharge our obligations hereunder; (r) if we are
a corporation, we will do all things necessary to preserve our good standing as
a corporation under the laws of the State of California and the state of our
incorporation; and (s) every payment falling due on accounts assigned to you
will be duly paid and received by you on or before the earlier of ninety (90)
days from the date of each invoice or sixty (60) days from the due date of each
invoice.
8. We agree to execute upon demand by you any and all Financing
Statements, Continuation Statements or other statements intended to perfect your
security interest hereunder, in whatsoever form you may require, as provided for
and defined in Division 9 of the California Commercial Code, but you shall be
entitled and are hereby authorized to execute the same on our behalf, and you
are hereby appointed our attorney-in-fact for such purpose.
9. Each warranty, representation and agreement contained in this
agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by you regardless of any
investigation made, or information possessed by you. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements
contained in any other document or instrument which we shall give, or cause to
be given, to you, either now or hereafter.
10. Notwithstanding termination of this agreement, all assignments,
pledges, liens and/or other security interest now or hereafter granted to you
shall continue in full force until all of our indebtedness and liabilities to
you have been paid.
11. We shall promptly pay any and all expenses of storing, warehousing,
insuring, handling and shipping of our property and any and all excise,
property, sales and other taxes, security interest, encumbrances and liens,
levied or imposed by any governmental or taxing authority on us or on any of our
property or any property caused to be given to you as security. If we fail to
promptly pay when due, whether to you or any other person, monies which we are
required to pay under any portion of this agreement, you may, but need not, pay
the same and charge our account therefor and we shall promptly reimburse you
therefor. Any and all sums shall become additional indebtedness owing to you and
shall bear interest at the rate provided in Paragraph 3 hereof and shall be
covered by all security now or hereafter given by us or which we cause to be
given to you. You need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance or lien, and the receipt of the
usual official for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
12. All documents to be delivered by us shall contain such terms and be
in such form as you may require. Each assignment, pledge or other security
agreement shall include and cover all of our right, title and interest in
property described therein and all of our books, records and files relating
thereto. All ledger sheets, files, records and documents, files and records
relating to accounts, inventory, or other collateral assigned to you shall,
unless delivered to or removed by you, be kept on our premises in trust for, and
without cost to you. You may at any time remove from our premises all documents,
files and records relating to your security.
13. Prior to your first verification of inventory or audit of our
accounts, you may, in your sole discretion, determine or redetermine the value
of our inventory or accounts by applying to our assigned value thereof such
percentage as you deem appropriate, based upon your initial sample of other
basis. You may likewise
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determine or redetermine the value thereof between your inventory verifications
and audits, based upon your last preceding verification, audit, sampling, review
or other basis.
14. We shall have the revocable privilege to collect at our expense the
payments due on accounts assigned to you, upon the express condition, however,
that all such collections shall (a) be received by us in trust for you; (b) not
be mingled with our own funds; and (c) be delivered to you in kind within
twenty-four (24) hours after our receipt of the same. Our collection privilege
as described above is subject to revocation by you at any time and shall be
automatically revoked upon the happening of an event of default as defined
below. Unless the instruments so received by you are dishonored, or unless you
shall in your discretion have remitted the amount thereof to us, you shall
credit the amount thereof against our indebtedness to you as set forth in
Paragraph 3. You are hereby irrevocably our attorney-in-fact with authority and
power to endorse our name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into your possession;
to sign our name on any invoice or xxxx of lading related to any accounts, on
drafts against account debtors, on schedules and assignments of accounts, on
verification of accounts and notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of our mail, to receive and open all mail addressed to us, and to
retain all mail relating to your security and forward all other mail to us; to
send, whether in writing or by telephone, requests for verification of accounts;
and to do all things necessary to carry out this agreement.
15. If any property referred to or covered by any account assigned to
you shall remain in, or revert to, our possession, we will forthwith set it
apart, xxxx and designate it as your property and promptly notify you. We will
prepare and deliver to you balance sheets, profit and loss statements, schedules
of accounts, agings (listing the names and addresses of, and amounts owing by
date, by account debtors), and such other reports, analysis and operating data
as you may from time to time reasonably request orally or in writing, all in
form acceptable to you. You or your agents or employees shall have the right,
during our usual business hours, or during the usual hours of any third person
having control thereof, to have access to, examine, inspect and/or audit any or
all of our books and records, including, but not limited to minute books,
ledgers, records indicating, summarizing or evidencing our assets (including
accounts, inventory and equipment) and liabilities, and all information relating
thereto, records indicating, summarizing or evidencing our business operations
or financial condition, and all computer programs, disc or tape files,
printouts, runs and other computer prepared information and the equipment
containing such information, and permit you or your employees or agents to copy
and make extracts therefrom.
16. We shall accept no returns and shall grant no allowances or credits
to account debtors without notifying you at the time credit is issued. We shall
maintain insurance at our expense on property given to you as security with such
carriers, covering such risks and containing such amount of coverage and other
terms (including an endorsement providing for non-cancellation except upon
thirty (30) days written notice to you and a loss payable endorsement in your
favor) as you may from time to time specify in writing. We shall promptly
deliver to you copies of all policies, endorsements, evidence of premium
payment, claims and reports to insurance carriers.
17. We promise and agree to pay all costs and expenses and all
attorneys' fees incurred by you in connection with this agreement and the
transactions contemplated hereby (including without limitation the prosecution
of motions or actions seeking relief from any stay or restraint under the
Bankruptcy Code from pursuing any remedy hereunder), whether or not suit between
us is brought. You may bring all proceedings for collection in your name or in
our name and may exercise our right of stoppage in transit, replevin and
reclamation.
18. Without limiting any other portion of this agreement, all our
indebtedness and obligation to you shall automatically accelerate and become
immediately due and payable, and the revocable collection privilege referred to
in Paragraph 14 shall be automatically revoked, upon termination (by lapse of
time or otherwise) of this agreement or upon the happening of any one of the
following events of default:
(a) Our failure to make any payment to you when due, or any
default under, or breach or violation of, any warranty, representation,
obligation, agreement, condition or undertaking contained herein or in any other
written document which we now or hereafter execute and deliver, or which we now
or hereafter cause to be executed and delivered to you; (b) Any change in our
business, (including, without limitation, the ownership
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thereof) or financial condition or that of any guarantor of any of our
obligations or indebtedness hereunder or any decline in the value of any
property given to you as security, which causes you to deem yourself insecure;
(c) The withdrawal or cancellation of any guarantor of any of our obligations or
indebtedness hereunder, or the termination of any subordination agreement
whereby any indebtedness is subordinated to our obligations to you; (d) The
ceasing to do business as a going concern, or the assignment of any property for
the benefit of creditors or the commission of any act of bankruptcy or
insolvency, by or on the part of us or any guarantor of any of our obligations
or indebtedness hereunder; (e) The filing by or against us or any guarantor of
any of our obligations or indebtedness hereunder of any petition or application
in bankruptcy, reorganization, arrangement, trusteeship or receivership, whether
under the United States Bankruptcy Code or otherwise, or the appointment of a
trustee or receiver over all or any part of the property or business of us or
any guarantor of any of our obligations or indebtedness hereunder, or the
levying of an attachment or garnishment on any of our property which is not
released within ten (10) days; (f) Any of the property covered by any of the
security agreements given or caused to be given by us to you is lost, secreted,
misused or destroyed; or (g) Any delinquency on our part in paying any tax when
it comes due.
19. We waive presentment, demand, protest and notice of dishonor as to
any instrument. We consent to any extensions, modifications, allowances,
compromises or releases of security which you may grant, none of which shall
release us or any guarantors from, or affect, any of our or their obligations to
you.
20. This agreement shall be effective as of the date first set forth
above and shall remain in full force and effect for a period of twelve (12)
month(s) (the "Basic Term"). Notwithstanding the preceding sentence, this
agreement shall be renewed automatically for successive periods (each, a
"Renewal Term") equal to the term of the Basic Term unless this agreement is
terminated by either party giving written notice (a "Termination Notice") to the
other party specifying such termination. Termination Notices shall be given by
mailing a registered or certified letter specifying such termination not less
than thirty (30) days prior to the effective date of such termination, addressed
to the other party at the address set forth herein, and the termination shall be
effective as of the date fixed in such notice. Notwithstanding the foregoing,
should we be in default of one or more provisions of this agreement, you may
terminate this agreement at any time without notice. After termination and when
you have received all sums due to you, you shall reassign to us all collateral
held by you, and shall execute a cancellation of, and/or reconveyance under, all
security agreements given by us to you, upon the execution and delivery of
mutual general releases.
21. We will reimburse you for all out-of-pocket expenses incurred by
you, including, without limitation, the cost of title searches, title reports,
recording fees, filing fees, publication fees, attorneys' fees and all other
expenses similar to the foregoing. If during the term hereof, we fail to make
any such payment required by us, you may, but need not, pay the same and charge
our account therefor.
22. In case of any breach or default by us, or the occurrence of any of
the events of default described in Paragraph 18, or if we fail or neglect to
promptly pay any and all of our indebtedness or other liabilities, when due, all
of our indebtedness and liabilities, hereunder or otherwise, shall, without
notice or demand, become immediately due and payable at your option. Thereafter,
all amounts outstanding shall bear interest at the rate of three percent (3 %)
of the outstanding balance per month. Upon the occurrence of any such event you
may immediately, or at any time or times thereafter, without any demand or
notice to us or any guarantor of any of our obligations or liabilities hereunder
and without advertisement or notice, all of which are expressly waived, commence
an action for the recovery of any and all of such indebtedness and obligations,
commence proceedings to sell, lease or otherwise dispose of any and all
collateral covered by this agreement and by all security agreements given or
caused to be given by us to you or, without legal proceedings, enter such places
as any of such collateral may be found and take possession of such collateral
and sell the same. Such collateral may be sold where it is located at the time
of the breach or default, or elsewhere, at public or private sale, for cash,
upon credit or otherwise at your sole option and discretion. We hereby further
waive all notices of seizure and sale, and all requirements that such property
be physically present at the place of sale. Any person, including you, may
purchase at any such sale, free from any right of redemption which is expressly
waived, and if you are the purchaser, may turn all or part of any of our
indebtedness to you in toward payment of the purchase price. The proceeds of any
such sale or other disposition shall be applied, first to all expenses of
setting all liens and claims against, and all costs, charges and
5
expenses incurred in taking, removing, holding, repairing and selling such
collateral, including without limitation, all attorneys' fees and costs incurred
by you, and, second, to the payment of all our indebtedness or liabilities to
you, whether due, or to become due, and whether arising under this agreement or
otherwise. The surplus, if any, shall be delivered to us. We shall pay any
deficiency forthwith.
23. All notices or demands hereunder shall be in writing and sent by
certified, first class mail. They shall be deemed received when deposited in a
United States Post Office Mail Box, postage paid, properly addressed to you or
us at the addresses set forth herein or to such other address as you or we may
from time to time specify in writing.
24. So long as you comply with your obligations, if any, under Section
9207 of the Uniform Commercial Code, you shall not be liable or responsible for
the safekeeping of any collateral, any loss or damage to the collateral
occurring or arising in any manner or fashion from any cause, any diminution in
the value of the collateral, or any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. We agree you shall not be
liable or responsible for any failure to make Advances if in your discretion you
believe we are not entitled to receive such Advances, any accounting or
administrative errors made by you so long as such errors are not in bad faith,
or any other failure by you unless the same arises from your active negligence
or willful misconduct. We agree to give you prompt written notice of any default
or alleged default by you, and you shall be allowed such time as reasonably is
required to cure any such default. We agree to defend, indemnify and hold
harmless you and your officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses in any way suffered, incurred, or paid by you as a result of or
in any way arising out of, following, or consequential to the transactions
between you and us under this Agreement (including without limitation,
reasonable attorneys' fees and expenses), except for losses caused by your
active negligence or willful misconduct.
25. If we, the undersigned, are two or more in number, then (a)
regardless of the form of your check or other papers, your loan hereunder
(consisting of each and every advance) shall be deemed to be made to each and
all of us and we shall be jointly and severally obligated to repay the same; (b)
each of us jointly and severally makes, and is liable for, each and every
warranty, representation, obligation, covenant and undertaking under this
agreement; and (c) when permitted by the context, the words "we", "our" or "us"
or other similar words referring to the undersigned borrower shall include and
mean all, or any one or more of us.
26. Your rights and remedies under this agreement and all security
agreements shall be cumulative and you shall have all other rights and remedies
not inconsistent therewith as provided by law; no exercise by you of one right
or remedy shall be deemed an election and no waiver by you of any default in our
part shall be deemed a continuing waiver. No delay by you shall constitute a
waiver or election. This agreement shall be binding when signed by you where
indicated below and shall bind and inure to the benefit of your and our
respective successors and assigns. However, we may not assign this agreement or
any rights hereunder without your prior written consent. No such consent by you
shall release us or any guarantor of any obligation or indebtedness hereunder.
Paragraphs and paragraph numbers have been set forth herein for convenience
only; unless the contrary is compelled by the context, everything contained in
each paragraph applies equally to all paragraphs herein. Neither this agreement
nor any uncertainty, or ambiguity herein shall be construed or resolved against
you or us whether under any rule of construction or otherwise; on the contrary,
this agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words so used as to fairly
accomplish the purposes and intentions of all parties hereto. When permitted by
the context, the singular includes the plural and vice versa.
27. Each and every provision of this agreement shall be severable from
every other provision for the purposes of determining legal enforceability of
any such provision or provisions.
28 . Any lawsuit or other proceeding arising or connected with this
Agreement or the security interests created hereunder shall, to the extent
permitted by law, be brought and tried solely in the Superior
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Court of Santa Xxxxx County, California. WE HEREBY WAIVE ANY RIGHT TO A JURY
TRIAL IN ANY ACTION HEREUNDER OR ARISING OUT OF OUR TRANSACTIONS WITH YOU.
If the foregoing correctly states the agreement and understanding
between us, please sign the enclosed copy of this agreement where indicated
below and return it to us.
Very truly yours,
HyperMedia Communications, Inc.
__________________________________________
By: Xxxxxxx Xxxxxx
Its: Chief Executive Officer
ACCEPTED AND AGREED TO:
San Jose, California
Business Factors, Inc. dba
BFI Business Finance
_____________________________________
By: Xxxxx Xxxxxx
Its: Vice President
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