EXHIBIT 10.45
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the 3rd day of
June, 1999, by KARTS INTERNATIONAL INCORPORATED (hereinafter called "Debtor",
whether one or more), in favor of THE ▇▇▇▇▇▇▇▇▇ FOUNDATION, ("Secured Party").
Debtor hereby agrees with Secured Party as follows:
1. Definitions. As used in this Agreement, the following terms shall have the
meanings indicated below:
(a) "Code" shall mean the Uniform Commercial Code as in effect in the
State of Texas, as it may hereafter be amended from time to time.
(b) "Collateral" shall mean all of the property set forth below:
Accounts. All present and future accounts, contract rights, chattel
paper, documents, instruments, deposit accounts and general
intangibles now or hereafter owned by Debtor, all money and other
funds of Debtor which may now or hereafter come into the possession,
custody or control of Secured Party, all books of account and customer
lists, and in any case where an account arises from the sale of goods,
the interest of Debtor in such goods.
Inventory. All present and hereafter acquired inventory (including
without limitation, all raw materials, work in process and finished
goods) owned by Debtor wherever located.
Equipment. All equipment of whatsoever kind and character now or
hereafter owned by Debtor, together with all replacements,
accessories, additions, substitutions and accessions to all of the
foregoing.
The term Collateral, as used herein, shall also include (i) all
records relating in any way to the foregoing (including, without
limitation, any computer software, whether on tape, disk, card, strip,
cartridge or any other form), and (ii) all PRODUCTS and PROCEEDS of
all of the foregoing (including without limitation, insurance payable
by reason of loss or damage to the foregoing property). The
designation of proceeds does not authorize Debtor to sell, transfer or
otherwise convey any of the foregoing property except finished goods
intended for sale in the ordinary course of Debtor's business or as
otherwise provided herein.
(c) "Financing Documents" shall mean all instruments and documents
evidencing, securing, governing, guaranteeing and/or pertaining to the
Indebtedness.
(d) "Indebtedness" shall mean (i) indebtedness, obligations and
liabilities owing by Debtor to Secured Party under the Note and all
other indebtedness, obligations and liabilities of Debtor to Secured
Party of any kind or character, now existing or hereafter arising,
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whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, and
regardless of whether such indebtedness, obligations and liabilities
may, prior to their acquisition by Secured Party, be or have been
payable to or in favor of a third party and subsequently acquired by
Secured Party (it being contemplated that Secured Party may make such
acquisitions from third parties), including without limitation all
indebtedness, obligations and liabilities of Debtor to Secured Party
now existing or hereafter arising by note, draft, acceptance,
guaranty, endorsement, letter of credit, assignment, purchase,
overdraft, discount, indemnity agreement or otherwise, (ii) all
obligations of Debtor to Secured Party under any documents evidencing,
securing, governing and/or pertaining to all or any part of the
indebtedness, obligations and liabilities described in (i) above,
(iii) all costs and expenses incurred by Secured Party in connection
with the collection and administration of all or any part of the
indebtedness, obligations and liabilities described in (i) and (ii)
above or the protection or preservation of, or realization upon, the
collateral securing all or any part of such indebtedness, obligations
and liabilities, including without limitation all reasonable
attorneys' fees, and (iv) all renewals, extensions, modifications and
rearrangements of the indebtedness, obligations and liabilities
described in (i), (ii) and (iii) above.
(e) "Loan Agreement" means that certain Loan Agreement of even date
herewith entered into between Debtor and Secured Party, as the same
may be renewed, extended, modified, supplement or restated from time
to time.
(f) "Note" means that certain Convertible Term Note of even date herewith
payable by Debtor to the order of Secured Party in the stated
principal amount of $1,500,000.00, as may be renewed, extended,
amended and modified.
All words and phrases used herein which are expressly defined in Section
1.201 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the
meaning specified therein except to the extent such meaning is inconsistent
with a definition in Section 1.201 or Chapter 9 of the Code. All other
words used herein which are not herein defined or defined in the Code shall
have the meaning ascribed to them in the Loan Agreement.
2. Security Interest. As security for the Indebtedness, Debtor, for value
received, hereby grants to Secured Party a continuing security interest in
the Collateral.
3. Representations and Warranties. Debtor hereby represents and warrants the
following to Secured Party:
(a) Due Authorization. The execution, delivery and performance of this
Agreement and all of the other Financing Documents executed by Debtor
have been duly authorized by all necessary corporate action of Debtor,
to the extent Debtor is a corporation, or by all necessary partnership
action, to the extent Debtor is a partnership.
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(b) Enforceability. This Agreement and the other Financing Documents
executed by Debtor constitute legal, valid and binding obligations of
Debtor, enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and
except to the extent specific remedies may generally be limited by
equitable principles.
(c) Ownership and Liens. Debtor has good and marketable title to the
Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, (other than those in favor of Secured
Party or otherwise expressly permitted by Secured Party in the other
Financing Documents including those incurred in connection with the
KBK Debt). No dispute, right of setoff, counterclaim or defense exists
with respect to all or any part of the Collateral. Debtor has not
executed any other security agreement currently affecting the
Collateral and no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on
file in any recording office except as may have been executed or filed
in favor of Secured Party or expressly permitted by Secured Party in
the other Financing Documents including those executed in connection
with the KBK Debt.
(d) No Conflicts or Consents. Neither the ownership, the intended use of
the Collateral by Debtor, the grant of the security interest by Debtor
to Secured Party herein nor the exercise by Secured Party of its
rights or remedies hereunder, will (i) conflict with any provision of
(A) any domestic or foreign law, statute, rule or regulation, (B) the
articles or certificate of incorporation, charter, bylaws or
partnership agreement, as the case may be, of Debtor, or (C) any
agreement, judgment, license, order or permit applicable to or binding
upon Debtor, or (ii) result in or require the creation of any lien,
charge or encumbrance upon any assets or properties of Debtor or of
any person except as may be expressly contemplated in the Financing
Documents. Except as expressly contemplated in the Financing
Documents, no consent, approval, authorization or order of, and no
notice to or filing with, any court, governmental authority or third
party is required in connection with the grant by Debtor of the
security interest herein or the exercise by Secured Party of its
rights and remedies hereunder.
(e) Security Interest. Debtor has and will have at all times full right,
power and authority to grant security interest in the Collateral to
Secured Party in the manner provided herein, free and clear of any
lien, security interest or other charge or encumbrance (other than
those in favor of Secured Party or otherwise expressly permitted by
Secured Party in the other Financing Documents, including those
granted in connection with the KBK Debt). This Agreement creates a
legal, valid and binding security interest in favor of Secured Party
in the Collateral securing the Indebtedness. Possession by Secured
Party of all instruments, chattel paper and cash constituting
Collateral from time to time and/or the filing of the financing
statements delivered prior hereto and /or concurrently herewith by
Debtor to Secured Party will perfect Secured Party's security interest
hereunder in the Collateral.
(f) Location. Debtor's residence or chief executive office, as the case
may be, and the office where the records concerning the Collateral are
kept is located at its address set forth on the signature page hereof.
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Except as specified elsewhere herein, all Collateral shall be kept at
such address and such other addresses as may be listed in Schedule "A"
attached hereto and made a part hereof.
(g) Solvency of Debtor. As of the date hereof, and after giving effect to
this Agreement and the completion of all other transactions
contemplated by Debtor at the time of the execution of this Agreement,
(i) Debtor is and will be solvent, (ii) the fair saleable value of
Debtor's assets exceeds and will continue to exceed Debtor's
liabilities (both fixed and contingent), (iii) Debtor is paying and
will continue to be able to pay its debts as they mature, and (iv) if
Debtor is not an individual, Debtor has and will have sufficient
capital to carry on Debtor's businesses and all businesses in which
Debtor is about to engage.
(h) Employer Identification Number. Debtor's employer identification
number is set forth below Debtor's
signature on the signature page hereof.
(i) Compliance with Environmental Laws. Except as disclosed in writing to
Secured Party, Debtor is conducting Debtor's businesses in material
compliance with all applicable federal, state and local laws,
statutes, ordinances, rules, regulations, orders, determinations and
court decisions, including without limitation, those pertaining to
health or environmental matters.
(j) Inventory. The security interest in the inventory granted hereunder
shall continue through all stages of manufacture and shall, without
further action, attach to the accounts or other proceeds resulting
from the sales, lease or other disposition thereof and to all such
inventory as may be returned to Debtor by its account debtors.
(k) Accounts. Each account pledged hereunder represents the valid and
legally binding indebtedness of a bona fide account debtor arising
from the sale or lease by Debtor of goods or the rendition by Debtor
of services and is not subject to contra accounts, setoffs, defenses
or counterclaims by or available to account debtors obligated on the
accounts except as disclosed by Debtor to Secured Party from time to
time in writing. The amount shown as to each account on Debtor's books
is the true and undisputed amount owing and unpaid thereon, subject
only to discounts, allowances, rebates, credits and adjustments to
which the account debtor has a right and which have been disclosed to
Secured Party in writing.
(l) Chattel Paper, Documents and Instruments. The chattel paper, documents
and instruments of Debtor pledged hereunder have only one original
counterpart and no party other than Debtor or Secured Party is in
actual or constructive possession of any such chattel paper, documents
or instruments, except those which are in the possession of KBK in
connection with the KBK.
4. Affirmative Covenants. Debtor will comply with the covenants contained in
this Section at all times during the period of time this Agreement is
effective unless Secured Party shall otherwise consent in writing.
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(a) Ownership and Liens. Debtor will maintain good and marketable title to
all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except those in favor of Secured
Party, the security interests and other encumbrances expressly
permitted by the other Financing Documents and those granted in
connection with the KBK Debt. Debtor will not permit any dispute,
right of setoff, counterclaim or defense to exist with respect to all
or any part of the Collateral. Debtor will cause any financing
statement or other security instrument with respect to the Collateral
to be terminated, except those liens expressly permitted in the other
Financing Documents (including those securing the KBK Debt) or as may
have been filed in favor of Secured Party. Debtor will defend at its
expense Secured Party's right, title and security interest in and to
the Collateral against the claims of any third party.
(b) Further Assurances. Debtor will from time to time at its expense
promptly execute and deliver all further instruments and documents and
take all further action necessary or appropriate or that Secured Party
may request in order (i) to perfect and protect the security interest
created or purported to be created hereby and the priority of such
security interest, (ii) to enable Secured Party to exercise and
enforce its rights and remedies hereunder in respect of the
Collateral, and (iii) to otherwise effect the purposes of this
Agreement, including without limitation: (A) executing and filing such
financing or continuation statements, or amendments thereto; and (B)
furnishing to Secured Party from time to time statements and schedules
further identifying and describing the Collateral and such other
reports in connection with the Collateral, all in reasonable detail
satisfactory to Secured Party.
(c) Inspection of Collateral. Debtor will keep adequate records concerning
the Collateral and will permit Secured Party and all representatives
and agents appointed by Secured Party to inspect any of the Collateral
and the books and records of or relating to the Collateral at any time
during normal business hours, to make and take away photocopies,
photographs and printouts thereof and to write down and record any
such information.
(d) Payment of Taxes. Debtor (i) will timely pay all property and other
taxes, assessments and governmental charges or levies imposed upon the
Collateral or any part thereof, (ii) will timely pay all lawful claims
which, if unpaid, might become a lien or charge upon the Collateral or
any part thereof, and (iii) will maintain appropriate accruals and
reserves for all such liabilities in a timely fashion in accordance
with generally accepted accounting principles. Debtor may, however,
delay paying or discharging any such taxes, assessments, charges,
claims or liabilities so long as the validity thereof is contested in
good faith by proper proceedings and provided Debtor has set aside on
Debtor's books adequate reserves therefor; provided, however, Debtor
understands and agrees that in the event of any such delay in payment
or discharge and upon Secured Party's written request, Debtor will
establish with Secured Party an escrow acceptable to Secured Party
adequate to cover the payment of such taxes, assessments and
governmental charges with interest, costs and penalties and a
reasonable additional sum to cover possible costs, interest and
penalties (which escrow shall be returned to Debtor upon payment of
such taxes, assessments, governmental charges, interests, costs and
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penalties or disbursed in accordance with the resolution of the
contest to the claimant) or furnish Secured Party with an indemnity
bond secured by a deposit in cash or other security acceptable to
Secured Party. Notwithstanding any other provision contained in this
Subsection, Secured Party may at its discretion exercise its rights
under Subsection 6(c) at any time to pay such taxes, assessments,
governmental charges, interest, costs and penalties.
(e) Mortgagee's and Landlord's Waivers. Debtor shall cause each mortgagee
of real property owned by Debtor and each landlord of real property
leased by Debtor to execute and deliver agreements satisfactory in
form and substance to Secured Party by which such mortgagee or
landlord waives or subordinates any rights it may have in the
Collateral.
(f) Accounts and General Intangibles. Debtor will duly perform and cause
to be performed all of its obligations with respect to the goods or
services, the sale or lease or rendition of which gave rise or will
give rise to each account pledged hereunder and all of its obligations
to be performed under or with respect to the general intangibles
pledged hereunder. Debtor also covenants and agrees to take any action
and/or execute any documents that Secured Party may request in order
to comply with the Federal Assignment of Claims Act, as amended.
(g) Chattel Paper, Documents and Instruments. Debtor will take such action
as may be requested by Secured Party in order to cause any Collateral
which constitute chattel paper, documents or instruments to be valid
and enforceable and will cause all chattel paper to have only one
original counterpart. Upon request by Secured Party, Debtor will
deliver to Secured Party all originals of chattel paper, documents or
instruments or will ▇▇▇▇ all originals of chattel paper with a legend
indicating that such chattel paper is subject to the security interest
granted hereunder.
(h) Condition of Goods. Debtor will maintain, preserve, protect and keep
all Collateral which constitutes goods in good condition, repair and
working order and will cause such Collateral to be used and operated
in good and workmanlike manner, in accordance with applicable laws and
in a manner which will not make void or cancelable any insurance with
respect to such Collateral. Debtor will promptly make or cause to be
made all repairs, replacements and other improvements to or in
connection with the Collateral which Secured Party may request from
time to time.
(i) Insurance. Debtor will, at its own expense, maintain insurance with
respect to all Collateral which constitutes goods in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to Secured Party from time to time. If requested by
Secured Party, each policy for property damage insurance shall provide
for all to be paid directly to Secured Party. If requested by Secured
Party, each policy of insurance maintained by Debtor shall (i) name
Debtor and Secured Party as insured parties thereunder (without any
representation or warranty by or obligation upon Secured Party) as
their interests may appear, (ii) contain the agreement by the insurer
that any loss thereunder shall be payable to Secured Party
notwithstanding any action, inaction or breach of representation or
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warranty by Debtor, (iii) provide that there shall be no recourse
against Secured Party for payment of premiums or other amounts with
respect thereto, and (iv) provide that at least ten (10) days prior
written notice of cancellation or of lapse shall be given to Secured
Party by the insurer. Debtor will, if requested by Secured Party,
deliver to Secured Party original or duplicate policies of such
insurance and, as often as Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Debtor will also, at the request of Secured Party, duly execute and
deliver instruments of assignment of such insurance policies and cause
the respective insurers to acknowledge notice of such assignment. All
insurance payments in respect of loss of or damage to any Collateral
shall be paid to Secured Party, as provided for in this paragraph, and
applied as Secured Party in its sole discretion deems appropriate.
5. Negative Covenants. Debtor will comply with the covenants contained in this
Section at all times during the period of time this Agreement is effective,
unless Secured Party shall otherwise consent in writing.
(a) Transfer or Encumbrance. Debtor will not (i) sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise
dispose of any of the Collateral, (ii) ▇▇▇▇▇ ▇ ▇▇▇▇ or security
interest in or execute, file or record any financing statement or
other security instrument with respect to the Collateral to any party
other than Secured Party except as expressly permitted in the other
Financing Documents or as provided for in the KBK Loan Documents, or
(iii) deliver actual or constructive possession of any of the
Collateral to any party other than Secured Party or KBK in connection
with the KBK Debt, except for (A) sales and leases of inventory in the
ordinary course of business, and (B) the sale or other disposal of any
item of equipment which is worn out or obsolete and which has been
replaced by an item of equal suitability and value, owned by Debtor
and made subject to the security interest under this Agreement, but
which is otherwise free and clear of any lien, security interest,
encumbrance or adverse claim; provided, however, the exceptions
permitted in clauses (A) and (B) above shall automatically terminate
upon the occurrence of an Event of Default.
(b) Impairment of Security Interest. Debtor will not take or fail to take
any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
(c) Possession of Collateral. Debtor will not cause or permit the removal
of any Collateral from its possession, control and risk of loss, nor
will Debtor cause or permit the removal of any Collateral from the
address signature page hereof and the addresses specified on Schedule
"A" to this Agreement other than (i) as permitted by Subsection 5(a),
(ii) in connection with the possession of any Collateral by Secured
Party or by its bailee or (iii) in connection with the possession of
any Collateral by KBK pursuant to the KBK Loan Documents.
(d) Goods. Debtor will not permit any Collateral which constitutes goods
to at any time (i) be covered by any document except documents in the
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possession of the Secured Party or KBK pursuant to the KBK Loan
Documents, (ii) become so related to, attached to or used in
connection with any particular real property so as to become a fixture
upon such real property, or (iii) be installed in or affixed to other
goods so as to become an accession to such other goods unless such
other goods are subject to a perfected security interest under this
Agreement.
(e) Compromise of Collateral. Debtor will not adjust, settle, compromise,
amend or modify any Collateral, except an adjustment, settlement,
compromise, amendment or modification in good faith and in the
ordinary course of business; provided, however, this exception shall
automatically terminate upon the occurrence of an Event of Default or
upon Secured Party's written request. Debtor shall provide to Secured
Party such information concerning (i) any adjustment, settlement,
compromise, amendment or modification of any Collateral, and (ii) any
claim asserted by any account debtor for credit, allowance,
adjustment, dispute, setoff or counterclaim, as Secured Party may
request from time to time.
(f) Financing Statement Filings. Debtor recognizes that financing
statements pertaining to the Collateral have been or may be filed
where Debtor maintains any Collateral, has its records concerning any
Collateral or has its residence or chief executive office, as the case
may be. Without limitation of any other covenant herein, Debtor will
not cause or permit any change in the location of (i) any Collateral,
(ii) any records concerning any Collateral, or (iii) Debtor's
residence or chief executive office, as the case may be, to a
jurisdiction other than as represented in Subsection 3(f) unless
Debtor shall have notified Secured Party in writing of such change at
least thirty (30) days prior to the effective date of such change, and
shall have first taken all action required by Secured Party for the
purpose of further perfecting or protecting the security interest in
favor of Secured Party in the Collateral. In any written notice
furnished pursuant to this Subsection, Debtor will expressly state
that the notice is required by this Agreement and contains facts that
may require additional filings of financing statements or other
notices for the purpose of continuing perfection of Secured Party's
security interest in the Collateral.
(g) Liquidations, Mergers. Debtor shall not merge or consolidate with or
into any other entity or liquidate, dissolve or otherwise cease
conducting business.
6. Rights of Secured Party. Secured Party shall have the rights contained in
this Section at all times during the period of time this Agreement is
effective.
(a) Additional Financing Statements Filings. Debtor hereby authorizes
Secured Party to file, without the signature of Debtor, one or more
financing or continuation statements, and amendments thereto, relating
to the Collateral. Debtor further agrees that a carbon, photographic
or other reproduction of this Security Agreement or any financing
statement describing any Collateral is sufficient as a financing
statement and may be filed in any jurisdiction Secured Party may deem
appropriate.
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(b) Power of Attorney. Debtor hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact, such power of attorney being coupled with
an interest, with full authority in the place and stead of Debtor and
in the name of Debtor or otherwise, from time to time in Secured
Party's discretion, to take any action and to execute any instrument
which Secured Party may deem necessary or appropriate to accomplish
the purposes of this Agreement, including without limitation: (i) to
obtain and adjust any insurance required by Secured Party hereunder;
(ii) to demand, collect, ▇▇▇ for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in
respect of the Collateral; (iii) to receive, endorse and collect any
drafts or other instruments, documents and chattel paper in connection
with clause (i) or (ii) above; and (iv) to file any claims or take any
action or institute any proceedings which Secured Party may deem
necessary or appropriate for the collection and/or preservation of the
Collateral or otherwise to enforce the rights of Secured Party with
respect to the Collateral.
(c) Performance by Secured Party. If Debtor fails to perform any agreement
or obligation provided herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses
of Secured Party incurred in connection therewith shall be a part of
the Indebtedness, secured by the Collateral and payable by Debtor on
demand.
(d) Debtor's Receipt of Proceeds. All amounts and proceeds (including
instruments and writings) received by Debtor in respect of accounts,
general intangibles or chattel paper shall be received in trust for
the benefit of Secured Party hereunder and, upon request of Secured
Party, shall be segregated from other property of Debtor and shall be
forthwith delivered to Secured Party in the same form as so received
(with any necessary endorsement) and applied to the Indebtedness in
such manner as Secured Party deems appropriate in its sole discretion.
(e) Notification of Account Debtors. Secured Party may at its discretion
from time to time notify any or all obligors under any accounts,
general intangibles or chattel paper (i) of Secured Party's security
interest in such accounts or general intangibles and direct such
obligors to make payment of all amounts due or to become due to Debtor
thereunder directly to Secured Party, and (ii) to verify the accounts,
general intangibles or chattel paper with such obligors. Secured Party
shall have the right, at the expense of Debtor, to enforce collection
of any such accounts, general intangibles or chattel paper and to
adjust, settle or compromise the amount or payment thereof, in the
same manner and to the same extent as Debtor.
(f) License. Secured Party is hereby granted a license or other right to
use, without charge, Debtor's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising
for sale and selling any Collateral and Debtor's rights under all
licenses and all franchise agreements shall inure to Secured Party's
benefit.
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7. Events of Default. Each of the following constitutes an "Event of Default"
under this Agreement:
(a) Failure to Pay Indebtedness. Debtor shall fail to pay as and when due
any Indebtedness.
(b) Non-Performance of Covenants. Debtor shall breach any covenant or
agreement made herein, in any of the Financing Documents or in any
other agreement now or hereafter entered into between Debtor and
Secured Party.
(c) False Representation. Any warranty or representation made herein or in
any of the Financing Documents shall be false or misleading in any
material respect when made.
(d) Default Under Other Financial Documents. The occurrence of an event of
default under any of the Financing Documents or any other agreement
now or hereafter entered into between Debtor and Secured Party.
(e) Default Under KBK Loan Documents. The occurrence of an event of
default under the KBK Loan Agreement or any of the other KBK Loan
Documents or any other agreement now or hereafter entered into between
Debtor and Secured Party.
(f) Untrue Financial Report. Any report, certificate, schedule, financial
statement, profit and loss statement or other statement furnished by
Debtor, or by any other person on behalf of Debtor, to Secured Party
is not true and correct in any material respect.
(g) Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Debtor to
any third party under any agreement or undertaking, including, without
limitation, KBK.
(h) Bankruptcy. The filing of a voluntary or involuntary case by or
against Debtor under the United States Bankruptcy Code or other
present or future federal or state insolvency, bankruptcy or similar
laws, or the appointment of a receiver, trustee, conservator or
custodian for a substantial portion of Debtor's assets.
(i) Insolvency. Debtor shall become insolvent, make a transfer in fraud of
creditors or make an assignment for the benefit of creditors.
(j) Involuntary Lien. The filing or commencement of any involuntary lien,
garnishment, attachment or the like shall be issued against or with
respect to the Collateral.
(k) Material Adverse Change. A material adverse change shall have occurred
in the financial condition, business prospects or operations of Debtor
or any of its subsidiaries.
(l) Tax Lien. Debtor shall have a federal or state tax lien filed against
any of its properties.
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(m) Execution on Collateral. The Collateral or any portion thereof is
taken on execution or other process of law.
(n) Guarantor's Obligations. If any of the obligations of any guarantor
under the Financing Documents is limited or terminated by operation of
law or by the guarantor, or any such guarantor becomes the subject of
an insolvency proceeding.
(o) Judgment. The entry against Debtor of a final and nonappealable
judgment for the payment of money in excess of $25,000 (not covered by
insurance satisfactory to Secured Party in its sole discretion).
8. Remedies and Related Rights. If an Event of Default shall have occurred,
and without limiting any other rights and remedies provided herein, under
any of the other Financing Documents or otherwise available to Secured
Party, Secured Party may exercise one or more of the rights and remedies
provided in this Section.
(a) Remedies. Secured Party may from time to time at its discretion,
without limitation and without notice except as expressly provided in
any of the Financing Documents:
(i) exercise in respect of the Collateral all the rights and remedies
of a secured party under the Code (whether or not the Code
applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Secured Party, assemble the
Collateral as directed by Secured Party and make it available to
Secured Party at a place to be designated by Secured Party which
is reasonably convenient to both parties;
(iii)reduce its claim to judgment or foreclose or otherwise enforce,
in whole or in part, the security interest granted hereunder by
any available judicial procedure;
(iv) sell or otherwise dispose of, at its office, on the premises of
Debtor or elsewhere, the Collateral, as a unit or in parcels, by
public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of
any part of the Collateral shall not exhaust Secured Party's
power of sale, but sales or other dispositions may be made from
time to time until all of the Collateral has been sold or
disposed of or until the Indebtedness has been paid and performed
in full), and at any such sale or other disposition it shall not
be necessary to exhibit any of the Collateral;
(v) buy the Collateral, or any portion thereof, at any public sale;
(vi) buy the Collateral, or any portion thereof, at any private sale
if the Collateral is of a type customarily sold in a recognized
market or is of a type which is the subject of widely distributed
standard price quotations;
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(vii)apply for the appointment of a receiver for the Collateral, and
Debtor hereby consents to any such appointment; and
(viii) at its option, retain the Collateral in satisfaction of the
Indebtedness whenever the circumstances are such that Secured
Party is entitled to do so under the Code or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any
notice under the Uniform Commercial Code, as it exists in the
state governing any such notice, of the sale or other disposition
of any Collateral, reasonable notice shall be deemed given when
such notice is deposited in a depository receptacle under the
care and custody of the United States Postal Service, postage
prepaid, at Debtor's address set forth on the signature page
hereof, five (5) days prior to the date of any public sale, or
after which a private sale, of any of such Collateral is to be
held. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) Executory Process. Debtor hereby acknowledges the Indebtedness,
CONFESSES JUDGMENT thereon and consents that judgment be rendered and
signed, whether during the court's term or during vacation, in favor
of the Secured Party, for the full amount of the Indebtedness,
including without limitation the Note and the Loan Agreement, in
principal, interest, and attorney's fees, together with all reasonable
and necessary charges and expenses pursuant to this instrument, the
Note, the Loan Agreement or other evidence of Indebtedness. Upon the
occurrence of an Event of Default, and in addition to all of its
rights, powers and remedies under this instrument and applicable law,
Secured Party may, at its option, cause all or any part of the
Collateral to be seized and sold under executory process or under writ
of fieri fascias issued in execution of an ordinary judgment obtained
upon the Indebtedness, without appraisement to the highest bidder, for
cash or under such terms as Secured Party deems acceptable. Debtor
hereby waives all and every appraisement of the Collateral and waives
and renounces the benefit of appraisement and the benefit of all laws
relative to the appraisement of the Collateral seized and sold under
executory or other legal process.
(c) Application of Proceeds. If any Event of Default shall have occurred,
Secured Party may at its discretion and without notice to Debtor (any
requirement of notice being expressly waived) apply or use any cash
held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale or other disposition of,
collection from, or other realization upon, all or any part of the
Collateral as follows in such order and manner as Secured Party may
elect:
(i) to the repayment or reimbursement of the reasonable costs and
expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by Secured Party in connection with
(A) the administration of the Financing Documents, (B) the
12
custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, the Collateral, and
(C) the exercise or enforcement of any of the rights and remedies
of Secured Party hereunder;
(ii) to the payment or other satisfaction of any liens and other
encumbrances upon the Collateral;
(iii)to the satisfaction of the Indebtedness (without constituting a
retention of collateral in satisfaction of an obligation within
the meaning of Section 9.505 of the Code);
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable law;
and
(vi) by delivery to Debtor or any other party lawfully entitled to
receive such cash or proceeds whether by direction of a court of
competent jurisdiction or otherwise.
(d) Deficiency. In the event that the proceeds of any sale of, collection
from, or other realization upon, all or any part of the Collateral by
Secured Party are insufficient to pay all amounts to which Secured
Party is legally entitled, Debtor and any party who guaranteed or is
otherwise obligated to pay all or any portion of the Indebtedness
shall be liable for the deficiency, together with interest thereon as
provided in the Financing Documents.
(e) Non-Judicial Remedies. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or
judicial hearing, Debtor expressly waives, renounces and knowingly
relinquishes any legal right which might otherwise require Secured
Party to enforce its rights by judicial process. Debtor recognizes and
concedes that non-judicial remedies are consistent with the usage of
trade, are responsive to commercial necessity and are the result of a
bargain at arm's length. Nothing herein is intended to prevent Secured
Party or Debtor from resorting to judicial process at either party's
option.
(f) Other Recourse. Debtor waives any right to require Secured Party to
proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Debtor in any suit arising out of the Indebtedness or any of the
Financing Documents, or pursue any other remedy available to Secured
Party. Debtor further waives any and all notice of acceptance of this
Agreement and of the creation, modification, rearrangement, renewal or
extension of the Indebtedness. Debtor further waives any defense
arising by reason of any disability or other defense of any third
party or by reason of the cessation from any cause whatsoever of the
liability of any third party. Until all of the Indebtedness shall have
been paid in full, Debtor shall have no right of subrogation and
Debtor waives the right to enforce any remedy which Secured Party has
or may hereafter have against any third party, and waives any benefit
13
of and any right to participate in any other security whatsoever now
or hereafter held by Secured Party. Debtor authorizes Secured Party,
and without notice or demand and without any reservation of rights
against Debtor and without affecting Debtor's liability hereunder or
on the Indebtedness to (i) take or hold any other property of any type
from any third party as security for the Indebtedness, and exchange,
enforce, waive and release any or all of such other property, (ii)
apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any of the
Indebtedness or other security for the Indebtedness, (iv) waive,
enforce or modify any of the provisions of any of the Financing
Documents executed by any third party, and (v) release or substitute
any third party.
9. Indemnity. Debtor hereby indemnifies and agrees to hold harmless Secured
Party, and its officers, directors, shareholders, employees, attorneys,
representatives, agents and affiliates (each an "Indemnified Person") from
and against any and all liabilities, obligations, claims, demands, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature (collectively, the "Claims") which may
be imposed on, incurred by, or asserted against, any Indemnified Person
arising in connection with the Financing Documents, the Indebtedness or the
Collateral (including without limitation, the enforcement of the Financing
Documents and the defense of any Indemnified Person's actions and/or
inactions in connection with the Financing Documents). WITHOUT LIMITATION,
THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON WITH
RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON, except to
the limited extent the Claims against an Indemnified Person are proximately
caused by such Indemnified Person's gross negligence or willful misconduct.
If Debtor or any third party ever alleges such gross negligence or willful
misconduct by any Indemnified Person, the indemnification provided for in
this Section shall nonetheless be paid upon demand, subject to later
adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the
alleged gross negligence or willful misconduct. The indemnification
provided for in this Section shall survive the termination of this
Agreement and shall extend and continue to benefit each individual or
entity who is or has at any time been an Indemnified Person hereunder.
10. Miscellaneous.
(a) Entire Agreement. This Agreement contains the entire agreement of
Secured Party and Debtor with respect to the Collateral. If the
parties hereto are parties to any prior agreement, either written or
oral, relating to the Collateral, the terms of this Agreement shall
amend and supersede the terms of such prior agreements as to
transactions on or after the effective date of this Agreement, but all
security agreements, financing statements, guaranties, other contracts
and notices for the benefit of Secured Party shall continue in full
force and effect to secure the Indebtedness unless Secured Party
specifically releases its rights thereunder by separate release.
14
(b) Amendment. No modification, consent or amendment of any provision of
this Agreement or any of the other Financing Documents shall be valid
or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.
(c) Actions by Secured Party. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by
(i) any renewal, extension, increase or modification with respect to
the Indebtedness, (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Secured Party may grant with
respect to the Collateral, or (iii) any release or indulgence granted
to any endorser, guarantor or surety of the Indebtedness. The taking
of additional security by Secured Party shall not release or impair
the lien, security interest or other security rights of Secured Party
hereunder or affect the obligations of Debtor hereunder.
(d) Waiver by Secured Party. Secured Party may waive any Event of Default
without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of
Default remedied. Neither the failure by Secured Party to exercise,
nor the delay by Secured Party in exercising, any right or remedy upon
any Event of Default shall be construed as a waiver of such Event of
Default or as a waiver of the right to exercise any such right or
remedy at a later date. No single or partial exercise by Secured Party
of any right or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right
or remedy hereunder may be exercised at any time. No waiver of any
provision hereof or consent to any departure by Debtor therefrom shall
be effective unless the same shall be in writing and signed by Secured
Party and then such waiver or consent shall be effective only in the
specific instances, for the purpose for which given and to the extent
therein specified. No notice to or demand on Debtor in any case shall
of itself entitle Debtor to any other or further notice or demand in
similar or other circumstances.
(e) Costs and Expenses. Debtor will upon demand pay to Secured Party the
amount of any and all costs and expenses (including without
limitation, attorneys' fees and expenses), which Secured Party may
incur in connection with (i) the transactions which give rise to the
Financing Documents, (ii) the preparation of this Agreement and the
perfection and preservation of the security interests granted under
the Financing Documents, (iii) the administration of the Financing
Documents, (iv) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, the Collateral,
(v) the exercise or enforcement of any of the rights of Secured Party
under the Financing Documents, or (vi) the failure by Debtor to
perform or observe any of the provisions hereof.
(f) Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION
OR NONPERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A
15
JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT IS
PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. DEBTOR AND SECURED
PARTY (BY ITS ACCEPTANCE HEREOF) EACH AGREE THAT DALLAS COUNTY, TEXAS
SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM
ARISING UNDER OR RELATING TO THIS AGREEMENT, AND THAT SUCH COUNTY IS A
CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. DEBTOR
AND SECURED PARTY (BY ITS ACCEPTANCE HEREOF) EACH CONSENT TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM.
DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER RAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
(g) Waiver of Jury Trial. DEBTOR AND SECURED PARTY (BY ITS ACCEPTANCE
HEREOF) EACH HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT
PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
(h) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be illegal, invalid or unenforceable under
present or future laws, such provision shall be fully severable, shall
not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) No Obligation. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to
extend credit to Debtor.
(j) Notices. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be
in writing and given by (i) personal delivery, (ii) expedited delivery
service with proof of delivery, (iii) United States mail, postage
prepaid, registered or certified mail, return receipt requested, or
(iv) telecopy (with receipt thereof confirmed by telecopier) sent to
the intended addressee at the address set forth on the signature page
hereof or to such different address as the addressee shall have
designated by written notice sent pursuant to the terms hereof and
shall be deemed to have been received either, in the case of personal
delivery, at the time of personal delivery, in the case of expedited
delivery service, as of the date of first attempted delivery at the
address and in the manner provided herein, in the case of mail, upon
deposit in a depository receptacle under the care and custody of the
United States Postal Service, or in the case of telecopy, upon
receipt. Either party shall have the right to change its address for
16
notice hereunder to any other location within the continental United
States by notice to the other party of such new address at least
thirty (30) days prior to the effective date of such new address.
(k) Binding Effect and Assignment. This Agreement (i) creates a continuing
security interest in the Collateral, (ii) shall be binding on Debtor
and the heirs, executors, administrators, personal representatives,
successors and assigns of Debtor, and (iii) shall inure to the benefit
of Secured Party and its successors and assigns. Without limiting the
generality of the foregoing, Secured Party may pledge, assign or
otherwise transfer the Indebtedness and its rights under this
Agreement and any of the other Financing Documents to any other party.
Debtor's rights and obligations hereunder may not be assigned or
otherwise transferred without the prior written consent of Secured
Party.
(l) Termination. Upon (i) the satisfaction in full of the Indebtedness,
(ii) the termination or expiration of any commitment of Secured Party
to extend credit to Debtor, (iii) written request for the termination
hereof delivered by Debtor to Secured Party, and (iv) written release
or termination delivered by Secured Party to Debtor, this Agreement
and the security interests created hereby shall terminate. Upon
termination of this Agreement and Debtor's written request, Secured
Party will, at Debtor's sole cost and expense, return to Debtor such
of the Collateral as shall not have been sold or otherwise disposed of
or applied pursuant to the terms hereof and execute and deliver to
Debtor such documents as Debtor shall reasonably request to evidence
such termination.
(m) Cumulative Rights. All rights and remedies of Secured Party hereunder
are cumulative of each other and of every other right or remedy which
Secured Party may otherwise have at law or in equity or under any of
the other Financing Documents, and the exercise of one or more of such
rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of any other rights or remedies.
(n) Gender and Number. Within this Agreement, words of any gender shall be
held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and
words in the plural number shall be held and construed to include the
singular, unless in each instance the context requires otherwise.
(o) Descriptive Headings. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the
scope or meaning of the various and several provisions hereof.
11. Agreement Subject to Subordination Agreement. This Agreement and the terms
and provisions hereof are subject to the terms and provisions of that
certain Subordination Agreement of even date herewith between ▇▇▇▇▇▇▇▇▇ and
KBK.
17
EXECUTED as of the date first written above.
DEBTOR:
KARTS INTERNATIONAL INCORPORATED
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
President & C.E.O.
Debtor's Address:
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
Debtor's Employer Identification Number:
▇▇-▇▇▇▇▇▇▇
Secured Party's Address:
The ▇▇▇▇▇▇▇▇▇ Foundation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
18
SCHEDULE "A"
TO
SECURITY AGREEMENT
DATED June 3, 1999
EXECUTED BY KARTS INTERNATIONAL INCORPORATED
FOR THE BENEFIT OF
THE ▇▇▇▇▇▇▇▇▇ FOUNDATION.
The addresses of any other locations of Collateral referenced in Subsection 3(f)
are as follows:
None.
