SECURITY AGREEMENT
DATE:
December 15, 1997
DEBTOR:
Canmax, Inc. and Canmax Retail Systems, Inc. (hereinafter jointly and
collectively called "Debtor").
DEBTOR'S MAILING ADDRESS (INCLUDING COUNTY):
000 X. Xxxxxxxxx Xxxxxxx
Xxxxxx, XX 00000
SECURED PARTY:
Founders Equity Group, Inc.
Agent on behalf of:
Founders Equity Group, Inc. and
Founders Mezzanine Investors III, LLC
SECURED PARTY'S MAILING ADDRESS (INCLUDING COUNTY):
c/o Founders Equity Group, Inc.
0000 XxXxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 75
CLASSIFICATION OF COLLATERAL: Accounts, contract rights, property, equipment,
inventory, general intangibles, instruments, deposit accounts, chattel paper and
all other assets.
COLLATERAL (INCLUDING ALL ACCESSIONS): Accounts, contract rights, property,
equipment, inventory, general intangibles, instruments, deposit accounts,
chattel paper and all other assets.
a) All attachments, accessions accessories, tools, parts supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
b) All products and produce of any of the property described in this
Collateral section.
c) All accounts, contracts rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other deposition of any of the property
described in this Collateral section.
OBLIGATION: Senior Secured Convertible Debentures issued pursuant to that
certain Convertible Loan Agreement dated December 15, 1997 ("Loan Agreement"),
and all other indebtedness, liabilities and obligations of the Debtor to the
Secured Party now owing or hereinafter incurred.
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SECURITY AGREEMENT - PAGE 1
DATE: December 15, 0000
XXXXXX: $500,000
MAKER: The Debtor
PAYEE: The Secured Party
FINAL MATURITY DATE: January 1, 1999
TERMS OF PAYMENT (OPTIONAL): As therein provided
Debtor grants to Secured Party a security interest in the Collateral and all
its proceeds to secure payment and performance of Debtor's Obligation and all
renewals and extensions of any of the Obligation.
DEBTOR'S WARRANTIES:
1. OWNERSHIP. Debtor owns the Collateral and has the authority to grant
this security interest.
2. FINANCIAL STATEMENTS. All information about Debtor's financial condition
provided to Secured Party was accurate when submitted, as will be any
information subsequently provided.
DEBTOR'S COVENANTS:
1. PROTECTION OF COLLATERAL. Debtor will defend the Collateral against all
claims and demands adverse to Secured Party's interest in it and will keep
it free from all liens except those for taxes not yet due and from all
security interests except this one and Permitted Liens as defined Loan
Agreement. The Collateral will remain in Debtor's possession or control
at all times, except as otherwise provided in this agreement. Debtor will
maintain the Collateral in good condition and protect it against misuse,
abuse, waste and deterioration except for ordinary wear and tear
resulting from its intended use.
2. INSURANCE. Debtor, in the ordinary course of business, will insure the
Collateral in accord with Secured Party's reasonable requirements.
3. SECURED PARTY'S COSTS. Debtor will pay all expenses incurred by Secured
Party in obtaining, preserving, perfecting, defending and enforcing this
security interest or the Collateral and in collecting or enforcing the
Obligation. Expenses for which Debtor is liable include, but are not
limited to, taxes, assessments, reasonable attorney's fees, and other
legal expenses. These expenses will bear interest from the dates of
payments at the highest rate stated in notes that are part of the
Obligation, and Debtor will pay Secured Party this interest on demand at
a time and place reasonably specified by Secured Party. These expenses
and interest will be part of the Obligation and will be recovered as such
in all respects.
4. ADDITIONAL DOCUMENTS. Debtor will sign any papers that Secured Party
considers necessary to obtain, maintain, and perfect this security interest
or to comply with any relevant law.
5. NOTICE OF CHANGES. Debtor will immediately notify Secured Party of any
material change in the Collateral other than in the ordinary course of
business; change in Debtor's name, address, or location; change in any
matter warranted or represented in this agreement; change that may affect
this security interest; and any event of default.
6. USE AND REMOVAL OF COLLATERAL. Debtor will use the Collateral primarily
according to the stated classification
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SECURITY AGREEMENT - PAGE 2
unless Secured Party consents otherwise in writing. Debtor will not to
become an accession to any goods, to be commingled with other goods, or to
become a fixture, accession, or part of a product or mass with other goods
except as expressly provided in this agreement or in the ordinary course
of business.
7. SALE. Debtor will not sell, transfer, or encumber any of the Collateral
without the prior written consent of Secured Party other than in the
ordinary course of business except the Debtor may sell, transfer or
encumber Collateral secured by Permitted Liens.
8. Debtor agrees not to commingle the Rights to Payment, proceeds or
collections thereunder with other property.
9. Debtor agrees, with regard to the Collateral and proceeds, from time to
time when reasonably requested by Secured Party, to prepare and deliver a
schedule of all Collateral and proceeds subject to this agreement and to
assign in writing and deliver to secured party all accounts, contracts,
leases and other chattel paper, instruments, documents and other evidences
thereof.
10. Debtor agrees with regard to the Collateral and proceeds in the event
Secured Party elects to receive payments of rights to payment or proceeds
hereunder, to pay all reasonable expenses incurred by secured party in
connection therewith, including reasonable expenses of accounting,
correspondence, collection efforts, reporting to account or contract
debtors, filing, recording, record keeping and expenses incidental thereto.
RIGHTS AND REMEDIES OF SECURED PARTY:
1. GENERALLY. Secured Party may exercise the following rights and remedies
after the occurrence and continuance of an Event of Default:
a) take control of any proceeds of the Collateral;
b) release any Collateral in Secured Party's possession to any debtor,
temporarily or otherwise;
c) take control of any funds generated by the Collateral, such as refunds
from and proceeds of insurance, and reduce any part of the Obligation
accordingly or permit Debtor to use such funds to repair or replace
damaged or destroyed Collateral covered by insurance; and
d) demand, collect, convert, redeem, settle, compromise, receipt for,
realize on, adjust, xxx for, and foreclose on the Collateral as
Secured Party desires.
e) exercise any of the other remedies available to the Secured Party
under the Loan Agreement.
2. INSURANCE. If Debtor fails to maintain insurance as required by this
agreement or otherwise by Secured Party, then after written notice to
Debtor, Secured Party may purchase single-interest insurance coverage up
to the replacement value of the Collateral that is insurable that will
protect only Secured Party. If Secured Party purchases this insurance,
its premiums will become part of the Obligation.
EVENTS OF DEFAULT: Each of the following conditions is an Event of Default if
not cured within an applicable cure period:
1. if Debtor defaults in timely payment or performance of any obligation,
covenant, or liability in any written agreement between Debtor and Secured
Party or in any other transaction secured by this agreement;
2. if any warranty, covenant or representation made to Secured Party by or
on behalf of Debtor proves to have
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SECURITY AGREEMENT - PAGE 3
been false in any material respect when made;
3. if a receiver is appointed for Debtor or any of the Collateral;
4. if any financing statement regarding the Collateral but not related to
this security interest and not favoring Secured Party is filed other than
financing statements for the purpose of noticing Permitted Liens;
5. if any lien, other than Permitted Liens, attaches to any of the Collateral;
6. if any material amount of the Collateral is lost, stolen, damaged, or
destroyed, unless it is promptly replaced with Collateral of like quality
or restored to its former condition.
7. Secured party, in good faith, believes that any or all of the Collateral
and/or proceeds to be danger of misuse, dissipation, commingling, loss,
theft, damage or destruction, or otherwise in jeopardy or unsatisfactory
in character or value.
8. An Event of Default shall occur and be continuing under the Loan Agreement.
REMEDIES OF SECURED PARTY ON DEFAULT:
1. During the existence or any Event of Default and subject to any applicable
cure periods, Secured Party may declare the unpaid principal and earned
interest of the Obligation immediately due in whole or part, enforce the
Obligation, and exercise any rights and remedies granted by the Uniform
Commercial Code or by this agreement, including the following:
a) require Debtor to deliver to Secured Party all books and records
relating to the Collateral;
b) require Debtor to assemble the Collateral and make it available to
Secured Party at a place reasonably convenient to both parties;
c) take possession of any of the Collateral and for this purpose enter
any premises where it is located if this can be done without breach
of the peace;
d) sell, lease, or otherwise dispose of any of the Collateral in accord
with the rights, remedies, and duties of a secured party under
chapters 2 and 9 of the Texas Uniform Commercial Code after notice as
required by those chapters; unless the Collateral threatens to decline
speedily in value, is perishable, or would typically be sold on a
recognized market, Secured Party will give Debtor reasonable notice
of any public sale of the Collateral or of a time after which it may
be otherwise disposed of without further notice to Debtor; in this
event, notice will be deemed reasonable if it is mailed, postage
prepaid, to Debtor at the address specified in this agreement at least
ten days before any public sale or ten days before the time when the
Collateral may be otherwise disposed of without further notice to
Debtor; in this event, notice will be deemed reasonable if it is
mailed, postage prepaid, to Debtor at the address specified in this
agreement at least ten days before any private sale or ten days
before any public sale or ten days before time when the Collateral
may be otherwise disposed of without further notice to Debtor;
e) surrender any insurance policies covering the Collateral and receive
the unearned premium;
f) apply any proceeds from disposition of the Collateral after default
in the manner specified in chapter 9 of the Uniform Commercial Code,
including payment of Secured Party's reasonable attorney's fees and
court expenses; and
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SECURITY AGREEMENT - PAGE 4
g) if disposition of the Collateral leaves the Obligation unsatisfied,
collect the deficiency from Debtor.
GENERAL PROVISIONS
1. PARTIES BOUND. Secured Party's rights under this agreement shall inure to
the benefit of its successors and assigns. Assignment of any part of the
Obligation and delivery by Secured Party of any part of the Collateral will
fully discharge Secured Party from responsibility for that part of the
Collateral. If Debtor is more than one, all their representations,
warranties, and agreements are joint and several. Debtor's obligations
under this agreement shall bind Debtor's personal representatives,
successors, and assigns.
2. WAIVER. Neither delay in exercise nor partial exercise of any Secured
Party's remedies or rights shall waive further exercise of those remedies
or rights. Secured Party's failure to exercise remedies or rights does
not waive subsequent exercise of those remedies or rights. Secured
Party's waiver of any default does not waive further default. Secured
Party's waiver of any right in this agreement or of any default is binding
only if it is in writing. Secured Party may remedy any default without
waiving it.
3. REIMBURSEMENT. If Debtor fails to perform any of Debtor's obligations,
Secured Party may perform those obligations and be reimbursed by Debtor on
demand at the place where the note is payable for any sums so paid,
including attorney's fees and other legal expenses, plus interest on those
sums from the dates of payment at the rate stated in the note for matured,
unpaid amounts. The sum to be reimbursed shall be secured by this security
agreement.
4. INTEREST RATE. Interest included in the Obligation shall not exceed the
maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charged, or received under law; any interest in excess of that
maximum amount shall be credited to the principal of the obligation or,
if that has been paid, refunded. On any acceleration or required or
permitted prepayment of the Obligation, any such excess shall be canceled
automatically as of the acceleration or prepayment or, if already paid,
credited on the principal amount of the Obligation or, if the principal
amount has been paid or refunded. This provision overrides other
provisions in this and all other instruments concerning the Obligation.
5. MODIFICATIONS. No provisions of this agreement shall be modified or
limited except by written agreement.
6. SEVERABILITY. The unenforceability of any provision of this agreement will
not effect the enforceability or validity of any other provision.
7. AFTER-ACQUIRED CONSUMER GOODS. This security interest shall attach to
after-acquired consumer goods only to the extent permitted by law.
8. APPLICABLE LAW. This agreement will be construed according to Texas laws.
9. PLACE OF PERFORMANCE. This agreement is to be performed in the county of
Secured Party's mailing address.
10. FINANCING STATEMENT. A carbon, photographic, or other reproduction of this
agreement or any financing statement covering the Collateral is sufficient
as a financing statement.
11. PRESUMPTION OF TRUTH AND VALIDITY. If the Collateral is sold after
default, recitals in the xxxx of sale or transfer will be prima facie
evidence of their truth, and all prerequisites to the sale specified by
this agreement and by the Texas Uniform Commercial Code will be presumed
satisfied.
12. SINGULAR AND PLURAL. When the context requires, singular nouns and
pronouns include the plural.
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SECURITY AGREEMENT - PAGE 5
13. CUMULATIVE REMEDIES. Foreclosure of this security interest by suit does
not limit Secured Party's remedies, including the right to sell the
Collateral under the terms of this agreement. All remedies of Secured
Party may be exercised at the same or different times, and no remedy shall
be a defense to any other. Secured Party's rights and remedies include
all those granted by law or otherwise, in addition to those specified in
this agreement.
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SECURITY AGREEMENT - PAGE 6
14. AGENCY. Debtor's appointment of Secured Party as Debtor's agent is coupled
with an interest and will survive any disability of Debtor.
Secured Party:
Agent on behalf of Secured Party
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Founder Equity Group, Inc.
By:
Title:
Debtor:
Canmax, Inc.
/s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx
CEO
Canmax Retail Systems, Inc.
/s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx
CEO
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SECURITY AGREEMENT - PAGE 7
