SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") made as of this 26th day of June
2002, between MEDICAL TECHNOLOGY SYSTEMS, INC., a Delaware corporation (a
"Debtor"), and EUREKA I L.P., as Collateral Agent under the Purchase Agreement
(in such capacity together with its successors in such capacity, the "Collateral
Agent").
WHEREAS, the Debtor has entered into the Securities Purchase Agreement,
dated the date hereof, with EUREKA I, L.P., as investor (the "Investor"), and
the Collateral Agent (herein, as amended or modified from time to time, the
"Purchase Agreement"), providing, subject to the terms and conditions thereof,
for purchase from the Debtor by the Investor of, among other things, $4,000,000
aggregate principal amount of Notes (as defined in the Purchase Agreement); and
WHEREAS, the parties hereto wish to provide for the terms and conditions
upon which the Liabilities (as defined in Section 3) shall be secured;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. SECURITY INTEREST.
X. Xxxxx of Security Interest to Collateral Agent. As security for the
payment of or other satisfaction of all Liabilities, the Debtor hereby
grants and assigns to the Collateral Agent for the benefit of the
Collateral Agent and the Noteholders a continuing lien and security
interest in the following property of the Debtor, whether now or hereafter
owned, existing, acquired or arising and wherever now or hereafter located:
(a) all Accounts and all Goods whose sale, lease or other disposition by
the Debtor has given rise to Accounts and have been returned to, or
repossessed or stopped in transit by, the Debtor; (b) all Chattel Paper,
Instruments, Documents and General Intangibles (including, without
limitation, all patents, patent applications, trademarks, trademark
applications, tradenames, trade secrets, goodwill, copyrights, copyright
applications, registrations, licenses, software, franchises, customer
lists, tax refund claims, claims against carriers and shippers, guarantee
claims, contracts rights, payment intangibles, security interests, security
deposits and rights to indemnification); (c) all Inventory; (d) all Goods
(other than Inventory), including, without limitation, Equipment, vehicles
and Fixtures; (e) all Investment Property; (f) all Deposit Accounts, bank
accounts, deposits and cash; (g) all Letter of Credit Rights, (h) all
Commercial Tort Claims, (i) all ownership interests in the issued and
outstanding capital stock or other equity interests in each of its
Subsidiaries, (j) any other property of the Debtor now or hereafter in the
possession, custody or control of the Collateral Agent or the Noteholders
or any agent or any parent, affiliate or subsidiary of Collateral Agent or
the Noteholders or any participant with Collateral Agent or the Noteholders
in the loans, for any purpose (whether for safekeeping, deposit,
collection, custody, pledge, transmission or otherwise); and (k) all
additions and accessions to, substitutions for, and replacements, products
and all Proceeds of the foregoing property, including, without limitation,
proceeds of all insurance policies insuring the foregoing property, and all
of the Debtor's books and records relating to any of the foregoing and to
the Debtor's business (collectively, the "Collateral"). The capitalized
terms "Account," "Account Debtor," "Chattel Paper," "Commercial Tort
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Claims," "Deposit Accounts," "Documents," "Electronic Chattel Paper,"
"Equipment," "Fixtures," "General Intangibles," "Goods," "Instruments,"
"Inventory," "Investment Property," "Letter-of-Credit Rights," "Proceeds"
and "Tangible Chattel Paper" shall have the respective meanings assigned to
such terms, as of the date of this Agreement, in the Pennsylvania Uniform
Commercial Code, as the same may be in effect from time to time.
Capitalized terms not defined herein shall have the meaning assigned such
term in the Purchase Agreement.
B. Possessory Collateral. Promptly after the receipt by the Debtor of
any portion of the Collateral evidenced by an agreement, Instrument or
Document, including, without limitation, any Tangible Chattel Paper or any
Investment Property consisting of certificated securities, the Debtor shall
deliver the original thereof to the Collateral Agent together with an
appropriate endorsement or other specific evidence of assignment thereof to
the Collateral Agent (in form and substance acceptable to the Collateral
Agent). If an endorsement or assignment of any such items shall not be made
for any reason, the Collateral Agent is hereby irrevocably authorized, as
the Debtor's attorney and the Collateral Agent-in-fact, to endorse or
assign the same on the Debtor's behalf.
C. Electronic Chattel Paper. To the extent that the Debtor obtains or
maintains any Electronic Chattel Paper, the Debtor shall create, store and
assign the record or records comprising the Electronic Chattel Paper in
such a manner that (a) a single authoritative copy of the record or records
exists which is unique, identifiable and, except as otherwise provided in
clauses (d), (e) and (f) below, unalterable, (b) the authoritative copy
identifies the Collateral Agent as the assignee of the record or records,
(c) the authoritative copy is communicated to and maintained by the
Collateral Agent or its designated custodian, (d) copies or revisions that
add or change an identified assignee of the authoritative copy can only be
made with the participation of the Collateral Agent, (e) each copy of the
authoritative copy and any copy of a copy is readily identifiable as a copy
that is not the authoritative copy and (f) any revision of the
authoritative copy is readily identifiable as an authorized or unauthorized
revision.
D. Other Security. At the direction of the Required Noteholders, the
Collateral Agent, without waiving or releasing any obligation, liability or
duty of the Debtor under either this Agreement or the Purchase Agreement
and any related agreements or any Event of Default, may at any time or
times hereafter, but shall not be obligated to, pay, acquire or accept an
assignment of any security interest of the Senior Lender, lien, encumbrance
or claim asserted by any Person in, upon or against the Collateral (or any
other lien that is not a Permitted Lien). All sums paid by the Collateral
Agent in respect thereof and all costs, fees and expenses including,
without limitation, reasonable attorney's fees, actually incurred, all
court costs and all other charges relating thereto incurred by the
Collateral Agent, shall constitute Liabilities, payable by the Debtor to
the Collateral Agent on demand and, until paid and satisfied in full, shall
bear interest at the highest rate then applicable to the Notes.
2. INTERCREDITOR AGREEMENT.
The priority of the security interests granted hereby, the exercise by the
Collateral Agent of any of its rights or remedies hereunder, and the covenants
of the Debtor contained herein (in each case whether or not so expressed) are
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subject in all respects to the Intercreditor Agreement (as such term is defined
in the Purchase Agreement). Any reference to property in the possession of, or
to property pledged or to be pledged to, the Collateral Agent will be deemed to
refer to, or to be satisfied by, property in the possession of or pledged to the
"Senior Lender" under the Intercreditor Agreement. The security interests
created in favor of the Collateral Agent hereunder are subordinate and junior to
the security interests created in favor of the Senior Lender (as such term is
defined in the Intercreditor Agreement).
3. LIABILITIES DEFINED.
The term "Liability" or "Liabilities" shall mean the indebtedness and
liabilities of the Debtor to the Collateral Agent and/or the Noteholders under
this Agreement, the Notes, the Purchase Agreement and the Security Documents (as
defined in the Purchase Agreement), including but not limited to all obligations
to perform acts or refrain from taking any action and any obligations of the
Debtor owing to the Collateral Agent and/or the Noteholders.
4. POSSESSION OF COLLATERAL AND RELATED MATTERS.
Until an Event of Default shall have occurred, the Debtor shall have the
right, except as otherwise provided in this Agreement, in the ordinary course of
the Debtor's business, to: (a) sell, lease or furnish under contracts of service
any of the Debtor's inventory normally held by the Debtor for any such purpose;
and (b) use and consume any raw materials, work in process or other materials
normally held by the Debtor for such purpose; provided, however, that a sale in
the ordinary course of business shall not include any transfer or sale in
satisfaction, partial or complete, of a debt owed by the Debtor. The Collateral
Agent through its officers, employees or agents, shall have the right, at any
time and from time to time in the Collateral Agent's name, in the name of a
nominee of the Collateral Agent or in the Debtor's name, after the occurrence of
an Event of Default, to verify the validity, amount or any other matter relating
to the Debtor's accounts, by mail, telephone, telegraph or otherwise. the Debtor
shall reimburse the Collateral Agent, on demand, for all costs, fees and
expenses incurred by the Collateral Agent in this regard.
5. WARRANTIES AND COVENANTS.
The Debtor warrants and agrees that:
A. All of the Collateral is and will at all times be owned by the
Debtor free and clear of all liens and security interests, except for (i)
the security interests granted hereunder and (ii) Permitted Liens.
B. The office where the Debtor keeps its books, records and accounts
(or copies thereof) concerning the Collateral, the Debtor's principal place
of business and all of the Debtor's other places of business, locations of
Collateral and post office boxes are as set forth in Exhibit A; the Debtor
shall promptly (but in no event less than ten (10) days prior thereto)
advise the Collateral Agent in writing of the proposed opening of any new
place of business, the closing of any existing place of business, any
change in the location of the Debtor's books, records and accounts (or
copies thereof) or the opening or closing of any post office box of the
Debtor.
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C. The Collateral, including, without limitation, all equipment, is
and shall be kept only at the addresses set forth on the first page of this
Agreement or on Exhibit A, and at other locations within the continental
United States of which has been advised by the Debtor in writing. None of
the Collateral will be removed from such location without prior written
notice to the Collateral Agent.
D. The Debtor shall keep the Collateral properly housed and insure the
Collateral at all times against all hazards reasonably specified by the
Collateral Agent, including but not limited to fire, theft and risks
covered by extended coverage insurance. Said policies of insurance shall be
reasonably satisfactory to the Collateral Agent as to form, amount and
insurer. All policies shall provide for at least thirty (30) days prior
written notice to the Collateral Agent of cancellation or non-renewal and
shall contain an endorsement, in form and substance acceptable to the
Collateral Agent, showing loss under such policies payable to the
Collateral Agent as contemplated by the Intercreditor Agreement. The
Collateral Agent may act as attorney-in-fact for the Debtor in making,
adjusting and settling any claims under any such insurance policies with
respect to the Collateral. The Debtor hereby assigns to the Collateral
Agent, for its benefit and for the benefit of the Noteholders, all of the
Debtor's right, title and interest to any insurance policies insuring the
Collateral, including all rights to receive the proceeds of insurance, and
directs all insurers to pay all such proceeds directly to the Collateral
Agent and authorizes the Collateral Agent to endorse the Debtor's name on
any instrument for such payment. In addition, the Debtor will maintain at
the Debtor's expense, such public liability and third party property damage
insurance as shall be acceptable to the Collateral Agent. Each such policy
shall contain an endorsement showing the Collateral Agent as an additional
insured thereunder and providing that the insurance company shall give the
Collateral Agent at least 30 days prior written notice before any such
policy shall be altered or cancelled. The Debtor shall furnish
certificates, policies or endorsements to the Collateral Agent as proof of
all such insurance described above, together with evidence of payment of
premiums, and if the Debtor fails to do so, the Collateral Agent, upon
prior notice to the Debtor, is authorized but not required to obtain such
insurance at the Debtor's expense.
E. Debtor will not sell, lease, transfer, assign or otherwise dispose
of any of the Collateral or any interest therein without the prior written
consent of the Collateral Agent in each instance or as otherwise permitted
in this Agreement or the Purchase Agreement.
F. The Debtor will notify the Collateral Agent of any destruction of,
or any substantial damage to, any portion of the Collateral material to the
operations of the Debtor.
G. The Debtor will not permit any liens or security interests to
attach to any of the Collateral, except those specified in Section 5.A
hereof.
H. The Debtor will pay when due all taxes, license fees and
assessments relating to the Collateral which, if unpaid, could result in a
lien on the Collateral, subject to the terms of the Purchase Agreement.
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I. The Debtor shall be liable to the Collateral Agent and/or the
Noteholders for any expenditures by the Collateral Agent and/or the
Noteholders for the maintenance and preservation of the Collateral,
including but not limited to taxes, levies, insurance and repairs, and for
the repossession, holding, preparation for sale, and the sale or other
disposition, of the Collateral (including reasonable attorneys' and
accountants' fees and expenses actually incurred), as well as all damages
for breach of warranty, misrepresentation, or breach of covenant by the
Debtor, and all such liabilities shall be included in the definition of
Liabilities herein, shall be secured by the security interest granted
herein, and shall be payable upon demand.
J. The Debtor will execute financing statements and any other
documents required by the Collateral Agent (and pay the cost of filing or
recording the same in all public offices deemed necessary or desirable by
the Collateral Agent) and do such other acts and things as the Collateral
Agent may deem necessary in its reasonable discretion, to perfect or
maintain the security interest granted herein and the priority thereof or
to effectuate the purposes of this Agreement. The Debtor irrevocably hereby
makes, constitutes and appoints the Collateral Agent (and all person
designated by the Collateral Agent for that purpose) as the Debtor's true
and lawful attorney and the Collateral Agent-in-fact to execute such
financing statements, documents and other agreements and instruments and do
such other acts and things as may be necessary to preserve and perfect the
Collateral Agent's and the Noteholders' security interest in the
Collateral.
K. The Debtor will upon reasonable advance notice (and at all times
following the occurrence of an Event of Default without notice of any kind)
allow the Collateral Agent or its agents during normal business hours to
examine and inspect the Collateral as well as the Debtor's books and
records, and to make extracts and copies of them, the Debtor shall pay to
the Collateral Agent, on demand, all customary fees and out-of-pocket
expenses incurred by the Collateral Agent in connection with the foregoing.
L. The Debtor will keep the Debtor's equipment in good condition and
repair, reasonable wear and tear excepted. M. The Debtor will report, in
form satisfactory to the Collateral Agent, such information as the
Collateral Agent may reasonably request regarding the Collateral in a
manner consistent with the terms of the Purchase Agreement regarding the
Collateral; such reports shall be for such periods, shall reflect the
Debtor's records as at such time and shall be rendered with such frequency
as the Collateral Agent may reasonably designate. All information
heretofore or hereafter furnished by the Debtor to the Collateral Agent is
or will be true and correct in all material respects as of the date with
respect to which such information is or will be furnished.
N. The Debtor's name is as set forth on the signature page of this
Agreement, and Debtor uses no other tradename or division name in the
operation of the Debtor's business. The Debtor will give prior notice to
the Collateral Agent of any intended change of the Debtor's name, or the
use of any tradename or trade style, and will notify the Collateral Agent
when such change or use becomes effective.
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O. The Debtor has the right and power and is duly authorized to enter
into and perform the Debtor's Liabilities hereunder, and the Debtor's
execution, performance and delivery of this Agreement does not and will not
conflict with the provisions of any statute, regulation, ordinance or rule
of law, or with the provisions of any agreement, contract or other document
which may now or hereafter be binding on the Debtor.
P. The Debtor shall, at the request of the Collateral Agent, indicate
on its records concerning the Collateral a notation, in form reasonably
satisfactory to the Collateral Agent, of the security interest of the
Collateral Agent hereunder, and the Debtor shall not maintain duplicates or
copies of such records at any address any other than the Debtor's principal
place of business.
6. EVENT OF DEFAULT.
"Event of Default" shall have the meaning set forth in the Purchase
Agreement.
7. RIGHTS AND REMEDIES.
During the continuance of an Event of Default, the Collateral Agent shall
have all rights and remedies provided by law, including but not limited to those
of a secured party under the Uniform Commercial Code as adopted in the
Commonwealth of Pennsylvania, in addition to the rights and remedies provided
herein. Upon the instruction of the Required Noteholders, and subject to the
terms of the Intercreditor Agreement, the Collateral Agent may require the
Debtor to assemble the Collateral and make it available to the Collateral Agent
at a place to be designated by the Collateral Agent and permit the Collateral
Agent to enter the Debtor's places of business and conduct a sale of the
Collateral at such location. If notice to the Debtor of intended disposition of
Collateral is required by law, ten (10) days notice shall constitute reasonable
notification. In the event the Collateral Agent institutes an action to recover
any Collateral or seeks recovery of any Collateral by way of prejudgment remedy
in an action against the Debtor, the Debtor waives the posting of any bond which
might otherwise be required. All of the Collateral Agent's rights and remedies
shall be cumulative and none are exclusive. While an Event of Default is
continuing, all payments made by or on behalf of the Debtor and all credits due
the Debtor under this Agreement and under any other agreement between the Debtor
and the Collateral Agent and/or the Noteholders may be applied to the
Liabilities in whatever order and amounts the Collateral Agent chooses.
8. FEES, COSTS AND CHARGES.
The Debtor shall be obligated to reimburse the Collateral Agent and the
Noteholders, as part of the Liabilities, for all fees, costs or charges of any
kind actually incurred by the Collateral Agent in connection with this
Agreement, including without limitation, any reasonable fees, costs or charges
incurred by the Collateral Agent and the Noteholders in enforcing its rights and
remedies under this Agreement.
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9. MISCELLANEOUS.
Any failure or delay by the Collateral Agent or the Noteholders to require
strict performance by the Debtor of any of the provisions, warranties, terms and
conditions contained herein, in the Purchase Agreement or in any other
agreement, document or instrument, shall not affect the Collateral Agent's or
the Noteholders' right to demand strict compliance and performance therewith,
and any waiver of any Event of Default shall not waive or affect any other Event
of Default, whether prior or subsequent thereto, and whether of the same or of a
different type. None of the warranties, conditions, provisions and terms
contained herein, or in the Purchase Agreement or in any other agreement,
document or instrument shall be deemed to have been waived by any act or
knowledge of the Collateral Agent or the Noteholders, their agents, officers or
employees, other than pursuant to an instrument in writing, signed by an officer
of the Collateral Agent or the Noteholders, directed to the Debtor and
specifying such waiver.
A. Any notice under this Agreement shall be addressed to the parties
at their respective addresses set below, or to such other address as either
party designates to the other in the manner herein described.
B. In the event that any provision hereof shall be deemed to be
invalid by any court, such invalidity shall not affect the remainder of
this Agreement.
C. This Agreement shall be binding upon and for the benefit of the
parties hereto and their respective successors and assigns.
D. THE VALIDITY, INTERPRETATION AND EFFECT OF THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE DEBTOR HEREBY
CONSENTS TO THE JURISDICTION OF ALL COURTS IN PHILADELPHIA COUNTY,
PENNSYLVANIA.
E. THE DEBTOR HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, ANY
OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED
TORTIOUS CONDUCT BY DEBTOR, THE COLLATERAL AGENT OR THE NOTEHOLDERS OR
WHICH, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN DEBTOR, THE COLLATERAL AGENT OR LENDER. IN NO EVENT
SHALL SECURED PARTY BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
F. THE DEBTOR HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY COLLATERAL AGENT OF ITS RIGHTS TO REPOSSESS
THE COLLATERAL OF DEBTOR WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR
LEVY UPON SUCH COLLATERAL WITHOUT PRIOR NOTICE OR HEARING (EXCEPT FOR
NOTICES REQUIRED BY LAW).
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IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on this ____ day of June 2002.
EUREKA I, L.P., as the Collateral Agent
By: EUREKA MANAGEMENT, L.P.,
its sole general partner
By: BERWIND CAPITAL PARTNERS, LLC,
its sole general partner
By:_______________________________
Xxxxxxxxx X. Xxxxx
President
Address: 000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
MEDICAL TECHNOLOGY SYSTEMS, INC.
By:_____________________________________
Name:
Title:
Address: 00000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
EXHIBIT A
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