SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is entered into as of
this 16th day of July, 2002, by and among Ashford Capital, LLC,
a California limited liability company ("Secured Party"), and
Airline Communications, Ltd., a Nevada corporation ("Airline")
and Woodlands S.A. Financial Services, Inc., a Texas corporation
("Woodlands") (each, individually is a "Pledgor" and,
collectively, the "Pledgors"). Capitalized terms not otherwise
defined in this Agreement shall have the meanings ascribed to
them in the Note (as hereinafter defined).
WHEREAS, Airline entered into a Purchase Agreement with
Secured Party on June 13, 2002 (the "Purchase Agreement"), for
the acquisition by Airline from Secured Party of certain common
stock of The Prestige Xxxxx.Xxx, Inc.; and
WHEREAS, in connection with such Purchase Agreement, Airline
and Woodlands have executed a Secured Promissory Note of even
date herewith in favor of Secured Party in the principal amount
of Three Hundred Twenty-six Thousand Dollars ($326,000.00) (the
"Note"), the terms of which are incorporated herein by reference
and made a part hereof; and
WHEREAS, to secure payment and performance of Pledgors'
duties and obligations under the Note, Pledgors have agreed to
grant Secured Party a continuing security interest in that
certain collateral described in Exhibit "A" hereto, subject to
the terms and conditions set forth herein and in the Note;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Pledgors and Secured Party, intending to be
legally bound hereby, agree as follows:
1. Security Interest.
(a) To secure payment and performance of Pledgors' "Obligations"
(as hereinafter defined) under the Note, each of Pledgors hereby
pledges, assigns, transfers and grants to Secured Party a
continuing security interest in the collateral described in
Exhibit "A" hereto, together with any and all dividends, rights,
options, issues, products, proceeds and profits therefrom
(collectively, the "Collateral"). The interest of Secured Party
in the Collateral is a first priority lien and security interest
in and to the Collateral. Woodlands, the present owner of the
Collateral shall provide an Assignment of Interest in the
Collateral (the "Assignment Documentation"), and the Assignment
Documentation; and
(b) Each Pledgor expressly understands and agrees that the
security interest granted to Secured Party hereunder shall remain
as security for payment and performance of Pledgors' Obligations,
whether now existing or that may hereafter be incurred by future
advances or otherwise. Notice of the continuing grant of these
security interests shall, therefore, not be required to be stated
on the face of any document representing any such Obligations,
nor otherwise identify such document as being secured hereby.
2. Definitions. The following terms shall have the following
meanings:
(a) "Loan Documents" means this Agreement, and any and all
agreements, notes, guaranties, instruments, security agreements,
mortgages, assignments, and documents evidencing, governing,
securing or relating in any way to any of the Obligations,
including without limitation, that certain Note in the original
principal amount of $326,000.00 from Pledgors in favor of Secured
Party of even date herewith and that certain Form UCC-3 Financing
Statement executed by the parties of even date herewith; and
(b) "Obligations" means any and all indebtedness, obligations,
liabilities, contracts, indentures, agreements, warranties,
covenants, guaranties, representations, provisions, terms and
conditions of whatever kind with regard to the Loan Documents,
whether due or to become due, absolute or contingent, now
existing or hereafter incurred or arising, whether or not
otherwise guaranteed or secured and whether evidenced by any note
or draft or documented on the books and records of Secured Party
or otherwise on open account, including without limitation, all
costs, expenses, fees, charges and attorneys' and other
professional fees incurred by Secured Party in connection with,
involving or related to the administration, protection,
modification, collection, enforcement, preservation or defense of
any of Secured Party's rights with respect to any of the
Obligations, the Collateral or any agreement, instrument or
document evidencing, governing, securing or relating to any of
the foregoing, including without limitation, all costs and
expenses incurred in inspecting or surveying mortgaged real
estate, if any, or conducting environmental studies or tests, and
in connection with any "workout" or default resolution
negotiations involving legal counsel or other professionals and
any renegotiation or restructuring of any of the Obligations.
3. Pledgors' Representations and Warranties. Each Pledgor, as
pertains to itself, makes the following representations and
warranties hereunder and upon which Secured Party relies:
(a) Authority. Each Pledgor has full power and authority to
enter into and perform the Obligations under this Agreement, to
execute and deliver the Loan Documents and to incur the
obligations provided for herein and therein, all of which have
been duly authorized by all necessary and proper corporate
action. No other consent or approval or the taking of any other
action is required as a condition to the validity or
enforceability of this Agreement or any of the other Loan
Documents.
(b) Binding Agreements. This Agreement and the other Loan
Documents constitute the valid and legally binding obligations of
Pledgors, enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights
generally.
(c) No Conflicting Law or Agreements. The execution, delivery
and performance by Pledgors of this Agreement and the other Loan
Documents: (i) do not violate any provision of the bylaws of
either Pledgor, (ii) do not violate any order, decree or
judgment, or any provision of any statute, rule or regulation,
(iii) do not violate or conflict with, result in a breach of or
constitute (with notice or lapse of time, or both) a default
under any mortgage, indenture, contract or other agreement to
which either Pledgor is a party, or by which either of Pledgors'
properties are bound, or (iv) except for the lien granted to
Secured Party hereunder, do not result in the creation or
imposition of any lien, charge or encumbrance of any nature
whatsoever upon any property or assets of Pledgors.
(d) Collateral. The Assignor of the Collateral is and shall
continue to be the sole owner of the Collateral free and clear of
all liens, encumbrances, security interests and claims, except
for the liens granted to Secured Party hereunder. Woodlands is
fully authorized to sell, transfer, pledge and/or grant a
security interest in the Collateral to Secured Party. All
documents and agreements related to the Collateral shall be true
and correct and in all respects what they purport to be; all
signatures and endorsements that appear thereon shall be genuine
and all signatories and endorsers shall have full capacity to
contract. None of the transactions underlying or giving rise to
the Collateral shall violate any applicable state or federal laws
or regulations. All documents relating to the Collateral shall
be legally sufficient under such laws or regulations and shall be
legally enforceable in accordance with their terms. Woodlands
agrees to defend the Collateral against the claims of all persons
other than Secured Party, except as expressly reserved or
otherwise provided herein.
4. Covenants of Pledgors. Each of Pledgors covenants and
agrees that from the date hereof until full and final payment and
performance of all Obligations Pledgors shall:
(a) Financial Information. Deliver to Secured Party promptly
upon Secured Party's request, such documentation and information
about the status of the accounts receivable that constitute the
Collateral and such other records and documentation as shall
reasonably related to Secured Party's interest as a secured
creditor of Pledgors under the terms of the Note.
(b) Litigation. Promptly advise Secured Party of the
commencement or threat of litigation, including arbitration
proceedings and any proceedings before any governmental agency,
or any other legal action (collectively, "Litigation"), which is
instituted against either Pledgor in connection with the
Collateral or which might jeopardize the first lien of Secured
Party as against the Collateral.
(c) Maintenance of Existence. Maintain its corporate existence,
and comply with all valid and applicable statutes, rules and
regulations, and maintain its properties in good repair, working
order and operating condition. Each Pledgor shall immediately
notify Secured Party of any event causing material loss in the
value of its respective assets.
(d) Collateral Duties. Do whatever Secured Party may reasonably
request from time to time by way of obtaining, executing,
delivering and filing financing statements, assignments,
landlord's or mortgagee's waivers, and other notices and
amendments and renewals thereof, and Airline will take any and
all steps and observe such formalities as Secured Party may
reasonably request in order to create and maintain a valid and
enforceable first lien upon, pledge of, and first priority
security interest in, any and all of the Collateral. Secured
Party is
authorized to file financing statements without the
signature of Woodlands and to execute and file such financing
statements on behalf of Woodlands as specified by the UCC to
perfect or maintain Secured Party's security interest in all of
the Collateral.
(e) Notice of Default. Provide to Secured Party, not later than
five (5) business days after becoming aware of the occurrence or
existence of an Event of Default (as defined in the Note) or a
condition which would constitute an Event of Default but for the
giving of notice or passage of time on both, notice in writing of
such Event of Default or condition.
5. Additional Rights of Secured Party.
(a) Upon the occurrence of an Event of Default as
defined in the Note, each of Pledgors hereby constitutes and
appoints Secured Party (with full power of substitution) its
true and lawful attorney and agent in fact to take any or all of
the actions described below in Secured Party's or Pledgors'
names and at Pledgors' expense, and each of Pledgors hereby
ratifies and confirms all actions so taken:
(i) Evidence of Liens. Secured Party may execute
such financing statements and other documents and take
such other actions as Secured Party deems reasonably
necessary or proper in order to create, perfect or
continue the security interest and other liens provided
for by this Security Agreement, and Secured Party may
file the same (or a photocopy of this Security
Agreement or of any financing statement signed by
Woodlands) in any appropriate governmental office.
(ii)Preservation of Collateral. Secured Party may
take any and all action that Secured Party deems
reasonably necessary or proper to preserve his interest
in the Collateral, including, without limitation, the
payment of debts of Woodlands, which, if unpaid, might
materially impair the Collateral or Secured Party's
security interest therein; or the payment of taxes,
assessments or other liens thereon. All sums so
expended by Secured Party shall be added to the
Obligations, shall be secured by the Collateral, and
shall be payable thirty (30) days following Secured
Party's written demand.
(iii)Secured Party's Right to Cure. In the event
Pledgors fail to perform any of their obligations, then
Secured Party may perform the same but shall not be
obligated to do so. All sums so expended by Secured
Party shall be added to the Obligations, shall be
secured by the Collateral, and shall be payable thirty
(30) days following Secured Party's written demand.
(b) Each of Pledgors covenants and agrees that the
power of attorney granted by the foregoing subsection (a) is
coupled with an interest and shall be irrevocable so long as this
Security Agreement is in force; that said powers are granted
solely for the protection of Secured Party's interest and that
Secured Party shall have no duty to exercise any thereof; that
the decision whether to exercise any of such powers, and the
manner of exercise, shall be solely within Secured Party's
reasonable discretion.
6. Remedies of Secured Party in Respect of the Collateral.
(a) Upon the occurrence of any Event of Default (as defined
in the Note), Secured Party shall have the right, following
expiration of any time period during which Pledgors may have the
right to cure such default, to declare all of the Obligations to
be immediately due and payable and shall then, in respect of the
Collateral, have the rights and remedies of a secured party under
the Uniform Commercial Code or under any other applicable law,
including, without limitation to take possession of the
Collateral.
(b) The Secured Party may date any of the Assignment
Documents and participate as the owner of the Collateral as it
may, in its sole and absolute discretion, see fit. In addition
to the foregoing remedies, Secured Party may be the purchaser of
any or all of the Collateral sold at any public or private sale
and thereafter hold the same, absolutely, free and clear of and
from any and all claims or rights of any kind whatsoever. Each
of Pledgors hereby acknowledges and agrees that ten days' notice
shall be deemed commercially reasonable notice with respect to
the time and place of any public sale or the time after which any
private sale or any other intended disposition of the Collateral
is to be made, and, in the case of any notice to Pledgors of a
private sale, such notice shall advise Pledgors of the terms and
conditions of the sale as are then known to Secured Party.
Recognizing the possibility that there may be no adequate market
for the Collateral, Pledgors specifically authorize a private
sale of all or any of the Collateral without attempts by Secured
Party to approach more than one possible purchaser.
(c) The proceeds of any sale of any of the Collateral
shall be applied to expenses, including, without limitation,
attorney's fees to the fullest extent allowable by law,
reasonably incurred in connection with such sales, the collection
of the Note, and the prosecution or defense of any proceeding
related thereto, and then to the payment or satisfaction of the
Note. In the event the proceeds of any sale or other disposition
of the Collateral hereunder, are insufficient to pay all of the
Obligations in full, Pledgors will be liable for the deficiency,
together with interest thereon, at the maximum rate allowable by
law, and the costs and expenses of collection of such deficiency,
including (to the extent permitted by law) without limitation,
attorney's fees, expenses and disbursements. From and after the
occurrence of an Event of Default, and the expiration of any time
period during which Pledgors may have the right to cure such
default, and unless and until the Note has been fully paid and
satisfied, Secured Party shall be entitled to act with respect to
the Collateral in all matters or events, and to exercise all
rights and privileges, to the maximum extent permitted by law, as
an absolute owner of the Collateral and to hold all proceeds from
the sale thereof as part of the Collateral hereunder.
7. Costs and Expenses. Upon the occurrence of an Event of
Default as defined in the Note, Pledgors agree to pay on demand
all of Secured Party's reasonable expenses in collecting,
enforcing, safeguarding, holding and disposing of Collateral, and
all other losses, costs and expenses incurred by Secured Party in
connection with the enforcement of this Security Agreement, the
Note or the Loan Documents, or in connection with legal advice
relating to the rights or responsibilities of Secured Party under
any thereof (including in each case, without limitation, the
reasonable fees and out-of-pocket expenses of attorneys,
accountants and appraisers).
With respect to any amount advanced by Secured Party and
required to be reimbursed by Pledgors pursuant to any provision
of this Security Agreement, Airline shall also pay Secured Party
interest on such amount at the rate from time to time applicable
to overdue principal of the Note from the date on which Pledgors
receive written notice of the expenditure to the date of
reimbursement. Pledgors' obligations under this Section 7 shall
survive payment of the Note and the other Obligations.
8. Waivers; etc. Pledgors hereby waive presentment,
demand, notice, protest and all other demands and notices in
connection with this Agreement or the enforcement of Secured
Party's rights hereunder or in connection with any Obligations or
any Collateral; and consents to and waives notice of: (a) the
granting of renewals, extensions of time for payment or other
indulgences to Pledgors or to any account debtor in respect of
any account receivable of Pledgors; (b) substitution, release or
surrender of any Collateral; (c) the addition or release of
persons primarily or secondarily liable on any of the Obligations
or on any account receivable or other Collateral; and (d) the
acceptance of partial payments on any Obligations or on any
account receivable or other Collateral and/or the settlement or
compromise thereof. No delay or omission on the part of Secured
Party in exercising any right hereunder shall operate as a waiver
of such right or of any other right hereunder. Any waiver of any
such right on any one occasion shall not be construed as a bar to
or waiver of any such right on any such future occasion.
PLEDGORS' WAIVERS UNDER THIS SECTION HAVE BEEN MADE VOLUNTARILY,
INTELLIGENTLY, KNOWINGLY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS THEREOF.
9. Termination; Assignment; Etc. This Agreement and the
security interest in the Collateral created hereby shall
terminate when all of the Obligations have been paid and finally
discharged in full. No waiver by Secured Party or by any other
holder of the Obligations of any default shall be effective
unless in writing signed by Secured Party nor shall any waiver
granted on any one occasion operate as a waiver of any other
default or of the same default on a future occasion. In the
event of a sale or assignment by Secured Party of all or any of
the Obligations held by Secured Party, Secured Party may not
assign or transfer its respective rights and interests under this
Agreement in whole or in part to the purchaser or purchasers of
such Obligations; accordingly, such purchaser or purchasers shall
become vested with all of the powers and rights hereunder
Further, no sale or assignment shall act to release or discharge,
in whole or in part, Secured Party from any liability or
responsibility hereunder with respect to the rights and interests
so assigned.
10. Miscellaneous.
(a) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon Secured Party and
each of Pledgors and their respective successors and assigns.
(b) Changes. Changes in or additions to this
Agreement may be made or compliance with any term, covenant,
agreement, condition or provision set forth herein may be
omitted or waived (either generally or in a particular instance
and either retroactively or prospectively), only upon written
consent of Pledgors and Secured Party.
(c) Notices. All notices, requests, consents and
demands shall be made in writing and shall be delivered by
facsimile to the fax number set forth below or by hand, sent via
a reputable overnight courier service or mailed by first class
certified or registered mail, return receipt requested, postage
prepaid:
If to Secured Party: Ashford Capital LLC
0000 Xxxx Xxxxxx
Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Airline: Airline Communications, Ltd.
0000 Xx. Xxxxxx Xx.
Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Woodlands: Woodlands S.A. Financial Services,
Inc.
0000 X.X. Xxxx 000
Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
(d) Governing Law. This Agreement shall be construed
and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of California
notwithstanding any conflict-of-laws doctrines of such state or
other jurisdictions to the contrary, and without the aid of any
canon, custom or rule of law requiring constructions against the
draftsman. The parties agree to submit to the jurisdiction and
venue of the state and federal courts of Orange County,
California, for the purposes of resolving disputes hereunder. and
authorize any such action to be instituted and prosecuted
exclusively in the Superior Court of the State of California or,
if appropriate, the United States District Court for the Central
District of California.
(e) Breach. Each of Pledgors agrees to pay all costs
of enforcement, including reasonable attorney's fees and legal
expenses incurred by Secured Party in the event that Pledgors
fail to comply with or otherwise breaches this Agreement.
(f) Severability. If any provision of this Agreement
is held invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability
of the other provisions of this Agreement, all of which are
declared severable.
(g) Headings. The headings used in this Agreement
are solely for convenience of reference and shall not affect its
interpretation.
(h) Words and Phrases. Words and phrases such as "to
this Agreement," "herein," "hereinafter," "hereto," "hereof,"
"hereby," and "hereunder," when used with reference to this
Agreement, refer to this Agreement as a whole, unless the
context otherwise requires.
(i) Gender and Number. Wherever from the context of
this Agreement it appears appropriate, each term stated in
either the singular or the plural shall include the singular or
the plural, and pronouns sated in either the masculine, feminine
or neuter gender, shall include the masculine, feminine and
neuter.
(j) Conflict. In the event of any conflict between
the terms of any of the Loan Documents, including, but not
limited to, this Agreement and the Note, the terms of the Note
shall control.
(k) Entire Understanding. Except as expressly reserved or
otherwise provided herein, this Agreement contains the entire
understanding among the parties hereto with respect to the
subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with
any of the terms hereof.
(l) Jury Waiver. THE PARTIES HEREBY WAIVE TRIAL BY
JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER
ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING
TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE
ENFORCEMENT OF ANY OF THE PARTIES' RESPECTIVE RIGHTS AND
REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS. THE PARTIES
ACKNOWLEDGE THAT EACH MADE THIS WAIVER VOLUNTARILY,
INTELLIGENTLY, KNOWINGLY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS THEREOF.
(m) Counterparts. This Agreement may be executed in
any number of counterparts, including separate counterparts, all
of which when taken together, shall constitute one instrument.
[SIGNATURES ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ASHFORD CAPITAL LLC
By: /s/ Xxxxx Xxxxxxxxx
--------------------
Xxxxx Xxxxxxxxx
Chairman
AIRLINE COMMUNICATIONS, LTD
By: /s/ Xxxxxxx X. Xxxxx
----------------------
Xxxxxxx X. Xxxxx
President
WOODLANDS S.A. FINANCIAL SERVICES, INC.
By: /s/ Xxxxx Xxxxx
---------------------------
Xxxxx Xxxxx, Secretary
