SUBORDINATED SECURITY AGREEMENT
This Subordinated Security Agreement (this "Agreement") dated as of the
10th day of December, 2003, is made by Decorize, Inc., a Delaware corporation
(the "Debtor"), in favor of Xxxxx X. Xxxxxxx (the "Lender").
R E C I T A L S:
A. Debtor has executed and delivered to Lender, that certain Amended and
Restated Line of Credit Promissory Note in the principal amount of $1,000,000
dated the date of this Agreement (the "Note"), pursuant to which Lender shall
advance funds to Debtor, subject to the terms and conditions of the Note.
B. It is a condition precedent to Lender's acceptance of the Note and the
advancement of funds thereunder that Debtor shall have granted the security
interests contemplated by this Agreement.
C. The security interests created by this Agreement are subordinate to
certain now existing and hereinafter created security interests in favor of
certain lenders of Debtor, as further described herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and in order to induce
Lender to advance funds under the Note, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor agrees with Lender as follows:
1. Grant of Security. This Agreement is hereby made subject to the Note and
all of its terms and conditions. All capitalized terms used but not defined in
this Agreement shall have the respective meanings given to such terms in the
Note. Debtor hereby assigns, pledges and grants to Lender for its benefit, a
continuing security interest in all of Debtor's right, title and interest in and
to the following (collectively, the "Collateral"), whether now owned or
hereafter acquired:
(a) all of Debtor's interest in all inventory, including all goods,
merchandise, or other personal property, wherever located, and all
documents and receipts covering such inventory;
(b) all books and records (including electronic records, computer
disks, tapes, printouts and other storage media) relating to the inventory;
and
(c) all of Debtor's interest in the proceeds of any sale or
disposition of any of the inventory.
Debtor shall be deemed to have possession of any of the Collateral in
transit to it or set apart for it or for any of its agents, affiliates or
correspondents.
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2. Security for Obligations. This Agreement and the security interest
created hereby secures the prompt and complete payment, observance and
performance of the obligations and indebtedness of Debtor to Lender arising
solely under the Note and this Agreement, and all modifications, extensions,
renewals, replacements, and increases of the foregoing (all such obligations and
liabilities of Debtor being the "Obligations").
3. Subordination. This Agreement and the security interest created hereby
is subordinate to all now existing and hereinafter created security interests,
liens and encumbrances on the Collateral in favor of any holder of Senior
Indebtedness (as defined). For purposes of this Agreement, "Senior Indebtedness"
shall mean any amounts owed by Debtor in connection with (i) that certain Note
and Security Agreement by and among GuildMaster, Inc., a Subsidiary of Debtor,
Sac River Valley Bank and the U.S. Small Business Administration dated August
13, 1996, (ii) that certain Factoring Agreement between Decorize, Inc. and The
CIT Group/Commercial Services, Inc., dated January 30, 2003, (iii) that certain
Amended and Restated 6% Convertible Term Note issued to NESTUSA, Inc. in the
original principal amount of $750,000, dated as of January 1, 2003, (iv) any
office leases or other commercial leases by which a landlord may be granted
rights to the Collateral, and (v) any and all other bank loans, revolving credit
lines, financial instruments, factoring arrangements or other credit facilities
obtained by Debtor in the ordinary course of business from time to time, and
approved by the Board of Directors of Debtor, and which by their terms are
senior to the Note (collectively, and as each of the foregoing may be amended,
restated, extended or renewed from time to time, the "Senior Indebtedness").
4. Representations and Warranties. Debtor represents and warrants to Lender
as follows:
(a) Debtor owns the Collateral free and clear of any lien, security
interest, charge or encumbrance of any kind whatsoever, except for the
security interest created hereby in favor of Lender and security interests
securing the Senior Indebtedness.
(b) This Agreement creates a valid and perfected security interest in
the Collateral and secures the payment of the Obligations.
(c) No authorization or approval any governmental authority or third
party is required for the grant by Debtor of the security interest granted
hereby or for the execution, delivery or performance of this Agreement by
Debtor, except for any such authorization or approval as has been obtained
by Debtor prior to Debtor's execution of this Agreement.
5. Covenants and Further Assurances.
(a) Debtor agrees that from time to time, at the expense of Debtor,
Debtor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary in
the opinion of counsel to the Company in order to perfect and protect any
security interest granted or purported to be granted
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hereby or to enable Lender to exercise and enforce rights and remedies
hereunder with respect to any Collateral, including the preparation, filing
and execution of such UCC financing statements and amendments or addendums
thereto (collectively, "Financing Statements") and other instruments or
notices as may be necessary or desirable in order to perfect and preserve
the security interest granted or purported to be granted hereby.
(b) Debtor hereby authorizes Lender to file one or more Financing
Statements relative to all or any part of the Collateral without the
signature of Debtor where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) Debtor shall, at its own expense, maintain insurance with respect
to the Collateral in reasonable amounts in accordance with industry
standards. Debtor shall ensure that the Collateral is, and remains, insured
against loss by fire and other casualty. Debtor shall, if so requested by
Lender, deliver to Lender copies of such insurance policies.
6. Lender's Duties. The powers conferred on Lender under this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Lender shall have no duty as to any Collateral or as to the taking
of any necessary steps to preserve rights against prior parties or any other
rights pertaining to any Collateral.
7. Events of Default. Each Event of Default under the Note shall be an
Event of Default under this Agreement. If any Event of Default shall occur and
be continuing, Lender may protect and enforce its rights under this Agreement
and the Note by any appropriate proceedings, and Lender may enforce the payment
of any Obligations due it or enforce any other legal or equitable right which it
may have; provided, that if any Senior Indebtedness is outstanding, then Lender
shall not have the right to take any action with respect to the Collateral under
this Agreement, applicable law or otherwise unless it obtains the prior written
consent of the holders of any outstanding Senior Indebtedness. All rights,
remedies and powers conferred upon Lender under this Agreement and the Note
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available at law or in equity. Lender's authority and rights shall
include, without limitation, the following:
(a) Lender may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the Uniform
Commercial Code (the "Code") (whether or not the Code applies to the
affected Collateral) and also may (i) require Debtor to, and Debtor hereby
agrees that it will at its expense and upon request of Lender forthwith,
assemble all or part of the Collateral as directed by Lender and make it
available to Lender at a place to be designated by Lender which is
reasonably convenient to it, and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at
public or private sale, at any of Lender's offices or elsewhere, for cash,
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on credit or for future delivery, and upon such other terms as Lender may
deem commercially reasonable. Debtor agrees that, to the extent notice of
sale shall be required by law, at least ten (10) business days' notice to
Debtor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Lender
shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Lender 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) All cash proceeds received by Lender in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in the discretion of Lender, be held by Lender as
collateral for, and/or then or at any time thereafter applied in whole or
in part by Lender against all or any part of the Obligations in such order
as Lender shall elect, subject to any mandatory provisions of this
Agreement or applicable law. Any surplus of such cash or cash proceeds held
by Lender and remaining after payment in full of all the Obligations shall
be paid over to Debtor or to whomsoever may be lawfully entitled to receive
such surplus.
8. No Impairment. The execution and delivery of this Agreement in no manner
shall impair or affect any other security (by endorsement or otherwise) for the
payment of the Obligations and no security taken hereafter as security for
payment of the Obligations shall impair in any manner or affect this Agreement,
all such present and further additional security to be considered as cumulative
security. Any of the Collateral for, or any obligor on, any of the Obligations
may be released without altering, varying or diminishing in any way the force,
effect, lien, security interest, or charge of this Agreement as to the
Collateral not expressly released, and this Agreement shall continue as a
security interest and charge on all of the Collateral not expressly released
until all the Obligations secured hereby have been paid in full. This Agreement
shall not be construed as relieving any Debtor from full recourse liability on
the Obligations and any and all further and other indebtedness secured hereby
and for any deficiency thereon.
9. Expenses. Upon the occurrence and during the continuation of an Event of
Default, Debtor will upon demand pay to Lender the amount of any and all
reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which Lender may incur in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of Lender
hereunder, or (iv) the failure by Debtor to perform or observe any of the
provisions hereof.
10. Amendments; Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Debtor herefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender and Debtor,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
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11. Addresses for Notices. Unless otherwise provided herein, all notices,
requests, consents, demands and other communications shall be in writing and
shall be mailed, certified mail with return receipt requested, postage prepaid,
telecopied, delivered by nationally recognized overnight delivery service, or
otherwise physically delivered to their respective addresses as set forth on the
signature page to this Agreement, or, as to any party, to such other address as
may be designated by it in written notice to all other parties. All notices,
requests, consents and demands hereunder will be effective, if addressed to
Lender or Debtor as aforesaid, when mailed by certified mail, postage prepaid,
return receipt requested, or upon delivery if telecopied, delivered by
nationally recognized overnight delivery service or otherwise physically
delivered, addressed as aforesaid, with receipt confirming delivery.
12. Continuing Security Interest; Transfer of Note. This Agreement shall
create a continuing security interest in the Collateral and shall (i) be binding
upon Debtor and its successors and assigns, and (ii) inure, together with the
rights and remedies of Lender hereunder, to the benefit of Lender, its
successors, transferees and assigns. Upon the payment in full of the
Obligations, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to Debtor. Upon any such termination, Lender
will, at Debtor's expense, execute and deliver to Debtor such documents as
Debtor shall reasonably request to evidence such termination.
13. Governing Law; Terms. This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, except to the extent that
the validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of Missouri. Terms used in Article 9 of the
Uniform Commercial Code in the State of Missouri, when used in this Agreement,
have the definitions given to such terms as therein defined. Venue for all
matters related to this Agreement shall be exclusively in the state and federal
courts sitting in Xxxxxx County, Missouri, and Debtor hereby waives any argument
that such forum is not convenient.
14. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall constitute an original, and all of which shall constitute
one and the same agreement.
15. Severability. If any term or provision of this Agreement shall be
determined to be illegal or unenforceable, all other terms and provisions of
this Agreement shall nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.
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IN WITNESS WHEREOF, Lender and Debtor have caused this Agreement to be duly
executed and delivered as of the date first above written.
LENDER:
/s/ Xxxxx X. Xxxxxxx
-------------------------------------------
Xxxxx X. Xxxxxxx
Address: 0000 X. Xxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
DEBTOR:
DECORIZE, INC.
By: /s/ Xxxx Xxxxxxxxx
----------------------------------------
Name: Xxxx Xxxxxxxxx
Its: Executive Vice-President and CFO
Address: 0000 X. Xxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
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