EXHIBIT 10.3
SECURITY AGREEMENT FOR
RECEIVABLES BACKED BORROWING
THIS SECURITY AGREEMENT FOR RECEIVABLES BACKED BORROWING (this
"AGREEMENT") made and entered into as of the 14th day of September 1998
("EFFECTIVE DATE"), by and among INTELECT NETWORK TECHNOLOGIES COMPANY, a Nevada
Corporation, DNA ENTERPRISES, INC. a Texas Corporation; and INTELECT VISUAL
COMMUNICATIONS CORP., a Delaware corporation (the foregoing are each and
collectively, the "PLEDGOR") INTELECT COMMUNICATIONS, INC. ("ICI"), and THE
COASTAL CORPORATION SECOND PENSION TRUST ("SECURED PARTY") (the "PARTIES"):
W I T N E S S:
WHEREAS, pursuant to the terms, and subject to the conditions, set forth
in that certain Loan Agreement for Receivables Backed Borrowing ("LOAN
AGREEMENT") between the ICI and Secured Party dated the Effective Date and in a
Promissory Note (the "NOTE"), dated the Effective Date issued by ICI and payable
to the order of Secured Party in the original principal sum of $5,000,000,
Secured Party has agreed to advance funds to ICI and
WHEREAS, it is a condition to the agreement of Secured Party to advance
such funds and to consummate the transactions contemplated by the Loan Agreement
that this Security Agreement granting a Security Interest in the Security shall
have been executed and delivered by ICI and Pledgor and shall be in full force
and effect;
WHEREAS, each of the Pledgors is a wholly owned subsidiary of ICI and in
consideration of the benefits received from the proceeds of the Note, and for
other good and valuable consideration, do hereby desire and agree to grant a
Security Interest in the Security;
NOW, THEREFORE, for and in consideration of the premises, and the mutual
covenants and agreements herein contained and of the Loan hereinafter referred
to, ICI, each Pledgor and the Secured Party agree as follows:
SECTION 1. DEFINITIONS
1.01 CERTAIN DEFINED TERMS. As used in this Security Agreement, the
following terms or phrases have the respective meanings set forth below or in
the Section following such term:
"ACCOUNTS" shall have the meaning given in Section 2.01 of this Agreement.
"ACCOUNT DEBTOR" shall have the meaning given in Section 2.03 of this
Agreement.
"ADVANCE" means an advance of funds under and subject to the terms and
conditions of this Agreement, in increments of $500,000, provided that the
balance outstanding under this Agreement and the Note shall never exceed the sum
of the Loan Maximum.
"AGREEMENT" shall mean this Security Agreement, as the same may from time
to time be amended or supplemented.
"COLLATERAL" means (i) the aggregate of the Pledged Securities, (ii) all
dividends (cash, stock or otherwise), cash, instruments, rights to subscribe,
purchase or sell and all other rights and property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such securities, (iii) all replacements, additions to and substitutions for
any of the property referred to in this definition, including, without
limitation, claims against third parties, (iv) the Proceeds, interest, profits
and other income of or on any of the property referred to in this definition,
and (v) all books and records relating to any of the property referred to in
this definition.
"CUSTODIAN" means Chase Bank of Texas, its successors and assigns.
"DEFAULT" has the meaning given in Section 6.
"DEFAULT RATE" has the meaning given in the Loan Agreement.
"DESIGNATED SUBSIDIARIES" means Intelect Network Technologies Company; DNA
Enterprises, Inc.; and Intelect Visual Communications Corp.
"EFFECTIVE DATE" has the meaning given that term in the introduction to
this Security Agreement.
"ELIGIBLE ACCOUNTS" means accounts receivable of domestic commercial
customers of the Designated Subsidiaries created and deemed collectible in the
normal course of business on normal commercial terms.
"EVENT OF DEFAULT" has the meaning given in Section 6 hereof.
"FRAUDULENT CONVEYANCE" has the meaning given in Section 2.09 hereof.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement between St.
James and Lender dated September 14, 1998.
"INDEBTEDNESS" shall mean all principal, interest and fees owing by the
Borrower to the Lender in connection with the Note or the Loan Agreement.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"LOAN AGREEMENT" means the Loan Agreement for Receivables Backed Borrowing
between the Parties of even date herewith.
"LOAN MAXIMUM" has the meaning given in the Loan Agreement.
"MARGIN PERCENTAGE" shall have the meaning given in the Loan Agreement.
"NOTE" has the meaning given that term in the Recitals to this Security
Agreement.
"OBLIGATIONS" means the aggregate of:
(1) the indebtedness evidenced by the Note, including interest
accruing thereon;
(2) all sums advanced and costs and expenses incurred by Secured
Party in accordance with the Note, this Security Agreement and the other
Transaction Documents, including, without limitation, all reasonable legal,
accounting, consulting or like fees, made and incurred in connection with the
Obligations described in clause (1) above or any part thereof, any renewal,
extension, or modification of, or substitution for, the foregoing Obligations or
any part thereof, or the acquisition, perfection or maintenance and preservation
of the security for the Obligations, whether such advances, costs, or expenses
shall have been made and incurred at the request of ICI, Pledgor or Secured
Party,
(3) all other Obligations of ICI or Pledgor pursuant to the Note and
the other Transaction Documents; and
(4) any and all extensions and renewals of, substitutions for, or
modifications or amendments of any of the foregoing Obligations or any part
thereof.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
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"PLEDGED SECURITIES" shall have the meaning given in the Loan Agreement.
"PLEDGOR" has the meaning given that term in the introduction to this
Security Agreement.
"PRIME RATE" shall have the meaning given in the Loan Agreement.
"PROCEEDS" means whatever is received upon the sale, exchange, collection,
or other disposition of the Security and insurance payable or damages or other
payments by reason of loss or damage to the Security, whether cash or non-cash
and all securities and guaranties therefor.
"RECEIVABLES LOAN BALANCE" shall have the meaning given in the Loan
Agreement.
"SCHEDULES" has the meaning assigned to that term in SECTION 5.01.
"SECURED PARTY" has the meaning given that term in the introduction to
this Security Agreement.
"SECURITY" means the Accounts pledged under the Security Agreement.
"SECURITY AGREEMENT" means this Security Agreement dated as of the
Effective Date, among ICI, each Pledgor and Secured Party, as said agreement may
be amended, modified, supplemented, and/or extended from time to time.
"SECURITY INTEREST" has the meaning assigned to that term in SECTION 2.01.
"TRANSACTION DOCUMENTS" means the Loan Agreement, the Note, the Pledge
Agreement, the Intercreditor Agreement and the Security Agreement.
"UCC" means the Uniform Commercial Code as in effect in any jurisdiction
applicable.
1.02 OTHER DEFINITIONS. Other capitalized terms used herein have the
meanings given them herein or in the Loan Agreement.
SECTION 2. CREATION OF SECURITY INTEREST
2.01 CREATION OF SECURITY INTEREST. In consideration of Secured Party's
advancing or extending the funds or credit constituting the Obligations
(including the indebtedness evidenced by the Note), as a condition to such
Advances and extensions, in consideration of the mutual covenants contained
herein, and for the purpose of securing the prompt, unconditional and complete
payment and performance of the Obligations, Pledgor hereby grants to Secured
Party a continuing general lien and security interest in all of Pledgor's
accounts receivable, together with any instruments, chattel paper, and general
intangibles relating thereto (collectively, "ACCOUNTS") that now exist or are
currently owned by Pledgor or are later owned or acquired by Pledgor, including
in all Proceeds (the "SECURITY INTEREST").
2.02 PROCEEDS. Except as otherwise permitted herein, the Security Interest
of Secured Party hereunder in the Proceeds shall not be construed to mean that
Secured Party consents to the sale or other disposition of any part of the
Security.
2.03 SECURITY. This continuing general lien and security interest shall
extend to all proceeds and collections of all Accounts, all guaranties and other
security for all Accounts, and all right, title, and interest of Pledgor in the
merchandise that caused the creation of any such Account. All right, title, and
interest in the merchandise shall include the right of stoppage in transit of
goods; all returned, rejected, rerouted, or repossessed goods; and the sale or
lease of goods that shall have given rise to any Account. The Accounts,
proceeds, collections, guaranties, other security, and all right, title, and
interest in the Accounts-creating merchandise are collectively called the
"Security" in this Agreement. The granted continuing lien and security interest
also shall extend to the proceeds of all Security and to all of Pledgor's
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books and records relating to the Security. The obligors on Pledgor's Accounts
are sometimes called the "Account Debtor" or the "Account Debtors" in this
Agreement.
2.04 PARTIAL RELEASE. Except as expressly set forth therein, no release
from the Lien of this instrument of any part of the Security by Secured Party
shall in any way alter, vary, or diminish the force, effect or Lien of this
instrument on the balance or remainder of the Security.
2.05 SUBROGATION. This Security Agreement is made with full substitution
and subrogation of Secured Party in and to all covenants and warranties by
others heretofore given or made in respect of the Security or any part thereof.
2.06 SUCCESSOR SECURED PARTY. Any Person that succeeds to Secured Party as
Holder pursuant to, and as permitted by, the terms of the Note automatically
shall become Secured Party hereunder.
2.07 TERMINATION. If all the Obligations are paid and performed in full
and the covenants herein contained are performed in all respects, then Secured
Party shall, upon the request of Pledgor and at Pledgor's cost and expense,
deliver to Pledgor proper instruments executed by Secured Party evidencing the
release of this instrument. Until such delivery, this instrument shall remain
and continue in full force and effect.
2.08 NO ASSUMPTION. The Security Interest is given to secure the prompt,
unconditional and complete payment and performance of the Obligations when due,
and is given as security only. The Secured Party does not assure and shall not
be liable for any of Pledgor's liabilities, duties or obligations under or in
connection with the Security. The Secured Party's acceptance of this Security
Agreement, or its taking any action in carrying out this Security Agreement,
does not constitute the Secured Party's approval of the Security or the Secured
Party's assumption of any obligation under or in connection with the Security.
This Security Agreement does not affect or modify Pledgor's obligations with
respect to the Security.
2.09 FRAUDULENT CONVEYANCE. Notwithstanding anything contained in this
Agreement to the contrary, ICI agrees that if, but for the application of this
Section, the Obligation or any Security Interest would constitute a preferential
transfer under 11 U.S.C. ss.547, a fraudulent conveyance under 11 U.S.C. ss.548
(or any successor section of that Code) or a fraudulent conveyance or transfer
under any state law of similar effect (each a "FRAUDULENT CONVEYANCE"), then the
Obligation and each affected Security Interest will be enforceable to the
maximum extent possible without causing the Obligation or any Security Interest
to be a Fraudulent Conveyance, and shall be deemed to have been automatically
amended to carry out the intent of this Section.
SECTION 3. LOANS, COLLECTION, RECORDS, AND HANDLING OF ACCOUNTS
3.01 ADVANCES. Secured Party agrees, during the continuance of this
Agreement, to make Advances to ICI, against those Accounts that Secured Party,
in its sole discretion, deems eligible for borrowing, as provided in the Loan
Agreement.
3.02 NOTES. To evidence Secured Party's loans to ICI, ICI shall, at
Secured Party's request, execute and deliver to Secured Party the Note or Notes
payable to Secured Party. These Notes shall be in the amount of any portion or
portions of ICI's Receivables Loan Balance as at the time of Secured Party's
request, up to the full extent of the balance. These Notes shall provide for the
payment to Secured Party of interest at the rate provided in the Loan Agreement.
The execution and delivery of these Notes shall not constitute payment,
satisfaction, or release of any Obligation.
3.03 CHECKS. Checks received by Secured Party shall not constitute
payment, but rather credit on these Notes. Solely for the purpose of computing
interest earned by Secured Party and in order to allow for clearance of the
checks, credit on these Notes shall be given as of the third calendar day after
receipt of any checks by Secured Party.
3.04 INTEREST. Until all Obligations of ICI to Secured Party are fully
paid, ICI will pay interest computed on the daily Receivable Loan Balance, from
the date accrued until the date paid, at the Prime Rate plus the Margin Rate,
unless the Default Rate is applicable.
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3.05 BALANCE. Secured Party shall give Pledgor, each month, a statement of
Pledgor's balance prepared from Secured Party's records, which will conclusively
be deemed correct in the absence of manifest error, and accepted by Pledgor,
unless Pledgor gives Secured Party a written statement of exceptions within
thirty (30) days after receipt of the extract or statement.
3.06 ACCOUNT INFORMATION. Pledgor and ICI shall give Secured Party such
information regarding the Accounts as Secured Party may reasonably request,
including but not limited to information and periodic reports as required herein
and by the Loan Agreement.
SECTION 4. HANDLING OF GOODS AND DOCUMENTS CONCERNING ACCOUNTS
4.01 SEGREGATION. Pledgor will physically segregate all rejected,
rerouted, repossessed, or returned goods sold or delivered in respect of any
Account; will immediately notify Secured Party of any rerouted, repossessed, or
returned goods; will receive such goods in trust for Secured Party; will hold
the goods for such disposition as Secured Party may direct or at Secured Party's
option, will promptly refund all advances, loans, and extensions made on the
Accounts; and will post written notice that the Accounts and goods are subject
to Secured Party's lien and security interest.
4.02 TRANSFER. In the event of an Event of Default, in addition to any
other remedy provided herein or in the Loan Agreement, Pledgor will immediately
endorse to Secured Party and deliver to Secured Party all instruments, chattel
paper, guaranties, or other documents when received by Pledgor as evidence of,
as payment of, or as security for any of the Accounts and will immediately
transfer to Secured Party all security received for any of the Accounts.
SECTION 5. REPRESENTATIONS, WARRANTIES, AND COVENANTS
5.01 ACCOUNTS. At the time of assignment, each account receivable
represents and will represent an undisputed, bona fide sale and delivery of
goods or services rendered, or both (or in the case of a general intangible,
represents and will represent an undisputed, bona fide agreement), and is not
and will not be subject to any setoff, counterclaim, discount, or condition of
any nature, except as specified in writing on or before the delivery to Secured
Party of schedules of assignment of accounts receivable. Pledgor is, or at the
time of the assignment will be, the lawful owner of each Account and has
unqualified right to assign and grant liens and security interests of the
Accounts to Secured Party. Pledgor will, with respect to each Account:
(a) deliver to Secured Party such papers as Secured Party may
require, including, without limitation, the original delivery or other receipts
and duplicate invoices;
(b) furnish Secured Party a weekly aged accounts receivable trial
balance, as required by the Loan Agreement;
(c) furnish to Secured Party weekly, statements of Account with
Pledgor's customers. Pledgor agrees that Secured Party may from time to time
verify the validity, amount, and any other matters relating to the Accounts by
means of mail, telephone, or otherwise, in the name of Pledgor, Secured Party,
or such other name as Secured Party may choose;
(d) do all things required by Secured Party in its reasonable
judgment, in order more completely to vest in and assure to Secured Party its
rights under this Agreement. The Accounts shall be collaterally assigned to
Secured Party by written or printed instruments (called "Schedules" in this
Agreement) in form acceptable to Secured Party, executed in such quantities as
Secured Party may require, but the lien and security interest of Secured Party
shall not be limited in any way to or by the inclusion of the Accounts within
such Schedules, and to the extent the terms and provisions of this Agreement
shall conflict with the Schedules, this Agreement shall be controlling. In the
event the Texas Uniform Commercial Code (Chapters 1 through 13 of the Texas
Business and Commerce Code) applies to any of the Accounts, Pledgor need not
furnish the Schedules relating to those Accounts unless Secured Party shall so
request; but Pledgor's failure to execute and deliver the Schedules shall not
limit the security interest granted to Secured Party under this Agreement; and
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(e) keep and will continue to keep all of its books and records
concerning accounts receivable and general intangibles and all of its other
books and records at its chief place of business, unless written notice to the
contrary is given by Pledgor to Secured Party.
5.02 RECORDING AND FILING. Pledgor shall pay all costs of filing,
registering, and recording this and every other instrument in addition or
supplemental hereto and all financing statements Secured Party may reasonably
require, in such offices and places and at such times and as often as may be, in
the judgment of Secured Party, necessary to create, perfect, preserve, protect,
and renew the Lien hereof on and in the Security, and otherwise do and perform
all matters or things necessary or expedient to be done or observed by reason of
any law or regulation of any applicable jurisdiction or any other competent
authority for the purpose of effectively creating, perfecting, preserving,
protecting, maintaining, and renewing the Lien hereof in and on the Security and
the priority thereof. Pledgor shall also pay the costs of obtaining reports from
appropriate filing offices concerning Lien filings in respect of any of the
Security. A carbon, photographic, or other reproduction of this Security
Agreement or of any financing statement relating hereto shall be sufficient as a
financing statement.
5.03 SECURED PARTY'S RIGHT TO PERFORM PLEDGOR'S OBLIGATIONS; FURTHER
ASSURANCES. Pledgor agrees that, if Pledgor fails to perform any act that
Pledgor is required to perform under this instrument, Secured Party may, but
shall not be obligated to, perform or cause to be performed such an act.
Accordingly, to the extent permitted by law, Pledgor hereby authorizes Secured
Party to execute and file financing statements and continuation statements
without Pledgor's signature thereon. Any expense incurred by Secured Party in
taking action in accordance with this section shall be a demand obligation owing
by Pledgor to Secured Party, shall bear interest in accordance with the Loan
Agreement, and shall be a part of the Obligations, and Secured Party shall be
subrogated to all of the rights of the party receiving the benefit of such
performance. The undertaking of such performance by Secured Party as aforesaid
shall not obligate such Person to continue such performance or to engage in such
performance or performance of any other act in the future, shall not relieve
Pledgor from the observance or performance of any covenant, warranty, or
agreement contained in this instrument or constitute a waiver of default
hereunder, and shall not affect the right of Secured Party to accelerate the
payment of all indebtedness and other sums secured hereby or to resort to any
other of its rights, powers, or remedies hereunder or under applicable law. In
the event Secured Party undertakes any such action, it shall have liability to
Pledgor only upon a showing of its bad faith, gross negligence or willful
misconduct (BUT SPECIFICALLY EXCLUDING ITS ORDINARY OR PARTIAL NEGLIGENCE), and
in all events no party other than the acting party shall be liable to Pledgor.
Pledgor will from time to time (a) sign, execute, deliver, and file, alone or
with Secured Party, all further financing statements, security agreements, or
other documents that are reasonably necessary; (b) procure any instruments or
documents as may be reasonably requested by Secured Party, and (c) take all
further action that may be reasonably necessary, or that Secured Party may
reasonably request, to confirm, perfect, preserve, and protect the Security
Interests intended to be granted hereby.
5.04 DEFENSE OF CLAIMS. ICI will preserve, warrant, and defend the
Security Interest created hereby in the Security against the claims of all
Persons whomsoever; will maintain and preserve such Security Interest at all
times as contemplated by the Transaction Documents; and will not do or suffer
any matter or thing whereby such Security Interest might or could be impaired,
it being understood that the Secured Party's right in the Security is subject to
the rights of St. James in accordance with the Intercreditor Agreement. ICI
shall promptly notify Secured Party in writing of the commencement of any legal
proceedings affecting Secured Party's interest in the Security, or any part
thereof, and shall take such action, employing attorneys reasonably acceptable
to Secured Party, as may be necessary to preserve ICI's and Secured Party's
rights affected thereby, and should ICI fail or refuse to take any such action,
Secured Party may take the action on behalf of and in the name of ICI and at
ICI's expense. Moreover, Secured Party may take independent action in connection
therewith as it may in its sole discretion deem proper, and ICI hereby agrees to
make reimbursement for all reasonable sums advanced and all reasonable expenses
incurred in such actions plus interest in accordance with the Loan Agreement.
5.05 ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints Secured Party
as Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor or otherwise, from time to time in Secured
Party's discretion, but at Pledgor's cost and expense and without notice to
Pledgor, to take any action and to execute any assignment, certificate,
financing statement, stock power, notification, document or instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Pledgor representing any dividend,
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interest payment or other distribution in respect of the Security or any part
thereof and to give full discharge for the same.
5.06 APPROVAL OF RIGHTS. After a default occurs, Pledgor will take all
actions the Secured Party requests to obtain the consent to or approval of the
Secured Party's rights under this Security Agreement, including without
limitation, the right to sell all or any part of the Security upon a Default
without the approval or consent of any judicial body. Pledgor and ICI agree that
the Secured Party's remedies at law for failure to comply with this provision
would be inadequate and that the harm to the Secured Party would not be
adequately compensable in damages. Pledgor and ICI agree that this provision may
be specifically enforced.
5.07 PLEDGOR'S OBLIGATIONS. This Security Agreement creates a legal ,
valid and binding lien in and to the Security in favor of Secured Party and
enforceable against ICI and Pledgor. Once perfected, the Security Interest will
constitute a first and prior lien on the Security. The creation of this Security
Interest does not require the consent of any third party, other than St. James,
which consent has been obtained. Debtor has not executed any prior transfer,
assignment, pledge, security interest or hypothecation covering the Security or
any interest in the Security, other than as acknowledged in the Intercreditor
Agreement.
SECTION 6. DEFAULT
6.01 EVENTS OF DEFAULT. Upon the occurrence and continuation of an Event
of Default beyond any applicable cure periods, as provided in the Note, Secured
Party may declare all Obligations immediately due and payable.
6.02 RIGHTS IN RESPECT OF SECURITY. Subject to the Intercreditor
Agreement, upon the occurrence and continuation of any Event of Default, in
addition to all other rights of Secured Party, Secured Party will have the right
and power, but will not be obligated, to enter upon and take possession of all
or any part of the Security, exclude Pledgor therefrom, and to hold, use,
administer, manage, and operate the same to the extent that Pledgor could do so.
After a Default under the Note, Secured Party may exercise every power, right,
and privilege of Pledgor with respect to the Security (including, without
limitation, the right of collection) without any liability (SPECIFICALLY
INCLUDING LIABILITY FOR ORDINARY OR PARTIAL NEGLIGENCE) to Pledgor in connection
therewith except with respect to bad faith, gross negligence or willful
misconduct; provided, however, that Secured Party may notify Account Debtors of
Pledgor to make payments directly to Secured Party only after all cure periods,
as provided in the Note, applicable to such Default have lapsed. Provided there
has been no foreclosure sale, when and if such expenses of operation have been
paid and the Obligations paid in full, the remaining Security shall be returned
to Pledgor.
6.03 ANCILLARY RIGHTS. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party hereunder, without notice, demand, or declaration of
default, all of which are hereby expressly waived by Pledgor, Secured Party may
proceed by a suit or suits in equity or at law (a) for the seizure and sale of
the Security or any part thereof, (b) for the specific performance of any
covenant or agreement contained in this Security Agreement, the Note or any of
the other Transaction Documents or in aid of the execution of any power herein
granted, (c) for the foreclosure or sale of the Security or any part thereof
under the judgment or decree of any court of competent jurisdiction, or (d) for
the enforcement of any other appropriate legal or equitable remedy.
6.04 RECEIVERSHIP. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party, Secured Party from time to time may apply to a court of
competent jurisdiction for the appointment of one or more receivers to take
possession of and to manage and administer the Security or any portion thereof
and to collect the Proceeds, all without demand or declaration of default, which
are hereby waived by Pledgor. Secured Party shall be entitled to the appointment
of such receiver(s) as a matter of right, without regard to the value of the
Security as security for the Obligations or the solvency of Pledgor or ICI or
any Person liable for the payment or performance of all or any part of the
Obligations. Such receiver(s) shall serve without bond and shall have all usual
and customary powers and authorities in addition to all other powers and
authorities permitted by the law of the jurisdiction where the Security is
situated and all powers and authorities granted to Secured Party herein.
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6.05 EXPENSES. ICI will pay to Secured Party all reasonable expenses,
including, without limitation, fees and expenses of any receiver(s), reasonable
attorneys' and consultants' fees and expenses, advanced by Secured Party and
incurred pursuant to the provisions contained in this Section, and all such
unpaid expenses shall be (a) a Lien against the Security; (b) added to the
Obligations, and (c) payable upon demand, with interest in accordance with the
Loan Agreement, provided, however, that the existence of said Lien shall in no
way waive, diminish, or prejudice any other rights, remedies, powers, and
privileges that Secured Party or any receiver(s) may have under the applicable
laws in the collection of such funds as loans or otherwise.
6.06 INJUNCTIVE RELIEF. Pledgor and ICI recognize that, in the event it
violates any of the warranties, covenants, terms, and conditions of this
Agreement, no remedy at law will provide adequate relief to Secured Party, and
Pledgor and ICI hereby agree that Secured Party shall be entitled to temporary
and permanent injunctive relief in case of any such breach without the necessity
of proving actual damages.
6.07 REMEDIES CUMULATIVE. No failure on the part of Secured Party or any
holder of the Note to exercise, and no delay in exercising, any right, power or
privilege hereunder, under the Note or under any other Transaction Document and
no course of dealing between ICI and Secured Party or any holder of the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or privilege, or any abandonment or discontinuance of any
steps to enforce such right, power or privilege, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
notice to or demand on ICI in any case shall entitle ICI to any other or further
notice or demand in similar or other circumstances. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
SECTION 7. FORECLOSURE ON SECURITY
7.01 SALE. Upon the occurrence and continuation of an Event of Default,
Secured Party will have all rights and remedies granted by law, and particularly
by the UCC, including, without limitation, the right to take possession of the
Security, and for this purpose Secured Party may enter upon any premises on
which any or all of the Security is situated and take possession of and manage
the Security or remove it therefrom. Secured Party may require Pledgor to
assemble the Security and make it available to Secured Party at a place to be
designated by Secured Party that is reasonably convenient to all parties. Unless
the Security is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Secured Party will give Pledgor
and ICI reasonable notice of the time and place of any public sale or of the
time after which any private sale or other disposition of the Security is to be
made. This requirement of sending reasonable notice will be met if the notice is
sent to ICI as provided in the Note at least ten days before the time of the
sale or disposition.
7.02 PRIVATE SALE. If Secured Party in good faith believes that the
Securities Act of 1933 or any other state or federal law prohibits or restricts
the customary manner of sale or distribution of any of the Security, or if
Secured Party determines that there is any other restraint or restriction
limiting the timely sale or distribution of any such property in accordance with
the customary manner of sale or distribution, Secured Party may sell such
property privately or in any other manner and at such price or prices it deems,
in good faith, advisable, but otherwise without any liability whatsoever to
Pledgor or ICI in connection therewith. Pledgor and ICI recognize and agree that
such prohibition or restriction may cause such property to have less value than
it otherwise would have and that, consequently, such sale or disposition by
Secured Party may result in a lower sales price than if the sale were otherwise
held.
7.03 SECURED PARTY AS PURCHASER. Secured Party will have the right to
become the purchaser at any foreclosure sale, and it will have the right to
credit upon the amount of the bid the amount payable to it out of the net
Proceeds of sale.
7.04 RECITALS CONCLUSIVE; WARRANTY; RATIFICATION. Recitals contained in
any assignment or bill of sale to any purchaser at any sale made hereunder will
conclusively establish, as between the parties to such assignment or bill of
sale, the truth and accuracy of the matters therein stated, including, without
limitation, nonpayment of the unpaid principal sum of, and the interest accrued
on, the written instruments constituting part or all of the Obligations after
the same have become due and payable, nonpayment of any other of the
Obligations, or advertisement and conduct of the sale in the manner provided
herein. Secured Party will have authority to appoint an attorney-in-fact to act
in conducting any foreclosure sale and executing assignments and bills of sale.
All assignments and bills of sale may contain a general
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warranty of title from the grantor. Pledgor and ICI ratify and confirm all legal
acts that Secured Party may do in accordance with this Security Agreement.
7.05 EFFECT OF SALE. Any sale or sales of the Security or any part thereof
will operate to divest all right, title, interest, claim, and demand whatsoever,
either at law or in equity, of Pledgor in and to the property sold, and will be
a perpetual bar, both at law and in equity, against Pledgor, Pledgor's
successors or assigns and against any and all persons claiming or who shall
thereafter claim all or any of the property sold from, through, or under
Pledgor, or Pledgor's successors or assigns. The purchaser or purchasers at the
foreclosure sale will receive immediate possession of the property purchased.
7.06 APPLICATION OF PROCEEDS. Secured Party shall apply the Proceeds of
any sale or other disposition of the Security as follows: First, to the payment
of all its expenses incurred in retaking, holding, and preparing any of the
Security for sale(s) or other disposition, in arranging for such sale(s) or
other disposition, and in actually selling or disposing of the same (all of
which are part of the Obligations); second, toward repayment of amounts
reasonably expended by Secured Party under SECTION 5 hereof; and third, toward
payment of the balance of the Obligations in the order and manner determined by
Secured Party in its sole discretion. Any surplus remaining shall be delivered
to ICI or Pledgor or as a court of competent jurisdiction may direct.
7.07 DEFICIENCY. ICI shall remain liable for any deficiency owing to
Secured Party after application of the net Proceeds of any foreclosure sale.
Nothing herein contained shall be construed as limiting Secured Party to the
collection of any Obligations only out of the income, revenue, rents, issues,
and profits from the Security or as obligating Secured Party to delay or
withhold action upon any default that may be occasioned by failure of such
income or revenue to be sufficient to retire the principal or interest when due
on the indebtedness secured hereby. It is expressly understood between Secured
Party and ICI that any Obligation shall constitute an absolute, unconditional
obligation of ICI to pay as provided herein or in the Note in accordance with
the terms of the instrument evidencing such Obligations in the amount therein
specified at the maturity date or at the respective maturity dates of the
installments thereof, whether by acceleration or otherwise.
7.08 WAIVER OF APPRAISEMENT, MARSHALING, ETC. To the extent permitted by
applicable law, Pledgor and ICI agree that neither Pledgor nor ICI will at any
time insist upon or plead or in any manner whatsoever claim the benefit of any
appraisement, valuation, stay, extension, or redemption law, if any, now or
hereafter in force, to prevent or hinder the enforcement or foreclosure of this
instrument, the absolute sale of the Security or the possession thereof by any
purchaser at any sale made pursuant to this instrument or pursuant to the decree
of any court having jurisdiction. To the extent permitted by applicable law,
Pledgor and ICI, for Pledgor and all who may claim by, through, or under
Pledgor, hereby waives the benefit of all such laws, if any, and to the extent
that Pledgor may lawfully do so under applicable law, waives any and all right
to have any Security marshaled upon any foreclosure of the Lien hereof or sold
in inverse order of alienation, and Pledgor and ICI agree that Secured Party may
sell the Security as an entirety.
7.09 DISCHARGE OF PURCHASER. Upon any sale made under the powers of sale
herein granted and conferred, the sales receipt issued by Secured Party will be
sufficient discharge to the purchaser or purchasers at any sale for the purchase
money, and such purchaser or purchasers and the heirs, devisees, personal
representatives, successors, and assigns thereof will not, after paying such
purchase money and receiving such receipt of Secured Party, be obliged to see to
the application thereof or be in anywise answerable for any loss,
misapplication, or nonapplication thereof.
SECTION 8. MISCELLANEOUS
8.01 NOTICES. Subject to the provisions of SECTION 5.01, all
communications under this Security Agreement shall be given as provided in the
Note and shall be except as otherwise specified herein, all notices, requests,
demands or other communications to or upon the respective parties hereto shall
be deemed to have been duly given or made when delivered to the party to which
such notice, request, demand or other communication is required or permitted to
be given or made under this Agreement or the Note, addressed to such party at
its address set forth below or at such other address as either of the parties
hereto may hereafter notify the other in writing.
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To ICI or PLEDGOR:INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, President and CEO
with a copy to: Philip P. Sudan, Jr., Esq.
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor,
Houston, Texas 77010;
Telephone: 713-652-0501
Telecopy: 713-652-0503
Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attn..: Corporate Secretary
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attn.: Director, Financial Administration
For wire transfers of funds to Secured Party under all Transaction Documents:
Custodian: Chase Bank of Texas - Houston, Texas
ABA #113000609
Trust Wires Clearing Account
DDA #00101606276
Description:Intelect Communication Receipts
OBI# Attn.: Trust Receipts
FFC: 5502001-1867300
THE COASTAL CORPORATION SECOND TRUST
Attn.: Mary Grace Greenwood
(713) 216-4539
8.02 SUCCESSORS AND ASSIGNS. No party may assign its rights or delegate
its duties hereunder to any Person without prior written consent of the other
party, which consent will not be unreasonably withheld. This Security Agreement
shall be binding upon the successors and permitted assigns of each of the
parties, and, except as expressly set forth in the Note and this SECTION 8.02,
shall inure to the benefit of the successors and permitted assigns of each of
the parties. The provisions of this Security Agreement are intended to be for
the benefit of all Persons constituting Secured Party.
8.03 AMENDMENT AND WAIVER.
(a) This Security Agreement may be amended, and the observance of
any term of this Security Agreement may be waived, with (and only with) the
written consent of the Parties.
(b) ICI and Pledgor shall not solicit, request, or negotiate for or
with respect to any proposed waiver or amendment hereof except in accordance
with the provisions of this Agreement and the Note.
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(c) Any such amendment or waiver shall apply equally to all persons
constituting Secured Party or ICI and shall be binding upon each future Secured
Party and upon each person constituting Pledgor or ICI regardless of whether
this Security Agreement, the Note or any other document shall have been marked
to indicate such amendment or waiver. No such amendment or waiver shall extend
to or affect any obligation not expressly amended or waived or impair any right
consequent thereon.
8.04 GOVERNING LAW. THIS SECURITY AGREEMENT, THE LEGAL RELATIONS AMONG THE
PARTIES HERETO, AND ALL RIGHTS AND OBLIGATIONS HEREUNDER, INCLUDING MATTERS OF
CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF
TEXAS WITHOUT REFERENCE TO THE LAW OF ANOTHER JURISDICTION AND THE LAWS OF THE
UNITED STATES OF AMERICA; PROVIDED, HOWEVER, THAT MATTERS RELATING TO THE
PERFECTION OF SECURITY INTERESTS UPON ANY PERSONAL PROPERTY SHALL BE GOVERNED BY
THE LAW OF ANOTHER JURISDICTION TO THE EXTENT REQUIRED BY THE NONWAIVABLE
PROVISIONS OF SUCH LAW OR THE LAW OF THE STATE OF TEXAS.
8.05 SEVERABILITY. If any provision in this Security Agreement is rendered
or declared illegal, invalid, or unenforceable by reason of any rule of law,
public policy, or final judicial decision, all other terms and provisions of
this Security Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions contemplated hereby
are not affected in any manner adverse to ICI, Pledgor or Secured Party. Upon
such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, ICI, Pledgor and Secured Party shall negotiate in
good faith to modify this Security Agreement so as to effect the original intent
of the Parties hereto as closely as possible to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
8.06 MULTIPLE COUNTERPARTS. The Parties may execute more than one
counterpart of this Security Agreement, each of which shall be an original but
all of which together shall constitute one and the same instrument.
8.07 REFERENCES. All references herein to one gender shall include the
other. Unless otherwise expressly provided, all references to "SECTIONS" are to
Sections of this Security Agreement and all references to "Exhibits" are to the
exhibits attached hereto, each of which is made a part hereof for all purposes.
8.08. FINAL AGREEMENT OF THE PARTIES. THIS SECURITY AGREEMENT (INCLUDING
THE EXHIBITS HERETO), THE NOTE AND THE OTHER TRANSACTION DOCUMENTS TO WHICH ICI
OR ANY OF ITS SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS DEFINED
IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Parties have caused this instrument to be executed
as of the Effective Date.
SECURED PARTY: ICI:
THE COASTAL CORPORATION SECOND INTELECT COMMUNICATIONS, INC.
PENSION TRUST
By: _____________________________ By:______________________________
Donald H. Gullquist Herman M. Frietsch
Senior Vice President President and CEO
The Coastal Corporation
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PLEDGOR: INTELECT NETWORK TECHNOLOGIES COMPANY
By:____________________________________
Title:_________________________________
PLEDGOR: DNA ENTERPRISES, INC.
By:____________________________________
Title:_________________________________
PLEDGOR: INTELECT VISUAL COMMUNICATIONS CORP.
By:____________________________________
Title:_________________________________
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