SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("SECURITY AGREEMENT"), dated as of January 30,
1997, is executed by NORTH COUNTRY JOINT VENTURE, LLC, a limited liability
corporation organized under the laws of Oregon ("NORTH COUNTRY"), in favor of
UNITED BREWERIES OF AMERICA, INC., a Delaware corporation ("PURCHASER").
RECITALS
A. Pursuant to a Credit Agreement, dated as of January 30, 1997 (the
"CREDIT AGREEMENT"), by and between Nor'Wester Brewing Company, an Oregon
corporation ("BORROWER") and Purchaser, Purchaser has agreed to extend certain
credit facilities to Borrower upon the terms and subject to the conditions set
forth therein.
B. Purchaser's obligation to enter into the Credit Agreement and provide
Advances to Borrower under the Credit Agreement is subject, among other
conditions, to receipt by Purchaser of this Security Agreement, duly executed by
North Country.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, North Country hereby agrees with Purchaser as follows:
1. DEFINITIONS AND INTERPRETATION. When used in this Security Agreement,
the following terms shall have the following respective meanings:
"ACCOUNT DEBTOR" shall have the meaning given to that term in SUBPARAGRAPH
3(g).
"BORROWER" shall have the meaning given to that term in RECITAL A.
"COLLATERAL" shall have the meaning given to that term in PARAGRAPH 2.
"CREDIT AGREEMENT" shall have the meaning given to that term in RECITAL A.
"EQUIPMENT" shall have the meaning given to that term in ATTACHMENT 1.
"INVENTORY" shall have the meaning given to that term in ATTACHMENT 1.
"NORTH COUNTRY" shall have the meaning given to that term in THE
INTRODUCTORY PARAGRAPH.
"PURCHASER" shall have the meaning given to that term in THE INTRODUCTORY
PARAGRAPH.
"RECEIVABLES" shall have the meaning given to that term in ATTACHMENT 1.
"RELATED CONTRACTS" shall have the meaning given to that term in ATTACHMENT
1.
"UCC" shall mean the Uniform Commercial Code as in effect in the State of
California from time to time.
Unless otherwise defined herein, all other capitalized terms used herein and
defined in the Credit Agreement shall have the respective meanings given to
those terms in the Credit Agreement, and all terms defined in the UCC shall have
the respective meanings given to those terms in the UCC. The rules of
construction set forth in SECTION I OF THE CREDIT AGREEMENT shall, to the extent
not inconsistent with the terms of this Security Agreement, apply to this
Security Agreement and are hereby incorporated by reference.
2. GRANT OF SECURITY INTEREST. As security for the Obligations, North
Country hereby pledges and assigns to Purchaser and grants to Purchaser a
security interest in all right, title and interest of North Country in and to
the property described in ATTACHMENT 1, whether now owned or hereafter acquired
(collectively and severally, the "COLLATERAL"), which ATTACHMENT 1 is
incorporated herein by this reference.
3. REPRESENTATIONS AND WARRANTIES. North Country represents and warrants
to Purchaser as follows:
(a) North Country is the legal and beneficial owner of the
Collateral (or, in the case of after-acquired Collateral, at the time
North Country acquires rights in the Collateral, will be the legal and
beneficial owner thereof). No other Person has (or, in the case of
after-acquired Collateral, at the time North Country acquires rights
therein, will have) any right, title, claim or interest (by way of Lien,
purchase option or otherwise) in, against or to the Collateral, other
than with respect to the Liens set forth in ATTACHMENT 3 ("PERMITTED
LIENS").
(b) Purchaser has (or in the case of after-acquired Collateral, at
the time North Country acquires rights therein, will have) a first
priority perfected security interest in the Collateral other than
Inventory and Receivables in which it has a second priority perfected
security interest subject only to the Permitted Lien in favor of The
Adirondack Trust Company.
(c) All Equipment and Inventory are (i) located at the locations
indicated on ATTACHMENT 2, (ii) in transit to such locations or (iii) in
transit to a third party purchaser which will become obligated on a
Receivable to North Country upon receipt. Except for Equipment and
Inventory referred to in CLAUSES (ii) AND (iii) of the preceding sentence
and except as disclosed on Schedule 4.01(c) of the Investment Agreement,
North Country has exclusive possession and control of the Inventory and
Equipment.
(d) All Inventory has been (or, in the case of hereafter produced
Inventory, will be) produced in compliance with all applicable
Governmental Rules, including the Fair Labor Standards Act (if
applicable).
(e) North Country keeps all records concerning the Receivables and
the originals of all Related Contracts at its chief executive office
located at the address set forth on ATTACHMENT 2.
(f) North Country has delivered to Purchaser, together with all
necessary stock powers, endorsements, assignments and other necessary
instruments of transfer, the originals of all Receivables consisting of
instruments and chattel paper.
(g) To the best of North Country's knowledge, each Receivable is
genuine and enforceable against the party obligated to pay the same (an
"ACCOUNT DEBTOR") free from any right of rescission, defense, setoff or
discount.
(h) Each insurance policy maintained by North Country is validly
existing and is in full force and effect. North Country is not in
default in any material respect under the provisions of any insurance
policy, and there are no facts which, with the giving of notice or
passage of time (or both), would result in such a default under any
provision of any such insurance policy.
4. COVENANTS. North Country hereby agrees as follows:
(a) North Country, at North Country's expense, shall promptly
procure, execute and deliver to Purchaser all documents, instruments and
agreements and perform all acts which are necessary or desirable, or
which Purchaser may reasonably request, to establish, maintain, preserve,
protect and perfect the Collateral, the Lien granted to Purchaser therein
and the priority of such Lien or to enable Purchaser to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the preceding sentence, North Country
shall (i) procure, execute and deliver to Purchaser all stock powers,
endorsements, assignments, financing statements and other instruments of
transfer reasonably requested by Purchaser, (ii) deliver to Purchaser
promptly upon receipt all originals of Collateral consisting of
instruments, documents and chattel paper and certificated securities and
(iii) take such action as may be necessary and requested by Purchaser to
perfect the lien of Purchaser in any Collateral consisting of investment
property (including in those jurisdictions where appropriate or where
Purchaser may otherwise request, causing such liens to be recorded or
registered in the books of any financial intermediary or clearing
corporation requested by Purchaser.
(b) North Country shall not use or permit any Collateral to be
used in violation of (i) any material provision of the Credit Agreement,
this Security Agreement or any other Security Document, (ii) any
applicable Governmental Rule where such use might have a Material Adverse
Effect, or (iii) any policy of insurance covering the Collateral.
(c) North Country shall pay promptly when due all taxes and other
governmental charges, all Liens (other than Permitted Liens) and all
other charges now or hereafter imposed upon, relating to or affecting any
Collateral.
(d) Without thirty (30) days' prior written notice to Purchaser,
North Country shall not (i) change North Country's name or place of
business (or, if North Country has more than one place of business, its
chief executive office), or the office in which North Country's records
relating to Receivables or the originals of Related Contracts are kept,
(ii) keep Collateral consisting of chattel paper and documents at any
location other than its chief executive office set forth on ATTACHMENT 2,
or (iii) keep Collateral consisting of Equipment, Inventory or other
goods at any location other than the locations set forth on ATTACHMENT 2.
(e) North Country shall appear in and defend any action or
proceeding which may affect its title to or Purchaser's interest in the
Collateral.
(f) If Purchaser gives value to enable North Country to acquire
rights in or the use of any Collateral, North Country shall use such
value for such purpose.
(g) North Country shall keep separate, accurate and complete
records of the Collateral and shall provide Purchaser with such records
and such other reports and information relating to the Collateral as
Purchaser may reasonably request from time to time.
(h) North Country shall not surrender or lose possession of (other
than to Purchaser), sell, encumber, lease, rent, option, or otherwise
dispose of or transfer any Collateral or right or interest therein (other
than (i) Inventory sold in the ordinary course of North Country's
business and (ii) purchase money security interests in Equipment provided
that any such purchase money security interests only cover Equipment the
acquisition of which was financed by indebtedness which does not exceed
the purchase price of the Equipment so financed), and, notwithstanding
any provision of the Credit Agreement, North Country shall keep the
Collateral free of all Liens, other than Permitted Liens.
(i) North Country shall type, print or stamp conspicuously on the
face of all original copies of all Collateral consisting of chattel paper
and documents not in the possession of Purchaser a legend satisfactory to
Purchaser indicating that such chattel paper is subject to the security
interest granted hereby.
(l) North Country shall collect, enforce and receive delivery of
the Receivables in accordance with past practice until otherwise notified
by Purchaser.
(m) North Country shall comply with all material Requirements of
Law applicable to North Country which relate to the production,
possession, operation, maintenance and control of the Collateral
(including, without limitation, the Fair Labor Standards Act).
(n) North Country shall (i) maintain and keep in force insurance
of the types and in amounts customarily carried from time to time during
the term of this Security Agreement in its lines of business, including
fire, public liability, property damage and worker's compensation, such
insurance to be carried with companies and in amounts satisfactory to
Purchaser, (ii) deliver to Purchaser from time to time, as Purchaser may
request, schedules setting forth all insurance then in effect, and (iii)
deliver to Purchaser copies of each policy of insurance which replaces,
or evidences the renewal of, each existing policy of insurance at least
fifteen (15) days prior to the expiration of such policy. Purchaser
shall be named as additional insured or additional loss payee, as
appropriate, on all liability and property insurance of North Country and
such policies shall contain such additional endorsements as shall
reasonably be required by Purchaser. Prior to the occurrence and the
continuance of an Event of Default, all proceeds of any property
insurance paid as a result of any event or occurrence shall be paid to
North Country. All proceeds of any property insurance paid after the
occurrence and during the continuance of an Event of Default shall be
paid to Purchaser to be held as Collateral and applied as provided in the
Credit Agreement or, at the election of Purchaser, returned to North
Country.
(o) Without the prior written consent of Purchaser, North Country
shall not create, incur, assume or permit to exist any indebtedness or
liabilities resulting from borrowings, loans or advances, whether secured
or unsecured, matured or unmatured, liquidated or unliquidated, joint or
several.
5. AUTHORIZED ACTION BY PURCHASER. North Country hereby irrevocably
appoints Purchaser as its attorney-in-fact and agrees that Purchaser may perform
(but Purchaser shall not be obligated to and shall incur no liability to North
Country or any third party for failure so to do) any act which North Country is
obligated by this Security Agreement to perform, and to exercise such rights and
powers as North Country might exercise with respect to the Collateral,
including, without limitation, the right to (a) collect by legal proceedings or
otherwise and endorse, receive and receipt for all dividends, interest,
payments, proceeds and other sums and property now or hereafter payable on or on
account of the Collateral; (b) enter into any extension, reorganization,
deposit, merger, consolidation or other agreement pertaining to, or deposit,
surrender, accept, hold or apply other property in exchange for the Collateral;
(c) insure, process, preserve and enforce the Collateral; (d) make any
compromise or settlement, and take any action it deems advisable, with respect
to the Collateral; (e) pay any Indebtedness of North Country relating to the
Collateral; and (f) execute UCC financing statements and other documents,
instruments and agreements required hereunder; PROVIDED, HOWEVER, that Purchaser
may exercise such powers only after the occurrence and during the continuance of
an Event of Default. North Country agrees to reimburse Purchaser upon demand
for all reasonable costs and expenses, including attorneys' fees, Purchaser may
incur while acting as North Country's attorney-in-fact hereunder, all of which
costs and expenses are included in the Obligations. North Country agrees that
such care as Purchaser gives to the safekeeping of its own property of like kind
shall constitute reasonable care of the Collateral when in Purchaser's
possession; PROVIDED, HOWEVER, that Purchaser shall not be required to make any
presentment, demand or protest, or give any
notice and need not take any action to preserve any rights against any prior
party or any other Person in connection with the Obligations or with respect to
the Collateral.
6. DEFAULT AND REMEDIES. North Country shall be deemed in default under
this Security Agreement upon the occurrence and during the continuance of an
Event of Default, as that term is defined in the Credit Agreement. In addition
to all other rights and remedies granted to Purchaser by this Security
Agreement, the Credit Agreement, the other Credit Documents, the UCC and other
applicable Governmental Rules, Purchaser may, upon the occurrence and during the
continuance of any Event of Default (and, if applicable, the expiration of the
sixty (60) day period as provided in the Credit Agreement), exercise any one or
more of the following rights and remedies: (a) collect, receive, appropriate or
realize upon the Collateral or otherwise foreclose or enforce Purchaser's
security interests in any or all Collateral in any manner permitted by
applicable Governmental Rules or in this Security Agreement; (b) notify any or
all Account Debtors to make payments on Receivables directly to Purchaser; (c)
direct any depository bank or intermediary to liquidate the account(s)
maintained by it, pay all amounts payable in connection therewith to Purchaser
and/or deliver any proceeds thereof to Purchaser; (d) sell or otherwise dispose
of any or all Collateral at one or more public or private sales, whether or not
such Collateral is present at the place of sale, for cash or credit or future
delivery, on such terms and in such manner as Purchaser may determine; (e)
require North Country to assemble the Collateral and make it available to
Purchaser at a place to be designated by Purchaser; (f) enter onto any property
where any Collateral is located and take possession thereof with or without
judicial process; and (g) prior to the disposition of the Collateral, store,
process, repair or recondition any Collateral consisting of goods, perform any
obligations and enforce any rights of North Country under any Related Contracts
or otherwise prepare and preserve Collateral for disposition in any commercially
reasonable manner and to the extent Purchaser reasonably deems appropriate. In
furtherance of Purchaser's rights hereunder, North Country hereby grants to
Purchaser an irrevocable, non-exclusive license (exercisable without royalty or
other payment by Purchaser) to use, license or sublicense any patent, trademark,
tradename, copyright or other intellectual property in which North Country now
or hereafter has any right, title or interest, together with the right of access
to all media in which any of the foregoing may be recorded or stored (but only
to the extent North Country is not prohibited from granting such irrevocable,
non-exclusive license under applicable law or any material agreement to which it
is a party). In any case where notice of any sale or disposition of any
Collateral is required, North Country hereby agrees that seven (7) days notice
of such sale or disposition is reasonable.
7. AUTHORIZATIONS, WAIVERS, ETC.
(a) AUTHORIZATIONS. North Country authorizes Purchaser in its
reasonable discretion, without notice to North Country except as required
by applicable law, irrespective of any change in the financial condition
of Borrower, North Country or any other guarantor of the Obligations
since the date hereof, and without affecting or impairing in any way the
liability of North Country hereunder, from time to time to:
(i) Exercise any right or remedy Purchaser may have against
Borrower, North Country, any other guarantor of the Obligations or
any security, including, without limitation, the right to foreclose
upon any such security by judicial or nonjudicial sale;
(ii) Settle, compromise with, release or substitute any one or
more makers, endorsers or guarantors of the Obligations; and
(iii) To the extent permitted pursuant to SUBPARAGRAPH
7.04 OF THE CREDIT AGREEMENT, assign the Obligations, this Security
Agreement or any other Credit Document in whole or in part.
(b) WAIVERS. North Country hereby waives:
(i) Any right to require Purchaser to (A) proceed against
Borrower or any other guarantor of the Obligations, (B) proceed
against or exhaust any security received from Borrower, North
Country or any other guarantor of the Obligations or otherwise
marshall the assets of Borrower or North Country or (C) pursue any
other remedy in Purchaser's power whatsoever;
(ii) Any defense arising by reason of the application by
Borrower of the proceeds of any borrowing;
(iii) Any defense resulting from the absence, impairment or
loss of any right of reimbursement, subrogation, contribution or
other right or remedy of North Country against Borrower, any other
guarantor of the Obligations or any security, whether resulting
from an election by Purchaser to foreclose upon security by
nonjudicial sale, or otherwise;
(iv) Any benefit arising from any setoff or counterclaim of
Borrower or any defense which results from any disability or other
defense of Borrower or the cessation or stay of enforcement from
any cause whatsoever of the liability of Borrower (including,
without limitation, the lack of validity or enforceability of the
Convertible Note, but excluding any set-off, defense or
counterclaim asserted by Borrower based upon Purchaser's failure to
perform its obligations under the Credit Agreement or the
Convertible Note);
(v) Any defense based upon any law, rule or regulation which
provides that the obligation of a surety must not be greater or
more burdensome than the obligation of the principal;
(vi) Until all obligations of Purchaser to extend credit to
Borrower have terminated and all of the Obligations have been
fully, finally and indefeasibly paid, any right of subrogation,
reimbursement, indemnification or contribution and other similar
right to enforce any remedy which Purchaser or any other Person now
has or may hereafter have against Borrower on account
of the Obligations, and any benefit of, and any right to
participate in, any security now or hereafter received by Purchaser
or any other Person on account of the Obligations;
(vii) All presentments, demands for performance, notices of
non-performance, notices delivered under the Credit Agreement,
protests, notice of dishonor, and notices of acceptance of this
Security Agreement and of the existence, creation or incurring of
new or additional Obligations and notices of any public or private
foreclosure sale;
(viii) Any appraisement, valuation, stay, extension,
moratorium redemption or similar law or similar rights for
marshalling;
(ix) Any right to be informed by Purchaser of the financial
condition of Borrower or any other guarantor of the Obligations or
any change therein or any other circumstances bearing upon the risk
of nonpayment or nonperformance of the Obligations;
(x) Until all obligations of Purchaser to extend credit to
Borrower have terminated and all of the Obligations have been
fully, finally and indefeasibly paid, any right to revoke this
Security Agreement;
(xi) Any defense arising from an election for the
application of Section 1111(b)(2) of the United States Bankruptcy
Code which applies to the Obligations; and
(xii) Any defense based upon any borrowing or grant of a
security interest under Section 364 of the United States Bankruptcy
Code.
Without limiting the scope of any of the foregoing provisions of this
PARAGRAPH 7, North Country hereby further waives (A) all rights and defenses
arising out of an election of remedies by Purchaser, even though that election
of remedies has destroyed North Country's rights of subrogation and
reimbursement against Borrower and (B) all other rights and defenses available
to North Country by reason of Sections 2787 to 2855, inclusive, Section 2899 or
Section 3433 of the California Civil Code or Section 3605 of the California
Commercial Code.
8. MISCELLANEOUS.
(a) NOTICES. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or
upon North Country or Purchaser under this Security Agreement shall be
in writing and faxed, mailed or delivered at his or its respective
facsimile number or address set forth below (or to such other facsimile
number or address for each party as indicated in any notice given by
that party to the other party). All such notices and communications
shall be effective (i) when sent by Federal Express or other overnight
service of recognized standing, on the second day following the deposit
with such service; (ii) when mailed, first class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon
receipt; (iii) when delivered by hand, upon delivery; and (iv) when
faxed, upon confirmation of receipt.
Purchaser: UNITED BREWERIES OF AMERICA, INC.
Attn: Mr. Vijay Mallya
One Harbor Drive, Suite 102
Sausalito, California 94965
Telephone: (415) 289-1400
Facsimile: (415) 289-1409
With a
copy to: ORRICK, HERRINGTON & SUTCLIFFE
400 Sansome Street
San Francisco, California 94111
Attn: Alan Talkington, Esq.
Telephone: (415) 773-5762
Facsimile: (415) 773-5759
North
Country: c/o MICROBREWERIES ACROSS AMERICA
Attn: Chief Financial Officer
66 S.E. Morrison Street
Portland, Oregon 97214
Telephone: (503) 232-9771
Facsimile: (503) 232-2363
With
copies to: ATER WYNNE HEWITT DODSON & SKERRITT, LLP
Attorneys at Law
Suite 1800
222 S.W. Columbia
Portland, Oregon 97201-6618
Attn: Jack W. Schifferdecker, Jr.
Telephone: (503) 226-8614
Facsimile: (503) 226-0079
(b) EXPENSES. North Country shall pay on demand all reasonable
fees and expenses, including reasonable attorneys' fees and expenses,
incurred by Purchaser in the enforcement or attempted enforcement of
this Security Agreement or in preserving any of Purchaser's rights and
remedies (including, without limitation, all such fees and expenses
incurred in connection with any "workout" or restructuring affecting
this Security Agreement or any bankruptcy or similar proceeding
involving North Country). The obligations of North Country under this
SUBPARAGRAPH 8(b) shall survive the payment and performance of the
Obligations and the termination of this Security Agreement.
(c) WAIVERS; AMENDMENTS. This Security Agreement may not be
amended or modified, nor may any of its terms be waived, except by
written instruments signed by North Country and Purchaser. Each waiver
or consent under any provision hereof shall be effective only in the
specific instances for the purpose for which given. No failure or delay
on Purchaser's part in exercising any right hereunder shall operate as a
waiver thereof or of any other right nor shall any single or partial
exercise of any such right preclude any other further exercise thereof
or of any other right.
(d) ASSIGNMENTS. This Security Agreement shall be binding upon
and inure to the benefit of Purchaser, North Country and their
respective successors and assigns, except that North Country may not
assign or transfer any of its rights and obligations under this Security
Agreement without the prior written consent of Purchaser and Purchaser
may only assign or transfer any of its rights and obligations under this
Security Agreement to the extent permitted under Section 10.4 of the
Investment Agreement.
(e) PARTIAL INVALIDITY. If at any time any provision of this
Security Agreement is or becomes illegal, invalid or unenforceable in
any respect under the law of any jurisdiction, neither the legality,
validity or enforceability of the remaining provisions of this Security
Agreement nor the legality, validity or enforceability of such provision
under the law of any other jurisdiction shall in any way be affected or
impaired thereby.
(f) CUMULATIVE RIGHTS, ETC. The rights, powers and remedies of
Purchaser under this Security Agreement shall be in addition to all
rights, powers and remedies given to Purchaser by virtue of any
applicable law, rule or regulation of any governmental authority, the
Credit Agreement or any other agreement, all of which rights, powers,
and remedies shall be cumulative and may be exercised successively or
concurrently without impairing Purchaser's rights hereunder. North
Country waives any right to require Purchaser to proceed against any
Person or to exhaust any Collateral or to pursue any remedy in
Purchaser's power.
(g) PAYMENTS FREE OF TAXES, ETC. All payments made by North
Country under this Security Agreement shall be made by North Country
free and clear of and
without deduction for any and all present and future taxes, levies,
charges, deductions and withholdings. In addition, North Country shall
pay upon demand any stamp or other taxes, levies or charges of any
jurisdiction with respect to the execution, delivery, registration,
performance and enforcement of this Security Agreement. Upon request by
Purchaser, North Country shall furnish evidence satisfactory to
Purchaser that all requisite authorizations and approvals by, and
notices to and filings with, governmental authorities and regulatory
bodies have been obtained and made and that all requisite taxes, levies
and charges have been paid.
(h) NORTH COUNTRY'S CONTINUING LIABILITY. Prior to a foreclosure
of Purchaser's security interest in the Collateral or the payment in
full of the Obligations, notwithstanding any provision of this Security
Agreement or any other Credit Document or any exercise by Purchaser of
any of its rights hereunder or thereunder (including, without
limitation, any right to collect or enforce any Collateral), (i) North
Country shall remain liable to perform its obligations and duties in
connection with the Collateral (including, without limitation, the
Related Contracts and all other agreements relating to the Collateral)
and (ii) Purchaser shall not assume any liability to perform such
obligations and duties or to enforce any of North Country's rights in
connection with the Collateral (including, without limitation, the
Related Contracts and all other agreements relating to the Collateral).
(i) GOVERNING LAW. This Security Agreement shall be governed by
and construed in accordance with the laws of the State of California
without reference to conflicts of law rules (except to the extent
otherwise provided in the UCC).
IN WITNESS WHEREOF, North Country has caused this Security Agreement to be
executed as of the day and year first above written.
NORTH COUNTRY JOINT VENTURE, LLC
By: /s/ James W. Bernau
---------------------------
Name: James W. Bernau
Title: President