1
EXHIBIT 10.14
SECURITY AGREEMENT
(Borrower)
THIS SECURITY AGREEMENT dated as of January 31, 1996 (this
"Agreement"), is by and between SNELLING AND SNELLING, INC., a Pennsylvania
corporation (the "Debtor") and THE FIRST NATIONAL BANK OF BOSTON, as agent for
itself and the other Banks (as defined in the hereafter defined Credit
Agreement) (the "Secured Party").
R E C I T A L S:
A. The Debtor, the banks named therein, and the Secured Party
have entered into that certain Credit Agreement of even date herewith (such
Credit Agreement, as the same may be amended or otherwise modified from time to
time, being hereinafter referred to as the "Credit Agreement"; terms defined in
the Credit Agreement and not otherwise defined herein are used herein as
defined therein).
B. The Secured Party and the Banks have conditioned their
obligations under the Credit Agreement upon the execution and delivery of this
Agreement by the Debtor.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the
following terms have the following meanings:
"ACCOUNT" means any "account", as such term is defined in
Section 9.106 of the UCC, whether now owned or hereafter acquired by
the Debtor, and, in any event, shall include, without limitation, each
of the following, whether now owned or hereafter acquired by the
Debtor: (a) all rights of the Debtor to payment for goods sold or
leased or services rendered, whether or not earned by performance; (b)
all accounts receivable of the Debtor; (c) all rights of the Debtor to
receive any payment of money or other form of consideration,
including, without limitation, all rights to receive payments under
franchise agreements (including the rights to any override commission,
franchise fees or license fees payable thereunder and excluding the
rights to any cooperative advertising fees to be deposited into the
Promotion Fund) and any agreements creating Paybill Arrangements; (d)
all security pledged, assigned, or granted to or held by the Debtor to
secure any of the foregoing; (e) all letters of credit securing,
guaranties of, or indemnifications with respect to, any of the
foregoing; and (f) all rights of the Debtor as an unpaid seller of
goods or services, including, but not limited to, all rights of
stoppage in transit, replevin, reclamation and resale.
SECURITY AGREEMENT - Page 1
2
"CHATTEL PAPER" means any "chattel paper", as such term is
defined in Section 9.105(a)(2) of the UCC.
"COLLATERAL" has the meaning specified in SECTION 2.1 of this
Agreement.
"COPYRIGHT LICENSE" means any written agreement now or
hereafter in existence granting to the Debtor any right to use any
Copyright.
"COPYRIGHTS" means all of the following: (a) all copyrights,
works protectable by copyright, copyright registrations and copyright
applications of the Debtor; (b) all renewals, extensions and
modifications thereof; (c) all income, royalties, damages, profits and
payments relating to or payable under any of the foregoing; (d) the
right to sue for past, present or future infringements of any of the
foregoing; (e) all other rights and benefits relating to any of the
foregoing throughout the world; and (f) all goodwill associated with
and symbolized by any of the foregoing; in each case, whether now
owned or hereafter acquired by the Debtor.
"COPYRIGHT SECURITY AGREEMENT" means the copyright security
agreement to be executed and delivered by the Debtor to the Secured
Party, substantially in the form of Exhibit "A" hereto, as such
agreement may hereafter be amended, supplemented, or otherwise
modified from time to time.
"DOCUMENT" means any "document", as such term is defined in
Section 9.105(a)(6) of the UCC, including, without limitation, all
documents of title and all receipts covering, evidencing or
representing goods.
"EQUIPMENT" means any "equipment", as such term is defined in
Section 9.109(2) of the UCC, now owned or hereafter acquired by the
Debtor and, in any event, shall include, without limitation, all
machinery, equipment, furniture, fixtures, trade fixtures, trailers,
rolling stock, vessels, aircraft, and vehicles now owned or hereafter
acquired by the Debtor and any and all additions, substitutions, and
replacements of any of the foregoing, wherever located, together with
all attachments, components, parts, equipment, and accessories
installed thereon or affixed thereto.
"FINANCIAL ASSET" means any "financial asset" as such term is
defined in Section 8.102 (a) of the UCC.
"GENERAL INTANGIBLES" means any "general intangibles", as such
term is defined in Section 9.106 of the UCC, whether now owned or
hereafter acquired by the Debtor and, in any event, shall include,
without limitation, each of the following, whether now owned or
hereafter acquired by the Debtor: (a) all of the Debtor's Intellectual
Property and all other service marks, trade names, trade secrets,
registrations, goodwill, franchises, licenses, permits, proprietary
information, customer lists, designs and inventions; (b) all of the
Debtor's books, records, data, plans, manuals, computer software,
computer tapes, computer disks, computer programs, source codes,
object codes and all rights of the Debtor to retrieve data and other
information from third parties; (c) all of the Debtor's contract
rights, including, without limitation, all rights
SECURITY AGREEMENT - Page 2
3
arising under franchise agreements and other agreements creating
Paybill Arrangements and all Lockbox Agreements; (d) all rights of the
Debtor to payment under letters of credit and similar agreements; (e)
all tax refunds and tax refund claims of the Debtor; (f) all causes in
action and causes of action of the Debtor (whether arising in
contract, tort, or otherwise and whether or not currently in
litigation) and all judgments in favor of the Debtor; (g) all rights
and claims of the Debtor under warranties and indemnities; and (h) all
rights of the Debtor under any insurance, surety, or similar contract
or arrangement.
"INSTRUMENT" means any "instrument", as such term is defined
in Section 9.105(a)(9) of the UCC, and, in any event, shall include
all promissory notes, drafts, bills of exchange and trade acceptances
of the Debtor.
"INTELLECTUAL PROPERTY" means the Copyrights, Copyright
Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses.
"INVENTORY" means any "inventory", as such term is defined in
Section 9.109(4) of the UCC, whether now owned or hereafter acquired
by the Debtor, and, in any event, shall include, without limitation,
each of the following, whether now owned or hereafter acquired by the
Debtor: (a) all goods and other personal property of the Debtor that
are held for sale or lease or to be furnished under any contract of
service; (b) all raw materials, work-in-process, finished goods,
inventory, supplies and materials of the Debtor; (c) all wrapping,
packaging, advertising and shipping materials of the Debtor; (d) all
goods that have been returned to, repossessed by, or stopped in
transit by the Debtor; and (e) all Documents evidencing ownership of
any inventory.
"INVESTMENT PROPERTY" means any "investment property" as such
term is defined in Section 9.115(a)(b) of the UCC.
"IP SECURITY AGREEMENT" means the Patent Security Agreement,
the Copyright Security Agreement or the Trademark Security Agreement.
"PATENT LICENSES" means any written agreement now or hereafter
in existence granting to the Debtor any right to use any invention on
which a Patent is in existence including, without limitation, the
agreements described on SCHEDULE 3 hereto.
"PATENTS" means all of the following: (a) all patents, patent
applications and patentable inventions of the Debtor, including
without limitation, those set forth on SCHEDULE 3 hereto, and all of
the inventions and improvements described and claimed therein; (b) all
continuations, divisions, renewals, extensions, modifications,
substitutions, continuations-in-part, or reissues of any of the
foregoing; (c) all income, royalties, profits, damages, awards and
payments relating to or payable under any of the foregoing; (d) the
right to sue for past, present and future infringements of any of the
foregoing; (e) all other rights and benefits relating to any of the
foregoing throughout the world; and (f) all goodwill associated with
any of the foregoing; in each case, whether now owned or hereafter
acquired by the Debtor.
SECURITY AGREEMENT - Page 3
4
"PATENT SECURITY AGREEMENT" means the patent security
agreement to be executed and delivered by the Debtor to the Secured
Party, substantially in the form of EXHIBIT "B" hereto, as such
agreement may hereafter be amended, supplemented, or otherwise
modified from time to time.
"PROCEEDS" means any "proceeds", as such term is defined in
Section 9.306 of the UCC and, in any event, shall include, but not be
limited to: (a) any and all proceeds of any insurance, indemnity,
warranty, or guaranty payable to the Debtor from time to time with
respect to any of the Collateral; (b) any and all payments (in any
form whatsoever) made or due and payable to the Debtor from time to
time in connection with any requisition, confiscation, condemnation,
seizure, or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of
Governmental Authority); (c) all Instruments, Documents, Chattel Paper
and General Intangibles received or arising in connection with a
disposition of the Collateral; and (d) any and all other amounts from
time to time paid or payable under or in connection with any of the
Collateral.
"PROMOTION FUND" means all funds held by Debtor or its
Subsidiaries which represent cooperative advertising fees paid by
Franchisees.
"TRADEMARK LICENSE" means any written agreement now or
hereafter in existence granting to the Debtor any right to use any
Trademark including, without limitation, the agreements identified on
SCHEDULE 3 hereto.
"TRADEMARKS" means all of the following: (a) all trademarks,
trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos, other
business identifiers, prints and labels on which any of the foregoing
have appeared or appear, all registrations and recordings thereof and
all applications in connection therewith including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
state thereof, or any other country or any political subdivision
thereof, including, without limitation, those described in SCHEDULE 3
hereof; (b) all reissues, extensions and renewals thereof; (c) all
income, royalties, damages and payments now or hereafter relating to
or payable under any of the foregoing including damages or payments
for past or future infringements of any of the foregoing; (d) the
right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing
throughout the world; and (f) all goodwill associated with and
symbolized by any of the foregoing; in each case, whether now owned or
hereafter acquired by the Debtor.
"TRADEMARK SECURITY AGREEMENT" means the trademark security
agreement to be executed and delivered by the Debtor to the Secured
Party, substantially in the form of Exhibit "C" hereto, as such
agreement may hereafter be amended, supplemented, or otherwise
modified from time to time.
"UCC" means the Uniform Commercial Code as in effect in the
State of Texas; PROVIDED, that if by mandatory provisions of law, the
perfection or effect of perfection
SECURITY AGREEMENT - Page 4
5
or non-perfection of the security interest created hereunder in any
Collateral is governed by the Uniform Commercial Code as in effect on
or after the date hereof in any other jurisdiction, "UCC" means the
Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provision hereof relating to such perfection or the
effect of perfection or non-perfection.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. References to
"Sections", "subsections", "Exhibits" and "Schedules" shall be to Sections,
subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement
are equally applicable to the singular and plural forms of the terms defined.
All references to statutes and regulations shall include any amendments of the
same and any successor statutes and regulations. Terms used herein, which are
defined in the UCC, unless otherwise defined herein or in the Credit Agreement,
shall have the meanings as set forth in the UCC.
ARTICLE 2
SECURITY INTEREST
Section 2.1 SECURITY INTEREST. As collateral security for the
prompt payment and performance in full when due of the Obligations (whether at
stated maturity, by acceleration, or otherwise), the Debtor hereby collaterally
assigns to Secured Party, and grants to the Secured Party a security interest
in, all of the Debtor's right, title and interest in and to the following,
whether now owned or hereafter arising or acquired and wherever located
(collectively, the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all deposit accounts (including disbursement, lockbox, and
concentration accounts but excluding the Promotion Fund) of
Debtor maintained with Agent or any bank, all cash deposited
therein from time to time and other monies and property of
Debtor in the possession or under the control of Agent or any
bank;
(d) all Documents;
(e) all Equipment;
(f) all General Intangibles;
(g) all Instruments;
(h) all Inventory;
(i) all Financial Assets and any other Investment Property; and
SECURITY AGREEMENT - Page 5
6
(j) all Proceeds and products of any or all of the foregoing.
Section 2.2 DEBTOR REMAINS LIABLE. Notwithstanding anything to
the contrary contained herein, (a) the Debtor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of its rights hereunder shall not release the Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral and (c) the Secured Party shall not have any obligation or
liability under any of the contracts and agreements included in the Collateral
by reason of this Agreement, nor shall the Secured Party be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce the Secured Party to enter into this Agreement and the
Credit Agreement, the Debtor represents and warrants to the Secured Party and
the Banks that:
Section 3.1 ACCOUNTS. Unless the Debtor has given the Secured
Party written notice to the contrary, whenever the security interest granted
hereunder attaches to an Eligible Account, the Debtor shall be deemed to have
represented and warranted to the Secured Party as to each of such Accounts that
(a) each such Account is genuine and in all respects what it purports to be,
(b) each such Account represents the legal, valid and binding obligation of the
account debtor evidencing indebtedness unpaid and owed by such account debtor,
(c) the amount of each such Account represented as owing is the correct amount
actually and unconditionally owing except for normal trade discounts granted
and contra accounts, in each case, arising in the ordinary course of business
and (d) no Account is subject to any offset, counterclaim, or other defense.
Section 3.2 FINANCING STATEMENTS. No financing statement,
security agreement or other Lien instrument covering all or any part of the
Collateral is on file in any public office, except as may have been filed in
favor of the Secured Party pursuant to this Agreement or as permitted under the
Credit Agreement. The Debtor does not do business and has not done business
within the past five (5) years under a trade name or any name other than (a)
the name set forth at the beginning of this Agreement which is its exact name
as set forth in its certificate of incorporation and (b) the names set forth on
SCHEDULE 1 hereto.
Section 3.3 PRINCIPAL PLACE OF BUSINESS. The principal place of
business and chief executive office of the Debtor, and the office where the
Debtor keeps its books and records, is located at the "Address for Notices" for
Debtor set forth in the Credit Agreement.
Section 3.4 LOCATION OF COLLATERAL. SCHEDULE 1 attached hereto
sets forth all locations where the Debtor maintains Collateral (except certain
computer Equipment which constitutes Collateral and is held by Franchisee in
the ordinary course of Debtor's business) and all other locations where the
Debtor has a place of business. The Debtor does not carry on any business
SECURITY AGREEMENT - Page 6
7
in any location other than as set forth on SCHEDULE 1. SCHEDULE 1 correctly
identifies the landlords or mortgagees, if any, of the locations described
thereon. No Persons have possession of any of the Collateral except Debtor,
Secured Party, Franchisees who hold computer equipment owned by Debtor in the
ordinary course of Debtor's business, the financial institutions and brokerage
company described on SCHEDULE 1.1(a) to the Credit Agreement or except as
otherwise reflected on SCHEDULE 1. No Collateral other than computer Equipment
owned by Debtor and held by Franchisees has been located in any state or county
other than as disclosed on SCHEDULE 1 within the last four (4) months from the
date hereof. None of the Inventory or Equipment of the Debtor is evidenced by a
Document (including, without limitation, a negotiable document of title). All
Instruments, Documents, letters of credit and Chattel Paper which constitute
Collateral of the Debtor have been delivered to the Secured Party except as
permitted by SECTION 4.6 hereto. All certificates of title evidencing
Equipment have been delivered to Secured Party except as permitted by SECTION
9.10 of the Credit Agreement. The book value of all fixtures of Debtor at any
location does not exceed Ten Thousand Dollars ($10,000) per location. The book
value of all computer Equipment of Debtor held by any one Franchisee does not
exceed Seven Thousand Five Hundred Dollars ($7,500.00) per Franchisee. The
aggregate book value of all Equipment of Debtor and each Granting Subsidiary
evidenced by certificates of title does not exceed One Hundred Thousand Dollars
($100,000.00).
Section 3.5 PERFECTION. Upon the filing of Uniform Commercial
Code financing statements in the jurisdictions listed on SCHEDULE 2 attached
hereto, the filing of the Patent Security Agreement and the Trademark Security
Agreement with the United States Patent and Trademark Office, the filing of the
Copyright Security Agreement with the United States Copyright Office and upon
the Secured Party's obtaining possession of all Instruments, Documents and
Chattel Paper pledged hereunder, the security interest in favor of the Secured
Party created herein will constitute a valid and perfected Lien upon and
security interest in the Collateral, (excluding Collateral which constitutes
fixtures and as otherwise provided in SECTION 9.10 of the Credit Agreement)
subject to no equal or prior Liens other than Liens permitted by the Credit
Agreement.
Section 3.6 INTELLECTUAL PROPERTY.
(a) All of the Intellectual Property is subsisting, valid
and enforceable. The information contained on SCHEDULE 3 hereto is true,
correct and complete. All Intellectual Property of the Debtor is identified on
SCHEDULE 3 hereto.
(b) The Debtor is the sole and exclusive owner of the
entire and unencumbered right, title and interest in and to the Intellectual
Property, except for licenses granted by Debtor to Franchisees from time to
time, in the ordinary course of business, free and clear of any Liens other
than Liens permitted by the Credit Agreement, including, without limitation,
any pledges, assignments, licenses, user agreements and covenants by the Debtor
not to sue third Persons.
(c) No claim has been made that the use by Debtor of any
of the Intellectual Property violates or may violate the rights of any third
Person.
(d) Each of the Patents and Trademarks identified on
SCHEDULE 3 hereto has been properly registered with the United States Patent
and Trademark Office and each of the
SECURITY AGREEMENT - Page 7
8
Copyrights identified on SCHEDULE 3 hereto has been properly registered with
the United States Copyright Office.
ARTICLE 4
COVENANTS
The Debtor covenants and agrees with the Secured Party that until the
Obligations are paid and performed in full and all Commitments of the Banks and
the Secured Party to the Debtor have terminated:
Section 4.1 MODIFICATION OF COLLATERAL. Without the prior
written consent of the Secured Party or unless the same is subsequently
properly reported on the Borrowing Base Report next due following such event,
the Debtor shall not (a) grant any extension of time for any payment with
respect to any of the Collateral, (b) compromise, compound, or settle any of
the Collateral for less than the full amount thereof, (c) release, in whole or
in part, any Person liable for payment with respect to the Collateral, (d)
allow any credit or discount for payment with respect to the Collateral, or (e)
release any Lien or guaranty securing the Collateral, or otherwise amend or
modify any of the Collateral.
Section 4.2 BAILEES. If any of the Collateral is at any time in
the possession or control of any warehouseman, bailee, any of the Debtor's
agents or processors or any other third Person (excluding computer Equipment
held by Franchisees in the ordinary course of Debtor's business and excluding
Collateral held in the deposit and brokerage accounts that are not Lockbox
Accounts), the Debtor shall notify such warehouseman, bailee, agent, processor
or third Person of the security interest created hereunder, shall instruct such
Person to hold such Collateral for the Secured Party's account subject to the
Secured Party's instructions and shall take all actions deemed necessary or
desirable by Secured Party to protect and perfect its security interest in the
Collateral such Person is to hold with the priority required by the Loan
Documents. After the occurrence of a Default and when otherwise required
pursuant to Section 9.10 of the Credit Agreement, upon Secured Party's request
Debtor shall notify each Franchisee in possession of computer Equipment and
each financial institution or broker who holds an account of the type described
in the preceding sentence of the security interest created hereunder, shall
instruct each such Person to hold the Collateral it holds for Secured Party's
account subject to the Secured Party's instructions and shall take all actions
deemed necessary or desirable by Secured Party to protect and perfect its
security interest in such Collateral with the priority required by the Loan
Documents.
Section 4.3 MORTGAGEE AND LANDLORD WAIVERS. Upon Secured Party's
request which can be made at any time and from time to time after a Default,
the Debtor shall cause each mortgagee of real property owned by the Debtor and
each landlord of real property leased by the Debtor to execute and deliver
instruments satisfactory in form and substance to the Secured Party by which
such mortgagee or landlord waives its rights, if any, in the Collateral.
Section 4.4 CORPORATE CHANGES. The Debtor shall not change its
name, identity, or corporate structure in any manner that might make any
financing statement filed in connection with this Agreement seriously
misleading unless the Debtor shall have given the Secured Party
SECURITY AGREEMENT - Page 8
9
thirty (30) days prior written notice thereof and shall have taken all action
deemed necessary or desirable by the Secured Party to make each financing
statement not seriously misleading. The Debtor shall not change its principal
place of business, chief executive office, or the place where it keeps its
books and records unless it shall have given the Secured Party thirty (30) days
prior written notice thereof and shall have taken all action deemed necessary
or desirable by the Secured Party to cause its security interest in the
Collateral to be perfected with the priority required by the Loan Documents.
Section 4.5 EQUIPMENT AND INVENTORY. The Debtor shall keep all
Equipment and Inventory at the locations specified on Schedule 1 hereto or,
with respect to computer Equipment held by Franchisees in the ordinary course
of Debtor's business, with the Franchisees or, upon thirty (30) days prior
written notice to the Secured Party, at such other places within the United
States of America where all action required to perfect the Secured Party's
security interest in the Equipment and Inventory with the priority required by
the Loan Documents shall have been taken. The Debtor shall maintain the
Equipment and Inventory in good condition and repair (ordinary wear and tear
excepted). The Debtor shall not permit any waste or destruction of the
Equipment and Inventory or any part thereof. The Debtor shall not permit the
Equipment and Inventory to be used in violation of any law, rule, or regulation
or inconsistently with the terms of any policy of insurance. The Debtor shall
not use or permit any of the Equipment and Inventory to be used in any manner
or for any purpose that would impair its value or expose it to unusual risk.
Section 4.6 COLLECTIONS ON ACCOUNTS; DELIVERY OF COLLATERAL. In
connection with the collections on Accounts, the Debtor, at the Secured Party's
direction, shall take such actions as the Secured Party may deem necessary or
advisable to enforce collections on the Accounts. Except as otherwise provided
in this Agreement, the Debtor shall have the right to receive Instruments,
letters of credit, and Chattel Paper included in the Collateral, to receive and
further negotiate in the ordinary course of business all Documents (including,
without limitation, documents of title) evidencing Inventory, and to receive,
retain and draw under, in the ordinary course of business, all letters of
credit included in the Collateral, but the Debtor shall promptly deliver all
other Collateral (the possession of which is necessary to perfect the security
interest therein) and all Proceeds to the Secured Party. If an Event of
Default shall have occurred and be continuing, the Debtor shall, upon the
request of the Secured Party, deliver all Instruments, letters of credit,
Chattel Paper, and Documents constituting Collateral to the Secured Party. The
Debtor shall deliver to the Secured Party all certificates of title evidencing
the title to Collateral hereafter acquired, except as otherwise provided by the
terms of SECTION 9.10 of the Credit Agreement.
Section 4.7 LOCKBOX OF PROCEEDS. The Debtor shall instruct all
customers and other Persons obligated with respect to all Accounts and other
Collateral to make all payments with respect thereto, except for obligations to
make payments to the Promotion Fund, to a post office box or boxes in
accordance with the terms of the Lockbox Agreements to which Debtor is a party.
Debtor shall irrevocably instruct each depository bank who has entered into a
Lockbox Agreement with it to remit all proceeds of such payments (except to the
extent such proceeds are for cooperative advertising fees paid by Franchisees,
in which case such proceeds shall be segregated and remitted to the Promotion
Fund) directly to Agent on a daily basis by automated clearing house debit
directly for credit to the Concentration Account or by wire transfer to Agent
SECURITY AGREEMENT - Page 9
10
for direct application to the Obligations in accordance with the Credit
Agreement. Any income received by the Secured Party with respect to the
balance from time to time standing to the credit of the Concentration Account
shall remain, or be deposited, in the Concentration Account. In addition to
the foregoing, the Debtor agrees that if any Proceeds (including, without
limitation, the payments made in respect of Accounts) shall be received by it,
the Debtor shall as promptly as possible deposit such Proceeds into the
Concentration Account. Until so deposited, all such Proceeds shall be held in
trust by the Debtor for the benefit of the Secured Party and shall be
segregated from any other funds or property of the Debtor.
Section 4.8 DEPOSIT AND BROKERAGE ACCOUNTS. Debtor shall not
amend or modify any Lockbox Agreement. Debtor shall not open any new deposit
or brokerage account or otherwise utilize any deposit or brokerage account
other than the Contribution Account, the Disbursement Account and the other
deposits or brokerage accounts disclosed on SCHEDULE 1.1(a) of the Credit
Agreement unless Debtor shall have given the Secured Party thirty (30) days
prior written notice thereof and shall have taken all action deemed necessary
or desirable by the Secured Party to cause its security interest therein to be
perfected (subject to the provisions of Section 9.10(a)(iv) of the Credit
Agreement) with priority required by the Loan Documents. Prior to the
occurrence and continuance of an Event of Default, the Debtor may make
purchases and sales of Investment Property in its brokerage account in
accordance with the restrictions on investment set out in the Credit Agreement
but after the occurrance and during the continuance of an Event of Default the
Debtor shall not be authorized to make purchases and sales of the Investment
Property held therein. At no time shall Debtor withdraw any funds or
Investment Property from its brokerage account unless such funds or the
proceeds of the Investment Property so withdrawn are immediately applied by the
Debtor to the Obligations or deposited in the Concentration Account.
Section 4.9 INTELLECTUAL PROPERTY.
(a) The Debtor shall prosecute diligently all
applications in respect of Intellectual Property, now or hereafter pending.
(b) The Debtor shall make federal applications on all of
its unpatented but patentable inventions and all of its registrable but
unregistered Copyrights and Trademarks if, in any such case, of any value.
(c) The Debtor shall preserve and maintain all of its
rights in the Intellectual Property as necessary to operate its business and
shall protect the Intellectual Property from infringement, unfair competition,
cancellation, or dilution by all appropriate action, including the commencement
and prosecution of legal proceedings to recover damages for infringement, as
necessary to operate its business and to defend and preserve its rights in the
Intellectual Property as necessary to operate its business.
(d) The Debtor shall not abandon any of the Intellectual
Property necessary in the conduct of its business.
(e) The Debtor shall not sell or assign any of its
interest in, or grant any license under (except as permitted by SECTION 5.3
hereof and except for the license of Intellectual Property to Franchisees in
the ordinary course of business), any of the Intellectual Property
SECURITY AGREEMENT - Page 10
11
without the prior written consent of the Secured Party and shall maintain the
quality of any and all products and services with respect to which the
Intellectual Property is used. The Debtor shall not enter into any agreement,
including, but not limited to any licensing agreement, that is or may be
inconsistent with the Debtor's obligations under this Agreement or any of the
other Loan Documents.
(f) If the Debtor shall obtain rights to or become
entitled to the benefit of any Intellectual Property not identified on Schedule
3 hereto, the Debtor shall give the Secured Party prompt written notice thereof
and the provisions of this Agreement shall automatically apply thereto and the
Debtor hereby authorizes the Secured Party to modify or update SCHEDULE 3
hereto and the schedule to the applicable IP Security Agreement to include any
new Intellectual Property.
(g) Upon the occurrence of any event that would require
any addition to or modification of SCHEDULE 3 hereto or upon the request of the
Secured Party, the Debtor shall furnish to the Secured Party statements and
schedules further identifying the Intellectual Property and such other rights
in connection with the Intellectual Property as the Secured Party may request.
Promptly upon the request of the Secured Party, the Debtor shall modify this
Agreement by amending SCHEDULE 3 hereto and the schedule to the applicable IP
Security Agreement to include any Intellectual Property that becomes part of
the Collateral or to the extent not already executed, shall execute the
applicable IP Security Agreement to cover such Intellectual Property.
(h) If an Event of Default shall have occurred and be
continuing, the Debtor shall use its best efforts to obtain any consents,
waivers, or agreements necessary to enable the Secured Party to exercise its
rights and remedies with respect to the Intellectual Property.
(i) The Debtor shall concurrently herewith and upon the
occurrence of the events described in clauses (f) or (g) of this Section 4.8,
execute and deliver to the Secured Party, as applicable, the Copyright Security
Agreement, the Patent Security Agreement and the Trademark Security Agreement,
any required modifications thereto and all other documents, instruments and
other items as may be necessary for the Secured Party to file such agreements
with the United States Copyright Office, the United States Patent and Trademark
Office and any similar domestic or foreign office, department, or agency.
ARTICLE 5
RIGHTS OF THE SECURED PARTY
Section 5.1 POWER OF ATTORNEY. THE DEBTOR HEREBY IRREVOCABLY
CONSTITUTES AND APPOINTS THE SECURED PARTY AND ANY OFFICER OR AGENT THEREOF,
WITH FULL POWER OF SUBSTITUTION, AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT WITH
FULL IRREVOCABLE POWER AND AUTHORITY IN THE NAME OF THE DEBTOR OR IN ITS OWN
NAME, TO TAKE AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT, ANY AND ALL ACTION AND TO EXECUTE ANY AND ALL DOCUMENTS AND
INSTRUMENTS WHICH THE SECURED PARTY AT ANY TIME AND FROM TIME TO
SECURITY AGREEMENT - Page 11
12
TIME DEEMS NECESSARY OR DESIRABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT
AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE DEBTOR HEREBY GIVES
THE SECURED PARTY THE POWER AND RIGHT ON BEHALF OF THE DEBTOR AND IN ITS OWN
NAME TO DO ANY OF THE FOLLOWING AFTER THE OCCURRENCE AND DURING THE CONTINUANCE
OF AN EVENT OF DEFAULT, WITHOUT NOTICE TO OR THE CONSENT OF THE DEBTOR:
(i) to demand, sue for, collect, or
receive in the name of the Debtor or in its own name, any money or property at
any time payable or receivable on account of or in exchange for any of the
Collateral and, in connection therewith, endorse checks, notes, drafts,
acceptances, money orders, documents of title, or any other instruments for the
payment of money under the Collateral or any policy of insurance;
(ii) to pay or discharge taxes, Liens, or
other encumbrances levied or placed on or threatened against the Collateral;
(iii) to send requests for verification to
account debtors and other obligors;
(iv) to notify post office authorities to
change the address for delivery of mail of the Debtor to an address designated
by the Secured Party and to receive, open and dispose of mail addressed to the
Debtor; and
(v) (A) to direct account debtors and
any other parties liable for any payment under any of the Collateral to make
payment of any and all monies due and to become due thereunder directly to the
Secured Party or as the Secured Party shall direct; (B) to receive payment of
and receipt for any and all monies, claims and other amounts due and to become
due at any time in respect of or arising out of any Collateral; (C) to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, proxies, stock powers,
verifications and notices in connection with accounts and other documents
relating to the Collateral; (D) to commence and prosecute any suit, action, or
proceeding at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (E) to defend any suit, action, or proceeding
brought against the Debtor with respect to any Collateral; (F) to settle,
compromise, or adjust any suit, action, or proceeding described above and, in
connection therewith, to give such discharges or releases as the Secured Party
may deem appropriate; (G) to exchange any of the Collateral for other property
upon any merger, consolidation, reorganization, recapitalization, or other
readjustment of the issuer thereof and, in connection therewith, deposit any of
the Collateral with any committee, depositary, transfer agent, registrar, or
other designated agency upon such terms as the Secured Party may determine; (H)
to add or release any guarantor, indorser, surety, or other party to any of the
Collateral; (I) to renew, extend, or otherwise change the terms and conditions
of any of the Collateral; (J) to grant or issue any exclusive or nonexclusive
license under or with respect to any of the Intellectual Property; (K) to
endorse the Debtor's name on all applications, documents, papers and
instruments necessary or desirable in order for the Secured Party to use any of
the Intellectual Property; (L) to make, settle, compromise, or adjust any
claims under or pertaining to any of the Collateral (including claims under any
policy of insurance); and (M) to
SECURITY AGREEMENT - Page 12
13
sell, transfer, pledge, convey, make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the Secured
Party were the absolute owner thereof for all purposes, and to do, at the
Secured Party's option and the Debtor's expense, at any time, or from time to
time, all acts and things which the Secured Party deems necessary to protect,
preserve, maintain, or realize upon the Collateral and the Secured Party's
security interest therein.
THIS POWER OF ATTORNEY IS A POWER COUPLED WITH AN INTEREST AND SHALL
BE IRREVOCABLE UNTIL ALL OF THE OBLIGATIONS ARE PAID IN FULL. The Secured
Party shall be under no duty to exercise or withhold the exercise of any of the
rights, powers, privileges and options expressly or implicitly granted to the
Secured Party in this Agreement, and the Secured Party shall not be liable for
any failure to do so or any delay in doing so. Neither the Secured Party nor
any Person designated by the Secured Party shall be liable for any act or
omission or for any error of judgment or any mistake of fact or law. This
power of attorney is conferred on the Secured Party solely to protect,
preserve, maintain and realize upon its security interest in the Collateral.
The Secured Party shall not be responsible for any decline in the value of the
Collateral and shall not be required to take any steps to preserve rights
against prior parties or to protect, preserve, or maintain any Lien given to
secure the Collateral.
Section 5.2 ASSIGNMENT BY THE SECURED PARTY. Subject to the
terms of the Credit Agreement, the Secured Party may at any time assign or
otherwise transfer all or any portion of its rights and obligations under the
Loan Documents (including, without limitation, the Obligations) to any other
Person, and such Person shall thereupon become vested with all the benefits
thereof granted to the Secured Party herein or otherwise.
Section 5.3 LICENSE. If no Event of Default shall have
occurred and be continuing, the Debtor shall have the exclusive,
non-transferrable right and license to use the Intellectual Property in the
ordinary course of business and the exclusive right to grant to other Persons
licenses and sublicenses with respect to the Intellectual Property.
ARTICLE 6
Default
Section 6.1 RIGHTS AND REMEDIES. If an Event of Default
shall have occurred and be continuing, the Secured Party shall have the
following rights and remedies:
(a) In addition to all other rights and remedies
granted to the Secured Party in this Agreement or in any other Loan Document or
by applicable law, the Secured Party shall have all of the rights and remedies
of a secured party under the UCC (whether or not the UCC applies to the
affected Collateral). Without limiting the generality of the foregoing, the
Secured Party may (i) without demand or notice to the Debtor, collect, receive,
or take possession of the Collateral or any part thereof and for that purpose
the Secured Party may enter upon any premises on which the Collateral is
located and remove the Collateral therefrom or render it inoperable and/or (ii)
sell, lease, or otherwise dispose of the Collateral, or any part thereof, in
one or more parcels at public or private sale or sales, at the Secured Party's
offices
SECURITY AGREEMENT - Page 13
14
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Secured Party may deem commercially reasonable. The Secured Party
shall have the right at any public sale or sales, and, to the extent permitted
by applicable law, at any private sale or sales, to bid (which bid may be, in
whole or in part, in the form of cancellation of indebtedness) and become a
purchaser of the Collateral or any part thereof free of any right or equity of
redemption on the part of the Debtor, which right or equity of redemption is
hereby expressly waived and released by the Debtor. Upon the request of the
Secured Party, the Debtor shall assemble the Collateral and make it available
to the Secured Party at any place designated by the Secured Party that is
reasonably convenient to the Debtor and the Secured Party. The Debtor agrees
that the Secured Party shall not be obligated to give more than ten (10) days
written notice of the time and place of any public sale or of the time after
which any private sale may take place and that such notice shall constitute
reasonable notice of such matters. The Secured Party shall not be obligated to
make any sale of Collateral if it shall determine not to do so, regardless of
the fact that notice of sale of Collateral may have been given. The Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time
and place fixed for sale, and such sale may, without further notice, be made at
the time and place to which the same was so adjourned. The Debtor shall be
liable for all expenses of retaking, holding, preparing for sale, or the like,
and all attorneys' fees, legal expenses and other costs and expenses incurred
by the Secured Party in connection with the collection of the Obligations and
the enforcement of the Secured Party's rights under this Agreement. The Debtor
shall remain liable for any deficiency if the Proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations in full.
The Secured Party may apply the Collateral against the Obligations in such
order and manner as the Secured Party may elect in its sole discretion. The
Debtor waives all rights of marshaling, valuation and appraisal in respect of
the Collateral.
(b) The Secured Party may cause any or all of the
Collateral held by it to be transferred into the name of the Secured Party or
the name or names of the Secured Party's nominee or nominees.
(c) The Secured Party may exercise any and all
rights and remedies of the Debtor under or in respect of the Collateral,
including, without limitation, any and all rights of the Debtor to demand or
otherwise require payment of any amount under, or performance of any provision
of, any of the Collateral and any and all voting rights and corporate powers in
respect of the Collateral.
(d) The Secured Party may collect or receive all
money or property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation to do so.
(e) On any sale of the Collateral, the Secured
Party is hereby authorized to comply with any limitation or restriction with
which compliance is necessary, in the view of the Secured Party's counsel, in
order to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable Governmental
Authority.
SECURITY AGREEMENT - Page 14
15
(f) For purposes of enabling the Secured Party to
exercise its rights and remedies under this SECTION 6.1 and enabling the
Secured Party and its successors and assigns to enjoy the full benefits of the
Collateral, the Debtor hereby grants to the Secured Party an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to the Debtor) to use, assign, license, or sublicense any of the
Intellectual Property, including in such license reasonable access to all media
in which any of the licensed items may be recorded or stored and all computer
programs used for the completion or printout thereof. This license shall also
inure to the benefit of all successors, assigns and transferees of the Secured
Party.
(g) The Secured Party may require that the Debtor
assign all of its right, title and interest in and to the Intellectual Property
or any part thereof to the Secured Party or such other Person as the Secured
Party may designate pursuant to documents satisfactory to the Secured Party.
ARTICLE 7
Miscellaneous
Section 7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the Debtor and the Secured Party and
their respective heirs, successors and assigns, except that the Debtor may not
assign any of its rights or obligations under this Agreement without the prior
written consent of the Secured Party and the Banks.
Section 7.2 AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES
THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties
hereto.
Section 7.3 NOTICES. All notices and other communications
provided for in this Agreement shall be given in accordance with the notice
provisions set forth in the Credit Agreement.
Section 7.4 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 7.5 HEADINGS. The headings, captions and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
SECURITY AGREEMENT - Page 15
16
Section 7.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 7.7 WAIVER OF BOND. In the event the Secured Party seeks
to take possession of any or all of the Collateral by judicial process, the
Debtor hereby irrevocably waives any bonds and any surety or security relating
thereto that may be required by applicable law as an incident to such
possession, and waives any demand for possession prior to the commencement of
any such suit or action.
Section 7.8 SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 7.9 TERMINATION. If all of the Obligations shall have
been paid and performed in full and all Commitments of the Banks to the Debtor
shall have expired or terminated, the Secured Party shall, upon the written
request of the Debtor, execute and deliver to the Debtor a proper instrument or
instruments acknowledging the release and termination of the security interests
created by this Agreement, and the Secured Party shall duly assign and deliver
to the Debtor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Secured Party and has
not previously been sold or otherwise applied pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
-------------------------------------
Name: J. Russell Crews
Title: Senior Vice President
SECURED PARTY:
THE FIRST NATIONAL BANK OF BOSTON, as
agent
By: /s/ WILLIAM C. PURINTON
-------------------------------------
Name: William C. Purinton
Title: Vice President
SECURITY AGREEMENT - Page 16