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EXHIBIT 10.12
[LOGO] MERRILL LYNCH FINANCIAL ASSETS SECURITY AGREEMENT
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Standard
FINANCIAL ASSETS SECURITY AGREEMENT ("Security Agreement") dated as of December
8, 1999, given by NOVO MEDIAGROUP, INC. d/b/a NOVO INTERACTIVE, a corporation
organized and existing under the laws of the State of California ("Customer")
to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS").
1. DEFINITIONS. (a) In addition to terms defined elsewhere in this Security
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt or receivership law or statute shall be filed or consented to by Customer;
or (B) any such proceeding shall be filed against Customer and shall not be
dismissed or withdrawn within sixty (60) days after filing; or (C) Customer
shall make a general assignment for the benefit of creditors; or (D) Customer
shall become insolvent or generally fail to pay or admit in writing its
inability to pay its debts as they become due; or (E) Customer shall be
adjudicated a bankrupt or insolvent.
(ii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iii) "Collateral" shall mean: (A) the Securities Account, (B) any free credit
balances now or hereafter credited to or owing from MLPF&S to Customer in
respect of the Securities Account, (C) all financial assets and investment
property (including, without limitation, all security entitlements, securities
accounts, stocks, bonds, mutual funds, certificates of deposit, commodities
contracts and other securities), money market deposit accounts, instruments,
general intangibles and other property of whatever kind or description now and
hereafter in or controlled by the Securities Account or listed on any
confirmation or periodic report from MLPF&S as being in or controlled by the
Securities Account, whether now owned or hereafter acquired, (D) all proceeds
of the sale, exchange, redemption or exercise of any of the foregoing,
including, without limitation, all dividends, interest payments and other
distributions of cash or property in respect thereof, and (E) all rights
incident to the ownership of any of the foregoing.
(iv) "Loan Agreements" shall mean that certain WCMA LOAN AND SECURITY
AGREEMENT NO. 749-07522 between Customer and MLBFS, and that certain WCMA LOAN
AND SECURITY AGREEMENT NO. 749-07529 between Customer and MLBFS, as either or
both of the same may from time to time be or have been amended, restated,
extended or supplemented.
(v) "Minimum Value" shall mean $8,800,000.00.
(vi) "MLPF&S" shall mean MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
and its successors and assigns.
(vii) "Obligations" shall mean all obligations, liabilities and indebtedness
of every kind and nature now or hereafter owing, arising, due or payable from
Customer to MLBFS, howsoever created, arising, or evidenced, whether direct or
indirect, absolute or contingent, or due or to become due, including, without
limitation, interest accruing after the filing of any petition in bankruptcy,
and all present and future obligations, liabilities and indebtedness of
Customer to MLBFS under the Loan Agreements and the agreements, instruments and
documents executed pursuant thereto, including, without limitation, this
Security Agreement.
(viii) "Permitted Liens" shall mean: (A) liens in favor of MLBFS; (B) liens for
current taxes not delinquent and, if MLBFS' rights to and interest in the
Collateral are not materially and adversely affected thereby, liens for taxes
being contested in good faith by appropriate proceedings; (C) any trade
settlement liens of MLPF&S; and (D) other liens permitted in writing by MLBFS.
(ix) "Securities Account" shall mean that certain MLPF&S securities account
number 749-07520 in the name of Customer and any and all successor securities
accounts at MLPF&S.
(b) All terms used in this Security Agreement which are defined in the Uniform
Commercial Code of Illinois ("UCC") shall have the meanings set forth in the
UCC. Without limiting the foregoing, the term "financial assets" and "security
entitlement" shall have the meaning set forth in Section 8-102 of the UCC, and
the term "investment property" shall have the meaning set forth in Section
9-115 of the UCC.
2. GRANT OF SECURITY INTEREST. In order to secure payment and performance of
the Obligations, Customer hereby pledges, grants and conveys and assigns to
MLBFS a continuing first lien and security interest upon the Collateral subject
only to any Permitted Liens. In furtherance thereof, Customer hereby
irrevocably: (i) authorizes and directs MLPF&S to name or rename the Securities
Account on its books and records as the "NOVO MEDIAGROUP, INC. PLEDGED
COLLATERAL ACCOUNT F/B/O MLBFS", (ii) authorizes and directs MLPF&S and every
other person or entity now or hereafter holding or otherwise having possession
or control of any Collateral to hold, possess or control such Collateral as
agent for MLBFS and subject to the rights, direction, control and security
interest of MLBFS, (iii) authorizes and directs MLPF&S and all such other
persons or entities to comply with any and all present and future orders or
directions of MLBFS with respect to all or any part of the Collateral,
notwithstanding any contrary direction or dispute by Customer or any other
party (unless prohibited by law or the order of a judicial body having
appropriate jurisdiction), and without making any inquiry whatsoever as to
MLBFS' right or authority to give such order or direction or as to the
application of any payment pursuant thereto, and (iv) waives and releases
MLPF&S and all such other persons and entities from, and agrees to indemnify
and hold harmless MLPF&S and all such other persons and entities from and
against, any liability
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whatsoever for complying with any such order or directions of MLBFS. So long as
no Event of Default shall have occurred and be continuing, MLBFS will not issue
any orders or directions to MLPF&S with respect to the Collateral not approved
by Customer.
3. RIGHTS AND LIMITATIONS OF CUSTOMER. (a) Except upon the prior written consent
of MLBFS, Customer shall not: (i) purchase any financial assets, investment
property or other property with funds in the Securities Account other than: (A)
publicly held domestic money market funds, (B) obligations of or guaranteed or
insured by the U.S. Government (including insured certificates of deposit), or
(C) if the overall investment quality of the Collateral is not thereby
materially reduced, stocks, bonds and other financial assets or investment
property purchased with the proceeds of other Collateral which has been sold by
Customer; (ii) borrow any funds on margin or otherwise from anyone other than
MLBFS using the Securities Account, any financial assets or investment property
in or controlled by the Securities Account or any other Collateral as
collateral; (iii) otherwise grant or permit to exist any lien or security
interest upon any part of the Collateral other than Permitted Liens, or (iv)
directly or indirectly withdraw any financial assets, investment property or
other property from the Securities Account except in connection with a sale
permitted hereby.
(b) So long as no Event of Default shall have occurred and be continuing,
Customer may without the consent of MLBFS: (i) retain any financial assets,
investment property and other property which are in or controlled by the
Securities Account on the date hereof; (ii) sell any such property at any time
so long as the proceeds are either held in the Securities Account or used to
purchase other financial assets or investment property permitted hereby which
are held in or controlled by the Securities Account; and (iii) exercise any
voting and consensual rights with respect to the financial assets, investment
property and other property included in the Collateral for any purpose not
inconsistent with this Security Agreement.
4. WARRANTIES. Customer warrants to MLBFS on a continuing basis that:
(a) OWNERSHIP AND PRIORITY. Except for the rights of MLBFS hereunder and for
any Permitted Liens: (i) Customer is the owner of the Securities Account and
all other Collateral free and clear of any interest or lien of any third party;
and (ii) upon the acknowledgment of this Security Agreement by MLPF&S and/or
the completion of any other action required by applicable law to perfect its
security interest hereunder, MLBFS will have a valid and perfected first lien
and security interest upon all of the Collateral.
(b) COLLATERAL NOT RESTRICTED; ENFORCEABILITY. Except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally or by general principles of equity: (i) neither Customer nor any part
of the Collateral is subject to any legal, contractual or other restriction
which might hinder or prevent the grant to or enforcement by MLBFS of the
security interest in the Collateral pursuant to this Security Agreement, and
(ii) this Security Agreement is the legal, valid and binding obligation of
Customer, enforceable against Customer in accordance with its terms.
(c) RIGHT, POWER AND AUTHORITY. Customer has the full right, power and
authority to make, execute and deliver this Security Agreement.
5. COVENANTS.
(a) NO OTHER LIENS. Except upon the prior written consent of MLBFS, Customer
will not cause or permit to exist any security interests or liens upon the
Collateral other than Permitted Liens.
(b) MAINTENANCE OF PERFECTION. Customer will execute and deliver to MLBFS such
Uniform Commercial Code financing statements, continuation statements and other
agreements, instruments and documents as MLBFS may from time reasonably require
in order to establish, perfect and maintain perfected the lien and security
interest of MLBFS hereunder.
(c) CHANGE IN PRINCIPAL PLACE OF BUSINESS. Customer will provide not less than
30 days prior written notice of any change in Customer's principal place of
business.
(d) CHANGE WITH MLPF&S. Customer will provide MLBFS with prompt written notice
of any change known to Customer in the account number of the Securities
Account, the Financial Consultant at MLPF&S assigned to Customer or the address
of said Financial Consultant's office at MLPF&S.
(e) MINIMUM COLLATERAL VALUE. Customer further warrants and agrees that the
aggregate immediate market value of the Collateral will at all times during the
term hereof be not less than the Minimum Value. In determining the value of the
Collateral for the purposes of this Section, no value will be given to any
financial assets or investment property in or controlled through the Securities
Account for less than 30 calendar days where such financial assets or
investment property either: (i) have been issued by an open-end investment
company (including money market funds and other open-end mutual funds) other
than in connection with reinvestment of dividends; or (ii) are part of a new
issue with respect to which MLPF&S participated as a member of the selling
group or syndicate.
6. EVENT OF DEFAULT. The occurrence of any of the following will constitute an
"Event of Default" hereunder: (a) the occurrence of an Event of Default under
the terms of any of the Loan Agreements; or (b) if Customer shall breach or
violate any of its covenants or warranties herein contained, and does not cure
such breach or violation within 10 Business Days after notice from MLBFS; or (c)
a default or Event of Default by Customer shall occur under the terms of any
other agreement, instrument or document with or intended for the benefit of
MLBFS, MLPF&S or any of their affiliates, and any required notice shall have
been given and required passage of time shall have elapsed; or (d) Customer's
subscription to the Securities Account shall be terminated for any reason; or
(e) any event shall occur which shall reasonably cause MLBFS to in good faith
believe that the prospect of payment or performance by Customer has been
materially impaired (determined in a manner consistent with the intent of
Section 1-208 of the UCC); or (f) if at any time the aggregate immediate market
value of the Collateral shall be or become an amount less than the Minimum Value
(determined in a manner consistent with Section 5(e) hereof), and Customer shall
not within 1 Business Day of written demand by MLBFS deposit into the Securities
Account additional financial assets or investment property acceptable to MLBFS
sufficient to increase such aggregate immediate market value to at least the
Minimum Value; or (g) any Bankruptcy Event shall occur.
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7. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter during the continuance thereof, MLBFS may, at its option, and in
addition to all other rights and remedies available to MLBFS: (a) by written
notice to MLPF&S, terminate all rights of Customer with respect to control of
the Collateral (it being understood, however, that upon the occurrence of any
Bankruptcy Event all rights of Customer with respect to control of the
Collateral shall automatically terminate without notice or other action on the
part of MLBFS), and thereby obtain the right to exclusive control over the
Collateral, including, without limitation, the right to cancel any open orders
and close any and all outstanding contracts, liquidate all or any part of the
Collateral, transfer the Securities Account or any other Collateral to the name
of MLBFS or its nominee, and withdraw any Collateral from the Securities
Account; and (b) exercise any one or more of the rights and remedies of a
secured party under the UCC. Any sale of Collateral pursuant to this Paragraph
may be made at MLBFS' discretion on any exchange or other market where such
business is usually transacted, or at public auction or private sale, and MLBFS
or MLBFS' agent may at any such sale be the purchaser for the account of MLBFS
or such agent. The proceeds of sale or other disposition of any of the
Collateral shall be applied by MLBFS on account of the Obligations, with any
excess paid over to Customer or its successors or assigns, as their interests
and rights may appear, or whoever else may then be adjudged entitled thereto.
To the fullest extent permitted by law, Customer waives notice of any sale,
advertisement and all other notices and formalities whatsoever. All rights and
remedies available to MLBFS hereunder shall be cumulative and in addition to
all other rights and remedies otherwise available to it at law, in equity or
otherwise, and any one or more of such rights and remedies may be exercised
simultaneously or successively. No waiver by MLBFS of any Event of Default
shall waive any other or subsequent Event of Default. None of the provisions
hereof shall be held to have been waived by any act or knowledge of MLBFS, but
only by a written instrument executed by an officer of MLBFS and delivered to
Customer.
8. POWER OF ATTORNEY. Customer further agrees that MLBFS shall have and hereby
irrevocably grants to MLBFS, effective upon the occurrence and during the
continuance of any Event of Default, the full and irrevocable right, power and
authority in the name of Customer or in MLBFS' own name, to demand, collect,
withdraw, receipt for and sue for the Securities Account and any or all of the
other Collateral, and all amounts due or to become due and payable upon or with
respect to the Collateral; to execute any withdrawal receipts respecting any or
all of the Collateral; to endorse the name of Customer on any and all
commercial paper and other instruments given in payment therefor; and, in its
discretion, to take any and all further action (including, without limitation,
the transfer of the Securities Account or any other Collateral to the name of
MLBFS or its nominee) which MLBFS shall deem necessary or appropriate to
preserve or protect its interests hereunder.
9. RIGHTS ABSOLUTE. The rights of MLBFS hereunder and with respect to the
Collateral are absolute and unconditional, and nothing that MLBFS does or
leaves undone shall affect such rights of MLBFS. Without limiting the
foregoing, MLBFS shall not as a condition of such rights be required to resort
to any other collateral or security, pursue or exhaust any remedy against
Customer or any other party or observe any formality of notice or otherwise
(except as expressly provided herein); and (ii) Customer hereby consents to,
and waives notice of, any extension, renewal or modification from time to time
of any of the Loan Agreements or any other agreement, instrument or document
evidencing or securing the Obligations, any extensions, forbearances,
compromises or releases of any of the Obligations, and the release of any party
primarily or secondarily obligated for the Obligations or of any other
collateral therefor.
10. LIMITATION OF MLBFS' OBLIGATIONS. MLBFS shall not as a result of this
Security Agreement be subjected to any obligation or liability of Customer of
any manner or type with respect to the Collateral, including, but not limited
to, the duty to perform any covenants and agreements made by Customer; all of
which obligations and liabilities shall continue to rest upon Customer as
though this Security Agreement had not been made.
11. MLPF&S NOT AUTHORIZED. CUSTOMER ACKNOWLEDGES AND AGREES THAT
NOTWITHSTANDING THE AFFILIATION BETWEEN MLBFS AND MLPF&S, AND THE AGENCY
RELATIONSHIP ACKNOWLEDGED BY MLPF&S IN THE CONSENT HERETO, NEITHER MLPF&S NOR
ANY OF ITS EMPLOYEES ARE AUTHORIZED TO WAIVE ON BEHALF OF MLBFS ANY PROVISION
HEREOF, OR CONSENT ON BEHALF OF MLBFS TO ANY ACTION OR INACTION BY CUSTOMER, OR
OTHERWISE BIND MLBFS.
12. TERM. This Security Agreement shall become effective when signed by
Customer, and shall continue in effect so long thereafter as any of the Loan
Agreements shall be in effect or there shall be any Obligations outstanding.
13. MISCELLANEOUS.
(a) Customer waives notice of the acceptance hereof by MLBFS.
(b) Titles to Paragraphs are for convenience only and shall not be considered
in the interpretation hereof.
(c) This Security Agreement shall be binding upon Customer and Customer's
heirs, personal representatives, successors and assigns, as applicable, and
shall inure to the benefit of MLBFS and its successors and assigns. If there is
more than one "Customer", their obligations hereunder are joint and several.
(d) THIS WRITTEN SECURITY AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, MAY BE MODIFIED ONLY BY
A WRITTEN INSTRUMENT EXECUTED BY BOTH MLBFS AND CUSTOMER, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
(e) THIS SECURITY AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF
THE STATE OF ILLINOIS. WITHOUT LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS
SECURITY AGREEMENT IN ANY JURISDICTION AND VENUE PERMITTED BY APPLICABLE LAW,
CUSTOMER AGREES THAT THIS SECURITY AGREEMENT MAY AT THE OPTION OF MLBFS BE
ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH ANY OF THE LOAN
AGREEMENTS MAY BE ENFORCED. CUSTOMER FURTHER AGREES THAT ANY CLAIM BY CUSTOMER
AGAINST MLBFS HEREUNDER OR WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY SHALL BE BROUGHT AGAINST MLBFS ONLY IN AN ACTION OR PROCEEDING IN A
FEDERAL OR STATE COURT IN THE COUNTY OF COOK AND STATE OF ILLINOIS, AND
CUSTOMER WAIVES THE RIGHT TO BRING ANY SUCH ACTION OR PROCEEDING OR ASSERT ANY
COUNTERCLAIM AGAINST MLBFS IN ANY OTHER JURISDICTION OR BEFORE ANY OTHER FORUM.
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(f) Customer and MLBFS hereby each expressly waive any and all rights to a
trial by jury in any action, proceeding or counterclaim brought by either of
the parties against the other party in any way related to or arising out of
this Security Agreement, any of the Loan Agreements or any of the transactions
contemplated hereby or thereby.
Dated as of the day and year first above written.
NOVO MEDIAGROUP, INC.
By: /s/ KIMBERLEY H. VOGEL
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Signature (1) Signature (2)
Kimberley H. Vogel
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Printed Name Printed Name
CFO
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Title Title
ACCEPTED AT CHICAGO, ILLINOIS:
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
By: /s/ SIGNATURE ILLEGIBLE
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