EXHIBIT 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is made as of January
15, 1998, by LIFECORE BIOMEDICAL, INC., a Minnesota corporation, with its
chief executive office at 3515 Lyman Boulevard, Chaska, Minnesota 55318
(whether one or more, the "Debtor"), in favor of FIRST BANK NATIONAL
ASSOCIATION, a national banking association (the "Secured Party").
RECITALS
WHEREAS, the Debtor and the Secured Party have entered into that certain
credit agreement dated the date hereof (as may be amended from time to time
hereafter, the "Credit Agreement") and the Debtor has agreed to secure all of
its debts, obligations and duties arising under the Credit Agreement to the
Secured Party pursuant to this Security Agreement and the grant of Collateral
hereunder.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged by each of the parties hereto, it
is agreed as follows:
1. DEFINITIONS
As used herein, the following terms shall have the meaning set forth:
"ACCOUNTS" means the Debtor's right to the payment of money from the
sale, lease or other disposition of goods or other property by the Debtor,
any franchise now or hereafter at any time held by the Debtor, a rendering of
services by the Debtor, a loan by the Debtor, the overpayment of taxes or
other liabilities of the Debtor, or otherwise any contract or agreement,
whether such right to payment is already earned by performance, and howsoever
such right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) that the Debtor may at
any time have by law or agreement against any account debtor (as defined in
the Minnesota Uniform Commercial Code) or other obligor obligated to make any
such payment or against any of the property of such account debtor or other
obligor, including, but not limited to, all present and future debt
instruments, chattel papers, insurance proceeds and accounts of the Debtor.
"CHATTEL PAPER" means any writing or writings which evidence both a
monetary obligation and a security interest in, or a lease of, specific goods.
"COLLATERAL" means all property in which a security interest is granted
hereunder wherever located.
"DATA PROCESSING RECORDS AND SYSTEMS" means all of Debtor's now existing
or hereafter acquired electronic data processing and computer records,
software, systems, manuals, procedures, disks, tapes and all other storage
media and memory used by Debtor with respect to Accounts, Chattel Paper and
Instruments, but excluding all software, systems, manuals and other storage
media and memory which restricts Debtor's ability to transfer an interest
therein.
"DEFAULT" means any event which, with the passage of time, the giving of
notice, or both, would constitute an Event of Default.
1
"DEPOSIT ACCOUNTS" mean all deposit accounts now existing or hereafter
arising, maintained for or in Debtor's name and any and all funds at any time
held therein.
"EVENT OF DEFAULT" has the meaning specified in SECTION 6 hereof.
"GOODS" means any tangible personal property or fixtures, including all
things that are movable, but not including money, documents, Instruments,
Accounts, Chattel Paper, general intangibles or minerals or the like before
extraction.
"INSTRUMENTS" means any negotiable instrument or certificated or
non-certificated security or any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease and is of a
type which is in the ordinary course of business transferred by delivery with
any necessary endorsement or assignment.
"LIENS" means any and all mortgages, pledges, security interests, tax
and other statutory liens, judgment liens, and other encumbrances of any
nature whatsoever, whether consensual or non-consensual.
"OBLIGATIONS" means:
a. That certain Promissory Note dated of even date herewith in the
original principal amount of Five Million Dollars ($5,000,000)
executed by Debtor and payable to the order of Secured Party, together
with each extension, renewal, modification, substitution and change in
form thereof which may be from time to time and for any term or terms
effected between the holder(s) and any party primarily obligated
thereon without notice to other parties;
b. All of Debtor's indebtedness, obligations and liabilities under the
Credit Agreement between, and all other indebtedness, obligations and
liabilities of the Debtor to Secured Party, including all future loans
and advances, whether direct or indirect, absolute or contingent,
joint or several, howsoever owned, held or acquired by the Secured
Party and howsoever evidenced, presently existing and hereafter
arising; and
c. All amounts expended or incurred by the Secured Party in exercising
any rights or remedies consequent on any default, including without
limitation, court costs, attorneys, fees and expenses in connection
with the enforcement of this Security Agreement whether or not suit
has been filed.
"PERMITTED LIENS" means the Liens permitted pursuant to Section 6.2 of
the Credit Agreement.
"PROCEEDS" means whatever is received upon the sale, exchange,
collection or other disposition of Collateral or Proceeds.
Other terms defined herein shall have the meaning ascribed to them
herein. All capitalized terms used herein not specifically defined herein
shall have the meaning ascribed to them in the Credit Agreement.
2. SECURITY INTERESTS
2.1 COLLATERAL. As security for the payment of all Obligations, Debtor
hereby grants to Secured Party a security interest in all of Debtor's now
owned or hereafter acquired or arising:
2
a. Accounts;
b. Chattel Paper;
c. Data Processing Records and Systems;
d. Instruments; and
e. Proceeds (whether cash or non-cash Proceeds, including non-cash
Proceeds of all types including, but not limited to, tangible personal
property acquired with cash Proceeds).
3. REPRESENTATIONS AND WARRANTIES OF DEBTOR
Debtor represents, warrants and covenants that:
3.1 ORGANIZATION, ETC. The Debtor is a corporation validly organized
and existing and in good standing under the laws of the state of Minnesota,
has full power and authority to own its property and conduct its business
substantially as presently conducted by it and is duly qualified to do
business and is in good standing as a corporation in each jurisdiction where
the nature of its business makes such qualification necessary. The Debtor
has full power and authority to enter into and perform its obligations under
this Security Agreement and grant the liens and security interests hereunder.
3.2 DUE AUTHORIZATION. The execution, delivery and performance by the
Debtor of this Security Agreement have been duly authorized by all necessary
corporate action, do not require any approval or consent of, or any
registration, qualification or filing with, any governmental agency or
authority or any approval or consent of any other Person (including, without
limitation, any stockholder), do not and will not conflict with, result in
any violation of or constitute any default under, any provision of the
Debtor's certificate of incorporation, any agreement binding on or applicable
to the Debtor or any of its property, or any law or governmental regulation
or court decree or order, binding upon or applicable to the Debtor or of any
of its property and will not result in the creation or imposition of any Lien
on any of its property pursuant to the provisions of any agreement binding on
or applicable to the Debtor or any of its property except pursuant to this
Security Agreement.
3.3 VALIDITY OF THIS SECURITY AGREEMENT. This Security Agreement
represents a legal, valid and binding obligation of the Debtor enforceable in
accordance with its terms, subject only to bankruptcy, insolvency,
reorganization, moratorium or similar laws, rulings or decisions at the time
in effect affecting the enforceability of rights of creditors generally and
to general equitable principles which may limit the right to obtain equitable
remedies. This Security Agreement grants to Secured Party a valid, first
priority perfected and enforceable lien on the Collateral.
3.4 TITLE TO COLLATERAL. The Debtor is sole owner of, has rights in,
and has good and marketable title to all of the Collateral and none of the
Collateral is subject to any Lien except for Permitted Liens and the security
interest created pursuant to this Security Agreement.
3.5 SURVIVAL OF REPRESENTATIONS. All representations and warranties
contained in this SECTION 3 shall survive the delivery of this Security
Agreement and any investigation at any time made by or on behalf of Secured
Party shall not diminish its rights to rely thereon.
3
4. COVENANTS OF THE DEBTOR
4.1 DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Debtor will not
encumber, sell or otherwise transfer or dispose of the Collateral without the
prior written consent of Secured Party.
4.2 VALIDITY OF ACCOUNTS. The Debtor warrants that all Accounts,
Chattel Paper and Instruments will be bona fide existing obligations created
by the sale and actual delivery of Goods or the rendition of services to
customers in the ordinary course of business, which the Debtor then owns free
and clear of any Liens other than the security interest created by this
Security Agreement and Permitted Liens and which are then unconditionally
owing to Debtor without defenses, offset or counterclaim known to Borrower,
and that all shipping or delivery receipts, invoice copies and other
documents furnished to Secured Party in connection therewith will be genuine,
and that the unpaid principal amount of any Chattel Paper or Instrument and
any security therefor is and will be as represented to Secured Party on the
date of the delivery thereof to the Secured Party. Upon the request of the
Secured Party, Debtor shall furnish to the Secured Party, from time to time,
a list of the Debtor's Accounts, including without limitation, the name and
address of each account debtor and the amount owed.
4.3 NOTATION ON CHATTEL PAPER. For purposes of the security interest
granted pursuant to this Security Agreement, Secured Party has been granted a
direct security interest in all Chattel Paper and such Chattel Paper is not
claimed merely as Proceeds of inventory. Upon Secured Party's request,
Debtor will deliver to Secured Party the originals of all Chattel Paper.
Debtor will not execute any copies of Chattel Paper other than those which
are clearly marked as a copy. Secured Party may stamp any such Chattel Paper
with a legend reflecting Secured Party's security interest therein.
4.4 INSTRUMENTS AS PROCEEDS. Notwithstanding any other provision in
this Security Agreement concerning Instruments, Debtor covenants that
Instruments constituting cash Proceeds (for example, money and checks) shall
be deposited in deposit accounts with Secured Party containing only Proceeds
to the extent required under SECTION 5.2.
4.5 PROTECTION OF COLLATERAL. All costs of keeping the Collateral free
of any Liens prohibited by this Security Agreement and of removing the same
if they should arise, and any and all excise, property, sales and use taxes
imposed by any state, federal or local authority on any of the Collateral or
in respect of the sale thereof, shall be borne and paid by Debtor and if
Debtor fails to promptly pay any thereof when due, Secured Party may, at its
option, but shall not be required to, pay the same whereupon the same shall
constitute Obligations and shall bear interest at the highest annual rate
specified in the Obligations (the "Default Rate") and shall be secured by the
security interest granted hereunder.
4.6 COMPLIANCE WITH LAW. Debtor will not use the Collateral, or
knowingly permit the Collateral to be used, for any unlawful purpose or in
violation of any federal, state or municipal law.
4.7 BOOKS AND RECORDS; ACCESS.
a. Debtor will permit Secured Party, upon reasonable notice to Debtor, to
examine Debtor's books and records (including Data Processing Records
and Systems) with respect to the Collateral and make extracts
therefrom and copies thereof at any time and from time to time, and
Debtor will furnish such information and reports to Secured Party
regarding the Collateral as Secured Party may from time to time
request. Debtor will also permit Secured Party, upon reasonable
notice to Debtor, to inspect the Collateral at any time and from time
to time as Secured Party may reasonably request.
4
b. Secured Party shall have authority, at any time, to place, or require
Debtor to place, upon Debtor's books and records relating to Accounts,
Chattel Paper, Instruments and other rights to payment covered by the
security interest granted hereby a notation or legend stating that
such Accounts, Chattel Paper, Instruments and other rights to payment
are subject to a security interest of Secured Party.
4.8 ADDITIONAL DOCUMENTATION. Debtor will execute, from time to time,
such financing statements, assignments, and other documents covering the
Collateral, including Proceeds, as Secured Party may reasonably request in
order to create, evidence, perfect, maintain or continue its security
interest in the Collateral (including additional Collateral acquired by the
Debtor after the date hereof), and Debtor will pay the cost of filing the
same in all public offices in which Secured Party may deem filing to be
appropriate. Upon request, Debtor will deliver to Secured Party all Debtor's
Instruments and Chattel Paper.
4.9 CHIEF EXECUTIVE OFFICE. The location of the chief executive office
of Debtor is set forth in the preamble hereto and will not be changed without
thirty (30) days' prior written notice to Secured Party. Debtor warrants
that its books and records concerning its Accounts and Chattel Paper are
located at its chief executive office.
4.10 NAME OF DEBTOR. Debtor's true name is as set forth in the preamble
hereto. Debtor has not used any other name within the past five (5) years.
Neither Debtor nor any predecessor in title to any of the Collateral has
executed any financing statements or security agreements presently effective
as to the Collateral except those permitted under the Credit Agreement.
Debtor shall not change its name or use any trade or assumed name without
giving Secured Party thirty (30) days prior written notice.
4.11 POWER OF ATTORNEY. The Debtor appoints Secured Party, or any other
person, whom Secured Party may from time to time designate, as Debtor's
attorney with power, after the occurrence and during the continuance of an
Event of Default, to endorse Debtor's name on any checks, notes, acceptances,
drafts, or other forms of payment or security that may come into Secured
Party's possession, to sign Debtor's name on any invoice or bill of lading
relating to any Collateral, on drafts against customers, on schedules and
confirmatory assignments of Accounts, Chattel Paper, Instruments or other
Collateral, on notices of assignment, financing statements under the Uniform
Commercial Code (the "Code") and other public records, on verifications of
Accounts and on notices to customers, to notify the post office authorities
to change the address for delivery of Debtor's mail to an address designated
by Secured Party, to receive and open all mail addressed to Debtor, to send
requests for verification of Accounts, Chattel Paper, Instruments or other
Collateral to customers, make any compromise or settlement, and take any
action it deems advisable with respect to the Collateral, and to do all
things necessary to carry out this Security Agreement. The Debtor ratifies
and approves all acts of the attorney taken within the scope of the authority
granted. Neither Secured Party nor the attorney will be liable for any acts
of commission or omission nor for any error in judgment or mistake of fact or
law other than those acts, errors or mistakes arising from gross negligence
or willful misconduct by Secured Party. This power, being coupled with an
interest, is irrevocable so long as any Obligation remains unpaid. The
Debtor waives presentment and protest of all instruments and notice thereof,
notice of default and dishonor and all other notices to which Debtor may
otherwise be entitled, except as otherwise provided herein or in any other
Loan Document.
5. COLLECTIONS
5.1 COLLECTION OF ACCOUNTS. Except as otherwise provided in this
SECTION 5, the Debtor shall continue to collect at its own expense, all
amounts due or to become due to the Debtor, under the
5
Accounts. In connection with such collections, the Debtor may take (and, at
the Secured Party's direction, shall take) such action as the Debtor or the
Secured Party, after the occurrence and during the continuance of an Event of
Default, may deem necessary or advisable to enforce collection of the
Accounts; provided, however, that the Secured Party, after the occurrence and
during the continuance of an Event of Default, shall have the right to notify
the account debtors under any Accounts of the assignment of such Accounts to
the Secured Party and to direct such account debtors to make payment of all
amounts due or to become due to the Debtor thereunder directly to the Secured
Party. Upon such notification and at the expense of Debtor, the Secured
Party shall have the right to enforce collection of such Accounts and to
adjust, settle, or compromise the amount or payment thereof in the same
manner and to the same extent as the Debtor might have done. The Secured
Party shall apply all collections hereunder in accordance with SECTION 7.7.
5.2 COLLECTION OF OTHER COLLATERAL PROCEEDS. Upon request of Lender,
following and during the continuance of an Event of Default, the Debtor shall
deposit into a collection account (the "Collection Account") maintained with
the Secured Party immediately upon receipt all Proceeds of Collateral, other
than accounts, in the original form such payments are received, except for
endorsement where necessary. The Secured Party is hereby authorized and
directed promptly to apply all such collected funds to the payment of the
Obligations in the manner and in the priority determined by the Secured Party
in the exercise of its discretion. Such funds shall be applied in accordance
with SECTION 7.7.
6. EVENTS OF DEFAULT
The occurrence of any Event of Default as defined in the Credit
Agreement shall constitute an Event of Default hereunder ("Event of Default")
7. RIGHTS AND REMEDIES ON DEFAULT
Upon the occurrence of an Event of Default, and at any time thereafter
until such Event of Default is cured to the satisfaction of Secured Party or
waived by the Secured Party, and in addition to the rights granted to Secured
Party under SECTION 5 hereof or under any other document, agreement or other
instrument evidencing, securing or otherwise relating to any of the
Obligations, Secured Party may exercise any one or more of the following
rights and remedies:
7.1 ACCELERATION OF OBLIGATIONS. Declare any and all Obligations to be
immediately due and payable as provided in the Credit Agreement, and the same
shall thereupon become immediately due and payable without further notice or
demand.
7.2 RIGHT OF OFFSET. Offset any deposits, including unmatured time
deposits, then maintained by Debtor with Secured Party, whether or not then
due, against any indebtedness then owed by Debtor to Secured Party whether or
not then due.
7.3 DEAL WITH COLLATERAL. In the name of Debtor or otherwise, demand,
collect, receive and receipt for, compound, compromise, settle and give
acquittance for and prosecute and discontinue any suits or proceedings in
respect of any or all of the Collateral.
7.4 REALIZE ON COLLATERAL. Take any action which Secured Party may
deem necessary or desirable in order to realize on the Collateral, including,
without limitation, the power to foreclose any security interest, to perform
any contract, to endorse in the name of Debtor any checks, drafts, notes, or
other instruments or documents received in payment of or on account of the
Collateral.
6
7.5 ACCESS TO PROPERTY. Enter upon and into and take possession of all
or such part or parts of the properties of Debtor, including lands, plants,
buildings, machinery, equipment, Data Processing Records and Systems and
other property as may be necessary or appropriate in the judgment of Secured
Party, to permit or enable Secured Party to store, lease, sell or otherwise
dispose of or collect all or any part of the Collateral, and use and operate
said properties for such purposes and for such length of time as Secured
Party may deem necessary or appropriate for said purposes without the payment
of any compensation to Debtor therefor. Debtor shall provide Secured Party
with all information and assistance requested by Secured Party to facilitate
the storage, leasing, assembly, sale or other disposition or collection of
the Collateral after an Event of Default, and make such Collateral available
to Secured Party on Secured Party's demand.
7.6 OTHER RIGHTS. Exercise any and all other rights and remedies
available to it by law, in equity or by agreement, including rights and
remedies under the Minnesota Uniform Commercial Code or any other applicable
law, or under the Credit Agreement and, in connection therewith, Secured
Party may require Debtor to assemble the Collateral and make it available to
Secured Party at a place to be designated by Secured Party, and any notice of
intended disposition of any of the Collateral required by law shall be deemed
reasonable if such notice is mailed or delivered to Debtor at its address as
shown on Secured Party's records at least ten (10) days before the date of
such disposition. The Secured Party may sell or otherwise dispose of any or
all of the Collateral in a single unit or in multiple units and the Secured
Party may be the purchaser at such sale or other disposition. The Debtor
shall remain liable for any deficiency remaining after any such sale or other
disposition of the Collateral.
7.7 APPLICATION OF PROCEEDS. All proceeds of Collateral shall be
applied in accordance with Minnesota Statute Section 336.9-504 and such
proceeds applied toward the Obligations shall be applied in such order as the
Secured Party may elect.
8. MISCELLANEOUS
8.1 NO LIABILITY ON COLLATERAL. It is understood that Secured Party
does not in any way assume any of the Debtor's obligations under any of the
Collateral and does not intend to create any third party beneficiary rights
by taking or omitting any action herein. Debtor hereby agrees to indemnify
Secured Party against all liability arising in connection with or on account
of any of the Collateral, except for any such liabilities arising on account
of Secured Party's gross negligence or willful misconduct.
8.2 NO WAIVER. Secured Party shall not be deemed to have waived any of
its rights hereunder or under any other agreement, instrument or paper signed
by Debtor unless such waiver be in writing and signed by Secured Party. No
delay or omission on the part of Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion.
8.3 REMEDIES CUMULATIVE. All rights and remedies of Secured Party
shall be cumulative and may be exercised singularly or concurrently, at its
option, and the exercise or enforcement of any one such right or remedy shall
not bar or be a condition to the exercise or enforcement of any other.
8.4 GOVERNING LAW/JURISDICTION. This Security Agreement shall be
construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of Minnesota. Debtor hereby
consents to the personal jurisdiction of the state and federal courts of the
State of Minnesota in connection with any controversy related to this
Security Agreement, waives any argument
7
that venue in any such forum is not convenient and agrees that any litigation
initiated by Debtor against Secured Party shall be venued in the State or
Federal District Courts of Minnesota.
8.5 EXPENSES. Debtor agrees to pay all costs, fees and expenses
incurred by Secured Party in the exercise of any right or remedy available to
it under this Security Agreement, whether or not suit is commenced,
including, without limitation, attorneys' fees and legal expenses of counsel
for the Secured Party incurred in connection with any appeal of a lower
court's order or judgment, and any appraisal or survey fees, completion
costs, storage and transportation charges.
8.6 SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding
upon and inure to the benefit of the successors and assigns of Debtor and
Secured Party.
8.7 RECITALS. The above Recitals are true and correct as of the date
hereof and constitute a part of this Security Agreement.
8.8 COPY OF SECURITY AGREEMENT AS FINANCING STATEMENT. The Secured
Party may file a reproduced copy or photostatic copy or other reproduction of
this Security Agreement as a Financing Statement.
8.9 MULTIPLE COUNTERPARTS. This Security Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original,
and all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Debtor has caused the execution of this Security
Agreement by its duly authorized representative as of the date and year first
above written.
LIFECORE BIOMEDICAL, INC.,
a Minnesota corporation
By: /s/ Dennis J. Allingham
--------------------------------------
Name: Dennis J. Allingham
Title: Executive Vice President and
Chief Financial Officer
8