Exhibit 10.4
SECURITY
AGREEMENT
THIS SECURITY
AGREEMENT (the “Agreement”), made this 30
th
day of
March, 2007, is by and among MICRONETICS, INC., a Delaware
corporation with an executive office at 26 Hampshire Drive, Hudson,
New Hampshire 03051 (the “Borrower”);
MICROWAVE & VIDEO SYSTEMS, INC., a Connecticut corporation
with an executive office at 160B Shelton Road, Monroe, Connecticut
06468, ENON MICROWAVE, INC., MICROWAVE CONCEPTS, INC., and STEALTH
MICROWAVE, INC., each a Delaware corporation, and all with an
executive office at 26 Hampshire Drive, Hudson, New Hampshire 03051
(individually, a “Guarantor”, and collectively, the
“Guarantors”, and the Borrower and each Guarantor are
sometimes referred to individually as “Debtor”), and
CITIZENS BANK NEW HAMPSHIRE, a guaranty savings bank chartered
under the laws of the State of New Hampshire, with a place of
business at 875 Elm Street, Manchester, New Hampshire 03101 (the
“Secured Party”). Any reference to “Debtor”
herein shall be deemed to refer to each Debtor
individually.
WITNESSETH
:
WHEREAS, pursuant to the Commercial
Loan Agreement of near or even date herewith (the “Loan
Agreement”), Secured Party has extended in favor of Borrower,
certain credit facilities consisting of a Revolving Line of Credit
Loan in the principal amount of up to $5,000,000 and a Term Loan in
the principal amount of $6,500,000 (collectively, the
“Loans”), all as set forth and described in the Loan
Agreement; and
WHEREAS, pursuant to the Loan
Agreement, each of Guarantors has unconditionally guaranteed the
full payment and performance of the Obligations of the
Borrower;
WHEREAS, the obligation of the
Secured Party to make the Loans to the Borrower is subject to the
condition, among others, that the Borrower and each of the
Guarantors shall execute and deliver this Agreement and grant the
security interests hereinafter described. Terms not otherwise
defined herein shall have the meanings ascribed to them in the Loan
Agreement.
NOW, THEREFORE, in consideration of
the willingness of the Secured Party to make the Loans to the
Borrower, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Security Interest . As
security for the Secured Obligations described in Section 2
hereof, Debtor hereby grants to the Secured Party a first priority
security interest in and lien on all of the property and assets of
the Debtor, including, but not limited to the property and assets
of the types described below (hereinafter referred to collectively
as the “Collateral”):
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(a) All goods, including equipment,
machinery, office equipment, furniture, and motor vehicles, along
with all other parts, tools, trade-ins, repairs, accessories,
accessions, modifications, and replacements, whether now owned or
subsequently acquired, constructed, or attached or added to, or
placed in, the foregoing (collectively, the
“Equipment”);
(b) All inventory, wherever located,
including goods, merchandise, motor vehicles, and other personal
property, held for sale, licensing, rental, or lease, or furnished
or to be furnished under a contract of service, or constituting raw
materials, work in process or materials used or consumed in the
Debtor’s business, or consigned to others or held by others
for return to the Debtor, whether now owned or subsequently
acquired or manufactured and wherever located (collectively, the
“Inventory”);
(c) All accounts and accounts
receivable, including, without limitation, accounts, contracts,
contract rights, license fees, royalties, chattel paper,
instruments, rents, deposits, general intangibles, and any other
obligations of any kind whether now existing or hereafter arising
out of or in connection with the sale, licensing, rental, or lease
of goods, motor vehicles, or intangibles, the rendering of
services, or the granting of licenses, and all rights now or
hereafter existing in and to all security agreements, notes,
leases, licenses, franchises, supply agreements, and other
contracts securing or otherwise relating to any such accounts,
contracts, contract rights, chattel paper, instruments, rents,
deposits, general intangibles, or obligations (any and all such
accounts, contracts, contract rights, chattel paper, instruments,
rents, deposits, general intangibles, and obligations being the
“Receivables”, and any and all such security
agreements, notes, leases, licenses, franchises, supply agreements,
and other contracts being the “Related
Contracts”);
(d) All general intangibles,
including, but not limited to, corporate names, trade names,
trademarks, trade secrets, copyrights, patents (issued and
pending), inventions, licenses (subject to the provisions of each
license or license agreement or as otherwise permitted under the
provisions of Article 9 of the Uniform Commercial Code as adopted
by the State of New Hampshire), books and records, customer lists,
blue prints and plans, computer programs, tapes and related
electronic data, processing software, and all corporate
ledgers;
(e) All investment property,
including, but not limited to, securities, whether certificated or
uncertificated; securities entitlement; securities accounts;
commodity contracts; and commodity accounts;
(f) Any and all additions,
accessions, substitutions or replacements to or for any of the
foregoing;
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(g) Any and all products and
proceeds of any or all of the foregoing, including, without
limitation, cash, cash equivalents, tax refunds and the proceeds of
insurance policies providing coverage against the loss or
destruction of or damage to any of the Collateral, or any
indemnity, warranty, or guarantee payable by reason of loss or
damage to or otherwise with respect to any of the Collateral
(whether or not the Secured Party is the loss payee
thereof);
(h) All of the Debtor’s
after-acquired property of the kinds and types described in
paragraphs (a)—(g) herein;
(i) All records and data relating to
any of the property described above, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic media,
together with all of the Debtor’s right, title, and interest
in and to all computer software required to utilize, create,
maintain and process any of such records or data or electronic
media; and
also in (1) all checks, money,
securities, bank accounts, deposit accounts, and other accounts in
the possession of or held by the Secured Party whether in the name
of the Debtor or in the name of the Secured Party, and (2) all
other property in which a security interest is granted by the
Debtor to the Secured Party pursuant to this Agreement.
Notwithstanding the foregoing grant of security interests in the
corporate names, trade names, trademarks, trade secrets,
copyrights, patents (issued and pending), inventions, and licenses
of Debtor pursuant to this Agreement, the Secured Party’s
rights and the Debtor’s obligations with respect to the
Secured Party’s security interests in such corporate names,
trade names, trademarks, trade secrets, copyrights, patents (issued
and pending), inventions, and licenses of Debtor shall be governed
by the terms and conditions of a certain Security Agreement
(Intellectual Property) of even date herewith by Debtor in favor of
Secured Party.
2. Secured Obligations . The
security interests hereby granted shall secure all of the following
(the “Secured Obligations”):
(a) Borrower’s payment of the
aggregate principal sums outstanding from time to time under the
Loans, together with interest, fees, and other charges thereon as
provided in the Loan Agreement and the Notes evidencing the
Loans;
(b) The Borrower’s and each
Guarantor’s payment or performance of its obligations under
the Loan Agreement and under the other Loan Documents (as defined,
described and identified in the Loan Agreement, hereinafter the
“Loan Documents”), as the same may be amended,
modified, extended, renewed, replaced or restated;
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(c) The payment of all other sums
with interest and charges thereon advanced in accordance herewith
to protect the validity, security, and priority of this Agreement,
the Loan Agreement, or the Loan Documents;
(d) Any and all obligations of the
Borrower arising under any letter of credit, foreign exchange
contracts, interest rate swap, cap, floor or hedging agreements,
interest rate protection products, or similar agreements with the
Secured Party or any affiliate of the Secured Party; any and all
obligations of the Borrower to the Secured Party arising under any
credit cards issued by the Secured Party to the Borrower; and any
and all obligations of the Borrower to the Secured Party out of or
in connection with any Automated Clearing House (“ACH”)
Agreements relating to the processing of ACH transactions, together
with all fees, expenses, charges and other amounts owing by or
chargeable to the Borrower under all such contracts, agreements,
and credit cards; and
(e) Any and all other indebtedness
of Borrower and each Guarantor to Secured Party of every kind and
description, direct or indirect, absolute or contingent, due or to
become due, regardless of how they arose, now existing or hereafter
arising.
3. Warranties and Representations
of the Debtor . Debtor hereby makes the following
representations and warranties which shall survive the execution
and delivery of this Agreement as long as any Secured Obligation
remains outstanding:
(a) All representations and
warranties made in the Loan Agreement and the Loan Documents
relating to the Debtor and the Collateral are true, accurate and
complete in all material respects as of the date hereof;
(b) The Debtor is and has been for
the previous four (4) month period organized under the laws of
the state first set forth above and its executive offices and the
office where its books and records are kept and are to be kept
concerning the Receivables, Related Contracts and other Collateral
are at the address first set forth above; and the Debtor currently
has no other places of business except those set forth on Schedule
I hereto and for the previous four (4) month period Debtor has
had no other places of business except those set forth on Schedule
I hereto;
(c) Other than as set forth on
Schedule I, the Debtor conducts business only under and through the
corporate, business and trade names first set forth
above;
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(d) No material authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or other person is required either
(i) for the grant by the Debtor of the security interests
granted hereby or for the execution, delivery or performance of
this Agreement by the Debtor, or (ii) for the perfection of or
the exercise by the Secured Party of its respective rights and
remedies hereunder, except the filing of financing statements or as
previously obtained;
(e) The Debtor has good and
marketable title to all of the Collateral pledged by it hereunder,
free and clear of any liens, security interests, encumbrances or
interests or claims of any other person or entity, except for the
security interests of the third parties as disclosed on Schedule II
attached hereto (collectively, the “Permitted
Encumbrances”), which Permitted Encumbrances shall be subject
and subordinate to the security interests of the Secured Party
hereunder, and there are no sums owed with respect to the
Collateral other than as disclosed on the Debtor’s financial
statements most recently delivered to the Secured Party;
(f) Upon the filing of UCC-1
financing statements being delivered at or prior to the execution
hereof, the Secured Party will have a valid, perfected, first
priority security interest in all of the Collateral which may be
perfected by filing of financing statements (subject only to the
Permitted Encumbrances);
(g) Schedule III attached hereto
sets forth the description and location of all Collateral of a
value greater than $50,000 not located at the Debtor’s
principal place of business or at the locations listed on Schedule
I, and
(h) Except as set forth on Schedule
II, no effective financing statements or other similar instrument
in effect covering all or any part of the Collateral is on file in
any recording office where financing statement relating to the
Debtor are required to be filed, except as may have been filed in
favor of Secured Party relating to this Agreement or prior
agreements with the Secured Party.
4. Authorization to File
Financing Statements . The Debtor hereby irrevocably authorizes
the Secured Party at any time and from time to time to file in any
Uniform Commercial Code jurisdiction any initial financing
statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of the Debtor or words of similar
effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Uniform
Commercial Code of the State of Debtor’s organization or such
jurisdiction, or (ii) as being of an equal or lesser scope or
with greater detail than that provided in the preceding clause, and
(b) contain any other information required by Part 5 of
Article 9 of the Uniform Commercial Code of the State of
Debtor’s organization for the sufficiency or filing office
acceptance of any financing statement or amendment, including
(i) whether the Debtor is an organization, the type
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of organization and any organization
identification number issued to the Debtor and, (ii) in the
case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be
cut, a sufficient description of real property to which the
Collateral relates. The Debtor agrees to furnish any such
information to the Secured Party promptly upon request.
5. Representations and Warranties
Concerning Debtor’s Legal Status . The Debtor represents
and warrants to the Secured Party as follows: (a) the
Debtor’s exact legal name is that indicated on the Perfection
Certificate executed by Debtor in conjunction with execution of
this Agreement (“Perfection Certificate”) and on the
signature page thereof executed and delivered in conjunction with
this Agreement, (b) the Debtor is an organization of the type
and organized in the jurisdiction set forth in the Perfection
Certificate, (c) the Debtor’s state of organization is
as set forth in the Perfection Certificate and the Perfection
Certificate accurately sets forth the Debtor’s organizational
identification number or accurately states that the Debtor has
none, (d) the Perfection Certificate accurately sets forth the
Debtor’s place of business or, if more than one, its chief
executive office as well as the Debtor’s mailing address if
different and (e) all other information set forth on the
Perfection Certificate pertaining to the Company is accurate and
complete.
6. Affirmative Covenants of the
Debtor .
(a) The Debtor shall promptly notify
and provide the Secured Party with a complete description of the
opening of any new places of business containing Collateral of a
value of greater than $50,000.00, or, any change in its legal name
or place of incorporation, or any other act which would affect the
financing statements filed by the Secured Party;
(b) Upon the request of Secured
Party, the Debtor shall take all steps that are reasonably
necessary or prudent to protect the security interests of the
Secured Party in the Collateral;
(c) The Debtor shall defend the
Collateral against the claims and demands of all persons which
would have a Material Adverse Effect (as herein after
defined);
(d) The Debtor shall comply, in all
material respects, with all governmental regulations applicable to
the Collateral or any part thereof or to the operation of the
Debtor’s business except where failure to comply would not
cause a Material Adverse Effect; provided, however, that the Debtor
may contest any governmental regulation in any reasonable manner
which shall not in the reasonable opinion of the Secured Party
materially and adversely affect the Secured Party’s rights or
the first priority of its security interest in the Collateral
(subject to Permitted Encumbrances);
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(e) The Debtor shall pay promptly
when due, all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits
therefrom, except that no such amounts need be paid if (i) the
validity thereof is being contested in good faith by appropriate
proceedings, and (ii) such amounts are adequately reserved
against in accordance with the generally accepted accounting
principles;
(f) The Debtor shall cause the
Equipment to be maintained and preserved in reasonably good repair
and working order, normal wear and tear excepted, and shall make
all repairs, replacements, additions, and other improvements
reasonably necessary to maintain the Equipm
