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EXHIBIT 10.6
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SECURITY AGREEMENT
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THIS SECURITY AGREEMENT is made and entered into effective as of
the
10th day of January, 2003, between PALWEB CORPORATION, an
Oklahoma corporation
("PalWeb"), PLASTIC PALLET PRODUCTION, INC., a Texas corporation
("PPP") (PalWeb
and PPP collectively, the "Debtors"), and PAUL A. KRUGER, an
individual (the
"Secured Party").
RECITALS:
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A. The Debtors have requested that the Secured Party make in
favor of
the Debtors a $7,000,000 term loan (the "Loan"), to be evidenced
by that certain
$7,000,000 Promissory Note (the "Note") dated as of even date
herewith.
B. Pursuant to that certain Loan Agreement dated as of even
date
herewith (the "Loan Agreement") between the Debtors and the
Secured Party, the
Secured Party has agreed to make the Loan in favor of the
Debtors.
C. The Loan Agreement provides that the Secured Party's
obligations
thereunder are subject to the execution and delivery of this
Security Agreement.
NOW, THEREFORE, to induce the Secured Party to enter into the
Loan
Agreement, to consummate the transactions provided for therein,
and for other
valuable considerations, the receipt of which is hereby
acknowledged, the
Secured Party and the Debtors agree as follows:
1. Definitions.
1.1. Terms Defined in Loan Agreement. All capitalized terms used
herein
and not otherwise defined shall have the meanings assigned to
such terms in the
Loan Agreement.
1.2. Terms Defined in the UCC. Each term used herein which is
defined
in the UCC and not otherwise defined herein, shall have the
respective meaning
given such term in the UCC.
1.3. Definitions of Certain Terms Used Herein. As used in this
Security
Agreement, the following terms shall have the following
meanings:
"Account" shall have the meaning given such term in Article 9 of
the
UCC.
"Collateral" is defined in Section 2 of this Security
Agreement.
"Chattel Paper" shall have the meaning given such term in
Article 9 of
the UCC.
"Equipment" shall have the meaning given such term in Article 9
of the
UCC.
"General Intangible" shall have the meaning given such term in
Article
9 of the UCC.
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"Instruments" shall have the meaning given such term in Article
9 of
the UCC.
"Inventory" shall have the meaning given such term in Article 9
of the
UCC.
"Indebtedness" means and includes all liabilities, obligations
and
indebtedness of the Debtors to the Secured Party, of every kind
and description,
now existing or hereafter incurred, direct or indirect, absolute
or contingent,
due or to become due, matured or unmatured, and whether or not
of the same or a
similar class or character as the Loan and whether or not
currently contemplated
by the Secured Party or the Debtors, including (i) the Loan;
(ii) all other
liabilities, obligations and indebtedness of the Debtors to the
Secured Party
arising out of or related to the Loan Agreement, the Loan or any
of the Loan
Documents, including costs and expenses of collection and other
amounts
reimbursable under the Loan Agreement; and (iii) any and all
extensions of any
of the foregoing; PROVIDED, HOWEVER, that the term
"Indebtedness" shall exclude
all Claims (as defined in that certain Mutual Release Agreement
dated as of even
date herewith between the Lender, the Borrowers, Westgate
Investments, L.P. and
each of the existing directors of PalWeb).
"Letter of Credit Rights" shall have the meaning given such term
in
Article 9 of the UCC.
"Lien" shall mean any lien (statutory or other), security
interest,
mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance or
preference, priority or other security agreement or preferential
arrangement of
any kind or nature whatsoever (including, without limitation,
the interest of a
vendor or lessor under any conditional sale, capitalized lease
or other title
retention agreement).
"Payment Intangible" shall have the meaning given such term in
Article
9 of the UCC.
"Proceeds" shall have the broadest and most extensive meaning
now or
hereafter given or assigned to such term in Article 9 of the UCC
and, in any
event, shall include, but not be limited to, (i) any and all
proceeds of any
insurance, indemnity, warranty or guaranty payable to the
Debtors from time to
time with respect to the Collateral, and (ii) any and all
payments (in any form
whatsoever) made or due and payable to the Debtors 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.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof
in the State of Oklahoma as hereinafter amended, modified or
re-enacted from
time to time.
2. Grant of Security Interest. As security for the payment of
all
Indebtedness, the Debtors hereby assign and grant to the Secured
Party, a first
and prior, continuous and continuing security interest in, and
assignment of,
all of the following, whether now or hereafter existing or
acquired (the
"Collateral"):
(a) All Accounts of the Debtors;
(b) All Equipment of the Debtors;
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(c) All Inventory of the Debtors;
(d) All General Intangibles of the Debtors;
(e) All Payment Intangibles of the Debtors;
(f) All Instruments (including promissory notes), Letter of
Credit Rights, Supporting Obligations, Documents, Chattel Paper
of the
Debtors;
(g) All books, records, ledger cards, electronic data
processing materials and other general intangibles relating to
the
foregoing subsections (a) through (f), inclusive; and
(h) all proceeds of and all replacements, additions,
substitutions, accessories, appurtenances, and parts for, the
items or
types of collateral described above in subsections (a) through
(g),
inclusive, whether now owned or hereafter acquired including,
without
limitation insurance proceeds.
3. Warranties. The Debtors warrant that: (i) no financing
statement
(other than any which may have been filed on behalf of the
Secured Party or for
Permitted Liens, as defined and described in the Loan Agreement)
covering any of
the Collateral is on file in any public office; (ii) except for
Permitted Liens,
the Debtors are and will be the lawful owners of all of the
Collateral, free of
all Liens and claims whatsoever, with full power and authority
to execute this
Security Agreement and to perform the Debtors' obligations
hereunder, and to
subject the Collateral to the security interest hereunder; (iii)
all information
with respect to the Collateral and the Account Debtors set forth
on any
schedule, certificate or other writing at any time heretofore or
hereafter
furnished by the Debtors to the Secured Party, is and will be
true and correct
in all material respects as of the date furnished, and (iv) the
Debtors are duly
authorized to execute, deliver and perform this Security
Agreement.
4. Use and Possession. As long as there exists no Event of
Default, the
Debtors may have possession of the Collateral and use the same
in any lawful
manner not inconsistent with this Security Agreement, with any
applicable law or
regulation or with any policy of insurance on any of such
Collateral.
5. Sales in the Ordinary Course of Business; Collections by
Debtors.
Until such time as the Secured Party shall notify the Debtors of
the revocation
of such power and authority because of the occurrence of an
Event of Default
(whether or not the Secured Party takes any other action or
accelerates the
Indebtedness), the Debtors (i) may, in the ordinary course of
their business, at
their own expense, sell, lease or furnish under contracts of
service any of the
Collateral held by the Debtors for such purpose, and use and
consume, in the
ordinary course of its business, any raw materials, work in
process or materials
normally held by the Debtors for such purpose, and (ii) will, at
their own
expense, endeavor to collect, as and when due, all amounts due
with respect to
Accounts, lease and/or notes receivable, leases, lease
agreements, chattel
paper, contracts, General Intangibles and Payment Intangibles
pertaining to any
of the
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Collateral, including the taking of such action with respect to
such collection
as the Secured Party may reasonably request or, in the absence
of such request,
as the Debtors may deem advisable.
6. Collections by the Secured Party. Upon the occurrence of an
Event of
Default (whether or not the Secured Party takes any other action
or accelerates
the Indebtedness), the Secured Party may at any time, whether
before or after
any revocation of such power and
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