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Exhibit
10.8
Execution
Version
SECURITY
AGREEMENT
THIS SECURITY AGREEMENT (the
“Agreement”) is made on January 31, 2008, by and
between DPAC TECHNOLOGIES CORP., a California corporation (the
“Company”), and QUATECH, Inc., an Ohio corporation
(“Quatech”, together with the Company herein
collectively or individually, as the context so requires, the
“Debtor” or the “Debtors”), and CANAL
MEZZANINE PARTNERS, L.P., a Delaware limited partnership (the
“Secured Party”).
RECITALS:
WHEREAS, Debtors and Secured
Party are parties to a Senior Subordinated Note and Warrant
Purchase Agreement of even date herewith (as the same may be
amended, restated, supplemented or otherwise modified from time to
time, the “Note Purchase Agreement”), providing for the
issuance and sale by the Debtors and the purchase by the Secured
Party of that certain Senior Subordinated Note due January 31,
2013 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the “Note”) in an
aggregate principal amount of One Million Two Hundred Thousand and
00/100 Dollars ($1,200,000).
WHEREAS, each Debtor agrees
to grant to and create in favor of Secured Party, in the manner set
forth in this Agreement, security interests in certain property of
such Debtor as security for the performance and payment of the
Secured Obligations (as defined in Section 1
hereof).
NOW THEREFORE, for and in
consideration of the purchase of the Note by Secured Party and the
benefits each Debtor shall receive therefrom, and the
representations, warranties and mutual covenants set forth in this
Agreement, the parties hereto, intending to be legally bound,
hereby agree as follows:
Section 1. Defined
Terms .
1.1. Definitions .
Certain capitalized words and terms as used in this Agreement shall
have the meanings given to them in the Uniform Commercial Code, and
the Note Purchase Agreement unless otherwise indicated herein or
the context or use indicates another or different meaning or
intent. All defined terms shall be equally applicable to both the
singular and plural forms of any of the words and terms herein
defined. In addition, the following capitalized words shall have
the following meanings when used herein:
“Accounts” has
the meaning assigned to that term in the Uniform Commercial
Code.
“Chattel Paper”
has the meaning assigned to that term in the Uniform Commercial
Code.
“Commercial Tort
Claims” has the meaning assigned to that term in the Uniform
Commercial Code.
“Deposit Account”
has the meaning assigned to that term in the Uniform Commercial
Code.
“Documents” has
the meaning assigned to that term in the Uniform Commercial
Code.
“Electronic Chattel
Paper” has the meaning assigned to that term in the Uniform
Commercial Code.
“Equipment” has
the meaning assigned to that term in the Uniform Commercial
Code.
“Excluded
Property” means any of the following:
(a) any interest of any
Debtor in any contract right, license, general intangible,
intellectual property agreement, any lease pertaining to real or
personal property or any other document, instrument or agreement,
if the granting of a security interest, lien or encumbrance
therein by such Debtor to Secured Party (i) is prohibited by
the terms and provisions of the written agreement, document or
instrument creating or evidencing such item of Excluded Property or
rights related thereto or by applicable law, or (ii) or in the
case of any such Excluded Property, such item of Excluded Property
would be subject to loss or forfeiture upon the grant or creation
of a security interest, lien or encumbrance therein (any of the
foregoing, a “Valid Restriction”); provided ,
however , that Secured Party will be deemed to have, and at
all times from and after the date hereof to have had, a security
interest in the proceeds of such Excluded Property to the extent
that any proceeds of such Excluded Property have come into the
possession of Secured Party or otherwise constitute a portion of
the Collateral;
(b) any Equipment that is
subject to a purchase money security interest or Capitalized Lease
that contains a Valid Restriction;
(c) any motor vehicles owned
or leased by any Debtor; or
(d) any depository account
maintained by any Debtor used solely for medical, pension,
benefits, and taxes.
“Fixtures” has
the meaning assigned to that term in the Uniform Commercial
Code.
“General
Intangibles” has the meaning assigned to that term in the
Uniform Commercial Code.
“Instruments” has
the meaning assigned to that term in the Uniform Commercial
Code.
“Inventory” has
the meaning assigned to that term in the Uniform Commercial
Code.
“Investment
Property” has the meaning assigned to that term in the
Uniform Commercial Code.
“Letter of Credit
Right” has the meaning assigned to that term in the Uniform
Commercial Code.
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“Note Purchase
Agreement” has the meaning assigned to that term in the
Recitals.
“Note” has the
meaning assigned to that term in the Recitals.
“Payment
Intangible” has the meaning assigned to that term in the
Uniform Commercial Code.
“Pledged
Deposits” means all time deposits of money (other than
Deposit Accounts and Instruments), whether or not evidenced by
certificates, and all rights to receive interest on said
deposits.
“Secured
Obligations” means (a) all principal, interest and other
amounts due and payable under the Note Purchase Agreement, the
Related Documents and the Note, (b) all costs and expenses
incurred by Secured Party in the realization upon the Collateral,
including without limitation reasonable attorneys’ fees and
legal expenses, and (c) each and every liability owed by any
Debtor to Secured Party however created, direct or contingent, due
or to become due, whether now existing or hereafter arising,
including without limitation the Success Fee.
“Security” has
the meaning assigned to that term in Article 8 of the Uniform
Commercial Code.
“Software” has
the meaning assigned to that term in the Uniform Commercial
Code.
“Stock Rights”
means any Security, dividends or other distributions and any other
right or property which the such Debtor shall receive or shall
become entitled to receive for any reason whatsoever with respect
to, in substitution for or in exchange for any Security or other
ownership interests in a corporation, partnership, joint venture,
limited liability company or other entity constituting Collateral
and any Security, any right to receive any Security and any right
to receive earnings, in which such Debtor now has or hereafter
acquires any right, issued by an issuer of such
Securities.
“Uniform Commercial
Code” means such Code as in effect in any jurisdiction on the
date hereof or as the same may be from time to time supplemented or
amended hereafter in any jurisdiction.
Section 2. Creation
of Security Interests .
2.1. The Collateral .
As security for the full and timely discharge of the Secured
Obligations in accordance with their respective terms, each Debtor
agrees that Secured Party will have, and there is hereby granted to
and created in favor of Secured Party, a security interest under
the Uniform Commercial Code, and otherwise in accordance with
applicable law, in and to the following exclusive of the of the
Excluded Property (hereinafter collectively referred to as the
“Collateral”):
2.1.1. All Equipment now or
hereafter owned by any Debtor, including without limitation
(a) all machinery, equipment, furniture and fixtures,
(b) all replacements and substitutions thereof and
(c) accessions to any of the items aforesaid and all
attachments, components, parts (including spare parts) and
accessories whether installed thereon or affixed
thereto.
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2.1.2. All Accounts and
General Intangibles now or hereafter owned by any Debtor,
including, without limitation, (a) all moneys due and to
become due under any contractual obligation, (b) any damages
arising out of or for breach or default in respect of any Account,
(c) all other amounts from time to time paid or payable under
or in connection with any such Account including, without
limitation, all tax refund claims, and (d) all rights of any
Debtor in intellectual property, goodwill, trademarks, trade names,
service marks, copyrights, patents, and licenses and in
applications therefor including, without limitation, license fees,
patents, patent applications, trademarks, trademark applications,
trade names, copyrights, copyright applications, rights to sue and
recover for past infringement of patents, trademarks and
copyrights, computer programs, computer software, engineering
drawings, service marks, customer lists, goodwill, and all
licenses, permits, agreements of any kind or nature pursuant to
which such (i) Debtor operates or has authority to operate,
(ii) Debtor possesses, uses or has authority to possess or use
property (whether tangible or intangible) of others, or
(iii) others possess, use, or have authority to possess or use
property (whether tangible or intangible) of such Debtor, and all
recorded data of any kind or nature, regardless of the medium of
recording, including, without limitation, all software, writings,
plants, specifications, and schematics.
2.1.3. All Goods, Inventory,
Instruments, Electronic Chattel Paper, Commercial Tort Claims,
Deposit Accounts, Documents, Fixtures, Investment Property, Letter
of Credit Rights, Payment Intangibles, Pledge Deposits, Software
and Stock Rights now or hereafter owned by any Debtor.
2.1.4. To the extent not
otherwise included, all other personal property, tangible or
intangible, of any Debtor including, without limitation, all
furniture, fixtures, other goods, contract rights, rights to the
payment of money, insurance refund claims and all other insurance
claims and proceeds, tort claims, electronic chattel paper,
documents, securities and other investment property, deposit
accounts, rights to proceeds of letters of credit, letter-of-credit
rights and supporting obligations of every nature.
2.1.5. To the extent not
otherwise included, all books and records pertaining to the
foregoing, and all Proceeds or products of any or all of the
foregoing.
2.1.6. To the extent not
otherwise included, all “Collateral” as that term is
defined in the Note Purchase Agreement.
2.2. Maintenance .
Debtors shall from time to time replace and repair all parts of the
Equipment which are or become worn, broken, damaged, or
deteriorated and otherwise maintain the Equipment, and every part
thereof, in good working order and repair and pay the costs of such
repairs, replacements, and maintenance as well as any costs of
storing the same when reasonable to do so.
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Section 3. Rights and
Remedies of a Secured Party . In addition to all of the rights
and remedies given to Secured Party by this Agreement, Secured
Party shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code.
Section 4. Provisions
Applicable to the Collateral . The parties agree that the
following provisions shall be applicable to the Collateral and each
Debtor agrees that during the term of this Agreement:
4.1. Books and Records;
Chief Executive Offices; Jurisdiction .
4.1.1. Each Debtor shall keep
accurate and complete books and records concerning the Collateral
in accordance with GAAP. For the purpose of establishing the
location and value of the Collateral, each Debtor shall furnish to
Secured Party, at such times and in such form and substance as may
be reasonably requested by Secured Party, information adequate to
identify the Collateral, including, without limitation, the
location, cost and fair market value of the Collateral.
4.1.2. (a) Each Debtor
represents and warrants that its chief executive office is located
at the address set forth below:
5765 Hudson Industrial
Parkway
Hudson, Ohio 44236
(b) Debtors shall not move
their chief executive office except to such new location as it may
establish in accordance with Section 4.1.5 below.
4.1.3. (a) The only
original books of account and records of each Debtor relating to
the Collateral are, and will continue to be, kept at the offices of
such Debtor set forth in Section 4.1.2 above.
(b) The location where such
books of account and records are kept shall not be changed by
Debtors except in accordance with Section 4.1.5
below.
4.1.4. Each Debtor represents
and warrants that the location of all the Collateral is accurately
and completely set forth in Exhibit A hereto. The Secured
Party acknowledges and agrees that the Debtors will maintain
Inventory and/or Equipment at locations owned by third party
landlords, and that Debtors are required to provide appropriate
bailee waivers acceptable to Secured Party on any location where
any Debtor maintains at any time more than One Hundred Thousand
Dollars ($100,000.00) worth of Inventory and/or
Equipment.
4.1.5. Each Debtor shall not
establish any different location for its chief executive office or
for the place where the original books of account and records of
such Debtor relating to the Collateral are kept, except in
accordance with 4.1.8 below.
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4.1.6. Each Debtor shall not
hold its right, title or interest or maintain its records relating
to any Collateral or invoice any Account debtor with respect to any
Collateral in any name other than its own proper name.
4.1.7. Debtors shall not
change their jurisdiction of organization from the State of
California with respect to the Company and Ohio with respect to
Quatech, except to such new jurisdiction as such Debtor may
establish in accordance with Section 4.1.8 below.
4.1.8. Debtors shall not
establish any locations different from those provided for in this
Section 4.1 and attached Exhibit A hereto, change the
jurisdiction of their organization or change their name, until such
(a) Debtor shall have given to the Secured Party written
notice, thirty (30) days before doing so, of its intention to
establish such new location or jurisdiction of organization or
change its name, clearly describing each such new location or
jurisdiction or its new name and providing such other information
in connection therewith as the Secured Party may reasonably
request, and (b) with respect to each such new location or
jurisdiction or the new name, it shall have taken such action,
satisfactory to the Secured Party, as may be necessary to maintain
the lien of the Secured Party on the Collateral granted hereunder
at all times fully perfected, first in priority to all other liens
(except for the liens of the Senior Lender and except as otherwise
provided in the Related Documents) and in full force and
effect.
4.2. Inspection . Each
Debtor shall permit any persons designated by Secured Party, in
order to permit Secured Party to assure itself of performance by
such Debtor of the Secured Obligations or otherwise facilitate
compliance with this Agreement, to enter, examine, audit and
inspect the Collateral and all properties, corporate books and
financial records pertaining to the Collateral or to the operation,
business, affairs and financial condition of such Debtor, at any
reasonable time and from time to time and upon reasonable notice to
such Debtor, and shall permit such persons to copy (by photocopy or
otherwise) and make excerpts of such books and records.
4.3. Notice of Adverse
Change . Each Debtor shall immediately notify Secured Party of
any material adverse change of which such Debtor has knowledge
which adversely affects or may adversely affect its right, title,
or interest in, or the value of, the Collateral in any material
way.
4.4. Sale of Inventory
. Notwithstanding the security interest in the Collateral granted
hereunder, each Debtor shall have the right to sell, lease or
otherwise dispose of its Inventory in the ordinary course of its
business free and clear of such security interest; but in such
event, such security interest shall continue in the proceeds of
such sale, lease or other disposition.
4.5. Account
Verification . Secured Party may at any time cause Debtors to
verify with any account debtor of such Debtor as to the status of
any Accounts payable by such account debtor. Such Debtor shall
direct the account debtor to furnish a written response to the
request for verification to a post office box at a post office
located in Hudson, Ohio, which post office box shall be controlled
by Secured Party. Secured Party may make requests for verification
directly with account debtors at any time after and during the
continuance of an Event of Default. Debtors from time to time will
execute and deliver such instruments and take all such action as
Secured Party may reasonably request in order to effectuate the
purposes of this Section 4.5.
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4.6. Debtor’s Rights
to Collect Accounts . Notwithstanding any security interest in
Accounts of Debtors granted hereunder, Debtors shall have the right
to and shall endeavor to collect such Accounts at their own cost
and expense, until such time as Secured Party shall have notified
such Debtor pursuant to Section 4.7 below that Secured Party
has revoked such Debtor’s right to collect such
Accounts.
4.7. Collection of
Accounts by the Secured Party . If an Event o
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