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Exhibit
10.2
SECURITY
AGREEMENT
This Security Agreement (as
the same may be amended, restated or otherwise modified, this
“Agreement”) is made April 8, 2008, between
PINNACLE DATA SYSTEMS, INC. , an Ohio corporation with
offices at 6600 Port Road, Groveport, Ohio 43125
(“Grantor”), and KEYBANK NATIONAL ASSOCIATION ,
a national banking association, with offices at 88 East Broad
Street, Columbus, Ohio 43215, and its successors and assigns
(“Lender”).
Grantor executed a Promissory
Note, dated as of April 8, 2008 (the “Note”) in
favor of Lender, pursuant to which Lender agreed to provide
financing to Grantor in the aggregate stated amount of $11,000,000
(the “Loan”) (this Agreement and all other instruments,
agreements and documents entered into from time to time, evidencing
or securing the Loan or any obligation of payment thereof or
performance of Grantor’s obligations in connection with the
transaction contemplated hereunder, each as amended, collectively
referred to as “Loan Documents”). Grantor understands
that Lender is willing to grant the Loan to Grantor only upon
certain conditions, one of which is that Grantor execute and
deliver this Agreement and this Agreement is being executed and
delivered in consideration of each of the Obligations (as defined
below) granted to Grantor by Lender and for other valuable
considerations.
As used herein,
“Obligations” shall mean: (a) the Note;
(b) each renewal, extension, consolidation or refinancing of
the Note; (c) all interest from time to time accruing on the
Note, and all commitment or facility and other fees associated
therewith; (d) all obligations and liabilities of Grantor now
existing or hereafter incurred to Lender under, arising out of, or
in connection with any agreement for a derivative or hedging
product including, without limitation, interest rate or equity
swaps, futures, options, caps, floors, collars or forwards now or
hereafter entered into by Grantor with Lender, or any of their
respective affiliates with respect to the Note; (e) all other
amounts payable by Grantor to Lender pursuant to the Note and all
other Loan Documents; (f) every other liability, now or
hereafter owing to Lender or any affiliate of Lender (“Lender
Affiliate”) by Grantor, including, without limitation, every
liability, whether owing by only Grantor or by Grantor with one or
more others in a several, joint or joint and several capacity,
whether owing absolutely or contingently, whether created by note,
overdraft, guaranty of payment or other contract or by a
quasi-contract, tort, statute or other operation of law, whether
incurred directly to Lender or a Lender Affiliate or acquired by
Lender or a Lender Affiliate by purchase, pledge or otherwise and
whether participated to or from Lender or a Lender Affiliate in
whole or in part; (g) all costs and expenses, including
attorneys’ fees, incurred by Lender or any Lender Affiliate
in connection with the Loan or in connection with the collection of
any portion of the indebtedness described in (a), (b), (c), (d),
(e) and (f) hereof; (h) the payment of all other
sums, with interest thereon, advanced in accordance herewith to
protect the security of this Agreement; and (i) the
performance of the covenants and agreements of Grantor contained in
this Agreement,
Grant of Security
Interest . Grantor hereby grants to the Lender, to secure the
payment and performance in full of the Obligations of the Grantor,
a security interest in and pledges and assigns to the Lender the
following properties, assets and rights of the Grantor, consisting
of all corporate and business assets, properties and rights of the
Grantor wherever located, whether now owned or hereafter acquired
or arising, and all proceeds, products, and accessions thereof (all
of the same being hereinafter called the “Collateral”):
(a) Accounts (including health care insurance receivables),
(b) Chattel Paper (whether tangible or electronic),
(c) Commercial Tort Claims, (d) Deposit Accounts,
(e) Documents, (f) Equipment, (g) Fixtures,
(h) General Intangibles (including payment intangibles),
(i) Instruments (including promissory notes),
(j) Investment Property (including all securities),
(k) Inventory, (l) Letter-of-Credit Rights (whether or
not the Letter-of-Credit is evidenced by a writing), (m) Money
(including contract rights or rights to the payment of money),
(n) Supporting Obligations, (o) to the extent not listed
above as original collateral, proceeds and products of the
foregoing.
GRANTOR AND LENDER AGREE AS
FOLLOWS:
1. Authorization to File Financing
Statements . Grantor hereby irrevocably authorizes the Lender
at any time and from time to time to file in any filing office in
any Uniform Commercial Code (“UCC”) jurisdiction any
financing statements and amendments thereto that (a) indicate
the Collateral (i) as all assets of the Grantor or words of
similar effect, regardless of whether any particular asset included
in the Collateral falls within the scope of the UCC of the State
(as defined below) or such jurisdiction, or (ii) as being of
an equal or lesser scope or with greater detail, and
(b) provide any other information required by the UCC of the
State or such jurisdiction for the
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sufficiency or filing office acceptance
of any financing statement or amendment, including (i) whether
the Grantor is an organization, the type of organization and any
organization identification number issued to the Grantor 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 Grantor agrees to furnish any
such information to the Lender promptly upon the Lender’s
request. “State” means the State of Ohio. All terms
defined in the UCC of the State and used herein shall have the same
definitions herein as specified therein.
2. Other Actions . Further to
insure the attachment, perfection and first priority of, and the
ability of the Lender to enforce, the Lender’s security
interest in the Collateral, the Grantor agrees, in each case at the
Grantor’s expense, to take the following actions with respect
to the following Collateral and without limitation on the
Grantor’s other obligations contained in this
Agreement:
(a) Promissory Notes and
Tangible Chattel Paper . If the Grantor shall at any time hold
or acquire any promissory notes or tangible chattel paper, the
Grantor shall forthwith endorse, assign and deliver the same to the
Lender, accompanied by such instruments of transfer or assignment
duly executed in blank as the Lender may from time to time
specify.
(b) Deposit Accounts .
For each deposit account that the Grantor at any time opens or
maintains, the Grantor shall, at the Lender’s request and
option, pursuant to an agreement in form and substance satisfactory
to the Lender, either (i) cause the depositary bank to agree
to comply, without further consent of the Grantor, at any time with
instructions from the Lender to such depositary bank directing the
disposition of funds from time to time credited to such deposit
account, or (ii) arrange for the Lender to become the customer
of the depositary bank with respect to the deposit account, with
the Grantor being permitted, only with the consent of the Lender,
to exercise rights to withdraw funds from such deposit account. The
Lender agrees with the Grantor that the Lender shall not give any
such instructions or withhold any withdrawal rights from the
Grantor, unless an Event of Default (as defined below) has occurred
and is continuing, or, if effect were given to any withdrawal not
otherwise permitted by the Loan Documents, would occur. The
provisions of this paragraph shall not apply to (x) any
deposit account for which the Grantor, the depositary bank and the
Lender have entered into a cash collateral agreement specially
negotiated among the Grantor, the depositary bank and the Lender
for the specific purpose set forth therein, (y) a deposit
account for which the Lender is the depositary bank and is in
automatic control, and (z) any deposit accounts specially and
exclusively used for payroll, payroll taxes and other employee wage
and benefit payments to or for the benefit of the Grantor’s
salaried employees.
(c) Investment
Property . If the Grantor shall at any time hold or acquire any
certificated securities, the Grantor shall forthwith endorse,
assign and deliver the same to the Lender, accompanied by such
instruments of transfer or assignment duly executed in blank as the
Lender may from time to time specify. If any securities now or
hereafter acquired by the Grantor are uncertificated and are issued
to the Grantor or its nominee directly by the issuer thereof, the
Grantor shall immediately notify the Lender thereof and, at the
Lender’s request and option, pursuant to an agreement in form
and substance satisfactory to the Lender, either (i) cause the
issuer to agree to comply, without further consent of the Grantor
or such nominee, at any time with instructions from the Lender as
to such securities, or (ii) arrange for the Lender to become
the registered owner of the securities. If any securities, whether
certificated or uncertificated, or other investment property now or
hereafter acquired by the Grantor are held by the Grantor or its
nominee through a securities intermediary or commodity
intermediary, the Grantor shall immediately notify the Lender
thereof and, at the Lender’s request and option, pursuant to
an agreement in form and substance satisfactory to the Lender,
either (y) cause such securities intermediary or (as the case
may be) commodity intermediary to agree to comply, in each case
without further consent of the Grantor or such nominee, at any time
with entitlement orders or other instructions from the Lender to
such securities intermediary as to such securities or other
investment property, or (as the case may be) to apply any value
distributed on account of any commodity contract as directed by the
Lender to such commodity intermediary, or (z) in the case of
financial assets or other investment property held through a
securities intermediary, arrange for the Lender to become the
entitlement holder with respect to such investment property, with
the Grantor being permitted, only with the consent of the Lender,
to exercise rights to withdraw or otherwise deal with such
investment property. The Lender agrees with the Grantor that the
Lender shall not give any such entitlement orders or instructions
or directions to any such issuer, securities intermediary or
commodity intermediary, and shall not withhold its consent to the
exercise of any withdrawal or dealing rights by the Grantor, unless
an Event of Default has occurred and is continuing, or, after
giving effect to any such investment and withdrawal rights not
otherwise permitted by the Loan Documents, would occur.
The
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provisions of this paragraph shall not
apply to any financial assets credited to a securities account for
which the Lender is the securities intermediary.
(d) Collateral in the
Possession of a Bailee . If any Collateral is at any time in
the possession of a bailee, the Grantor shall promptly notify the
Lender thereof and, at the Lender’s request and option, shall
promptly obtain an acknowledgement from the bailee, in form and
substance satisfactory to the Lender, that the bailee holds such
Collateral for the benefit of the Lender and such bailee’s
agreement to comply, without further consent of the Grantor, at any
time with instructions of the Lender as to such Collateral. The
Lender agrees with the Grantor that the Lender shall not give any
such instructions unless an Event of Default has occurred and is
continuing or would occur after taking into account any action by
the Grantor with respect to the bailee.
(e) Electronic Chattel
Paper . If the Grantor at any time holds or acquires an
interest in any electronic chattel paper, the Grantor shall
promptly notify the Lender thereof and, at the request and option
of the Lender, shall take such action as the Lender may reasonably
request to vest in the Lender control, under the UCC, of such
electronic chattel paper. The Lender agrees with the Grantor that
the Lender will arrange, pursuant to procedures satisfactory to the
Lender amid so long as such procedures will not result in the
Lender’s loss of control, for the Grantor to make alterations
to the electronic chattel paper permitted under the UCC for a party
in control to make without loss of control, unless an Event of
Default has occurred and is continuing or would occur after taking
into account any action by the Grantor with respect to such
electronic chattel paper.
(f) Letter-of-Credit
Rights . If the Grantor is at any time a beneficiary under a
letter of credit now or hereafter, the Grantor shall promptly
notify the Lender thereof and, at the request and option of the
Lender, the Grantor shall, pursuant to an agreement in form and
substance satisfactory to the Lender, either (i) arrange for
the issuer and any confirmer or other nominated person of such
letter of credit to consent to an assignment to the Lender of the
proceeds of the letter of credit or (ii) arrange for the
Lender to become the transferee beneficiary of the letter of
credit, with the Lender agreeing, in each case, that the proceeds
of the letter to credit are to be applied as provided in the Loan
Agreement.
(g) Commercial Tort
Claims . If the Grantor shall at any time hold or acquire a
commercial tort claim, the Grantor shall immediately notify the
Lender in a writing signed by the Grantor of the particulars
thereof and grant to the Lender in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance
satisfactory to the Lender.
(h) Other Actions as to
any and all Collateral . The Grantor further agrees, upon
request of the Lender and at the Lender’s option, to take any
and all other actions as the Lender may determine to be necessary
or useful for the attachment, perfection and first priority of, and
the ability of the Lender to enforce, the Lender’s security
interest in any and all of the Collateral, including, without
limitation, (i) executing, delivering and, where appropriate,
filing financing statements and amendments relating thereto under
the UCC, to the extent, if any, that the Grantor’s signature
thereon is required therefor, (ii) causing the Lender’s
name to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment,
perfection or priority of, or ability of the Lender to enforce, the
Lender’s security interest in such Collateral,
(iii) complying with any provision of any statute, regulation
or treaty of the United States as to any Collateral if compliance
with such provision is a condition to attachment, perfection or
priority of, or ability of the Lender to enforce, the
Lender’s security interest in such Collateral,
(iv) obtaining governmental and other third party waivers,
consents and approvals in form and substance satisfactory to the
Lender, including, without limitation, any consent of any licensor,
lessor or other person obligated on Collateral, (v) obtaining
waivers from mortgagees and landlords in form and substance
satisfactory to the Lender and (vi) taking all actions under
any earlier versions of the UCC or under any other law, as
reasonably determined by the Lender to be applicable in any
relevant UCC or other jurisdiction, including any foreign
jurisdiction.
3. Relation to Other Loan
Documents . The provisions of this Agreement supplement the
provisions of any real estate mortgage or deed of trust granted by
the Grantor to the Lender and which secures the payment or
performance of any of the Obligations. Nothing contained in any
such real estate mortgage or deed of trust shall derogate from any
of the rights or remedies of the Lender hereunder. In addition to
the provisions of this Agreement being so read and construed with
any such mortgage or deed of trust, the provisions of this
Agreement shall be read and construed with the other Loan
Documents.
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4. Representations and Warranties
Concerning Grantor’s Legal Status . The Grantor
represents and warrants to the Lender as follows: (a) it is a
corporation which is duly organized, validly existing and in good
standing under the laws of the State of Ohio and is validly
existing and in good standing in all states in which the Grantor is
doing business; (b) it is also duly qualified as a foreign
corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
business or financial condition; (c) it has full power and
authority to own its properties and to transact the businesses in
which it is presently engaged or presently proposes to engage;
(d) the execution, delivery and performance of this Agreement
have been duly authorized by all necessary action of the Grantor;
and (e) this Agreement constitutes, and any instrument or
agreement required hereunder to be given by the Grantor to the
Lender when delivered will constitute, the legal, valid and binding
obligation of the Grantor, enforceable against the Grantor in
accordance with their respective terms.
5. Covenants Concerning
Grantor’s Legal Status . The Grantor covenants to and
with the Lender as follows: (a) there is no pending or
threatened litigation, claim for infringement, proceeding or
investigation by any governmental authority or any other person
known to the Grantor against or otherwise affecting the Grantor or
any of its assets or its officers, directors or agents in their
capacities as such, nor does the Grantor know of any ground for any
such litigation, infringement claims, proceedings or
investigations; (b) no contract or organizational document
prohibits any term or condition of this Agreement; (c) the
execution and delivery of this Agreement will not violate any law
or agreement governing the Grantor or to which the Grantor is a
party; and (d) all information and statements furnished in
connection with the Loan Documents, and any other documents related
to this secured transaction, are true and correct, and contain no
false or misleading statement.
6. Representations and Warranties
Concerning Collateral . The Grantor further represents and
warrants to the Lender as follows: (a) the Grantor is the
owner of the Collateral, free from any right or claim of any person
or any adverse lien, security interest or other encumbrance, except
for the security interest created by this Agreement and other liens
permitted by Lender and listed on Schedule I, attached hereto (the
“Permitted Liens”), (b) none of the Collateral
constitutes, or is the proceeds of, “farm products” as
defined in the UCC of the State, (c) none of the account
debtors or other persons obligated on any of the Collateral is a
governmental authority covered by the Federal Assignment of Claims
Act or like federal, state or local statute or rule in respect of
such Collateral, (d) the Grantor holds no commercial tort
claim, and (e) the Grantor has at all times operated its
business in compliance with all applicable provisions of the
federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and
ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances, (f) all other
information set forth in this Agreement pertaining to the
Collateral is accurate and complete, and (g) there has been no
change in any of such information since the date on which the Note
or this Agreement was signed by the Grantor.
7. Covenants Concerning
Collateral . The Grantor further covenants with the Lender as
follows: (a) the Collateral, to the extent not delivered to
the Lender pursuant to Section 2 above, will be kept at those
locations listed on Schedule II attached hereto and the Grantor
will not remove the Collateral from such locations, without
providing at least thirty (30) days prior written notice to
the Lender, (b) except for the security interest herein
granted and the Permitted Liens, the Grantor shall be the owner of
the Collateral free from any right or claim of any other person or
any lien, security interest or other encumbrance, and the Grantor
shall defend the same against all claims and demands of all persons
at any time claiming the same or any interests therein adverse to
the Lender, (c) the Grantor shall not pledge, mortgage or
create, or suffer to exist any right of any person in or claim by
any person to the Collateral, or any security interest, lien or
other encumbrance in the Collateral in favor of any person, other
than the Lender except for the Permitted Liens ,
(d) the Grantor will keep the Collateral in good order and
repair and will not use the same in violation of law or any policy
of insurance thereon, (e) the Grantor will permit the Lender,
or its designee, to inspect the Collateral at any reasonable time,
wherever located, (f) the Grantor will pay promptly when due
all taxes, assessments, governmental charges and levies upon the
Coll
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