Exhibit 4.02
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SECURITY AGREEMENT
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THIS AGREEMENT is made as of July 31, 2003, by and between the Grantor,
as herein defined, and North Coast Technology Investors, L.P., a Michigan
limited partnership ("NCTI"), whose address is 206 South Fifth Avenue, Ann
Arbor, Michigan 48104.
IN CONSIDERATION of loans, advances or other financial accommodations
from NCTI to the Grantor, the Grantor agrees as follows:
1. Definitions. The following terms shall have the following meanings when
used in this Agreement:
a. "Collateral" means the property and interests in property described in
Section 3 below.
b. "Grantor" means NEMATRON CORPORATION, a Michigan corporation, whose chief
executive offices are located at 103.
c. "Liabilities" means all loans, advances or other financial accommodations,
including any renewals or extensions thereof, from NCTI to Grantor, now or
hereafter in effect, and any and all liabilities and obligations of any and
every kind and nature heretofore, now or hereafter owing from Grantor to
NCTI, however incurred or evidenced, whether primary, secondary, contingent
or otherwise, whether arising under this Agreement, under any other
security agreement(s), promissory note(s), guaranty(s), mortgage(s),
lease(s), instrument(s), document(s), contract(s), letter(s) of credit or
similar agreement(s) heretofore, heretofore, now or hereafter executed by
Grantor and delivered to NCTI, or by oral agreement or by operation of law
plus all interest, costs, expenses and reasonable attorney fees which may
be made or incurred by NCTI in the disbursement, administration or
collection of such liabilities and obligations and in the protection,
maintenance and liquidation of the Collateral.
2. Grant of Security Interest. Grantor hereby grants to NCTI a continuing
security interest in the Collateral to secure the payment of the
Liabilities.
3. Collateral. The Collateral covered by this Agreement is all the Grantor's
property described below which it now owns or shall hereafter acquire or
create immediately upon the acquisition or creation thereof:
a. All Assets. All personal property of the Grantor, wherever located, and now
owned or hereafter acquired, including accounts; as-extracted collateral;
chattel paper (both tangible and electronic); deposit accounts; documents;
equipment; fixtures; general intangibles, including payment intangibles;
goods; instruments, including promissory notes; inventory; investment
property, including certificated securities, uncertificated securities,
security entitlements, securities accounts, commodity contracts and
commodity accounts; letters of credit; letter of credit rights; money;
software; supporting obligations; and vehicles. Together with:
b. All Proceeds (whether Cash Proceeds or Noncash Proceeds) of the foregoing
property, including without limitation proceeds of insurance payable by
reason of loss or damage to the foregoing property and of eminent domain or
condemnation awards.
c. All products of, additions and accessions to, and substitutions,
betterments and replacements for the foregoing property.
d. All sums at any time credited by or due from NCTI to Grantor.
e. All property in which the Grantor has an interest now or at any time
hereafter coming into the possession or under the control of NCTI or in
transit by mail or carrier to or from NCTI or in possession of or under the
control of any third party acting on NCTI's behalf without regard to
whether NCTI received the same in pledge, for safekeeping, as agent for
collection or transmission or otherwise or whether NCTI has conditionally
released the same (excluding, nevertheless, any of the foregoing property
of the Grantor which now or any time hereafter is in possession or control
of NCTI under any written trust agreement wherein NCTI is trustee and
Grantor is trustor).
Terms used and not otherwise defined in this Agreement shall have the
meaning given such terms in the Michigan Uniform Commercial Code. In the event
the meaning of any term defined in the Michigan Uniform Code is amended after
the date of this Agreement, the meaning of such term as used in this Agreement
shall be that of the more encompassing of: (i) the definition contained in the
Michigan Uniform Commercial Code prior to the amendment, and (ii) the definition
contained in the Michigan Uniform Commercial Code after the amendment.
4. Perfection of Security Interest. Grantor hereby irrevocably authorizes NCTI
to file financing statement(s) describing the Collateral in all public
offices deemed necessary by NCTI, and to take any and all actions,
including, without limitation, filing all financing statements,
continuation financing statements and all other documents that NCTI may
reasonably determine to be necessary to perfect and maintain NCTI's
security interests in the Collateral. Grantor shall have possession of the
Collateral, except where expressly otherwise provided in this Agreement or
where NCTI chooses to perfect its security interest by possession, whether
or not in addition to the filing of a financing statement. Where Collateral
is in the possession of a third party, Grantor will join with NCTI in
notifying the third party of NCTI's security interest and obtaining an
acknowledgement from the third party that it is holding the Collateral for
the benefit of NCTI. Grantor shall pay the cost of filing or recording all
financing statement(s) and other documents. Grantor agrees to promptly
execute and deliver to NCTI all financing statements, continuation
financing statements, assignments, certificates of title, applications for
vehicle titles, affidavits, reports, notices, letters of authority and all
other documents that NCTI may reasonably request in form satisfactory to
NCTI to perfect and maintain NCTI's security interests in the Collateral.
In order to fully consummate all of the transactions contemplated
hereunder, Grantor shall make appropriate entries on its books and records
disclosing NCTI's security interests in the Collateral.
5. Warranties and Representations. Grantor warrants and represents: (a) except
as may be otherwise disclosed in an attachment to this Agreement, Grantor
has rights in or the power to transfer the Collateral and its title to the
Collateral is free and clear of all liens or security interests, except
NCTI's security interests, (b) no financing statements, other than that of
NCTI, are on file covering the Collateral or any of it, (c) the Grantor's
exact legal name and the address of the Grantor's chief executive office
are as set forth in the first paragraph of this Agreement; (d) the form of
Grantor's organization and the State under which it is organized are as set
forth in the first paragraph of this Agreement; (e) all Collateral
consisting of Goods is located in the State where the Grantor's chief
executive office is located except as otherwise disclosed in a schedule
attached to this Agreement; (f) the Collateral, wherever located, is
covered by this Agreement; (g) the execution and delivery of this Agreement
and any instruments evidencing Liabilities will not violate nor constitute
a breach of Grantor's Articles of Incorporation, By-Laws, or any agreement
or restriction of any type whatsoever to which Grantor is a party or is
subject; (h) all financial statements and information relating to Grantor
delivered or to be delivered by Grantor to NCTI are true and correct and
prepared in accordance with generally accepted accounting principles, and
there has been no material adverse change in the financial condition of
Grantor since the submission of any such financial information to NCTI; (i)
there are no actions or proceedings which are threatened or pending against
Grantor which might result in any material adverse change in Grantor's
financial condition or which might materially affect any of Grantor's
assets; and (j) Grantor has duly filed all federal, state, and other
governmental tax returns which Grantor is required by law to file, and will
continue to file same during such time as any of the Liabilities hereunder
remain owing to NCTI, and all such taxes required to be paid have been
paid, in full.
6. Covenants. Grantor covenants and agrees that while any of the Liabilities
remain unperformed and unpaid it will: (a) preserve its legal existence and
not, in one transaction or a series of related transactions, merge into or
consolidate with any other entity, or sell all or substantially all of its
assets; (b) not change the state where it is located; (c) neither change
its name, form of business entity nor address of its chief executive office
without giving written notice to NCTI thereof at least thirty (30) days
prior to the effective date of such change, and Grantor agrees that all
documents, instruments, and agreements demanded by NCTI in response to such
change shall be prepared, filed, and recorded at Grantor's expense prior to
the effective date of such change; (d) not use the Collateral, nor permit
the Collateral to be used, for any unlawful purpose, whatever; (e) maintain
the Collateral in first-class condition and repair; and (f) indemnify and
hold NCTI harmless against claims of any persons or entities not a party to
this Agreement concerning disputes arising over the Collateral.
7. Insurance, Taxes, Etc. Grantor has the risk of loss of the Collateral.
Grantor shall: (a) pay promptly all taxes, levies, assessments, judgments,
and charges of any kind upon or relating to the Collateral, to Grantor's
business, and to Grantor's ownership or use of any of its assets, income,
or gross receipts; (b) at its own expense, keep and maintain all of the
Collateral fully insured against loss or damage by fire, theft, explosion
and other risks in such amounts, with such companies, under such policies
and in such form as shall be satisfactory to NCTI, which policies shall
expressly provide that loss thereunder shall be payable to NCTI as its
interest may appear (and NCTI shall have a security interest in the
proceeds of such insurance and may apply any such proceeds which may be
received by it toward payment of the Liabilities, whether or not due, in
such order of application as NCTI may determine); and (c) maintain at its
own expense public liability and property damage insurance in such amounts,
with such companies, under such policies and in such form as shall be
satisfactory to NCTI, and, upon NCTI's request, shall furnish NCTI with
such policies and evidence of payment of premiums thereon. If Grantor at
any time hereafter should fail to obtain or maintain any of the policies
required above or pay any premium in whole or in part relating thereto, or
shall fail to pay any such tax, assessment, levy, or charge or to discharge
any such lien, claim, or encumbrance, then NCTI, without waiving or
releasing any obligation or default of Grantor hereunder, may at any time
hereafter (but shall be under no obligation to do so) make such payment or
obtain such discharge or obtain and maintain such policies of insurance and
pay such premiums, and take such action with respect thereto as NCTI deems
advisable. All sums so disbursed by NCTI, including reasonable attorney
fees, court costs, expenses, and other charges relating thereto, shall be
part of the Liabilities, secured hereby, and payable upon demand together
with interest at the highest rate payable in connection with any of the
Liabilities from the date when advanced until paid.
8. Care, Custody, and Dealings with Collateral. NCTI shall have no liability
to Grantor with respect to NCTI's care and custody of any Collateral in
NCTI's possession and shall have no duty to sell, surrender, collect or
protect the same or to preserve rights against prior parties or to take any
action with respect thereto beyond the custody thereof, exercising that
reasonable custodial care which it would exercise in holding similar
interests for its own account. NCTI shall only be liable for its acts of
gross negligence. NCTI is hereby authorized and empowered to take the
following steps, either prior or subsequent to default hereunder: (a) to
deal directly with issuers, entities, owners, transfer agents and
custodians to effect changes in the registered name of any such Collateral,
to effect substitutions and replacements thereof necessitated by any reason
(including by reason of recapitalization, merger, acquisition, debt
restructuring or otherwise), to execute and deliver receipts therefor and
to take possession thereof; (b) to communicate and deal directly with
payors of instruments (including securities, promissory notes, letters of
credit, certificates of deposits and other instruments), which may be
payable to or for the benefit of Grantor at any time, with respect to the
terms of payment thereof; (c) in the Grantor's name, to agree to any
extension of payment, any substitution of Collateral or any other action or
event with respect to the Collateral; (d) to notify parties who have an
obligation to pay or deliver anything of value (including money or
securities) with respect to the Collateral to pay or deliver the same
directly to NCTI on behalf of Grantor and to receive and receipt for any
such payment or delivery in Grantor's name as an addition to the
Collateral; (e) to surrender renewable certificates or any other
instruments or securities forming a portion of the Collateral which may
permit or require reissuance, renewal or substitution at any time and to
immediately take possession of and receive directly from the issuer, maker
or other obligor, the substituted instrument or securities; (f) to exercise
any right which Grantor may have with respect to any portion of the
Collateral, including rights to seek and receive information with respect
thereto; and (g) to do or perform any other act and to enjoy all other
benefits with respect to the Collateral as Grantor could in its own name.
9. Disposition of Collateral. NCTI does not authorize, and Grantor agrees not
to make any sales or leases of any of the Collateral or license any of the
Collateral, or grant any other security interest in any of the Collateral;
provided, however, that until such time as NCTI shall give notice of
revocation of such authorization, Grantor may sell or lease its Inventory
and grant licenses of its software to its customers in the ordinary course
of its business.
10. Information. Grantor shall permit NCTI or its agents upon reasonable
request to have access to, and to inspect, all the Collateral (and
Grantor's other assets, if any) and may from time to time inspect, check,
make copies of, or extracts from the books, records, and files of Grantor,
and Grantor will make same available at any time for such purposes. In
addition, Grantor shall promptly supply NCTI with such other financial or
other information concerning its affairs and assets as NCTI may request
from time to time.
11. Remedies Upon Default. Immediately upon the occurrence of an event of
default under any of the Liabilities or any default in the payment or
performance of any of the covenants, conditions and agreements contained in
this Agreement (an "Event of Default"), NCTI may, in addition to and not in
lieu of or substitution for, all other rights and remedies provided by law,
without notice, except as expressly required by law, declare the entire
unpaid and outstanding principal balance of the Liabilities, and all
accrued interest, together will all other indebtedness of the Grantor to
NCTI, to be due and payable in full forthwith and NCTI may exercise from
time to time any rights and remedies including the right to immediate
possession of the Collateral available to it under applicable law. NCTI may
directly contact third parties and enforce against them all rights which
arise with respect to the Collateral and to which Grantor or NCTI would be
entitled. Grantor waives any right it may have to require NCTI to pursue
any third person for any of the Liabilities. NCTI shall have the right to
hold any property then in, upon or in any way affiliated to said Collateral
at the time of repossession even though not covered by this Agreement until
return is demanded in writing by the Grantor. Grantor agrees, upon the
occurrence of an Event of Default, to assemble at its expense all the
Collateral and make it available to NCTI at a convenient place acceptable
to NCTI. Grantor agrees to pay all costs of NCTI of collection of the
Liabilities, and enforcement of rights hereunder, including reasonable
attorney fees and legal expenses, including participation in Bankruptcy
proceedings, and expense of locating the Collateral and expenses of any
repairs to any realty or other property to which any of the Collateral may
be affixed or be a part. If any notification of intended disposition of any
of the Collateral is required by law, such notification, if mailed, shall
be deemed reasonably and properly given if sent at least ten (10) days
before such disposition, postage pre-paid, addressed to the Grantor either
at the address shown above or at any other address of the Grantor appearing
on the records of NCTI and to such other parties as may be required by the
Michigan Uniform Commercial Code. Grantor acknowledges that NCTI may be
unable to effect a public sale of all or any portion of the Collateral
because of certain legal and/or practical restrictions and provisions which
may be applicable to the Collateral and, therefore, may be compelled to
resort to one or more private sales to a restricted group of offerees and
purchasers. Grantor consents to any such private sale so made even though
at places and upon terms less favorable than if the Collateral were sold at
public sale. NCTI shall have no obligation to clean-up or otherwise prepare
the Collateral for sale. NCTI may comply with any applicable state or
federal law requirements in connection with a disposition of the Collateral
and compliance will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral. NCTI may specifically
disclaim any warranties as to the Collateral. If NCTI sells any of the
Collateral upon credit, Grantor will be credited only with payments
actually made by the purchaser, received by NCTI and applied to the
indebtedness of the purchaser. In the event the purchaser fails to pay for
the Collateral, NCTI may resell the Collateral and the Grantor shall be
credited with the proceeds of sale. NCTI shall have no obligation to
marshal any assets in favor of the Grantor. Grantor waives the right to
jury trial in any proceeding instituted with respect to the Collateral. Out
of the net proceeds from sale or disposition of the Collateral, NCTI shall
retain all the Liabilities then owing to it and the actual cost of
collection (including reasonable attorney fees) and shall tender any excess
to Grantor or its successors or assigns. If the Collateral shall be
insufficient to pay the entire Liabilities, Grantor shall pay to NCTI the
resulting deficiency upon demand. Grantor expressly waives any and all
claims of any nature, kind or description which it has or may hereafter
have against NCTI or its representatives, by reason of taking, selling or
collecting any portion of the Collateral. Grantor consents to releases of
the Collateral at any time (including prior to default) and to sales of the
Collateral in groups, parcels or portions, or as an entirety, as NCTI shall
deem appropriate. Grantor expressly absolves NCTI from any loss or decline
in market value of any Collateral by reason of delay in the enforcement or
assertion or nonenforcement of any rights or remedies under this Agreement.
Grantor agrees that NCTI shall, upon the occurrence of an Event of Default,
have the right to peacefully retake any of the collateral. Grantor waives
any right it may have in such instance to a judicial hearing prior to such
retaking.
12. General. Time shall be deemed of the very essence of this Agreement. NCTI
shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if it takes such action
for that purpose as Grantor requests in writing, but failure of NCTI to
comply with any such request shall not of itself be deemed a failure to
exercise reasonable care, and failure of NCTI to preserve or protect any
rights with respect to such Collateral against any prior parties or to do
any act with respect to the preservation of such Collateral not so
requested by Grantor shall not be deemed a failure to exercise reasonable
care in the custody and preservation of such Collateral. This Agreement has
been delivered in Michigan and shall be construed in accordance with the
laws of the State of Michigan. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement. The rights and privileges of NCTI hereunder shall inure to
the benefit of its successors and assigns, and this Agreement shall be
binding on all heirs, personal representatives, assigns and successors of
Grantor and all persons who become bound as a debtor to this Agreement.
Grantor hereby expressly authorizes and appoints NCTI to act as its
attorney-in-fact for the sole purpose of executing any and all financing
statements or other documents deemed necessary to perfect the security
interest herein contemplated.
13. No Waiver. Any delay on the part of NCTI in exercising any power, privilege
or right hereunder, or under any other instrument executed by Grantor to
NCTI in connection herewith shall not operate as a waiver thereof, and no
single or partial exercise thereof, or the exercise of any other power,
privilege or right shall preclude other or further exercise thereof, or the
exercise of any other power, privilege or right. The waiver of NCTI of any
default by Grantor shall not constitute a waiver of any subsequent
defaults, but shall be restricted to the default so waived. All rights,
remedies and powers of NCTI hereunder are irrevocable and cumulative, and
not alternative or exclusive, and shall be in addition to all rights,
remedies, and powers given hereunder or in or by any other instruments, or
by the Michigan Uniform Commercial Code, or any laws now existing or
hereafter enacted. The Grantor acknowledges that this is the entire
agreement between the parties except to the extent that writings signed by
the party to be charged are specifically incorporated herein by reference
either in this Agreement or in such writings, and acknowledges receipt of a
true and complete copy of this Agreement.
IN WITNESS WHEREOF, this Security Agreement was executed and delivered by the
undersigned on the date stated in the first paragraph above.
Grantor:
NEMATRON CORPORATION
By: /s/ Matthew S. Galvez
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Its:
President