Exhibit 10.3

 

 

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SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”) is made as of June 30, 2015, by
1328158 Ontario Inc., an Ontario corporation (“Debtor”) in favor of NewStar
Business Credit, LLC, a Delaware limited liability company, as Administrative
Agent (together with its successors and assigns, the “Secured Party”) for the
Lenders under the Loan Agreement (as defined below).

WHEREAS, Mad Catz, Inc., (“Borrower”), Debtor, Mad Catz Interactive, Inc.
(“Parent”), Secured Party and the lenders from time to time party thereto
(collectively, the “Lenders”) have entered into that certain Loan and Security
Agreement of even date herewith (as amended, restated supplemented or otherwise
modified from time to time, the “Loan Agreement”), pursuant to which Lenders
have agreed to make available a revolving line of credit to Borrower, all in
accordance with and subject to the terms and conditions set forth in the Loan
Agreement;

WHEREAS, it is a condition precedent to Lenders’ obligations to make the Loans
and advances under the Loan Agreement, that Debtor (i) execute and deliver a
Guaranty Agreement, dated as of the date hereof, in favor of Secured Party, for
the benefit of Lender Parties (the “Guaranty”), guarantying all obligations of
Borrower under the Loan Agreement and the other Loan Documents, and (ii) pledge
to Secured Party, for the benefit of Lenders, the Pledged Collateral (as
hereinafter defined) as security for the Secured Obligations (as hereinafter
defined);

WHEREAS, Debtor acknowledges and confirms that it is wholly owned by Parent (who
also, directly or indirectly, wholly owns Borrower and is an Affiliate of
Borrower and further: (a) it will directly or indirectly benefit from the Loans
from Lenders to Borrower, (b) the Loans constitute valuable consideration to
Debtor, (c) this Agreement is intended to be an inducement to Lenders to
execute, deliver and perform the Loan Agreement and the other Loan Documents and
for Lenders to extend the Loans to Borrower, and (d) each Lender is relying upon
this Agreement in making and advancing the Loans to Borrower.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements hereinafter set forth, the receipt and sufficiency of which are
hereby acknowledged, and as an inducement for Secured Party and each Lender to
enter into the Loan Agreement and other Loan Documents, the parties hereto,
intending to be legally bound hereby, do agree as follows:

 

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1.

DEFINITIONS AND REFERENCES

1.1. General Definitions.  As used herein, the terms “Agreement,” “Borrower,”
“Debtor,” “Lender,” “Loan Agreement”, “Parent” and “Secured Party” shall have
the meanings indicated above, and the following terms shall have the following
meanings:

“Account” has the meaning prescribed for such term as defined by the UCC, which
definition is incorporated herein by reference, and includes, without
limitation, a right to payment of a monetary obligation, whether or not earned
by performance, for property that has been or is to be sold, leased, licensed,
assigned, or otherwise disposed of, or for services rendered or to be rendered.

“Chattel Paper” has the meaning prescribed for such term as defined by the UCC,
which definition is incorporated herein by reference, and includes, without
limitation, a record or records that evidence both a monetary obligation and a
security interest in specific goods, a security interest in specific goods and
software used in the goods, a security interest in specific goods and license of
software used in the goods, a lease of specific goods, or a lease of specific
goods and license of software used in the goods. “Chattel Paper” includes,
without limitation, electronic chattel paper.

“Commercial Tort Claim” has the meaning prescribed for such term as defined by
the UCC, which definition is incorporated herein by reference, and includes,
without limitation, any tort cause of action claimed by Debtor, including those
listed on Schedule 1 hereto.

“Deposit Account” has the meaning prescribed for such term as defined by the
UCC, which definition is incorporated herein by reference, and includes, without
limitation, a nonnegotiable certificate of deposit or a demand, time, savings,
passbook, or similar account maintained with a bank.

“Document” has the meaning prescribed for such term as defined by the UCC, which
definition is incorporated herein by reference, and includes, without
limitation, any bill of lading, dock warrant, dock receipt, warehouse receipt or
order for the delivery of goods, or any other document which in the regular
course of business or financing is treated as adequately evidencing that the
person in possession of it is entitled to receive, hold and dispose of the
document and the goods it covers, and which purports to be issued by or
addressed to a bailee and purporting to cover goods in the bailee’s possession
which are either identified or are fungible portions of an identified mass.
“Document” includes, without limitation, electronic documents.

“Domestic Subsidiary” means any direct or indirect Subsidiary of Debtor that is
organized under the laws of the United States of America, any State thereof, the
District of Columbia, Canada, or any Province or Territory of Canada.

“Equipment” has the meaning prescribed for such term as defined by the UCC,
which definition is incorporated herein by reference, wherever located, and
whether now or hereafter existing and all parts thereof, all accessions thereto
and all replacements therefor. The

 

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Equipment includes, without limitation, with respect to a Person, all personal
property used or useable by such Person in its business.

“Excluded Property” means, with respect to any Credit Party, collectively,
(i) property of such Credit Party subject to Liens permitted by clauses (c),
(d) or (m) of the definition of Permitted Liens solely in the event and to the
extent that a grant or perfection of a Lien in favor of Secured Party on any
such property is prohibited by or results in a breach or termination of, or
constitutes a default under, the documentation governing such Liens or the
obligations secured by such Liens (other than to the extent that such terms
would be rendered ineffective pursuant to Section 9.406, 9.407, 9.408 or 9.409
of the UCC (or any successor provision or provisions) of any relevant
jurisdiction and other than to the extent all necessary consents to creation,
attachment and perfection of the Secured Party’s Liens thereon have been
obtained) and, in any event, immediately upon the ineffectiveness, lapse or
termination of such terms or the obtainment of such consents, such property
shall cease to constitute Excluded Property and shall be Pledged Collateral to
the extent otherwise provided for in the Loan Documents, (ii) any personal
property lease, contract, permit, license, franchise or Letter-of-Credit Right
of such Credit Party solely in the event and to the extent that a grant or
perfection of a Lien on such personal property lease, contract, permit, license,
franchise or Letter-of-Credit Right is prohibited by applicable law or results
in a breach or termination of, or constitutes a default under, any such personal
property lease, contract, permit, license, franchise or Letter-of-Credit-Right
(other than to the extent that such law or terms would be rendered ineffective
pursuant to Section 9.406, 9.407, 9.408 or 9.409 of the UCC (or any successor
provision or provisions) of any relevant jurisdiction and other than to the
extent all necessary consents to creation, attachment and perfection of the
Secured Party’s Liens thereon have been obtained) and, in any event, immediately
upon the ineffectiveness, lapse or termination of such law or terms or the
obtainment of such consents, such personal property lease, contract, permit,
license, franchise or Letter-of-Credit Right shall cease to constitute Excluded
Property, and shall be Pledged Collateral to the extent otherwise provided for
in the Loan Documents, (iii) the voting equity interests of any Foreign
Subsidiary, and (iv) any United States intent-to-use trademark applications to
the extent that, and solely during the period in which, the grant of a security
interest therein would impair the validity or enforceability of such
intent-to-use trademark applications under applicable federal law, provided that
upon submission and acceptance by the United States Patent and Trademark Office
of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any
successor provision) such intent-to-use trademark application shall cease to
constitute Excluded Property and shall be pledged Collateral to the extent
otherwise provided for in the Loan Documents.

“Foreign Subsidiary” means a Subsidiary of Debtor that is not a Domestic
Subsidiary.

“General Intangibles” has the meaning prescribed for such term as defined by the
UCC, which definition is incorporated herein by reference, and in any event
includes, without limitation, all intangible personal property of every kind and
nature (other than Accounts, Chattel Paper, Commercial Tort Claims, Deposit
Accounts, Documents, Instruments, Investment Property, Letter of Credit Rights,
letters of credit and money), including, without limitation, contract rights,
business records, rights and claims against carriers and shippers, customer
lists, registrations, licenses, franchises, tax refund claims, rights to
indemnification, warranty or guaranty contract, claims for any damages arising
out of or for breach or default under or in

 

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connection with any contract, rights to exercise or enforce remedies, powers and
privileges under any contract and rights and claims to any amounts payable under
any contract of insurance, including without limitation, business interruption,
property, casualty, key employee life or any other insurance.

“Instrument” has the meaning prescribed for such term as defined by the UCC,
which definition is incorporated herein by reference, and includes, without
limitation, a negotiable instrument or any other writing that evidences a right
to the payment of a monetary obligation, is not itself a security agreement or
lease, and is of a type that in the ordinary course of business is transferred
by delivery with any necessary endorsement or assignment.

“Inventory” has the meaning prescribed for such term as defined by the UCC,
which definition is incorporated herein by reference, and includes, without
limitation, with respect to a Person, goods (including goods in-transit) that
(a) are held or to be held by such Person for sale or lease or to be furnished
under a contract of service, (b) are leased or to be leased by such Person as
lessor or (c) consist of raw materials, work in process, finished goods or
materials used or consumed in such Person’s business.

“Investment Property” has the meaning prescribed for such term as defined by the
UCC, which definition is incorporated herein by reference, and includes, without
limitation, a security (whether certificated or uncertificated) security
entitlement, securities account, commodity contract, or commodity account.

“IP Security Agreement” means each Patent, Trademark and Copyright Security
Agreement that may from time to time be executed by Debtor in favor of Secured
Party, for the benefit of Lenders.

“Letter-of-Credit Rights” has the meaning prescribed for such term as defined by
the UCC, which definition is incorporated herein by reference, and includes,
without limitation, a right to payment or performance under a letter of credit,
whether or not the beneficiary has demanded or is at the time entitled to demand
payment or performance and whether or not evidenced by a writing.

“Lien” means any interest in property securing an obligation owed to, or a claim
by, a Person other than the owner of the property, whether such interest is
based on the common law, statute, or contract, and including a security
interest, collateral assignment, charge, claim, or lien arising from a security
agreement, mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, conditional sale, trust receipt, lease,
consignment or bailment for security purposes or similar agreement, or any
contingent or other agreement to provide any of the foregoing.

“Machinery” refers to Pledged Collateral that would be classified within the
definition of “Equipment” but for the fact that such items have become so
affixed to the related real property that an interest has arisen therein under
real property law.

“Other Liable Party” means any Person, other than Debtor, who may now or may at
any time hereafter be primarily or secondarily liable for any of the Secured
Obligations or the

 

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Obligations or who may now or may at any time hereafter have granted to Secured
Party a Lien upon any property as security for the Secured Obligations or the
Obligations.

“Pledged Collateral” means all property, of whatever type, which is described in
Section 2.1 as being at any time subject to a security interest granted
hereunder to Secured Party.

“Proceeds” means, with respect to any property of any kind, all proceeds of, and
all other profits, products, rentals or receipts, in whatever form, arising from
any sale, exchange, collection, lease, licensing or other disposition of,
distribution in respect of, or other realization upon, such property, including
all claims against third parties for loss of, damage to or destruction of, or
for proceeds payable under (or unearned premiums with respect to) insurance in
respect of, such property (regardless of whether Secured Party is named a loss
payee thereunder), and any payments paid or owing by any third party under any
indemnity, warranty, or guaranty with respect to such property, and any
condemnation or requisition payments with respect to such property, in each case
whether now existing or hereafter arising.

“Proprietary Rights” means inventions, designs, blueprints, plans,
specifications, licenses, permits, patents, patent rights, copyrights, works
which are the subject matter of copyrights, trademarks, service marks, trade
names, trade styles, patent, trademark and service mark applications, trade
secrets, good will and all licenses and rights related to any of the foregoing,
and all other rights under any of the foregoing, all extensions, renewals,
reissues, divisions and continuations of any of the foregoing, and all rights to
sue for past, present and future infringement of any of the foregoing.

“Secured Obligations” has the meaning given to such term in Section 2.2.

“UCC” means the Uniform Commercial Code in effect in the State of Texas, as
amended from time to time.

1.2. Other Definitions.  Reference is hereby made to the Loan Agreement for a
statement of the terms thereof. All capitalized terms used in this Agreement
which are defined in the Loan Agreement and not otherwise defined herein shall
have the same meanings herein as set forth therein. All terms used in this
Agreement which are defined in the UCC and not otherwise defined herein or in
the Loan Agreement shall have the same meanings herein as set forth therein,
except where the context otherwise requires. The parties intend that the terms
used herein which are defined in the UCC have, at all times, the broadest and
most inclusive meanings possible. Accordingly, if the UCC shall in the future be
amended or held by a court to define any term used herein more broadly or
inclusively than the UCC in effect on the date hereof, then such term, as used
herein, shall be given such broadened meaning. If the UCC shall in the future be
amended or held by a court to define any term used herein more narrowly, or less
inclusively, than the UCC in effect on the date hereof, such amendment or
holding shall be disregarded in defining terms used herein.

1.3. Attachments.  All exhibits or schedules which may be attached to this
Agreement are a part hereof for all purposes.

1.4. Amendment of Defined Instruments.  Unless the context otherwise requires or
unless otherwise provided herein, references in this Agreement to a particular
agreement,

 

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instrument or document (including, but not limited to, references in
Section 2.1) also refer to and include all renewals, extensions, amendments,
modifications, supplements or restatements of any such agreement, instrument or
document, provided that nothing contained in this Section shall be construed to
authorize any Person to execute or enter into any such renewal, extension,
amendment, modification, supplement or restatement.

1.5. References and Titles.  All references in this Agreement to Exhibits,
Articles, Sections, subsections, and other subdivisions refer to the Exhibits,
Articles, Sections, subsections and other subdivisions of this Agreement unless
expressly provided otherwise. Titles appearing at the beginning of any
subdivision are for convenience only and do not constitute any part of any such
subdivision and shall be disregarded in construing the language contained in
this Agreement. The words “this Agreement”, “herein”, “hereof”, “hereby”,
“hereunder” and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The phrases “this
Section” and “this subsection” and similar phrases refer only to the Sections or
subsections hereof in which the phrase occurs. The word “or” is not exclusive,
and the word “including” (in all of its forms) means “including without
limitation”. Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise
requires.

2.

SECURITY INTEREST

2.1. Grant of Security Interest.  As collateral security for all of the Secured
Obligations, Debtor hereby pledges and assigns to Secured Party and grants to
Secured Party a continuing security interest, lien and collateral assignment,
for the benefit of Lender Parties, in and to all right, title and interest of
Debtor in and to any and all of the following property, whether now owned or
existing or hereafter acquired or arising and regardless of where located
(collectively, the “Pledged Collateral”): all Accounts, Inventory, Equipment,
Machinery, any other goods, General Intangibles, Chattel Paper, Letter of Credit
Rights, Proprietary Rights, Instruments, Documents and documents of title,
Investment Property, Deposit Accounts, securities accounts, commodities
accounts, Commercial Tort Claims, money, cash, cash equivalents, letters of
credit, securities and other personal property of any kind and at any time held
directly or indirectly by Debtor, all books and records, whether in tangible or
intangible form, all other assets, if any, and all accessions to, substitutions
for and replacements, products and Proceeds of any of the foregoing; provided,
however, that the Pledged Collateral shall not include the Excluded Property.

In each case, the foregoing shall be covered by this Agreement, whether Debtor’s
ownership or other rights therein are presently held or hereafter acquired and
howsoever Debtor’s interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).

2.2. Secured Obligations Secured.  The security interest created hereby by
Debtor in the Pledged Collateral constitutes continuing collateral security for
all of the following obligations, indebtedness and liabilities, whether now
existing or hereafter incurred or arising:

 

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(a) Obligations.  The payment by Borrower, as and when due and payable, of all
amounts from time to time owing by Borrower to Secured Party and/or any other
Lender Party under or in respect of the Loan Agreement and the other Loan
Documents.

(b) Guaranteed Indebtedness.  The payment by Debtor, when due and payable, of
all amounts from time to time owing by Debtor under or in respect of the
Guaranty or any of the other Loan Documents to which Debtor is a party, and the
due performance by Debtor of all of its other respective obligations under or in
respect of its Guaranty and such other Loan Documents, in each case whether now
existing or hereafter incurred or arising.

(c) Renewals.  All renewals, extensions, amendments, modifications, supplements,
or restatements of or substitutions for any of the foregoing.

(d) Performance.  The due performance and observance by Debtor of all of its
other obligations from time to time existing under or in respect of any of the
Loan Documents.

As used herein, the term “Secured Obligations” refers to all present and future
indebtedness, obligations and liabilities of whatever type which are described
above in this section, including any interest which accrues after the
commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of Debtor. Debtor hereby acknowledges
that the Secured Obligations are owed to the various Lenders and that each
Lender is entitled to the benefits of the Liens given under this Agreement. It
is the intention of Debtor and Secured Party that this Agreement not constitute
a fraudulent transfer or fraudulent conveyance under any state or federal law
that may be applied hereto. Debtor and Administrative Agent each hereby
acknowledges and agrees that, notwithstanding any other provision of this
Agreement: (a) the indebtedness secured hereby shall be limited to the maximum
amount of indebtedness that can be incurred or secured by Debtor without
rendering this Agreement subject to avoidance under Section 548 of the United
States Bankruptcy Code or any comparable provisions of any applicable state or
federal law, and (b) the Collateral pledged by Debtor hereunder shall be limited
to the maximum amount of Collateral that can be pledged by Debtor without
rendering this Agreement subject to avoidance under Section 548 of the United
Stated Bankruptcy Code or any comparable provisions of any applicable state or
federal law.

3.

REPRESENTATIONS, WARRANTIES AND COVENANTS

3.1. Representations and Warranties.  Debtor hereby represents and warrants to
Secured Party and each other Lender Party that each representation and warranty
made in the Loan Agreement with respect to Debtor is true and correct on and as
of the date hereof (except to the extent any such representations and warranties
relate solely to an earlier date) and further represents and warrants to Secured
Party and Lenders as follows:

(a) Name, Place of Business and Formation.  Debtor is a corporation organized
under the laws of the Province of Ontario, Canada, and Ontario is Debtor’s
location pursuant to the UCC. Debtor has not conducted business under any name
except the name in

 

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which it has executed this Agreement, which is the exact name as it appears in
Debtor’s organizational documents, as amended, as filed with Debtor’s
jurisdiction of organization. Debtor’s principal place of business and chief
executive office, and the place where Debtor keeps its books and records
concerning the Pledged Collateral is located at its address referenced in
Section 5.1 below.

(b) Ownership Free of Liens.  Debtor has good and marketable title to the
Pledged Collateral, free and clear of all Liens, encumbrances or adverse claims
except for any Permitted Liens. No effective financing statement or other
registration or instrument similar in effect covering all or any part of the
Pledged Collateral is on file in any recording office except any which have been
filed (i) in favor of Secured Party relating to this Agreement or (ii) in
connection with other Permitted Liens. None of the Pledged Collateral is in the
possession of any Person other than Debtor or Secured Party, except for Pledged
Collateral being transported in the ordinary course of business.

(c) No Conflicts or Consents.  Neither the ownership or the intended use of the
Pledged Collateral by Debtor, nor the grant of the security interest by Debtor
to Secured Party herein, nor the exercise by Secured Party of its rights or
remedies hereunder, will (i) conflict with any provision of (a) any domestic or
foreign law, statute, rule or regulation, (b) the articles or certificate of
incorporation, charter or bylaws of Debtor, or (c) any agreement, judgment,
license, order or permit applicable to or binding upon Debtor, or (ii) result in
or require the creation of any Lien upon any assets or properties of Debtor
except for Permitted Liens. Except as expressly contemplated in the Loan
Documents, no consent, approval, authorization or order of, and no notice to or
filing with any court, governmental authority or third party is required in
connection with the grant by Debtor of the security interest herein, or the
exercise by Secured Party of its rights and remedies hereunder.

(d) Security Interest.  Debtor has and will have at all times full right, power
and authority to grant a security interest in the Pledged Collateral to Secured
Party as provided herein, free and clear of any Lien, adverse claim, or
encumbrance other than Permitted Liens. This Agreement creates a valid and
binding security interest in favor of Secured Party in the Pledged Collateral,
which security interest secures all of the Secured Obligations.

(e) Perfection.  The taking possession by Secured Party of all money
constituting Pledged Collateral from time to time will perfect, and establish
the first priority of, Secured Party’s security interest hereunder in such
Pledged Collateral. Secured Party’s control of all Investment Property, Deposit
Accounts, and Letter of Credit Rights constituting Pledged Collateral from time
to time will perfect, and establish the first priority of, Secured Party’s
security interest hereunder in such Pledged Collateral. The filing of a
financing statement with the secretary of state (or equivalent governmental
official) of the state in which Debtor is organized which sufficiently indicates
all Proprietary Rights included within the Pledged Collateral, together with the
filing of Debtor’s IP Security Agreement, if any, with the United States Patent
and Trademark Office and/or the United States Copyright Office will perfect, and
establish the first priority (subject only to Permitted Liens) of, Secured
Party’s security interest hereunder in all Proprietary Rights included within
the Pledged Collateral. The filing of a financing statement with the secretary
of state (or equivalent governmental official) of the state in which Debtor is
organized which sufficiently indicates all other Pledged Collateral will

 

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perfect, and establish the first priority (subject only to Permitted Liens) of,
Secured Party’s security interest hereunder in such Pledged Collateral. No
further or subsequent filing, recording, registration, other public notice or
other action is necessary to perfect or otherwise continue, preserve or protect
such security interest except (i) for continuation statements described in UCC
§9.515(d), (ii) for filings required to be filed in the event of a change in the
name, identity, or structure of Debtor or in connection with the relocation to
any jurisdiction by Debtor, or (iii) in the event any financing statement filed
by Secured Party relating hereto otherwise becomes inaccurate or incomplete.

(f) Accounts.  Each Account (if any) represents the valid and legally binding
indebtedness of a bona fide Account Debtor arising from the sale or lease by
Debtor of goods or the rendition by Debtor of services and is not subject to
contra accounts, setoffs, defenses or counterclaims by or available to the
applicable Account Debtor except as disclosed to Secured Party in writing. Goods
(if any) which have been delivered to, and services which have been rendered by
Debtor to the applicable Account Debtor have been accepted by such Account
Debtor, and the amount shown as to each Account on Debtor’s books is the true
and undisputed amount owing and unpaid thereon, subject only to discounts,
allowances, rebates, credits and adjustments to which such Account Debtor has a
right and which have been disclosed to Secured Party in writing.

(g) Proprietary Rights.  All Proprietary Rights included within the Pledged
Collateral which are material to Debtor’s business as of the most recent
Reporting Date are listed on Schedule 7.15 to the Loan Agreement. All such
Proprietary Rights are valid and enforceable and are not subject to any claim,
judgment or administrative or arbitral decision that questions their validity or
enforceability, Debtor’s purported rights thereunder, or Debtor’s rights to use
the same in its business.

(h) Documents, Instruments and Chattel Paper.  All Documents, Instruments and
Chattel Paper included within the Pledged Collateral and all signatures and
endorsements thereon are complete, valid and genuine.

3.2. General Covenants Applicable to Pledged Collateral.  Unless Secured Party
shall otherwise consent in writing, Debtor will at all times comply with the
covenants contained in the Loan Agreement which are applicable to it for so long
as any part of the Secured Obligations or the Commitment is outstanding.

4.

REMEDIES, POWERS AND AUTHORIZATIONS

4.1. Normal Provisions Concerning the Pledged Collateral.

(a) Authorization to File Financing Statements. Debtor hereby irrevocably
authorizes Secured Party at any time and from time to time to file, without the
signature of Debtor, in any jurisdiction any amendments to existing financing
statements and any initial financing statements and amendments thereto that
(a) indicate the Pledged Collateral (i) as “all assets” of Debtor and all
proceeds thereof, and all rights and privileges with respect thereto” or

 

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words of similar effect, regardless of whether any particular asset comprised in
the Pledged Collateral falls within the scope of Chapter 9 of the UCC, or
(ii) as being of an equal or lesser scope or with greater detail; (b) contain
any other information required by subchapter E of Chapter 9 of the UCC for the
sufficiency or filing office acceptance of any financing statement or amendment,
including whether Debtor is an organization, the type of organization and any
organization identification number issued to Debtor; and (c) are necessary to
properly effectuate the transactions described in the Loan Documents, as
determined by Secured Party in its discretion. Debtor agrees to furnish any such
information to Secured Party promptly upon request. Debtor further agrees that a
carbon, photographic or other reproduction of this Agreement or any financing
statement describing any Pledged Collateral is sufficient as a financing
statement and may be filed in any jurisdiction by Secured Party.

(b) Power of Attorney.  Debtor hereby appoints Secured Party as Debtor’s
attorney in fact and proxy, with full authority in the place and stead of Debtor
and in the name of Debtor or otherwise, from time to time in Secured Party’s
discretion, to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement
(and as more specifically set forth in the Loan Agreement), Debtor hereby
acknowledges that such power of attorney and proxy are coupled with an interest,
are irrevocable, and are to be used by Secured Party for the sole benefit of
Lender Parties.

(c) Performance by Secured Party.  If Debtor fails to perform any agreement or
obligation contained herein, Secured Party may itself perform, or cause
performance of, such agreement or obligation, and the expenses of Secured Party
incurred in connection therewith shall be payable by Debtor under Section 4.5.

(d) Bailees.  If any Pledged Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Debtor’s agents or processors,
Debtor shall, upon the request of Secured Party, notify such warehouseman,
bailee, agent or processor of Secured Party’s rights hereunder and instruct such
Person to hold all such Pledged Collateral for Secured Party’s account subject
to Secured Party’s instructions. (No such request by Secured Party shall be
deemed a waiver of any provision hereof which was otherwise violated by such
Pledged Collateral being held by such Person prior to such instructions by
Debtor.)

4.2. Event of Default Remedies.  If an Event of Default shall have occurred and
be continuing, Secured Party may from time to time in its discretion, without
limitation and without notice except as expressly provided below:

(a) exercise in respect of the Pledged Collateral, in addition to any other
rights and remedies provided for herein, under the other Loan Documents, or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected Pledged
Collateral);

(b) require Debtor to, and Debtor hereby agrees that it will at its expense and
upon request of Secured Party forthwith, assemble all or part of the Pledged
Collateral as directed by Secured Party and make it (together with all books,
records and information of Debtor relating thereto) available to Secured Party
at a place to be designated by Secured Party which is reasonably convenient to
both parties;

 

  10    MCC SECURITY AGREEMENT

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(c) prior to the disposition of any Pledged Collateral, (i) to the extent
permitted by applicable law, enter, with or without process of law and without
breach of the peace, any premises where any of the Pledged Collateral is or may
be located, and without charge or liability to Secured Party seize and remove
such Pledged Collateral from such premises, (ii) have access to and use Debtor’s
books, records, and information relating to the Pledged Collateral, and
(iii) store or transfer any of the Pledged Collateral without charge in or by
means of any storage or transportation facility owned or leased by Debtor,
process, repair or recondition any of the Pledged Collateral or otherwise
prepare it for disposition in any manner and to the extent Secured Party deems
appropriate and, in connection with such preparation and disposition, use
without charge any copyright, trademark, trade name, patent or technical process
used by Debtor;

(d) reduce its claim to judgment or foreclose or otherwise enforce, in whole or
in part, the security interest created hereby by any available judicial
procedure;

(e) dispose of, at its office, on the premises of Debtor or elsewhere, all or
any part of the Pledged Collateral, as a unit or in parcels, by public or
private proceedings, and by way of one or more contracts (it being agreed that
the sale of any part of the Pledged Collateral shall not exhaust Secured Party’s
power of sale, but sales may be made from time to time, and at any time, until
all of the Pledged Collateral has been sold or until the Secured Obligations
have been paid and performed in full), and at any such sale it shall not be
necessary to exhibit any of the Pledged Collateral;

(f) buy (or allow one or more of Lenders to buy) the Pledged Collateral, or any
part thereof, at any public sale;

(g) buy (or allow one or more of Lenders to buy) the Pledged Collateral, or any
part thereof, at any private sale; and

(h) apply by appropriate judicial proceedings for appointment of a receiver for
the Pledged Collateral, or any part thereof, and Debtor hereby consents to any
such appointment.

Debtor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days’ notice to Debtor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Secured Party shall not be obligated to make any sale
of Pledged Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.

4.3. Application of Proceeds.  If any Event of Default shall have occurred and
be continuing, Secured Party may in its discretion apply any cash held by
Secured Party as Pledged Collateral, and any cash proceeds received by Secured
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Pledged Collateral, in accordance with the terms of
Section 4.7 of the Loan Agreement.

4.4. Deficiency.  In the event that the proceeds of any sale, collection or
realization of or upon Pledged Collateral by Secured Party are insufficient to
pay all Secured Obligations and

 

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any other amounts to which Secured Party is legally entitled, Debtor shall be
liable for the deficiency, together with interest thereon as provided in the
governing Loan Documents or (if no interest is so provided) at such other rate
as shall be fixed by applicable law, together with the costs of collection and
the reasonable fees of any attorneys employed by Secured Party or Lenders to
collect such deficiency.

4.5. Indemnity.  DEBTOR AGREES TO DEFEND, INDEMNIFY AND HOLD EACH INDEMNIFIED
PERSON HARMLESS FROM AND AGAINST ANY AND ALL INDEMNIFIED CLAIMS INCLUDING THOSE
INDEMNIFIED CLAIMS WHICH RELATE TO OR ARISE OUT OF ANY INDEMNIFIED PERSON’S OWN
NEGLIGENCE, provided, that no Debtor shall have any obligation hereunder to any
Indemnified Person with respect to Indemnified Claims resulting solely and
directly from the willful misconduct or gross negligence of such Indemnified
Person. The agreements in this Section shall survive any termination of this
Agreement or any Guaranty or the payment and performance in full of all of
Borrower’s Obligations under the Loan Agreement.

4.6. Non Judicial Remedies.  In granting to Secured Party the power to enforce
its rights hereunder without prior judicial process or judicial hearing, Debtor
expressly waives, renounces and knowingly relinquishes any legal right which
might otherwise require Secured Party to enforce its rights by judicial process.
In so providing for non judicial remedies, Debtor recognizes and concedes that
such remedies are consistent with the usage of trade, are responsive to
commercial necessity, and are the result of a bargain at arm’s length. Nothing
herein is intended, however, to prevent Secured Party from resorting to judicial
process at its option.

4.7. Other Recourse.  Debtor waives any right to require Secured Party or any
other Lender Party to proceed against any other Person, to exhaust any Pledged
Collateral or other security for the Secured Obligations, to have any Other
Liable Party joined with Debtor in any suit arising out of the Secured
Obligations or this Agreement, or to pursue any other remedy in Secured Party’s
power. Debtor further waives any and all notice of acceptance of this Agreement
and of the creation, modification, rearrangement, renewal or extension for any
period of any of the Secured Obligations of any Other Liable Party from time to
time. Debtor further waives any defense arising by reason of any disability or
other defense of any Other Liable Party or by reason of the cessation from any
cause whatsoever of the liability of any Other Liable Party. This Agreement
shall continue irrespective of the fact that the liability of any Other Liable
Party may have ceased and irrespective of the validity or enforceability of any
other Loan Document to which Debtor or any Other Liable Party may be a party,
and notwithstanding any death, incapacity, reorganization, or bankruptcy of any
Other Liable Party or any other event or proceeding affecting any Other Liable
Party. Until all of the Secured Obligations shall have been paid in full, no
Debtor shall have any right to subrogation and Debtor waives the right to
enforce any remedy which Secured Party or any Lender has or may hereafter have
against any Other Liable Party, and waives any benefit of and any right to
participate in any other security whatsoever now or hereafter held by Secured
Party. Debtor authorizes Secured Party and each other Lender Party, without
notice or demand, without any reservation of rights against Debtor, and without
in any way affecting Debtor’s liability hereunder or on the Secured Obligations,
from time to time to (a) take or hold any other property of any type from any
other Person as security for the Secured Obligations, and exchange, enforce,
waive and release any or all of such other property, (b) apply the Pledged
Collateral or such other property and direct the order or

 

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manner of sale thereof as Secured Party may in its discretion determine,
(c) renew, extend for any period, accelerate, modify, compromise, settle or
release any of the obligations of any Other Liable Party in respect to any or
all of the Secured Obligations or other security for the Secured Obligations,
(d) waive, enforce, modify, amend or supplement any of the provisions of any
Loan Document with any Person other than Debtor, and (e) release or substitute
any Other Liable Party.

4.8. Limitation on Duty of Secured Party in Respect of Pledged
Collateral.  Beyond the exercise of reasonable care in the custody thereof,
Secured Party shall have no duty as to any Pledged Collateral in its possession
or control or in the possession or control of any agent or bailee or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. Secured Party shall be deemed to have exercised reasonable care in the
custody of the Pledged Collateral in its possession if the Pledged Collateral is
accorded treatment substantially equal to that which it accords its own
property, and shall not be liable or responsible for any loss or damage to any
of the Pledged Collateral, or for any diminution in the value thereof, by reason
of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by Secured Party in good faith.

4.9. Appointment of Collateral Agents.  At any time or times, in order to comply
with any legal requirement in any jurisdiction, Secured Party may appoint any
bank or trust company or one or more other Persons, either to act as co-agent or
co-agents, jointly with Secured Party, or to act as separate agent or agents on
behalf of Lenders, with such power and authority as may be necessary for the
effectual operation of the provisions hereof and may be specified in the
instrument of appointment. In so doing Secured Party may, in the name and on
behalf of Debtor, give to such co-agent or separate agent indemnities and other
protections similar to those provided in Section 4.5.

5.

MISCELLANEOUS

5.1. Notices.  Any notice or request hereunder shall be given to Debtor or to
Secured Party in the manner as set forth in the Loan Agreement.

5.2. Amendments.  No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by Debtor and Secured Party, and no
waiver of any provision of this Agreement, and no consent to any departure by
Debtor therefrom, shall be effective unless it is in writing and signed by
Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given and to the extent
specified in such writing. In addition, all such amendments and waivers shall be
effective only if given with the necessary approvals of Lenders as required in
the Loan Agreement.

5.3. Preservation of Rights.  No failure on the part of Secured Party or any
other Lender Party to exercise, and no delay in exercising, any right hereunder
or under any other Loan Document shall operate as a waiver thereof; nor shall
any single or partial exercise of any such

 

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right preclude any other or further exercise thereof or the exercise of any
other right. Neither the execution nor the delivery of this Agreement shall in
any manner impair or affect any other security for the Secured Obligations. The
rights and remedies of Secured Party provided herein and in the other Loan
Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law or otherwise. The rights of Secured Party
under any Loan Document against any party thereto are not conditional or
contingent on any attempt by Secured Party to exercise any of its rights under
any other Loan Document against such party or against any other Person.

5.4. Severability.  If any term or provision of this Agreement is adjudicated to
be invalid under applicable laws or regulations, such provision shall be
inapplicable to the extent of such invalidity or unenforceability without
affecting the validity or enforceability of, the remainder of this Agreement
which shall be given effect so far as possible.

5.5. Survival of Agreements.  It is the express intention and agreement of the
parties hereto that all obligations, covenants, agreements, representations,
warranties, waivers and indemnities made by Debtor herein shall survive the
execution, delivery and termination of this Agreement until all of Borrower’s
Obligations under the Loan Agreement (other than contingent indemnification
obligations, to the extent no claim giving rise thereto has been asserted) are
performed in full and indefeasibly paid in full in cash and the Guaranty is
terminated.

5.6. Other Liable Parties.  Neither this Agreement nor the exercise by Secured
Party or the failure of Secured Party to exercise any right, power or remedy
conferred herein or by law shall be construed as relieving any Other Liable
Party from liability on the Secured Obligations or any deficiency thereon.

5.7. Assignment.

(a) This Agreement shall inure to the benefit of Secured Party, all future
holders of the Secured Obligations or any of the Pledged Collateral and all
Transferees (as defined below), and each of their respective successors and
permitted assigns. No Debtor may assign, delegate or transfer this Agreement or
any of its rights or obligations under this Agreement, its Guaranty or any other
Loan Document without the prior written consent of Secured Party and Required
Lenders. No rights are intended to be created under this Agreement or under any
other Loan Document for the benefit of any third party donee, creditor or
incidental beneficiary of Debtor. Nothing contained in this Agreement or any
other Loan Document shall be construed as a delegation to Secured Party of
Debtor’s duty of performance, including, without limitation, any duties under
any account or contract in which Secured Party has a security interest or Lien.
This Agreement shall be binding upon Debtor and its respective heirs and
assigns.

(b) Debtor acknowledges that Secured Party and the other Lender Parties at any
time and from time to time may sell, assign or grant participating interests in
or transfer all or any part of its rights or obligations under, this Agreement
to one or more persons, pursuant to the terms set forth in the Loan Agreement
(each such transferee, assignee or purchaser, a “Transferee”). In such case, the
Transferee shall have all of the rights and benefits with respect to the portion
of the Secured Obligations, the Pledged Collateral, this Agreement, and the
other

 

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Loan Documents held by it as fully as if such Transferee were the original
holder thereof (including without limitation rights of set-off and recoupment),
and shall become vested with all of the powers and rights given to Secured Party
and/or a Lender Party as applicable hereunder with respect thereto, and shall be
deemed to be a “Secured Party” and/or Lender Party, as applicable for all
purposes hereunder, the predecessor Secured Party or Lender Party shall
thereafter be forever released and fully discharged from any liability or
responsibility hereunder with respect to the rights and interests so assigned,
and either Secured Party or any Transferee may be designated as the sole agent
to manage the transactions and obligations contemplated herein. Debtor hereby
grants to any Transferee or any assignee or other transferee or Secured Party a
continuing security interest and Lien in the Pledged Collateral and any
deposits, accounts, instruments, moneys or other property actually or
constructively held by such Transferee, assignee or transferee as security for
such Person’s interest in the Secured Obligations, the Pledged Collateral, its
Guaranty and/or this Agreement and/or the other Loan Documents.

(c) Notwithstanding any other provision of this Agreement, any Guaranty or any
other Loan Document, Secured Party may disclose to any Transferee, all
information, and may furnish to such Transferee copies of reports, financial
statements, certificates, and documents obtained under any provision of this
Agreement or any Loan Document.

5.8. Termination.  This Agreement shall be effective on the date hereof and
shall continue in full force and effect until full performance and satisfaction
and indefeasible payment in full in cash of all of the Secured Obligations
(other than contingent indemnification obligations, to the extent no claim
giving rise thereto has been asserted) and termination of the Loan Agreement,
Guaranty and the other Loan Documents, all in accordance with such Loan
Documents, and the rights and powers and security interests and Liens granted to
Secured Party hereunder and the financing statements filed pursuant hereto shall
continue in full force and effect notwithstanding the fact that the Obligations
of the Borrower under the Loan Agreement may from time to time be temporarily in
a zero or credit position, until all of the Secured Obligations (other than
contingent indemnification obligations, to the extent no claim giving rise
thereto has been asserted) have been indefeasibly paid in full in cash and
performed and satisfied in full and the Loan Documents have been terminated in
accordance with their terms. Debtor waives any rights which it may have under
the UCC or otherwise to demand the filing of termination statements with respect
to the Pledged Collateral, and Secured Party shall not be required to send such
termination statements to Debtor, or to file them with any filing office, unless
and until this Agreement shall have been terminated in accordance with its
terms.

5.9. Governing Law.

(a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS
CONFLICTS OF LAW PRINCIPLES.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR IN THE
UNITED STATES DISTRICT

 

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COURT FOR THE NORTHERN DISTRICT OF TEXAS, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY THERETO CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH PARTY THERETO IRREVOCABLY WAIVES ANY OBJECT, INCLUDING ANY
OBJECTION TO VENUE ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
JURISDICTION. NOTHWITHSTANDING THE FOREGOING, SECURED PARTY SHALL EACH HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY CREDIT PARTY OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICITON AS SECURED PARTY DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO EXERCISE REMEDIES WITH RESPECT TO THE COLLATERAL.

5.10. Entire Agreement.  This Agreement, each Guaranty and the other Loan
Documents to which Debtor is a party constitute the entire agreement between
Debtor and Secured Party with respect to the subject matter hereof and thereof,
and supersede all prior agreements and understandings, if any, relating to the
subject matter hereof or thereof, which are hereby terminated, null and void and
of no further force or effect. Any promises, representations, warranties or
guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by Debtor and Secured Party. Neither this
Agreement nor any portion hereof may be changed, modified, amended, restated,
waived, supplemented, canceled or terminated orally or by any course of dealing
or in any other manner other than by an agreement in writing signed by both
Secured Party and Debtor. Any waiver of this Agreement by Secured Party shall be
limited solely to the express terms and provisions of such waiver. Each party to
this Agreement acknowledges that it has been advised by counsel in connection
with the negotiation and execution of this Agreement, each Guaranty and the
other Loan Documents and is not relying upon oral representations or statements
inconsistent with the terms and/or provisions of this Agreement.

5.11. Counterparts; Fax.  This Agreement may be separately executed in any
number of counterparts, all of which when so executed shall be deemed to
constitute one and the same Agreement. This Agreement may be validly executed
and delivered by facsimile or other electronic transmission.

5.12. Waiver of Jury Trial.  DEBTOR, SECURED PARTY AND ANY OTHER LENDER PARTY
EACH IRREVOCABLY WAIVES ITS RESPECTIVE RIGHT TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY
GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY KIND BROUGHT BY
ANY OF THEM AGAINST THE OTHER, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. DEBTOR, SECURED PARTY AND EACH OTHER LENDER PARTY EACH
AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT WITHOUT
A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR

 

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IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT, ANY
GUARANTY OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT, ANY GUARANTY AND THE OTHER LOAN DOCUMENTS,
WHETHER OR NOT SPECIFICALLY SET FORTH THEREIN.

5.13. Loan Document.  This Agreement is a “Loan Document”, as defined in the
Loan Agreement, and, except as expressly provided herein to the contrary, this
Agreement is subject to all provisions of the Loan Agreement governing such Loan
Documents.

5.14. No Oral Agreements.  THIS AGREEMENT, EACH GUARANTY AND THE OTHER LOAN
DOCUMENTS TO WHICH DEBTOR IS A PARTY REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, Debtor has executed and delivered this Agreement as of the
date first above written.

 

DEBTOR:

1328158 ONTARIO INC.

By:

 

/s/ Darren Richardson

Name:

 

Darren Richardson

Title:

 

President & CEO

 

     MCC SECURITY AGREEMENT

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SECURED PARTY:

NEWSTAR BUSINESS CREDIT, LLC,

as Secured Party

By:

 

 /s/ Greg Gentry

Name:

 

 Greg Gentry

Title:

 

 Senior Vice President

 

  2    MCC SECURITY AGREEMENT

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Schedule 1

Commercial Tort Claims

None.

 

     MCC SECURITY AGREEMENT