Exhibit 10.6

 

THIS SECURITY AGREEMENT IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN
THE CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT DATED DECEMBER     , 2003,
AMONG EACH OF EQUINOX BUSINESS CREDIT CORPORATION (“DEBTOR”), EQUIFIN, INC.,
WELLS FARGO FOOTHILL, INC. AND LAURUS MASTER FUND, LTD., A COPY OF WHICH IS ON
FILE AT THE OFFICE OF DEBTOR AND IS AVAILABLE FOR INSPECTION AT SUCH OFFICE.

 

EQUINOX BUSINESS CREDIT CORP.

SECURITY AGREEMENT

 

 

To:                              Laurus Master Fund, Ltd.
c/o Onshore Corporate Services, Ltd.
P.O. Box 1234 G.T
Queensgate House
South Church Street
Grand Cayman, Cayman Islands

 

Gentlemen:

 

1.             TO SECURE THE PAYMENT OF ALL OBLIGATIONS (AS HEREAFTER DEFINED),
WE HEREBY GRANT TO YOU A CONTINUING SECURITY INTEREST IN ALL OF THE FOLLOWING
PROPERTY NOW OWNED OR AT ANY TIME HEREAFTER ACQUIRED BY US, OR IN WHICH WE NOW
HAVE OR AT ANY TIME IN THE FUTURE MAY ACQUIRE ANY RIGHT, TITLE OR INTEREST (THE
“COLLATERAL”): ALL , ALL ACCOUNTS, INVENTORY, EQUIPMENT, GOODS, DOCUMENTS,
INSTRUMENTS (INCLUDING, WITHOUT LIMITATION, PROMISSORY NOTES), CONTRACT RIGHTS,
GENERAL INTANGIBLES (INCLUDING, WITHOUT LIMITATION, PAYMENT INTANGIBLES AND AN
ABSOLUTE RIGHT TO LICENSE ON TERMS NO LESS FAVORABLE THAN THOSE CURRENT IN
EFFECT AMONG OUR AFFILIATES, BUT NOT OWN INTELLECTUAL PROPERTY), CHATTEL PAPER,
SUPPORTING OBLIGATIONS, INVESTMENT PROPERTY, LETTER-OF-CREDIT RIGHTS, TRADEMARKS
AND TRADESTYLES IN WHICH WE NOW HAVE OR HEREAFTER MAY ACQUIRE ANY RIGHT, TITLE
OR INTEREST, ALL PROCEEDS AND PRODUCTS THEREOF (INCLUDING, WITHOUT LIMITATION,
PROCEEDS OF INSURANCE) AND ALL ADDITIONS, ACCESSIONS AND SUBSTITUTIONS THERETO
OR THEREFOR.

 

2.             THE TERM “OBLIGATIONS” AS USED HEREIN SHALL MEAN AND INCLUDE ALL
DEBTS, LIABILITIES AND OBLIGATIONS OWING BY (A) US TO YOU HEREUNDER AND UNDER
THE CONVERTIBLE TERM NOTE DATED AS OF THE DATE HEREOF MADE BY US IN FAVOR OF YOU
IN THE ORIGINAL PRINCIPAL AMOUNT OF $1,100,000, AS AMENDED, MODIFIED AND
SUPPLEMENTED FROM TIME TO TIME OR OTHERWISE (AS AMENDED, MODIFIED AND
SUPPLEMENTED FROM TIME TO TIME, THE “NOTE “).

 

3.             WE HEREBY REPRESENT, WARRANT AND COVENANT TO YOU THAT: (A) WE ARE
A COMPANY VALIDLY EXISTING, IN GOOD STANDING AND FORMED UNDER THE LAWS OF THE
STATE OF NEW JERSEY AND WE WILL PROVIDE YOU THIRTY (30) DAYS’ PRIOR WRITTEN
NOTICE OF ANY CHANGE IN OUR STATE OF FORMATION; (B) OUR LEGAL NAME IS EQUINOX
BUSINESS CREDIT CORP. AS SET FORTH IN OUR CERTIFICATE OF INCORPORATION AS
AMENDED THROUGH THE DATE HEREOF; (C) WE ARE THE LAWFUL OWNER OF THE COLLATERAL
AND HAVE THE SOLE RIGHT TO GRANT A SECURITY INTEREST THEREIN AND, SUBJECT TO THE
PERMITTED ENCUMBRANCES, WILL DEFEND THE COLLATERAL AGAINST ALL CLAIMS AND
DEMANDS OF ALL PERSONS AND ENTITIES; (D) WE WILL KEEP THE COLLATERAL FREE AND
CLEAR OF ALL ATTACHMENTS, LEVIES, TAXES, LIENS, SECURITY INTERESTS AND
ENCUMBRANCES OF EVERY KIND AND NATURE (“ENCUMBRANCES”), OTHER THAN PERMITTED
ENCUMBRANCES (AS HEREINAFTER DEFINED), EXCEPT TO THE EXTENT SAID ENCUMBRANCE
DOES NOT SECURE INDEBTEDNESS IN EXCESS OF $100,000 AND SUCH ENCUMBRANCE IS
REMOVED OR OTHERWISE RELEASED WITHIN 10 DAYS OF THE CREATION THEREOF; (E) WE
WILL AT OUR OWN COST AND EXPENSE KEEP THE COLLATERAL IN GOOD STATE OF REPAIR
(ORDINARY WEAR AND TEAR EXCEPTED) AND WILL NOT WASTE OR DESTROY THE SAME OR ANY
PART THEREOF OTHER THAN ORDINARY COURSE DISCARDING OF ITEMS NO LONGER USED OR
USEFUL IN OUR BUSINESS; (F) WE WILL NOT WITHOUT YOUR PRIOR WRITTEN CONSENT,
SELL, EXCHANGE, LEASE OR OTHERWISE DISPOSE OF THE COLLATERAL, WHETHER BY SALE,
LEASE OR OTHERWISE, EXCEPT FOR THE SALES IN THE ORDINARY COURSE OF BUSINESS AND
FOR THE

 

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disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out equipment having an aggregate fair market value of
not more than $25,000 and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Collateral which is subject to your
second priority security interest or are used to repay Obligations or other
obligations with respect to Permitted Encumbrances or to pay general corporate
expenses, or (ii) following the occurrence of an Event of Default which
continues to exist, and subject to the Permitted Encumbrances, the proceeds of
which are remitted to you to be held as cash collateral for the Obligations;
provided, however, that nothing contained herein shall prohibit us from
completing a “Permitted Disposition” (as such term is defined in the “Foothill
Loan and Security Agreement,” as hereinafter defined); or from transferring free
of any security interest that certain promissory note made by Full Moon
Universe, Inc. dated as of March 16, 2000, in the original principal amount of
$500,000, with respect to which we have previously participated out
substantially all of our interest; (g) we will insure the Collateral against
loss or damage by fire, theft, burglary, pilferage, loss in transit and such
other hazards and in such amounts as are customary in the case of companies
engaged in a similar business as us and by insurers that are reasonably
acceptable to you, and will name you as a loss payee, additional insured or a
named beneficiary (as the case may be) and all premiums thereon shall be paid by
us and copies of such policies delivered to you.  If we fail to do so, you may
procure such insurance and the cost thereof shall constitute Obligations; (h) we
will at all reasonable times allow you or your representatives free access to
and the right of inspection of the Collateral; (i) we hereby indemnify and save
you harmless from all loss, costs, damage, liability and/or expense, including
reasonable attorneys’ fees, that you may sustain or incur to enforce payment,
performance or fulfillment of any of the Obligations and/or in the enforcement
of this Agreement or in the prosecution or defense of any action or proceeding
either against you or us concerning any matter growing out of or in connection
with this Agreement, and/or any of the Obligations and/or any of the Collateral
except to the extent caused by your own gross negligence or willful misconduct;
(j) for the purposes hereof, “Permitted Encumbrances” shall mean any and all
attachments, levies, taxes, liens, security interests and encumbrances of every
kind and nature relating to (i) all indebtedness now owing or that may accrue in
the future in connection with that certain Loan and Security Agreement dated as
of December 19, 2001 between us and Foothill Capital Corporation, as such
agreement may be supplemented, modified of amended from time to time (the
“Foothill Loan and Security Agreement”), (ii) “Permitted Liens” as such term is
defined in the Foothill Loan and Security Agreement and (iii) participations in
factored accounts receivable and agreements related thereto, whether now
existing or hereafter entered into.

 

4.             WE SHALL BE IN DEFAULT UNDER THIS AGREEMENT UPON THE HAPPENING OF
ANY OF THE FOLLOWING EVENTS OR CONDITIONS, EACH SUCH EVENT OR CONDITION AN
“EVENT OF DEFAULT” (A) WE SHALL FAIL TO PAY WHEN DUE OR PUNCTUALLY PERFORM ANY
OF THE OBLIGATIONS, AND SUCH DEFAULT IS NOT CURED WITHIN THREE (3) BUSINESS
DAYS; (B) ANY COVENANT, WARRANTY, REPRESENTATION OR STATEMENT MADE OR FURNISHED
TO YOU BY US OR ON OUR BEHALF WAS FALSE IN ANY MATERIAL RESPECT WHEN MADE OR
FURNISHED AND SHALL NOT BE CURED FOR A PERIOD OF THIRTY (30) DAYS AFTER THE
OCCURRENCE THEREOF; (C) THE LOSS, THEFT, SUBSTANTIAL DAMAGE, DESTRUCTION, SALE
OR ENCUMBRANCE OF A MATERIAL PORTION OF THE COLLATERAL OR THE MAKING OF ANY
LEVY, SEIZURE OR ATTACHMENT THEREOF OR THEREON EXCEPT TO THE EXTENT SAID LEVY,
SEIZURE OR ATTACHMENT DOES NOT SECURE INDEBTEDNESS IN EXCESS OF $100,000 AND
SUCH LEVY, SEIZURE OR ATTACHMENT HAS NOT BEEN REMOVED OR OTHERWISE RELEASED
WITHIN 10 DAYS OF THE CREATION OR THE ASSERTION THEREOF; (D) WE SHALL BECOME
INSOLVENT, CEASE OPERATIONS, DISSOLVE, TERMINATE OUR BUSINESS EXISTENCE, MAKE AN
ASSIGNMENT FOR THE BENEFIT OF CREDITORS, SUFFER THE APPOINTMENT OF A RECEIVER,
TRUSTEE, LIQUIDATOR OR CUSTODIAN OF ALL OR ANY PART OF OUR PROPERTY; (E) ANY
PROCEEDINGS UNDER ANY BANKRUPTCY OR INSOLVENCY LAW SHALL BE COMMENCED BY OR
AGAINST US AND IF COMMENCED AGAINST US SHALL NOT BE DISMISSED WITHIN 60 DAYS;
(F) WE SHALL REPUDIATE OR PURPORT TO REVOKE OUR OBLIGATIONS UNDER THE NOTE OR AN
EVENT OF DEFAULT SHALL HAVE OCCURRED UNDER AND AS DEFINED IN THE NOTE.

 

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5.             UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT AND AT ANY TIME
THEREAFTER, YOU MAY DECLARE ALL OBLIGATIONS IMMEDIATELY DUE AND PAYABLE AND YOU
SHALL HAVE THE REMEDIES OF A SECURED PARTY PROVIDED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN THE STATE OF NEW YORK, THIS AGREEMENT AND OTHER APPLICABLE
LAW.  UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT AND AT ANY TIME THEREAFTER YOU
WILL HAVE THE RIGHT TO TAKE POSSESSION OF THE COLLATERAL AND TO MAINTAIN SUCH
POSSESSION ON OUR PREMISES OR TO REMOVE THE COLLATERAL OR ANY PART THEREOF TO
SUCH OTHER PREMISES AS YOU MAY DESIRE.  UPON YOUR REQUEST, WE SHALL ASSEMBLE THE
COLLATERAL AND MAKE IT AVAILABLE TO YOU AT A PLACE DESIGNATED BY YOU.  IF ANY
NOTIFICATION OF INTENDED DISPOSITION OF ANY COLLATERAL IS REQUIRED BY LAW, SUCH
NOTIFICATION, IF MAILED, SHALL BE DEEMED PROPERLY AND REASONABLY GIVEN IF MAILED
AT LEAST TEN (10) DAYS BEFORE SUCH DISPOSITION, POSTAGE PREPAID, ADDRESSED TO US
EITHER AT OUR ADDRESS SHOWN HEREIN OR AT ANY ADDRESS APPEARING ON YOUR RECORDS
FOR US.  ANY PROCEEDS OF ANY DISPOSITION OF ANY OF THE COLLATERAL SHALL BE
APPLIED BY YOU TO THE PAYMENT OF ALL EXPENSES IN CONNECTION WITH THE SALE OF THE
COLLATERAL, INCLUDING REASONABLE ATTORNEYS’ FEES AND OTHER LEGAL EXPENSES AND
DISBURSEMENTS AND THE REASONABLE EXPENSE OF RETAKING, HOLDING, PREPARING FOR
SALE, SELLING, AND THE LIKE, AND ANY BALANCE OF SUCH PROCEEDS MAY BE APPLIED BY
YOU TOWARD THE PAYMENT OF THE OBLIGATIONS IN SUCH ORDER OF APPLICATION AS YOU
MAY ELECT, AND WE SHALL BE LIABLE FOR ANY DEFICIENCY.   NOTWITHSTANDING THE
FOREGOING OR ANYTHING ELSE TO THE CONTRARY CONTAINED HEREIN, THE AFORESAID
RIGHTS ARE SUBJECT TO THE RIGHTS OF THE HOLDERS OF THE PERMITTED ENCUMBRANCES.

 

6.             IF WE DEFAULT IN THE PERFORMANCE OR FULFILLMENT OF ANY OF THE
TERMS, CONDITIONS, PROMISES, COVENANTS, PROVISIONS OR WARRANTIES ON OUR PART TO
BE PERFORMED OR FULFILLED UNDER OR PURSUANT TO THIS AGREEMENT, YOU MAY, AT YOUR
OPTION WITHOUT WAIVING YOUR RIGHT TO ENFORCE THIS AGREEMENT ACCORDING TO ITS
TERMS, IMMEDIATELY OR AT ANY TIME THEREAFTER AND WITHOUT NOTICE TO US, PERFORM
OR FULFILL THE SAME OR CAUSE THE PERFORMANCE OR FULFILLMENT OF THE SAME FOR OUR
ACCOUNT AND AT OUR SOLE COST AND EXPENSE, AND THE COST AND EXPENSE THEREOF
(INCLUDING REASONABLE ATTORNEYS’ FEES) SHALL BE ADDED TO THE OBLIGATIONS AND
SHALL BE PAYABLE ON DEMAND WITH INTEREST THEREON AT THE THEN APPLICABLE INTEREST
RATE ON THE OBLIGATIONS..

 

7.             WE APPOINT YOU, ANY OF YOUR OFFICERS, EMPLOYEES OR ANY OTHER
PERSON OR ENTITY WHOM YOU MAY DESIGNATE AS OUR ATTORNEY, WITH POWER TO EXECUTE
SUCH DOCUMENTS IN OUR BEHALF THAT WE ARE REQUIRED TO EXECUTE IN ACCORDANCE
HEREWITH AND TO SUPPLY ANY OMITTED INFORMATION AND CORRECT PATENT ERRORS IN ANY
DOCUMENTS EXECUTED BY US OR ON OUR BEHALF; AND TO FILE FINANCING STATEMENTS
AGAINST US COVERING THE COLLATERAL.  WE HEREBY RATIFY AND APPROVE ALL ACTS OF
THE ATTORNEY AND NEITHER YOU NOR THE ATTORNEY WILL BE LIABLE FOR ANY ACTS OF
COMMISSION OR OMISSION, NOR FOR ANY ERROR OF JUDGMENT OR MISTAKE OF FACT OR LAW
OTHER THAN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.  THIS POWER BEING COUPLED
WITH AN INTEREST, IS IRREVOCABLE SO LONG AS ANY OBLIGATIONS REMAINS UNPAID.

 

8.             NO DELAY OR FAILURE ON YOUR PART IN EXERCISING ANY RIGHT,
PRIVILEGE OR OPTION HEREUNDER SHALL OPERATE AS A WAIVER OF SUCH OR OF ANY OTHER
RIGHT, PRIVILEGE, REMEDY OR OPTION, AND NO WAIVER WHATEVER SHALL BE VALID UNLESS
IN WRITING, SIGNED BY YOU AND THEN ONLY TO THE EXTENT THEREIN SET FORTH, AND NO
WAIVER BY YOU OF ANY DEFAULT SHALL OPERATE AS A WAIVER OF ANY OTHER DEFAULT OR
OF THE SAME DEFAULT ON A FUTURE OCCASION.  YOUR BOOKS AND RECORDS CONTAINING
ENTRIES WITH RESPECT TO THE OBLIGATIONS SHALL BE ADMISSIBLE IN EVIDENCE IN ANY
ACTION OR PROCEEDING AND SHALL, UNLESS THERE IS MANIFEST ERROR, CONSTITUTE PRIMA
FACIE PROOF THEREOF.  YOU SHALL HAVE THE RIGHT TO ENFORCE ANY ONE OR MORE OF THE
REMEDIES AVAILABLE TO YOU, SUCCESSIVELY, ALTERNATELY OR CONCURRENTLY.  WE AGREE
TO JOIN WITH YOU IN EXECUTING FINANCING STATEMENTS OR OTHER INSTRUMENTS TO THE
EXTENT REQUIRED BY THE UNIFORM COMMERCIAL CODE IN FORM SATISFACTORY TO YOU IN
ORDER TO PERFECT YOUR SECURITY INTEREST IN THE COLLATERAL AND IN EXECUTING SUCH
OTHER DOCUMENTS OR INSTRUMENTS AS MAY BE REQUIRED OR DEEMED NECESSARY BY YOU FOR
PURPOSES OF AFFECTING OR CONTINUING YOUR SECURITY INTEREST IN THE COLLATERAL.

 

9.             THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK AND CANNOT BE TERMINATED ORALLY.  ALL OF
THE RIGHTS, REMEDIES, OPTIONS, PRIVILEGES AND ELECTIONS GIVEN TO YOU HEREUNDER
SHALL ENURE TO THE BENEFIT OF YOUR SUCCESSORS AND ASSIGNS.  THE TERM “YOU” AS
HEREIN USED SHALL INCLUDE YOUR COMPANY, ANY PARENT OF YOUR COMPANY, ANY OF YOUR
SUBSIDIARIES AND ANY CO-SUBSIDIARIES OF YOUR

 

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parent, whether now existing or hereafter created or acquired, and all of the
terms, conditions, promises, covenants, provisions and warranties of this
Agreement shall enure to the benefit of and shall bind the representatives,
successors and assigns of each of us and them.  You and we hereby (a) waive any
and all right to trial by jury in litigation relating to this Agreement and the
transactions contemplated hereby and we agree not to assert any counterclaim in
such litigation other than compulsory counter-claims, (b) submit to the
nonexclusive jurisdiction of any New York State court sitting in the borough of
Manhattan, the city of New York and (c) waive any objection you or we may have
as to the bringing or maintaining of such action with any such court.

 

10.           ALL NOTICES FROM YOU TO US SHALL BE SUFFICIENTLY GIVEN IF MAILED
OR DELIVERED TO US AT OUR ADDRESS SET FORTH BELOW.

 

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EQUINOX BUSINESS CREDIT CORP

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

Address:

 

 

 

 

 

Dated as of:  December     , 2003

 

 

ACKNOWLEDGED:

 

LAURUS MASTER FUND, LTD.

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

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