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


 

















 


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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