SECURITY AGREEMENT
This SECURITY AGREEMENT, PLEDGE AND ASSIGNMENT (this "Security
Agreement") dated and effective as of June 27, 2000 (the "Effective Date"), is
made by xXxxxxxxxxx.xxx Corporation (the "Company"), a Nevada corporation, as
the debtor, to Thomson Kernaghan & Co. Limited (the "Agent") as agent for the
Purchasers named in the Securities Purchase Agreement (as hereinafter defined,
as the secured parties, in connection with the Securities Purchase Agreement.
PRELIMINARY STATEMENTS:
(1) The Company and the Purchasers have made and entered into a
Securities Purchase Agreement (as it now exists or subsequently may be modified,
the "Securities Purchase Agreement") effective as of the Effective Date. The
Company will derive substantial direct and indirect benefit from the
transactions contemplated by the Securities Purchase Agreement.
(2) It is a condition precedent to the Purchasers purchasing Preferred
Shares under the Securities Purchase Agreement that the Company shall have made
the pledge and granted the assignment and security interest contemplated by this
Security Agreement.
(3) All capitalized terms used but not defined in this Security
Agreement shall have the meanings ascribed to them in the Securities Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Purchasers to purchase Preferred Shares under the Securities Purchase
Agreement, the Company hereby agrees with the Purchasers as follows:
Section 1.01. Pledge, Assignment and Grant of Security. The Company
hereby assigns and pledges and delivers to the Agent, for the ratable benefit of
the Purchasers, and hereby grants to the Purchasers a security interest in all
of the Company's right, title and interest in and to the following, whether now
owned or hereafter acquired (the "Collateral"):
(1) 225,000 shares of the Company's common stock, $.001 par value per
share ("Common Stock"); and
(2) such additional shares of Common Stock as the Company shall deliver
to the Agent as Collateral pursuant to the Securities Purchase Agreement.
The Company hereby acknowledges that as security for the Company's prompt and
full performance of its obligations under the Securities Purchase Agreement and
the other Transaction Documents, the Company is obligated to issue, assign,
pledge and deliver to the Agent, for the benefit of the Agent and the
Purchasers, Two Hundred Twenty Five Thousand shares of Common Stock for each 200
Preferred Shares or portion thereof issued pursuant to the Securities Purchase
Agreement.
Section 2.01. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral shall be delivered to and held by or
on behalf of the Agent and shall be in suitable form for transfer by delivery,
or shall be accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to the Agent. The Agent shall
have the right, at any time in its discretion and without notice to the Company,
to transfer to or to register any or all of the Collateral in the name of the
Agent or any of its nominees. In addition, the Agent shall have the right at any
time to exchange certificates or instruments representing or evidencing
Collateral for certificates or instruments of smaller or larger denominations.
Section 3.01. Security for Obligations. This Security Agreement secures
the prompt and full payment and performance of all obligations of the Company
now or hereafter existing under the Securities Purchase Agreement and the other
Transaction Documents, including the payment of fees, dividends, damages,
expenses, or otherwise, and including all obligations of the Company now or
hereafter existing under this Security Agreement (collectively, the
"Obligations"). Without limiting the generality of the foregoing, this Security
Agreement secures the payment of all amounts which constitute part of the
Obligations and would be owed by the Company to the Purchasers under any of the
Transaction Documents but for the fact that they are unenforceable or not
allowable owing to the existence of bankruptcy, reorganization, or similar
proceedings involving the Company.
Section 4.01. Representations and Warranties. The Company represents
and warrants as follows:
(1) The Company is the legal and beneficial owner of the Collateral
free and clear of any Lien except for the security interest created by this
Security Agreement
(2) The shares of Common Stock constituting the Collateral have been
duly authorized and validly issued, and are fully paid and nonassessable.
(3) This Security Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the payment of the
Obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been duly taken.
(4) The Company is a corporation duly incorporated, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation;
has the corporate power and authority to own its assets and to transact its
business, and is duly qualified and in good standing under the laws of each
jurisdiction in which qualification is required.
(5) The execution and performance by the Company of this Security
Agreement have been duly authorized by all necessary corporate action and do not
and will not (a) require any consent or approval of the Company's stockholders;
(b) contravene the Company's charter or bylaws; (c) violate any provision of any
law, rule, or regulation; or (d) result in a breach of or constitute a default
under any indenture or loan or Securities Purchase Agreement or any other
agreement, lease, or instrument to which the Company is a party or by which it
or its properties may be bound or affected.
(6) This Security Agreement is the legal, valid, and binding obligation
of the Company, enforceable in accordance with its respective terms, except to
the extent that such enforcement may be limited by applicable bankruptcy,
insolvency, and other similar laws affecting creditors' rights generally.
(7) No consent of any other person or entity and no authorization,
approval, or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required (a) for the pledge by the Company of
the Collateral pursuant to this Security Agreement, for the grant by the Company
of the assignment and security interest granted hereby or for the execution,
delivery, or performance of this Security Agreement by the Company; (b) for the
perfection or maintenance of the pledge, assignment, and security interest
created hereby (including the first priority nature of such pledge, assignment,
and security interest); or (c) for the exercise by the Purchasers of the voting
or other rights provided for in this Security Agreement or the remedies in
respect of the Collateral pursuant to this Security Agreement (except as may be
required in connection with the disposition of any portion of the Collateral by
laws affecting the offering and sale of securities generally).
(8) There are no conditions precedent to the effectiveness of this
Security Agreement that have not been satisfied or waived.
(9) The Company has, independently and without reliance upon the Agent
or the Purchasers and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Security Agreement.
Section 5.01. Further Assurances.
(1) The Company agrees that from time to time, at the expense of the
Company, the Company will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that the Purchasers may reasonably request, in order to perfect and protect
any pledge, assignment or security interest granted or purported to be granted
hereby or to enable the Purchasers to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Company will execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Purchasers may request, in
order to perfect and preserve the pledge, assignment, and security interest
granted or purported to be granted hereby.
(2) The Company hereby authorizes the Purchasers to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Company where permitted
by law. A photocopy or other reproduction of this Security Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(3) The Company will furnish to the Purchasers from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Purchasers may
reasonably request, all in reasonable detail.
Section 6.01. Transfers and Other Liens; Additional Shares.
(1) The Company shall not (a) sell, assign (by operation of law or
otherwise), or otherwise dispose of, or grant any option with respect to, any of
the Collateral, or (b) create or permit to exist any Lien upon or with respect
to any of the Collateral, except for the security interest under this Security
Agreement.
Section 7.01. The Agent's Duties. The powers conferred on the Agent
hereunder is solely to protect the Purchasers' its interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders, or other matters relative to any
Collateral, whether or not the Agent or the Purchasers have or are deemed to
have knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which it accords its own
property.
Section 8.01 Remedies. If any Event of Default shall have occurred and
be continuing, the Purchasers may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein, in any of the
Transaction Documents, or otherwise available to it, (i) all the rights and
remedies of a pledgee on default under the laws of the Province of Ontario,
Canada, and (ii) all the rights and remedies of a secured party on default under
the Uniform Commercial Code in effect in the State of Florida at that time (the
"Code") (whether or not the Code applies to the affected Collateral), and also
may sell the Collateral or any part thereof in one or more parcels at public or
private sale, at the Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Purchasers may deem
commercially reasonable. The Company agrees that, to the extent notice of sale
shall be required by law, at least ten days notice to the Company 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. The Purchasers shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Purchasers 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.
Section 9.01. Indemnity and Expenses.
(1) The Company agrees to indemnify the Agent and the Purchasers from
and against any and all claims, losses, and liabilities (including reasonable
attorney fees) growing out of or resulting from this Security Agreement
(including, without limitation, enforcement of this Security Agreement), except
claims, losses, or liabilities resulting from the Agent's or any Purchaser's
gross negligence or willful misconduct.
(2) The Company will upon demand pay to the Agent the amount of any and
all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts that the Agent or the Purchasers may incur in
connection with (a) the administration of this Security Agreement; (b) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral; (c) the exercise or enforcement
of any of the rights of the Purchasers hereunder; or (d) the failure by the
Company to perform or observe any of the provisions hereof.
Section 10.01. Security Interest Absolute. All rights of the Purchasers
and the pledge, assignment, and security interest hereunder, and all Obligations
of the Company hereunder, shall be absolute and unconditional, irrespective of:
(1) Any lack of validity, regularity, or enforceability of the
Securities Purchase Agreement, the Preferred Shares or any other agreement or
instrument relating thereto;
(2) Any change in the time, manner, or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Securities Purchase Agreement or any
other Transaction Document, including, without limitation, any increase in
Obligations resulting from the extension of credit to the Company or any of its
Subsidiaries or otherwise.
(3) Any taking, exchange, release, or nonperfection of any other
collateral, or any taking, release, or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations;
(4) Any manner of application of Collateral, or proceeds thereof, to
all or any of the Obligations, or any manner of sale or other disposition of any
Collateral for all or any of the Obligations or any other assets of the Company
or any of its subsidiaries;
(5) Any change, restructuring, or termination of the corporate
structure or existence of the Company or any of its subsidiaries; or
(6) Any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company.
Section 11.01. Amendments; Etc. No amendment, modification,
termination, or waiver of any provision of this Security Agreement, and no
consent to any departure by the Company herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Purchasers, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
Section 12.01. Addresses for Notices. All notices given under this
Security Agreement shall be in writing, addressed to the parties as set forth
below, and shall be effective on the earliest of (i) the date received, or (ii)
if given by facsimile transmittal on the date given if transmitted before 5:00
p.m. the recipient's time, otherwise it is effective the next day, or (iii) on
the second business day after delivery to a major international air delivery or
air courier service (such as Federal Express or Network Couriers):
If to the Agent:
Thomson Kernaghan & Co. Ltd.
000 Xxx Xxxxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xx. Xxxxx Xxxxxx, Xx. V.P.
Facsimile No. (000) 000-0000
If to the Company:
xXxxxxxxxxx.xxx, Inc.
2708 Alternate 00 Xxxxx
Xxxxx 000
Xxxx Xxxxxx, Xxxxxxx 00000
Attention: Xxxx X. X. Xxxxxx, President
Facsimile No. (000) 000-0000
If to the Purchasers
c/o Thomson Kernaghan & Co. Ltd.
as Agent
000 Xxx Xxxxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xx. Xxxxx Xxxxxx, Xx. V.P.
Facsimile No. (000) 000-0000
With a copy (that does not constitute
notice) to:
Johnson, Blakely, Pope, Bokor, Xxxxxx & Xxxxx, P.A.
000 Xxxxxxxx Xxxxxx, X.X. Xxx 0000
Xxxxxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxx
In either case, with a copy (that does not
constitute notice) to:
Xxxx X. Xxxx
Attorney at Law
0000 Xxxx Xxx Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Facsimile No. (000) 000-0000
Section 13.01. Continuing Security Interest; Assignments Under
Securities Purchase Agreement. This Security Agreement shall create a continuing
security interest in the Collateral and shall (1) remain in full force and
effect until the payment and performance in full of the Obligations, (2) be
binding upon the Company, its successors and assigns; and (3) inure to the
benefit of, and be enforceable by, the Purchasers and its successors,
transferees, and assigns. Without limiting the generality of the foregoing
clause (3), the Purchasers may assign or otherwise transfer all or any portion
of its rights and obligations under the Securities Purchase Agreement
(including, without limitation, all or any portion of any Preferred Shares held
by it) to any other person or entity, and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to the
Purchasers herein or otherwise. Upon the later of the payment and performance in
full of the Obligations, the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to the Company. Upon any such
termination, the Purchasers will, at the Company's expense, execute and deliver
to the Company such documents as the Company shall reasonably request to
evidence such termination.
Section 14.01. Governing Law; Terms. This Security Agreement shall be
governed by and construed in accordance with the laws of the Province of
Ontario; provided, however (a) if any provision of this Security Agreement is
unenforceable under Ontario law but is enforceable under the laws of the U.S.
State of Florida, then Florida law shall govern the construction and enforcement
of that provision; and (b) if the security interest hereunder is valid and
perfected under Florida law, or any remedy hereunder is valid or enforceable
under Florida law, then such security interest shall be and shall be deemed to
be valid, perfected and enforceable, and such remedy shall be and shall be
deemed to be valid and enforceable, in any jurisdiction. Unless otherwise
defined in this Security Agreement or in the Securities Purchase Agreement,
terms used in Article 9 of the UCC are used herein as therein defined.
Section 15.01. Dispute Resolution. The parties agree that the courts of
the Province of Ontario, Canada, shall have jurisdiction and venue for the
adjudication of any civil action between or among any of them arising out of
relating to this Agreement or any other Transaction. The parties hereby
irrevocably consent to such jurisdiction and venue, and hereby irrevocably waive
any claim of forum non conveniens or right to change venue. The prevailing party
in any action brought to enforce or construe this Security Agreement shall be
entitled to recover reasonable attorneys fees.
IN WITNESS WHEREOF, the parties have caused this Security Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
The Agent:
Thomson Kernaghan & Co. Ltd.
By ________________________________
Name ______________________________
Title _______________________________
Date signed _________________________
The Company:
xXxxxxxxxxx.xxx, INC.
By ________________________________
Name ______________________________
Title _______________________________
Date signed _________________________
The Purchasers:
By ________________________________
Name ______________________________
Title _______________________________
Date signed _________________________
By ________________________________
Name ______________________________
Title _______________________________
Date signed _________________________
