EXHIBIT 10.4
SECURITY AGREEMENT
1. Identification.
This Security Agreement (the "Agreement"), dated as of February ____,
2006, is entered into by and between Universal Communication Systems, Inc., a
Nevada corporation ("Parent"), the Subsidiaries of the Parent identified on
Annex I hereto (each a "Guarantor" and together with Parent, each a "Debtor" and
collectively the "Debtors"), and Xxxxxxx X. Xxxxxxx, as collateral agent acting
in the manner and to the extent described in the Collateral Agent Agreement
defined below (the "Collateral Agent"), for the benefit of the parties
identified on Schedule A hereto (collectively, the "Lenders").
2. Recitals.
2.1 The Lenders have made, are making and will be making loans to
Parent (the "Loans"). It is beneficial to each Debtor that the Loans were made
and are being made.
2.2 The Loans are and will be evidenced by certain convertible
promissory notes (each a "Convertible Note") issued by Parent on or about the
date of and after the date of this Agreement pursuant to subscription agreements
(each a "Subscription Agreement") to which Parent and Lenders are parties. The
Notes are further identified on Schedule A hereto and were and will be executed
by Parent as "Borrower" or "Debtor" for the benefit of each Lender as the
"Holder" or "Lender" thereof. Schedule A hereto may be amended to include such
other Lenders who become parties hereto and sign this Agreement, the Collateral
Agent Agreement and any other agreement reasonably requested by the Collateral
Agent, who will have purchased Notes pursuant to the Subscription Agreement.
2.3 In consideration of the Loans made and to be made by Lenders to
Parent and for other good and valuable consideration, and as security for the
performance by Parent of its obligations under the Notes and as security for the
repayment of the Loans and all other sums due from Debtors to Lenders arising
under the Transaction Documents (as defined in the Subscription Agreement), and
any other agreement between or among them (collectively, the "Obligations"),
each Debtor, for good and valuable consideration, receipt of which is
acknowledged, has agreed to grant to the Collateral Agent, for the benefit of
the Lenders, a security interest in the Collateral (as such term is hereinafter
defined), on the terms and conditions hereinafter set forth. Obligations include
all future advances by Lenders to Debtor made pursuant to the Subscription
Agreement.
2.4 The Lenders have appointed Xxxxxxx X. Xxxxxxx as Collateral Agent
pursuant to that certain Collateral Agent Agreement dated at or about February
____, 2006 ("Collateral Agent Agreement"), among the Lenders and Collateral
Agent.
2.5 The following defined terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Inventory and Proceeds.
3. Grant of General Security Interest in Collateral.
3.1 As security for the Obligations of Debtors, each Debtor hereby
grants the Collateral Agent, for the benefit of the Lenders, a security interest
in the Collateral.
3.2 "Collateral" shall mean all of the following property of Debtors:
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(A) All now owned and hereafter acquired right, title and interest
of Debtors in, to and in respect of all Accounts, Goods, real or personal
property, all present and future books and records relating to the foregoing and
all products and Proceeds of the foregoing, and as set forth below:
(i) All now owned and hereafter acquired right, title and
interest of Debtors in, to and in respect of all: Accounts, interests in goods
represented by Accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; contract rights; Chattel Paper;
investment property; General Intangibles (including but not limited to, tax and
duty claims and refunds, registered and unregistered patents, trademarks,
service marks, certificates, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims, and existing and future leasehold interests in equipment, real estate
and fixtures); Documents; Instruments; letters of credit, bankers' acceptances
or guaranties; cash moneys, deposits; securities, bank accounts, deposit
accounts, credits and other property now or hereafter owned or held in any
capacity by Debtors, as well as agreements or property securing or relating to
any of the items referred to above;
(ii) Goods: All now owned and hereafter acquired right, title
and interest of Debtors in, to and in respect of goods, including, but not
limited to:
(a) All Inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description, including all raw
materials, work-in-process, finished goods, and materials to be used or consumed
in Debtors' business; finished goods, timber cut or to be cut, oil, gas,
hydrocarbons, and minerals extracted or to be extracted, and all names or marks
affixed to or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof and all Inventory which may be returned
to any Debtor by its customers or repossessed by any Debtor and all of Debtors'
right, title and interest in and to the foregoing (including all of a Debtor's
rights as a seller of goods);
(b) All Equipment and fixtures, wherever located, whether
now owned or hereafter acquired, including, without limitation, all machinery,
furniture and fixtures, and any and all additions, substitutions, replacements
(including spare parts), and accessions thereof and thereto (including, but not
limited to Debtors' rights to acquire any of the foregoing, whether by exercise
of a purchase option or otherwise);
(iii) Property: All now owned and hereafter acquired right,
title and interests of Debtors in, to and in respect of any other personal
property in or upon which a Debtor has or may hereafter have a security
interest, lien or right of setoff;
(iv) Books and Records: All present and future books and
records relating to any of the above including, without limitation, all computer
programs, printed output and computer readable data in the possession or control
of the Debtors, any computer service bureau or other third party; and
(v) Products and Proceeds: All products and Proceeds of the
foregoing in whatever form and wherever located, including, without limitation,
all insurance proceeds and all claims against third parties for loss or
destruction of or damage to any of the foregoing.
(B) All now owned and hereafter acquired right, title and interest
of Debtors in, to and in respect of the following:
(i) the shares of stock, partnership interests, member
interests or other equity interests at any time and from time to time acquired
by Debtors of any and all entities now or hereafter existing, (such entities,
being hereinafter referred to collectively as the "Pledged Issuers" and
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individually as a "Pledged Issuer"), the certificates representing such shares,
partnership interests, member interests or other interests, all options and
other rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares, partnership interests, member interests
or other interests;
(ii) all additional shares of stock, partnership interests,
member interests or other equity interests from time to time acquired by
Debtors, of any Pledged Issuer, the certificates representing such additional
shares, all options and other rights, contractual or otherwise, in respect
thereof and all dividends, distributions, cash, instruments, investment property
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, interests or equity; and
(iii) all security entitlements of Debtors in, and all Proceeds
of any and all of the foregoing in each case, whether now owned or hereafter
acquired by a Debtor and howsoever its interest therein may arise or appear
(whether by ownership, security interest, lien, claim or otherwise).
Notwithstanding anything to the contrary contained herein or any
Transaction Document, Collateral shall not include any personal property which
is, or at the time of a Debtor's acquisition thereof shall be subject to a
purchase money mortgage or other purchase money lien or security interest
(including capital leases).
3.3 The Collateral Agent is hereby specifically authorized, after the
Maturity Date (defined in the Notes) accelerated or otherwise, or after an Event
of Default (as defined herein) and the expiration of any applicable cure period,
to transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed advisable to the Collateral Agent to remove any transfer
restrictions affecting the Collateral.
4. Perfection of Security Interest.
4.1 Each Debtor shall prepare, execute and deliver to the Collateral
Agent UCC-1 Financing Statements. The Collateral Agent is instructed to prepare
and file at each Debtor's cost and expense, financing statements in such
jurisdictions deemed advisable to the Collateral Agent, including but not
limited to the State of Nevada. The Financing Statements are deemed to have been
filed for the benefit of the Collateral Agent and Lenders identified on Schedule
A hereto.
4.2 The Parent shall deliver to Collateral Agent promptly stock
certificates representing all of the shares of outstanding capital stock of the
Guarantor (the "Securities"). All such certificates shall be held by or on
behalf of Collateral Agent pursuant hereto and shall be delivered in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment or undated stock powers executed in blank,
all in form and substance satisfactory to Collateral Agent.
4.3 All other certificates and instruments constituting Collateral from
time to time required to be pledged to Collateral Agent pursuant to the terms
hereof (the "Additional Collateral") shall be delivered to Collateral Agent
promptly upon receipt thereof by or on behalf of Debtors. All such certificates
and instruments shall be held by or on behalf of Collateral Agent pursuant
hereto and shall be delivered in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment or
undated stock powers executed in blank, all in form and substance satisfactory
to Collateral Agent. If any Collateral consists of uncertificated securities,
unless the immediately following sentence is applicable thereto, Debtors shall
cause Collateral Agent (or its custodian, nominee or other designee) to become
the registered holder thereof, or cause each issuer of such securities to agree
that it will comply with instructions originated by Collateral Agent with
respect to such securities without further consent by Debtors. If any Collateral
consists of security entitlements, Debtors shall transfer such security
entitlements to Collateral Agent (or its custodian, nominee or other designee)
or cause the applicable securities intermediary to agree that it will comply
with entitlement orders by Collateral Agent without further consent by Debtors.
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4.4 Within five (5) days after the receipt by a Debtor of any
Additional Collateral, a Pledge Amendment, duly executed by such Debtor, in
substantially the form of Annex I hereto (a "Pledge Amendment"), shall be
delivered to Collateral Agent in respect of the Additional Collateral to be
pledged pursuant to this Agreement. Each Debtor hereby authorizes Collateral
Agent to attach each Pledge Amendment to this Agreement and agrees that all
certificates or instruments listed on any Pledge Amendment delivered to
Collateral Agent shall for all purposes hereunder constitute Collateral.
4.5 If Debtor shall receive, by virtue of Debtor being or having been
an owner of any Collateral, any (i) stock certificate (including, without
limitation, any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off), promissory note or other instrument, (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Collateral, or
otherwise, (iii) dividends payable in cash (except such dividends permitted to
be retained by Debtor pursuant to Section 5.1 hereof) or in securities or other
property or (iv) dividends or other distributions in connection with a partial
or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, Debtor shall receive such stock
certificate, promissory note, instrument, option, right, payment or distribution
in trust for the benefit of Collateral Agent, shall segregate it from Debtor's
other property and shall deliver it forthwith to Collateral Agent, in the exact
form received, with any necessary endorsement and/or appropriate stock powers
duly executed in blank, to be held by Collateral Agent as Collateral and as
further collateral security for the Obligations.
5. Distribution.
5.1 So long as no Event of Default exists, Debtors shall be entitled to
exercise all voting power and receive payments pertaining to any of the
Collateral, provided such exercise is not contrary to the interests of the
Lenders and does not impair the Collateral.
5.2. At any time an Event of Default exists or has occurred, all rights
of Debtors, upon notice given by Collateral Agent, to exercise the voting power
and receive payments, which it would otherwise be entitled to pursuant to
Section 5.1, shall cease and all such rights shall thereupon become vested in
Collateral Agent, which shall thereupon have the sole right to exercise such
voting power and receive such payments.
5.3 All dividends, distributions, interest and other payments which are
received by Debtors contrary to the provisions of Section 5.2 shall be received
in trust for the benefit of Collateral Agent as security and Collateral for
payment of the Obligations, shall be segregated from other funds of Debtors, and
shall be forthwith paid over to Collateral Agent as Collateral in the exact form
received with any necessary endorsement and/or appropriate stock powers duly
executed in blank, to be held by Collateral Agent as Collateral and as further
collateral security for the Obligations.
6. Further Action By Debtors; Covenants and Warranties.
6.1 Collateral Agent at all times shall have a perfected security
interest in the Collateral, the Securities, and the Additional Collateral (the
"Perfected Collateral"). Each Debtor has and will continue to have full title to
the Collateral free from any liens, leases, encumbrances, judgments or other
claims. Collateral Agent's security interest in the Collateral constitutes and
will continue to constitute a first, prior and indefeasible security interest in
favor of Collateral Agent subordinate only to the senior security interest
described on Schedule 6.1 hereto. Each Debtor will do all acts and things, and
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will execute and file all instruments (including, but not limited to, security
agreements, financing statements, continuation statements, etc.) reasonably
requested by Collateral Agent to establish, maintain and continue the perfected
security interest of Collateral Agent in the Perfected Collateral, and will
promptly on demand, pay all costs and expenses of filing and recording,
including the costs of any searches reasonably deemed necessary by Collateral
Agent from time to time to establish and determine the validity and the
continuing priority of the security interest of Collateral Agent, and also pay
all other claims and charges that, in the opinion of Collateral Agent, exercised
in good faith, are reasonably likely to materially prejudice, imperil or
otherwise affect the Collateral or Collateral Agent's or Lenders' security
interests therein.
6.2 Other than in the ordinary course of business, for fair value and
in cash, and except for Collateral which is substituted by assets of identical
or greater value (with the consent of the Collateral Agent) or which has become
obsolete or is of inconsequential value, each Debtor will not sell, transfer,
assign or pledge those items of Collateral (or allow any such items to be sold,
transferred, assigned or pledged), without the prior written consent of
Collateral Agent other than a transfer of the Collateral to a wholly-owned
subsidiary or to another Debtor on prior notice to Collateral Agent, and
provided the Collateral remains subject to the security interest herein
described. Although Proceeds of Collateral are covered by this Agreement, this
shall not be construed to mean that Collateral Agent consents to any sale of the
Collateral, except as provided herein. Sales of Collateral in the ordinary
course of business shall be free of the security interest of Lenders and
Collateral Agent and Lenders and Collateral Agent shall promptly execute such
documents (including without limitation releases and termination statements) as
may be required by Debtors to evidence or effectuate the same.
6.3 Each Debtor will, at all reasonable times during regular business
hours and upon reasonable notice, allow Collateral Agent or its representatives
free and complete access to the Collateral and all of such Debtor's records
which in any way relate to the Collateral, for such inspection and examination
as Collateral Agent reasonably deems necessary.
6.4 Each Debtor, at its sole cost and expense, will protect and defend
this Security Agreement, all of the rights of Collateral Agent and Lenders
hereunder, and the Collateral against the claims and demands of all other
persons.
6.5 Debtors will promptly notify Collateral Agent of any levy,
distraint or other seizure by legal process or otherwise of any part of the
Collateral, and of any threatened or filed claims or proceedings that are
reasonably likely to affect or impair any of the rights of Collateral Agent
under this Security Agreement in any material respect.
6.6 Each Debtor, at its own expense, will obtain and maintain in force
insurance policies covering losses or damage to those items of Collateral which
constitute physical personal property, which insurance shall be of the types
customarily insured against by companies in the same or similar business,
similarly situated, in such amounts (with such deductible amounts) as is
customary for such companies under the same or similar circumstances, similarly
situated. Debtors shall make the Collateral Agent a loss payee thereon to the
extent of its interest in the Collateral. Collateral Agent is hereby irrevocably
(until the Obligations are paid in full) appointed each Debtor's
attorney-in-fact to endorse any check or draft that may be payable to such
Debtor as proceeds of such insurance so that Collateral Agent may collect the
proceeds payable for any loss under such insurance. The proceeds of such
insurance, less any costs and expenses incurred or paid by Collateral Agent in
the collection thereof, shall be applied either toward the cost of the repair or
replacement of the items damaged or destroyed, or on account of any sums secured
hereby, whether or not then due or payable.
6.7 Collateral Agent may, at its option, and without any obligation to
do so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Debtor. Upon Debtor's
failure to do so, all amounts expended by Collateral Agent in so doing shall
become part of the Obligations secured hereby, and shall be immediately due and
payable by Debtor to Collateral Agent upon demand and shall bear interest at the
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lesser of 15% per annum or the highest legal amount from the dates of such
expenditures until paid.
6.8 Upon the request of Collateral Agent, Debtors will furnish to
Collateral Agent within five (5) business days thereafter, or to any proposed
assignee of this Security Agreement, a written statement in form reasonably
satisfactory to Collateral Agent, duly acknowledged, certifying the amount of
the principal and interest and any other sum then owing under the Obligations,
whether to its knowledge any claims, offsets or defenses exist against the
Obligations or against this Security Agreement, or any of the terms and
provisions of any other agreement of Debtors securing the Obligations. In
connection with any assignment by Collateral Agent of this Security Agreement,
each Debtor hereby agrees to cause the insurance policies required hereby to be
carried by such Debtor, if any, to be endorsed in form satisfactory to
Collateral Agent or to such assignee, with loss payable clauses in favor of such
assignee, and to cause such endorsements to be delivered to Collateral Agent
within ten (10) calendar days after request therefor by Collateral Agent.
6.9 Each Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other reasonable assurances or instruments and take further steps relating to
the Collateral and other property or rights covered by the security interest
hereby granted, as the Collateral Agent may reasonably require to perfect its
security interest hereunder.
6.10 Debtors represent and warrant that they are the true and lawful
exclusive owners of the Collateral, free and clear of any liens and
encumbrances.
6.11 Each Debtor hereby agrees not to divest itself of any right under
the Collateral except as permitted herein absent prior written approval of the
Collateral Agent, except to a subsidiary organized and located in the United
States on prior notice to Collateral Agent provided the Collateral remains
subject to the security interest herein described.
6.12 Each Debtor shall cause each Subsidiary of such Debtor in
existence on the date hereof and each Subsidiary not in existence on the date
hereof to execute and deliver to Collateral Agent promptly and in any event
within 10 days after the formation, acquisition or change in status thereof (A)
a guaranty guaranteeing the Obligations and (B) if requested by Collateral
Agent, a security and pledge agreement substantially in the form of this
Agreement together with (x) certificates evidencing all of the capital stock of
each Subsidiary of and any entity owned by such Subsidiary, (y) undated stock
powers executed in blank with signatures guaranteed, and (z) such opinion of
counsel and such approving certificate of such Subsidiary as Collateral Agent
may reasonably request in respect of complying with any legend on any such
certificate or any other matter relating to such shares and (C) such other
agreements, instruments, approvals, legal opinions or other documents reasonably
requested by Collateral Agent in order to create, perfect, establish the first
priority of or otherwise protect any lien purported to be covered by any such
pledge and security agreement or otherwise to effect the intent that all
property and assets of such Subsidiary shall become Collateral for the
Obligations. For purposes of this Agreement, "Subsidiary" means, with respect to
any entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business
entity) of which more than 50% of (A) the outstanding capital stock having (in
the absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (B) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (C) in the case of a trust,
estate, association, joint venture or other entity, the beneficial interest in
such trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such entity. ANNEX I ANNEXED HERETO CONTAINS A LIST OF ALL
SUBSIDIARIES OF THE DEBTORS AS OF THE DATE OF THIS AGREEMENT.
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7. Power of Attorney.
At any time an Event of Default exists or has occurred, each Debtor
hereby irrevocably constitutes and appoints the Collateral Agent as the true and
lawful attorney of such Debtor, with full power of substitution, in the place
and stead of such Debtor and in the name of such Debtor or otherwise, at any
time or times, in the discretion of the Collateral Agent, to take any action and
to execute any instrument or document which the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement. This power
of attorney is coupled with an interest and is irrevocable until the Obligations
are satisfied.
8. Performance By The Collateral Agent.
If a Debtor fails to perform any material covenant, agreement, duty or
obligation of such Debtor under this Agreement, the Collateral Agent may, after
any applicable cure period, at any time or times in its discretion, take action
to effect performance of such obligation. All reasonable expenses of the
Collateral Agent incurred in connection with the foregoing authorization shall
be payable by Debtors as provided in Paragraph 12.1 hereof. No discretionary
right, remedy or power granted to the Collateral Agent under any part of this
Agreement shall be deemed to impose any obligation whatsoever on the Collateral
Agent with respect thereto, such rights, remedies and powers being solely for
the protection of the Collateral Agent.
9. Event of Default.
An event of default ("Event of Default") shall be deemed to have
occurred hereunder upon the occurrence of any event of default as defined and
described in this Agreement, in the Notes, the Subscription Agreement, and any
other agreement to which Debtor and a Lender are parties. Upon and after any
Event of Default, after the applicable cure period, if any, any or all of the
Obligations shall become immediately due and payable at the option of the
Collateral Agent, for the benefit of the Lenders, and the Collateral Agent may
dispose of Collateral as provided below. A default by Debtor of any of its
material obligations pursuant to this Agreement and any of the Transaction
Documents (as defined in the Subscription Agreement) shall be an Event of
Default hereunder and an "Event of Default" as defined in the Notes, and
Subscription Agreement.
10. Disposition of Collateral.
Upon and after any Event of Default which is then continuing,
10.1 The Collateral Agent may exercise its rights with respect to each
and every component of the Collateral, without regard to the existence of any
other security or source of payment for the Obligations. In addition to other
rights and remedies provided for herein or otherwise available to it, the
Collateral Agent shall have all of the rights and remedies of a lender on
default under the Uniform Commercial Code then in effect in the State of New
York.
10.2 If any notice to Debtors of the sale or other disposition of
Collateral is required by then applicable law, five business (5) days prior
written notice (which Debtors agree is reasonable notice within the meaning of
Section 9.612(a) of the Uniform Commercial Code) shall be given to Debtors of
the time and place of any sale of Collateral which Debtors hereby agree may be
by private sale. The rights granted in this Section are in addition to any and
all rights available to Collateral Agent under the Uniform Commercial Code.
10.3 The Collateral Agent is authorized, at any such sale, if the
Collateral Agent deems it advisable to do so, in order to comply with any
applicable securities laws, to restrict the prospective bidders or purchasers to
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persons who will represent and agree, among other things, that they are
purchasing the Collateral for their own account for investment, and not with a
view to the distribution or resale thereof, or otherwise to restrict such sale
in such other manner as the Collateral Agent deems advisable to ensure such
compliance. Sales made subject to such restrictions shall be deemed to have been
made in a commercially reasonable manner.
10.4 All proceeds received by the Collateral Agent for the benefit of
the Lenders in respect of any sale, collection or other enforcement or
disposition of Collateral, shall be applied (after deduction of any amounts
payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against the
Obligations pro rata among the Lenders in proportion to their interests in the
Obligations. Upon payment in full of all Obligations, Debtors shall be entitled
to the return of all Collateral, including cash, which has not been used or
applied toward the payment of Obligations or used or applied to any and all
costs or expenses of the Collateral Agent incurred in connection with the
liquidation of the Collateral (unless another person is legally entitled
thereto). Any assignment of Collateral by the Collateral Agent to Debtors shall
be without representation or warranty of any nature whatsoever and wholly
without recourse. To the extent allowed by law, each Lender may purchase the
Collateral and pay for such purchase by offsetting up to such Lender's pro rata
portion of the purchase price with sums owed to such Lender by Debtors arising
under the Obligations or any other source.
11. Waiver of Automatic Stay. Debtor acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against
Debtor, or if any of the Collateral should become the subject of any bankruptcy
or insolvency proceeding, then the Collateral Agent should be entitled to, among
other relief to which the Collateral Agent or Lenders may be entitled under the
Note, Subscription Agreement and any other agreement to which the Debtor,
Lenders or Collateral Agent are parties, (collectively "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral Agent
to exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. Debtor EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND
AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE
BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11
U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY
WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. Debtor hereby consents
to any motion for relief from stay which may be filed by the Collateral Agent in
any bankruptcy or insolvency proceeding initiated by or against Debtor, and
further agrees not to file any opposition to any motion for relief from stay
filed by the Collateral Agent. Debtor represents, acknowledges and agrees that
this provision is a specific and material aspect of this Agreement, and that the
Collateral Agent would not agree to the terms of this Agreement if this waiver
were not a part of this Agreement. Debtor further represents, acknowledges and
agrees that this waiver is knowingly, intelligently and voluntarily made, that
neither the Collateral Agent nor any person acting on behalf of the Collateral
Agent has made any representations to induce this waiver, that Debtor has been
represented (or has had the opportunity to be represented) in the signing of
this Agreement and in the making of this waiver by independent legal counsel
selected by Debtor and that Debtor has had the opportunity to discuss this
waiver with counsel. Debtor further agrees that any bankruptcy or insolvency
proceeding initiated by Debtor will only be brought in the Federal Court within
the Southern District of New York.
12. Miscellaneous.
12.1 Expenses. Debtors shall pay to the Collateral Agent, on demand,
the amount of any and all reasonable expenses, including, without limitation,
attorneys' fees, legal expenses and brokers' fees, which the Collateral Agent
may incur in connection with (a) sale, collection or other enforcement or
disposition of Collateral; (b) exercise or enforcement of any of the rights,
remedies or powers of the Collateral Agent hereunder or with respect to any or
all of the Obligations upon breach or threatened breach; or (c) failure by
Debtors to perform and observe any agreements of Debtors contained herein which
are performed by the Collateral Agent.
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12.2 Waivers, Amendment and Remedies. No course of dealing by the
Collateral Agent and no failure by the Collateral Agent to exercise, or delay by
the Collateral Agent in exercising, any right, remedy or power hereunder shall
operate as a waiver thereof, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy or power of the Collateral Agent. No amendment, modification or
waiver of any provision of this Agreement and no consent to any departure by
Debtors therefrom, shall, in any event, be effective unless contained in a
writing signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The rights, remedies and powers of the Collateral Agent, not only
hereunder, but also under any instruments and agreements evidencing or securing
the Obligations and under applicable law are cumulative, and may be exercised by
the Collateral Agent from time to time in such order as the Collateral Agent may
elect.
12.3 Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being faxed (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section:
To Debtors: Universal Communication Systems, Inc.
000 Xxxxxxx Xxxx, Xxxxx 00X
Xxxxx Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx, CEO
Fax: (000) 000-0000
With a copy by telecopier only to:
Torys LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxx, Esq.
Fax: (000) 000-0000
To Lenders: To the addresses and telecopier numbers
set forth on Schedule A
To the Collateral Agent:
Xxxxxxx X. Xxxxxxx, Esq.
Grushko & Xxxxxxx, P.C.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
With a copy by telecopier only to:
Grushko & Xxxxxxx, P.C.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Any party may change its address by written notice in accordance with this
paragraph.
9
(Security Agreement)
12.4 Term; Binding Effect. This Agreement shall (a) remain in full
force and effect until payment and satisfaction in full of all of the
Obligations; (b) be binding upon each Debtor, and its successors and permitted
assigns; and (c) inure to the benefit of the Collateral Agent, for the benefit
of the Lenders and their respective successors and assigns.
12.5 Captions. The captions of Paragraphs, Articles and Sections in
this Agreement have been included for convenience of reference only, and shall
not define or limit the provisions hereof and have no legal or other
significance whatsoever.
12.6 Governing Law; Venue; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to conflicts of laws principles that would result in the
application of the substantive laws of another jurisdiction, except to the
extent that the perfection of the security interest granted hereby in respect of
any item of Collateral may be governed by the law of another jurisdiction. Any
legal action or proceeding against a Debtor with respect to this Agreement may
be brought in the courts in the State of New York or of the United States for
the Southern District of New York, and, by execution and delivery of this
Agreement, each Debtor hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Debtor hereby irrevocably waives any objection which they may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
aforesaid courts and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum. If any provision of this
Agreement, or the application thereof to any person or circumstance, is held
invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provision or application, and to this end the
provisions hereof shall be severable and the remaining, valid provisions shall
remain of full force and effect.
12.7 Entire Agreement. This Agreement contains the entire agreement of
the parties and supersedes all other agreements and understandings, oral or
written, with respect to the matters contained herein.
12.8 Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
13. Intercreditor Terms. As between the Lenders, any distribution under
paragraph 10.4 shall be made proportionately based upon the remaining principal
amount (plus accrued and unpaid interest) to each as to the total amount then
owed to the Lenders as a whole. The rights of each Lender hereunder are pari
passu to the rights of the other Lenders hereunder. Any recovery hereunder shall
be shared ratably among the Lenders according to the then remaining principal
amount owed to each (plus accrued and unpaid interest) as to the total amount
then owed to the Lenders as a whole.
14. Termination; Release. When the Obligations have been indefeasibly paid
and performed in full or all outstanding Convertible Notes have been converted
to common stock pursuant to the terms of the Convertible Notes and the
Subscription Agreements, this Agreement shall terminate, and the Collateral
Agent, at the request and sole expense of the Debtors, will execute and deliver
to the Debtors the proper instruments (including UCC termination statements)
acknowledging the termination of the Security Agreement, and duly assign,
transfer and deliver to the Debtors, without recourse, representation or
warranty of any kind whatsoever, such of the Collateral, including, without
limitation, Securities and any Additional Collateral, as may be in the
possession of the Collateral Agent.
10
(Security Agreement)
15. Collateral Agent.
15.1 Collateral Agent Powers. The powers conferred on the Collateral
Agent hereunder are solely to protect its interest (on behalf of the Lenders) in
the Collateral and shall not impose any duty on it to exercise any such powers.
15.2 Reasonable Care. The Collateral Agent is required to exercise
reasonable care in the custody and preservation of any Collateral in its
possession; provided, however, that the Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any of the
Collateral if it takes such action for that purposes as any owner thereof
reasonably requests in writing at times other than upon the occurrence and
during the continuance of any Event of Default, but failure of the Collateral
Agent, to comply with any such request at any time shall not in itself be deemed
a failure to exercise reasonable care.
THIS SECURITY AGREEMENT MAY BE SIGNED BY FACSIMILE SIGNATURE AND
DELIVERED BY CONFIRMED FACSIMILE TRANSMISSION.
[THIS SPACE INTENTIONALLY LEFT BLANK]
11
(Security Agreement)
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Security Agreement, as of the date first written above.
"DEBTOR" "THE COLLATERAL AGENT"
UNIVERSAL COMMUNICATION SYSTEMS, INC. XXXXXXX X. XXXXXXX
a Nevada corporation
By: __________________________________ ____________________________________
Its: _________________________________
"SUBSIDIARY" "SUBSIDIARY"
AIRWATER CORPORATION AIRWATER PATENTS CORP.
A Florida corporation A Florida corporation
By: __________________________________ By:_________________________________
Its: _________________________________ Its: _______________________________
"SUBSIDIARY" "SUBSIDIARY"
AIR WATER FRIDGES AND FREEZERS INC. ATOMOSPHERIC WATER TECHNOLOGIES
A Florida corporation A Texas corporation
By: __________________________________ By:_________________________________
Its: _________________________________ Its: _______________________________
"SUBSIDIARY" "SUBSIDIARY"
MILLENNIUM ELECTRIC TOU, LTD. MISA WATER PRODUCTS, LTD.
An Israeli corporation A Florida corporation
By: __________________________________ By:_________________________________
Its: _________________________________ Its: _______________________________
"SUBSIDIARY" "SUBSIDIARY"
SOLAR ONE, INC. SOLAR STYLE, LTD.
A Florida corporation An Israeli corporation
By: __________________________________ By:_________________________________
Its: _________________________________ Its: _______________________________
"SUBSIDIARY"
SOLAR STYLE (USA), INC.
A Florida corporation
By: __________________________________
Its: _________________________________
APPROVED BY "LENDERS":
-------------------------------------- ------------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT BRISTOL INVESTMENT FUND, LTD.
-------------------------------------- ------------------------------------
XXXXXXXXXX EQUITY PARTNERS
12
(Security Agreement)
SCHEDULE A TO SECURITY AGREEMENT
------------------------------------------------------------- ------------------------------- ----------------------------
LENDER PRINCIPAL AMOUNT OF NOTE TO PRINCIPAL AMOUNT OF NOTE
BE ISSUED AT INITIAL CLOSING TO BE ISSUED AT SECOND
CLOSING
------------------------------------------------------------- ------------------------------- ----------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT $301,205.00 $301,205.00
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Xxxxxxxxxxxx
Fax: 000-00-00000000
------------------------------------------------------------- ------------------------------- ----------------------------
BRISTOL INVESTMENT FUND, LTD. $481,928.00 $481,928.00
Caledonian Fund Services Limited
69 Xx. Xxx'x Drive
Xxxxxx Town, Grand Cayman
Cayman Islands
Fax: (000) 000-0000
------------------------------------------------------------- ------------------------------- ----------------------------
XXXXXXXXXX EQUITY PARTNERS $722,892.00 $722,892.00
------------------------------------------------------------- ------------------------------- ----------------------------
TOTALS $1,506,025.00 $1,506,025.00
------------------------------------------------------------- ------------------------------- ----------------------------
13
(Security Agreement)
ANNEX I
TO
SECURITY AGREEMENT
PLEDGE AMENDMENT
This Pledge Amendment, dated _________ __ 200_, is delivered pursuant
to Section 4.3 of the Security Agreement referred to below. The undersigned
hereby agrees that this Pledge Amendment may be attached to the Security
Agreement, dated February ____, 2006, as it may heretofore have been or
hereafter may be amended, restated, supplemented or otherwise modified from time
to time and that the shares listed on this Pledge Amendment shall be hereby
pledged and assigned to Collateral Agent and become part of the Collateral
referred to in such Security Agreement and shall secure all of the Obligations
referred to in such Security Agreement.
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
NAME OF ISSUER JURISDICTION OF PERCENT OWNED NUMBER OF CLASS CERTIFICATE
INCORPORATION BY PARENT SHARES NUMBER(S)
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
AirWater Corporation Florida 100%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
AirWater Patents Corp. Florida 100%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
Air Water Fridges and Freezers, Florida 100%
Inc.
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
Atmospheric Water Technologies Texas 92%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
Millennium Electric TOU, Ltd. Israel 100%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
Misa Water Products, Ltd. Florida 100%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
Solar One, Inc. Florida 100%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
Solar Style, Ltd. Israel 100%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
Solar Style (USA), Inc. Florida 100%
--------------------------------- ------------------------- ---------------- --------------- -------------- --------------------
UNIVERSAL COMMUNICATION SYSTEMS, INC.
By: ____________________________________
14
(Security Agreement)
