SECURITY AGREEMENT
Exhibit
4.3
SECURITY
AGREEMENT (this “Agreement”), dated as of October 4, 2006 (this “Agreement”)
between GVI SECURITY SOLUTIONS, INC.,
a
Delaware corporation (the “Parent”), GVI SECURITY, INC.,
a
Delaware corporation (“GVI” and together with Parent, collectively, the
“Company”), and W-net, Inc., a California corporation (in such capacity, the
“Collateral Agent”) for the holders of the Notes (as defined below) listed on
Schedule A hereto (collectively, the “Holders”).
WHEREAS,
the Holders have agreed to purchase up to $5,000,000 in the aggregate principal
amount of 6% Subordinated Secured Convertible Promissory Notes of Parent dated
as of the date hereof (the “Notes”);
WHEREAS,
GVI is a wholly-owned subsidiary of the Parent;
WHEREAS,
in order to induce the Holders to purchase the Notes, the Company has agreed
to
grant the Collateral Agent, for the benefit of the Holders, a security interest
in the Company’s assets to secure the obligations of the Parent under the Notes;
WHEREAS,
the security interest to be granted hereunder to the Collateral Agent, for
the
benefit of the Holders, shall be subject and subordinate to the security
interest in the Company’s assets previously granted to Laurus Master Fund Ltd.
(“Laurus”), including, without limitation, pursuant to the terms of a
Subordination Agreement among Laurus and the Holders of even date herewith;
and
WHEREAS,
the Company wishes to grant security interests in favor of the Collateral Agent,
for the benefit of the Holders as herein provided;
NOW,
THEREFORE, in consideration of the promises contained herein and for other
good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
The
term
“State”, as used herein, means the State of New York. All terms defined in the
Uniform Commercial Code of the State and used herein shall have the same
definitions herein as specified therein. However, if a term is defined in
Article 9 of the Uniform Commercial Code of the State differently than in
another Article of the Uniform Commercial Code of the State, the term has the
meaning specified in Article 9. The term “Obligations”, as used herein, means
all of the indebtedness, obligations and liabilities of the Company to the
Holders, individually or collectively, whether direct or indirect, joint or
several, absolute or contingent, due or to become due, now existing or hereafter
arising under or in respect of the Notes, or other instruments or agreements
executed and delivered pursuant thereto or in connection therewith or this
Agreement. The term “Event of Default,” as used in this Agreement, shall mean an
Event of Default under any of the Notes, the failure of the company to pay
any
of the Obligations when due, or such other default or breach by the Company
of
any of the Obligations.
2. Grant
of Security Interest.
The
Company hereby grants to the Collateral Agent, for the benefit of the Holders,
to secure the payment and performance in full of all of the Obligations, a
security interest in and so pledges and assigns to the Collateral Agent, for
the
benefit of the Holders, the following properties, assets and rights of the
Company, wherever located, whether now owned or hereafter acquired or arising,
and all proceeds and products thereof (all of the same being hereinafter called
the “Collateral”): all personal and fixture property of every kind and nature
including without limitation all goods (including inventory, equipment and
any
accessions thereto), instruments (including promissory notes), documents,
accounts (including health-care-insurance receivables), chattel paper (whether
tangible or electronic), deposit accounts, letter-of-credit rights (whether
or
not the letter of credit is evidenced by a writing), commercial tort claims,
securities and all other investment property, supporting obligations, any other
contract rights or rights to the payment of money, insurance claims and
proceeds, and all general intangibles (including all payment intangibles).
The
Holders and Collateral Agent acknowledge that the attachment of its security
interest in any commercial tort claim as original collateral is subject to
the
Company’s compliance with Section 4.1.
3. Authorization
to File Financing Statements.
The
Company hereby irrevocably authorizes the Collateral Agent at any time and
from
time to time to file in any Uniform Commercial Code jurisdiction any initial
financing statements and amendments thereto that (a) indicate the Collateral
(i)
as all assets of the Company or words of similar effect, regardless of whether
any particular asset comprised in the Collateral falls within the scope of
Article 9 of the Uniform Commercial Code of the State or such jurisdiction,
or
(ii) as being of an equal or lesser scope or with greater detail, and (b)
contain any other information required by part 5 of Article 9 of the Uniform
Commercial Code of the State for the sufficiency or filing office acceptance
of
any financing statement or amendment, including whether the Company is an
organization, the type of organization and any organization identification
number issued to the Company. The Company agrees to furnish any such information
to the Collateral Agent promptly upon request.
4. Other
Actions.
Further
to insure the attachment, perfection and priority of, and the ability of the
Collateral Agent to enforce, its security interest in the Collateral, the
Company agrees, in each case at the Company’s own expense, to take the following
actions with respect to the following Collateral:
4.1. Commercial
Tort Claims.
If
the
Company shall at any time hold or acquire a commercial tort claim, the Company
shall immediately notify the Collateral Agent in a writing signed by the Company
of the brief details thereof and grant to the Collateral Agent, for the benefit
of the Holders, in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form
and substance satisfactory to the Collateral Agent.
4.2. Other
Actions as to any and all Collateral.
The
Company further agrees, subject to the rights of Laurus, to take any other
action reasonably requested by the Collateral Agent to insure the attachment,
and perfection of, and the ability of the Collateral Agent to enforce, the
Collateral Agent’s security interest in any and all of the
Collateral.
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5. Representations
and Warranties Concerning Company’s Legal Status.
The
Company represents and warrants to the Collateral Agent and Holders as follows:
(a) the Company’s exact legal name is that indicated on the signature page
hereof, (b) the Company is a corporation incorporated in the jurisdiction of
the
State of Delaware, (c) the organizational identification number of (i) the
Parent is 2651712, and (ii) GVI is 3196283, and (d) the Company’s chief
executive office as well as the Company’s mailing address is located at 0000
Xxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx 00000.
6. Covenants
Concerning Company’s Legal Status.
The
Company covenants with the Collateral Agent and Holders as follows: (a) without
providing at least 30 days prior written notice to the Collateral Agent, the
Company will not change its name, its place of business or, if more than one,
chief executive office, or its mailing address or organizational identification
number if it has one, (b) if the Company does not have an organizational
identification number and later obtains one, the Company shall forthwith notify
the Collateral Agent of such organizational identification number, and (c)
the
Company will not change its type of organization, jurisdiction of organization
or other legal structure.
7. Representations
and Warranties Concerning Collateral, Etc.
The
Company further represents and warrants to the Collateral Agent and Holders
as
follows: (a) the Company is the owner of the
Collateral, free from any adverse lien, security interest or other encumbrance,
except for the security interest created by this Agreement, liens in favor
of
Laurus, and liens incurred in the ordinary course of business which arise by
operation of law and which liens secure amounts not yet due (collectively,
“Permitted Liens”),
(b) none
of
the Collateral constitutes, or is the proceeds of, “farm products” as defined in
Section 9-102(a)(34) of the Uniform Commercial Code of the State, and (c) the
Company has at all times operated its business in compliance with all applicable
provisions of the federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and ordinances
dealing with the control, shipment, storage or disposal of hazardous materials
or substances.
8. Insurance.
The
Company will maintain with financially sound and reputable insurers insurance
with respect to its properties and business against such casualties and
contingencies as shall be in accordance with general practices of businesses
engaged in similar activities in similar geographic areas. Such insurance shall
be in such minimum amounts that the Company will not be deemed a co-insurer
under applicable insurance laws, regulations and policies and otherwise shall
be
in such amounts, contain such terms, be in such forms and be for such periods
as
may be reasonably satisfactory to the Collateral Agent.
9. Collateral
Protection Expenses; Preservation of Collateral.
9.1. Expenses
incurred by Collateral Agent.
In
its
discretion, the Collateral Agent may discharge taxes and other encumbrances
at
any time levied or placed on any of the Collateral, make repairs thereto and
pay
any necessary filing fees or, if the Company fails to do so, insurance premiums.
The Company agrees to reimburse the Collateral Agent on demand for any and
all
expenditures so made. The Collateral Agent shall have no obligation to the
Company to make any such expenditures, nor shall the making thereof relieve
the
Company of any default.
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9.2. Collateral
Agent’s Obligations and Duties.
Anything
herein to the contrary notwithstanding, the Company shall remain liable under
each contract or agreement comprised in the Collateral to be observed or
performed by the Company thereunder. The Collateral Agent shall not have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by the Collateral Agent of any
payment relating to any of the Collateral, nor shall the Collateral Agent be
obligated in any manner to perform any of the obligations of the Company under
or pursuant to any such contract or agreement, to make inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent in respect of
the
Collateral or as to the sufficiency of any performance by any party under any
such contract or agreement, to present or file any claim, to take any action
to
enforce any performance or to collect the payment of any amounts which may
have
been assigned to the Collateral Agent or to which the Collateral Agent may
be
entitled at any time or times. The Collateral Agent’s sole duty with respect to
the custody, safe keeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the Uniform Commercial Code of the State
or
otherwise, shall be to deal with such Collateral in the same manner as the
Collateral Agent deals with similar property for its own account.
10. Remedies.
If
an
Event of Default shall have occurred and be continuing, the Collateral Agent
may, without notice to or demand upon the Company, declare this Agreement to
be
in default, and the Collateral Agent shall thereafter have in any jurisdiction
in which enforcement hereof is sought, in addition to all other rights and
remedies, the rights and remedies of a secured party under the Uniform
Commercial Code of the State or of any jurisdiction in which Collateral is
located.
11. Standards
for Exercising Remedies.
To
the
extent that applicable law imposes duties on the Collateral Agent to exercise
remedies in a commercially reasonable manner, the Company acknowledges and
agrees that it is not commercially unreasonable for the Collateral Agent (a)
to
fail to incur expenses reasonably deemed significant by the Collateral Agent
to
prepare Collateral for disposition or otherwise to complete raw material or
work
in process into finished goods or other finished products for disposition,
(b)
to fail to obtain third party consents for access to Collateral to be disposed
of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (c) to fail to exercise collection
remedies against account debtors or other persons obligated on Collateral or
to
remove liens or encumbrances on or any adverse claims against Collateral, (d)
to
exercise collection remedies against account debtors and other persons obligated
on Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral
is
of a specialized nature, (f) to contact other persons, whether or not in the
same business as the Company, for expressions of interest in acquiring all
or
any portion of the Collateral, (g) to hire one or more professional auctioneers
to assist in the disposition of Collateral, whether or not the collateral is
of
a specialized nature, (h) to dispose of Collateral by utilizing Internet sites
that provide for the auction of assets of the types included in the Collateral
or that have the reasonable capability of doing so, or that match buyers and
sellers of assets, (i) to dispose of assets in wholesale rather than retail
markets, (j) to disclaim disposition warranties, (k) to purchase insurance
or credit enhancements to insure the Collateral Agent against risks of loss,
collection or disposition of Collateral or to provide to the Collateral Agent
a
guaranteed return from the collection or disposition of Collateral, or (l)
to
the extent deemed appropriate by the Collateral Agent, to obtain the services
of
other brokers, investment bankers, consultants and other professionals to assist
the Collateral Agent in the collection or disposition of any of the Collateral.
The Company acknowledges that the purpose of this Section 11 is to provide
non-exhaustive indications of what actions or omissions by the Collateral Agent
would not be commercially unreasonable in the Collateral Agent’s exercise of
remedies against the Collateral and that other actions or omissions by the
Collateral Agent shall not be deemed commercially unreasonable solely on account
of not being indicated in this Section 11. Without limitation upon the
foregoing, nothing contained in this Section 11 shall be construed to grant
any
rights to the Company or to impose any duties on the Collateral Agent that
would
not have been granted or imposed by this Agreement or by applicable law in
the
absence of this Section 11.
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12. No
Waiver. The
Collateral Agent shall not be deemed to have waived any of its rights upon
or
under the Obligations or the Collateral unless such waiver shall be in writing
and signed by the Collateral Agent. No delay or omission on the part of the
Collateral Agent in exercising any right shall operate as a waiver of such
right
or any other right. A waiver on any one occasion shall not be construed as
a bar
to or waiver of any right on any future occasion. All rights and remedies of
the
Collateral Agent with respect to the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative
and
may be exercised singularly, alternatively, successively or concurrently at
such
time or at such times as the Collateral Agent deems expedient.
13. Waivers
by Company.
The
Company waives demand, notice, protest, notice of acceptance of this Agreement,
notice of loans made, credit extended, Collateral received or delivered or
other
action taken in reliance hereon and all other demands and notices of any
description. With respect to both the Obligations and the Collateral, the
Company assents to any extension or postponement of the time of payment or
any
other indulgence, to any substitution, exchange or release of or failure to
perfect any security interest in any Collateral, to the addition or release
of
any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromising or adjusting of any
thereof, all in such manner and at such time or times as the Collateral Agent
may deem advisable. The Collateral Agent shall have no duty as to the collection
or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of
any
rights pertaining thereto beyond the safe custody thereof as set forth in
Section 9.2. The Company further waives any and all other suretyship
defenses.
14. Marshalling.
The
Collateral Agent shall not be required to marshal any present or future
collateral security (including but not limited to this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any
of
them or to resort to such collateral security or other assurances of payment
in
any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and
in
addition to all other rights, however existing or arising. To the extent that
it
lawfully may, the Company hereby agrees that it will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of the Collateral Agent’s rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, the Company hereby irrevocably waives the benefits of all such
laws.
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15. Proceeds
of Dispositions; Expenses.
The
Company shall pay to the Collateral Agent on demand any and all expenses,
including reasonable attorneys’ fees and disbursements, incurred or paid by the
Collateral Agent in protecting, preserving or enforcing the Collateral Agent’s
rights under or in respect of any of the Obligations or any of the Collateral.
After deducting all of said expenses, the residue of any proceeds of collection
or sale of the Obligations or Collateral shall, to the extent actually received
in cash, be applied to the payment of the Obligations in such order or
preference as the Collateral Agent may determine, proper
allowance and provision being made for any Obligations not then due. Upon the
final payment and satisfaction in full of all of the Obligations and after
making any payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the
Uniform Commercial Code of the State, any excess shall be returned to the
Company, and the Company shall remain liable for any deficiency in the payment
of the Obligations.
16. Overdue
Amounts.
Until
paid, all amounts due and payable by the Company hereunder shall be a debt
secured by the Collateral.
17. Governing
Law; Consent to Jurisdiction.
THIS
AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK. The Company agrees that any suit for the enforcement of this Agreement
may
be brought in the courts of the State or any federal court sitting therein
and
consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Company by mail at the address
specified in Section 5. The
Company hereby waives any objection that it may now or hereafter have to the
venue of any such suit or any such court or that such suit is brought in an
inconvenient court.
18. Waiver
of Jury Trial.
THE
COMPANY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS,
REMEDIES, OBLIGATIONS, OR DUTIES HEREUNDER, OR THE PERFORMANCE OR ENFORCEMENT
HEREOF OR THEREOF. Except as prohibited by law, the Company waives any right
which it may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary, punitive or consequential damages
or
any damages other than, or in addition to, actual damages. The Company (i)
certifies that neither the Collateral Agent nor any representative, agent or
attorney of the Collateral Agent has represented, expressly or otherwise, that
the Collateral Agent would not, in the event of litigation, seek to enforce
the
foregoing waivers or other waivers contained in this Agreement, and (ii)
acknowledges that, making the loan evidenced by the Notes, the Collateral Agent
is relying upon, among other things, the waivers and certifications contained
in
this Section 18.
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19. Miscellaneous.
The
headings of each section of this Agreement are for convenience only and shall
not define or limit the provisions thereof. This Agreement and all rights and
obligations hereunder shall be binding upon the Company and its respective
successors and assigns, and shall inure to the benefit of the Holders, the
Collateral Agent and their successors and assigns. If any term of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity of all
other
terms hereof shall in no way be affected thereby, and this Agreement shall
be
construed and be enforceable as if such invalid, illegal or unenforceable term
had not been included herein. The Company acknowledges receipt of a copy of
this
Agreement.
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IN
WITNESS WHEREOF,
intending to be legally bound, the Company has caused this Agreement to be
duly
executed as of the date first above written.
| GVI SECURITY SOLUTIONS, INC. | ||
| |
|
|
| By: | ||
|
Name:
Xxxxxx Xxxxx
Title:
Chief Executive Officer
|
||
| GVI SECURITY, INC. | ||
| |
|
|
| By: | ||
|
Name:
Xxxxxx Xxxxx
Title:
Chief Executive Officer
|
||
| W-NET, INC., as Collateral Agent for the Holders | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
8
Schedule
A
Holders
|
Name
|
Principal
Amount
|
9
