SUBORDINATED SECURITY AGREEMENT
January 22, 1999
1. CREATIVE MEDICAL DEVELOPMENT, INC., a Delaware corporation ("Debtor"),
hereby grants to Xxxxxx X. Xxxxx, the holder of the Secured Convertible
Subordinated Note dated January22, 1999 ("Secured Party"), to secure payment and
performance of all Liabilities of Debtor to Secured Party, a security interest
in the following described personal property, whether now owned or hereafter
acquired:
All property of Debtor, whether now owned or hereafter acquired, together
with all additions thereto and accessions thereof including, without
limitation, each of the following: (i) accounts, (ii) Debtor's books, (iii)
equipment, (iv) general intangibles, (v) goods, (vi) inventory, (vii)
instruments, (viii) chattel paper, and the proceeds and products, whether
tangible or intangible, of any of the foregoing,
2. Definitions. As herein used:
2.1 "Collateral" means all property of Debtor which Secured Party now
has, by this agreement acquires or hereafter acquires a security interest in,
lien upon or assignment of.
2.2 "Liabilities" mean all obligations of Debtor under the Secured
Convertible Subordinated Note dated January 22, 1999.
2.3 Terms used in this Subordinated Security Agreement ("Agreement")
which are not herein defined and which are defined in the Uniform Commercial
Code of Oregon shall have the meaning therein set forth.
3. Debtor's Representations and Warranties. Debtor represents and warrants:
3.1 Debtor is a corporation, duly organized and existing under the
laws of the state of its incorporation and is duly qualified in every state in
which it is doing business.
3.2 The execution, delivery and performance hereof are within Debtor's
corporate powers, and have been duly authorized and are not in contravention of
law or the terms of Debtor's charter, by laws or other incorporation papers, or
of any undertaking to which Debtor is a party or by which it is bound.
3.3 Except for the security interest of Secured Party therein, the
security interests of Additional Lenders defined in Section 11 and the prior
security interest in favor of Finova Capital Corporation (fka Greyhound
Financial Corporation, and hereinafter referred to as "Finova") pursuant to a
Loan and Security Agreement dated April 26, 1994, as amended from time to time
(the "Finova Agreement"), Debtor is, and as to Collateral acquired after the
date hereof, Debtor shall and will be the owner of such Collateral free from any
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lien, security interest, encumbrance or other right, title or interest of any
other person, firm or corporation, and Debtor shall defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein adverse to Secured Party.
3.4 Except for financing statements relating to the security interest
granted pursuant to the Finova Agreement and those granted to Additional
Lenders, there is no financing statement now on file in any public office
covering any Collateral subject to the security of Secured Party herein, or
intended so to be, or in which Debtor is named as or signs as a debtor or
consignee, and so long as Debtor has any Liabilities to Secured Party, Debtor
will not execute and there will not be on file in any public office any
financing statements, except the financing statement filed or to be filed with
respect to the security interest hereby granted to Secured Party, and except as
expressly agreed in writing by Secured Party.
3.5 Debtor shall give Secured Party written notice of the location of
each place of business it has, and of its chief executive office if it has more
than one place of business. Except as such notice is given, Debtor's chief
executive office and only place of business shall be at Debtor's address as it
appears at the beginning of this agreement.
4. Uniform Commercial Code. To the extent applicable, the Uniform
Commercial Code of Oregon shall govern security interests provided for herein
and the construction, validity, and performance of this agreement shall be
governed by the law of Oregon. If, by reason of location of Collateral or
otherwise, the creation, validity or perfection of security interests provided
for herein are governed by the law or a jurisdiction other than Oregon, Debtor
agrees to take such action and execute and deliver such papers as Secured Party
may from time to time request to comply with such law. Debtor agrees to execute
and deliver financing statements, and other papers to Secured Party, deliver
instruments, documents, securities and other Collateral to Secured Party and
take all other actions requested by Secured Party to enable Secured Party to
perfect or otherwise protect and enforce its security interest in or lien on
Collateral. Debtor agrees that a photocopy or other reproduction of the security
agreement or any financing statement executed by Debtor pursuant to this
agreement is sufficient as a financing statement.
5. Default. Any or all of the Liabilities shall, at Secured Party's option,
be immediately due and payable upon the occurrence of any of the following
events of default: (a) default in the payment or performance, when due or
payable, of any Liabilities which is not cured within twenty (20) days after
written notice to Debtor; (b) levy or execution against any material property of
Debtor, which levy or execution is not released or discharged within thirty (30)
days; or (c) appointment of a receiver for any material part of the property of
Debtor, assignment for the benefit of creditors by Debtor, commencement of any
proceeding under any bankruptcy or insolvency laws, or any laws relating to the
relief of debtors, readjustment of indebtedness, reorganization, composition or
extension, by or against Debtor.
6. Remedies. Upon the occurrence of any of the above events of default and
at any time thereafter (such default not having previously been cured), Secured
Party shall have the rights and remedies of a secured party under the Uniform
Commercial Code of Oregon.
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7. Waivers. Debtor 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 both to Liabilities and Collateral,
Debtor assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of Collateral, to the
addition or release of any party or person primarily or secondarily liable, to
the acceptance of partial payments thereon and the settlement, compromising or
adjusting of any thereof all in such manner and at such time or times as Secured
Party may deem advisable. Secured Party shall have no duty as to the collection
or protection of Collateral or any income thereon, nor as to the preservation of
rights pertaining thereto beyond the safe custody thereof Secured Party may
exercise its rights with respect to Collateral without resorting to or regard to
other Collateral or sources of reimbursement for Liabilities. Secured Party
shall not be deemed to have waived any of its rights upon or under Liabilities
or Collateral unless such waiver be in writing and signed by Secured Party. No
delay or omission on the part of Secured Party 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 Secured Party on Liabilities or Collateral
whether evidenced hereby or by any other instrument or papers shall be
cumulative and may be exercised singularly or concurrently.
8. Attorneys' Fees and Costs. The Secured Party shall be entitled to
recover reasonable expenses of every kind and description, including reasonable
attorney fees, in connection with suit or action or arbitration in both trial
and appellate courts, paid or incurred by Secured Party under or with respect to
Liabilities or Collateral, collection or realization of Liabilities or in
protecting or enforcing its rights upon or under Liabilities or Collateral or
this agreement, or in taking, holding, preparing for sale and selling any of the
Collateral. Payment thereof is secured by Collateral. After deducting all of
said expenses, the residue of any proceeds of collection or sale of Collateral
shall be applied to the payment of principal or interest on Liabilities in such
order of preference as Secured Party may determine.
9. Notices. Any demand upon or notice to Debtor that Secured Party may
elect to give shall be effective when deposited in the United States mall or
sent by facsimile or delivered to an air courier company addressed to Debtor at
the address shown at the beginning of this agreement, or, if Debtor has notified
Secured Party in writing of a change of address, to Debtor's last address so
notified. Demands or notices addressed to Debtor's address at which Secured
Party customarily communicates with Debtor shall also be effective.
10. Binding Arbitration. Upon the demand of any party any controversy or
claim arising out of or relating to this Agreement, including, without
limitation, the making, performance, or interpretation of this Agreement, shall
be settled by arbitration. Unless otherwise agreed, the arbitration shall be
conducted in Portland, Oregon, in accordance with the then-current Commercial
Arbitration Rules of the American Arbitration Association. The arbitration shall
be held before a single arbitrator (unless otherwise agreed by the parties). The
arbitrator shall be chosen from a panel of attorneys knowledgeable in the field
of business law in accordance with the then-current Commercial Arbitration Rules
of the American Arbitration Association. If the arbitration is commenced, the
parties agree to permit discovery proceedings of the type provided by the Oregon
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Rules of Civil Procedure both in advance of, and during recesses of, the
arbitration hearings. The parties agree that the arbitrator shall have no
jurisdiction to consider evidence with respect to or render an award or judgment
for punitive damages (or any other amount awarded for the purpose of imposing a
penalty). The parties agree that all facts and other information relating to any
arbitration arising under this Agreement shall be kept confidential to the
fullest extent permitted by law. The prevailing Party in any Dispute shall be
entitled to recover its reasonable attorneys' fees in any arbitration, and the
arbitrator shall have the power to award such fees. The award of the arbitrator
shall be in writing and shall set forth the factual and legal basis for the
award. All statutes of limitation applicable to any dispute shall apply to any
proceeding in accordance with this arbitration clause. The parties agree, to the
maximum extent practicable, to take any action necessary to conclude an
arbitration hereunder within 180 days of the filing of a dispute. The arbitrator
shall be empowered to impose sanctions for any party's failure to proceed within
the times established herein. The provisions of this arbitration provision shall
survive any termination, amendment, or expiration hereof or of this Agreement
unless the Parties otherwise expressly agree in writing. Each Party agrees to
keep all disputes and arbitration proceedings strictly confidential, except for
disclosures of information required in the ordinary course of business of the
parties or as required by applicable law or regulation. If any provision of this
arbitration provision is declared invalid by any court, the remaining provisions
shall not be affected thereby and shall remain fully enforceable. THE PARTIES
UNDERSTAND THAT BY THIS AGREEMENT THEY HAVE DECIDED THAT THEIR DISPUTES SHALL BE
RESOLVED BY BINDING ARBITRATION RATHER THAN IN COURT, AND ONCE DECIDED BY
ARBITRATION NO DISPUTE CAN LATER BE BROUGHT, FILED OR PURSUED IN COURT.
I. Equal Priority of Security Interest. Debtor intends to issue Eight
Percent Secured Convertible Subordinated Notes in the aggregate maximum
principal amount of $275, 160.00 (including the principal amount of this Secured
Party's Note) to certain parties (such other parties shall be referred to as
"Additional Lenders") on terms substantially similar to the terms between
Secured Party and Debtor. The security interest granted by this Agreement
secures the Liabilities to the Secured Party on an equal, or pari passu, basis
with the security interests granted to the Additional Lenders, such that the
Secured Party's and Additional Lenders' security interests in the Collateral
shall rank equally with each other's security interest in the Collateral
regardless of the date of filing of each party's financing statement.
12. Subordination to Finova and its Successor. The security interest
granted to each Secured Party hereunder is subordinate and junior in priority to
the first priority security interest granted to Finova Capital Corporation.
Concurrently with the execution and delivery of this Agreement, each Secured
Party shall execute and deliver to Finova Capital Corporation its form of
Subordination and Standstill Agreement. Each Secured Party agrees that the
security interest granted by this Agreement shall also be subordinate and junior
to any security interest in favor of a lender who provides an operating line of
credit loan to the Debtor to pay off or refinance the loan due and owing to
Finova Capital Corporation. Secured Party shall, at the request of Debtor, take
all reasonable actions requested by Debtor to evidence such subordination,
including, without limitation, execution of a subordination agreement
substantially similar to the Subordination and Standstill Agreement.
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Debtor and Secured Party hereby acknowledge receipt of a copy of this
Agreement.
DEBTOR:
CREATIVE MEDICAL DEVELOPMENT, INC
By: /s/ M. Xxxxxxx Xxx Xxxxxx
Title: VP Finance & Treasurer
SECURED PARTY:
Xxxxxx X. Xxxxx
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