SECURITY AGREEMENT
Exhibit 10.3
This SECURITY AGREEMENT (this “Agreement”) is entered into as of the 22nd day of October,
2008, by CleanTechBiofuels, Inc., a Delaware corporation (“Debtor”), in favor of World Waste
Technologies, Inc. (the “Secured Party”).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Patent Purchase Agreement between Debtor and the Secured
Party of even date herewith (the “Purchase Agreement”), the Secured Party has agreed to make
certain loans and advances to Debtor which are to be evidenced by that certain Promissory Note of
even date herewith (the “Note”).
WHEREAS, it is a condition precedent to the effectiveness of the Note that Debtor shall grant
the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the Secured Party to
make the loans and advances contemplated by the Note, Debtor hereby agrees with the Secured Party
as follows:
Section 1. Grant of Security. Debtor hereby assigns and pledges to the Secured Party
and grants to the Secured Party a security interest in all of Debtor’s right, title and interest in
and to the U.S. Patent No. 6,306,248 (“Patent”), all the rights associated with such Patent as set
forth in Section 1.1 of the Purchase Agreement, and all collections, receipts and other proceeds
(cash and non-cash) of any of the foregoing (the “Collateral”).
Section 2. Security for Obligations. This Agreement secures the payment of all
obligations of Debtor now or hereafter existing under the Note (all such obligations of Debtor
being the “Obligations”). Without limiting the generality of the foregoing, this Agreement secures
the payment of all amounts that constitute part of the Obligations, including all amounts that
would be owed by Debtor to the Secured Party under the Note but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving Debtor.
Section 3. Release of Security. As of the date of the repayment in full of all
indebtedness under the Note, the security interest granted hereby shall terminate and all rights to
the Collateral shall revert to Debtor.
Section 4. Representations and Warranties. Debtor represents and warrants, which
representations and warranties shall survive execution and delivery of this Security Agreement, as
follows: (a) The exact legal name, the type of organization, and the jurisdiction of organization
of the Company is accurately set forth on the first page of this Agreement. (b) This Agreement has
been duly executed and delivered by Debtor and is a valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms. (c) The execution and delivery by Debtor
of this Agreement and the performance of its obligations hereunder are within Debtor’s authority
and capacity and do not contravene any law, regulation, order or contractual
restriction binding on or affecting Debtor. (d) The pledge and grant of security interest in
the Collateral pursuant to this Agreement creates a valid and perfected security interest in the
Collateral in favor of the Secured Party, securing the payment of all of the Obligations. (g) The
Company will be the sole, legal and equitable owner of the Collateral, and no financing statement
or other evidence of lien covering or purporting to cover the Collateral will be on file in any
public office other than the financing statements filed in connection with the security interest
granted to the Secured Party hereunder.
Section 5. Further Assurances.
(a) Debtor agrees that from time to time, at the expense of Debtor, Debtor will promptly
execute and deliver all further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Secured Party 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 Secured Party to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, Debtor will: (i) deliver and
pledge to the Secured Party promptly upon receipt thereof all instruments or certificates
representing or evidencing any of the Collateral duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to the Secured Party;
and (ii) 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 Secured Party may
request, in order to perfect and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) Debtor hereby authorizes the Secured Party 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 Debtor where permitted by law. A photocopy or other reproduction of this Agreement or
any financing statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
(c) Debtor will furnish to the Secured Party from time to time statements and schedules
further identifying and describing the Collateral and such other reports in connection with the
Collateral as the Secured Party may reasonably request, all in reasonable detail.
(d) Until payment in full of all of the Obligations, Debtor agrees: (i) to defend the title of
the Collateral and the lien thereon of the Secured Party against the claim of any other person;
(ii) to maintain and preserve such lien until payment; (iii) not use or permit any Collateral to be
used unlawfully or in violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral; (iv) to give the
Secured Party at least 30 days’ prior written notice of any change in Debtor’s name, domicile, or
structure; (v) pay promptly when due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Collateral except to the extent the
validity thereof is being contested in good faith; provided that such Debtor shall in any event pay
such taxes, assessments, charges, levies or claims not later than five days prior to the date of
any proposed sale under any judgment, writ or warrant of attachment entered or filed against such
Debtor or any of the Collateral as a result of the failure to make such payment; and
(vi) not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, or create or suffer to exist any lien upon or with
respect to any of the Collateral.
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If Debtor fails to perform any agreement contained herein, the Secured Party may itself perform, or
cause performance of, such agreement. Debtor agrees to reimburse the Secured Party on demand for
any payments made or expenses incurred by the Secured Party pursuant to the foregoing authorization
and any unreimbursed amounts shall constitute amounts outstanding under the Note for all purposes
hereof. The powers conferred on the Secured Party by this Agreement are solely to protect the
interests of the Secured Party and shall not impose any duty upon the Secured Party to exercise any
such power, and if the Secured Party shall exercise any such power, such exercise shall not relieve
the Company of any Event of Default (defined below), and the Secured Party shall be accountable
only for amounts actually received as a result thereof. The Secured Party shall be under no
obligation to take steps necessary to preserve the rights in or value of or to collect any sums due
in respect of any Collateral against any other person or entity but may do so at its option.
Section 6. Events of Default.
(a) All of the following are Events of Default under this Agreement: (a) Debtor violates any
provisions of this Agreement, the Note or the Purchase Agreement or any representation or warranty
by Debtor under any such agreement is not true. (b) Debtor fails to make payments as and when due
under the Note. (c) The dissolution, liquidation or termination of the legal existence of Debtor.
(d) The appointment of a receiver, trustee or similar judicial officer or agent to take charge of
or to liquidate any property or assets of Debtor. (e) The commencement of any proceeding against
Debtor under any provision of the Bankruptcy Code of the United States, as amended. (f) The
occurrence of a Change of Control, unless either (X) the Secured Party consents thereto or (Y) all
amounts due hereunder are repaid in full concurrently therewith. A Change of Control shall mean the
sale of all or any substantial portion of Debtor’s assets outside of the ordinary course of
business, or the closing of any transaction pursuant to which any person (other than Debtor’s
existing owners) becomes the holder of more than 50% of Debtor’s outstanding ownership interests.
(h) Debtor ceases any material portion of its business operations as presently conducted.
(b) Debtor shall deliver to the Secured Party, immediately upon becoming aware that an Event
of Default has occurred, a written notice specifying the nature and period of existence.
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Section 7. Remedies. If any Event of Default shall have occurred and be continuing:
(a) The Secured Party may exercise in respect of the Collateral, in addition to other rights
and remedies provided for herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Uniform Commercial Code in effect in the State of California at
that time (the “UCC”) (whether or not the UCC applies to the affected Collateral), and also may (i)
take possession of the Collateral in accordance with the applicable provisions of the UCC, (ii)
require Debtor to, and Debtor hereby agrees, that it will at its expense
and upon request of the Secured Party forthwith, assemble all or part of the Collateral as
directed by the Secured Party and make it available to the Secured Party at a place to be
designated by the Secured Party which is reasonably convenient to both parties, and/or
(iii) without notice except as specified below, sell or, to the extent permitted by applicable law,
purchase the Collateral or any part thereof in one or more parcels at public or private sale, at
any of the Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Secured Party may deem commercially reasonable. Debtor agrees that if
it sells the Collateral, to the extent notice of sale shall be required by law, at least ten days’
notice to Debtor 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 Secured Party shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given. The Secured Party 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. Debtor hereby waives any claim against the Secured Party arising by reason of the
fact that the Secured Party chose to retain the Collateral or the price at which any Collateral may
have been sold at a private sale was less than the price that might have been obtained at a public
sale, even if the Secured Party accepts the first offer received and does not offer such Collateral
to more than one offeree, and agrees that any such private placement shall, in and of itself, not
be deemed to be commercially unreasonable.
(b) Any cash held by the Secured Party as Collateral and all cash proceeds received by the
Secured Party in respect of any sale of, collection from, or other realization upon all or any part
of the Collateral may, in the discretion of the Secured Party, be held by the Secured Party as
collateral for, and then or at any time thereafter be applied (after payment of any amounts payable
to the Secured Party pursuant to this Agreement) in whole or in part by the Secured Party against,
all or any part of the Obligations in such order as the Secured Party shall elect. Any surplus of
such cash or cash proceeds held by the Secured Party and remaining after payment in full of all the
Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Secured Party may exercise any and all rights and remedies of Debtor under or in
connection with or otherwise in respect of the Collateral, including, without limitation, any and
all rights of Debtor to demand or otherwise require payment of any amount under, or performance of
any provision of, the agreements included within the Collateral.
(d) Debtor agrees that a breach of any of the covenants contained in Section 5 will cause
irreparable injury to the Secured Party, that the Secured Party has no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant contained in Section 5
shall be specifically enforceable against Debtor, and Debtor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants except for a defense that
no default has occurred giving rise to the Obligations becoming due and payable prior to their
stated maturities.
(e) If the proceeds of any sale or other disposition of the Collateral are insufficient to pay
all the Obligations, Debtor shall be liable for the deficiency and the fees of any attorneys
employed by the Secured Party to collect such deficiency. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
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(f) Upon the occurrence and during the continuance of an Event of Default, Debtor hereby
constitutes and appoints the Secured Party its true and lawful attorney, with full power, in the
name of the Company or otherwise, at the expense of the Company and without notice to or demand
upon the Company, to grant, sell, convey, assign and transfer the Collateral in accordance with the
UCC, free and clear of all liens. The Company agrees to reimburse the Secured Party on demand for
any payments made or expenses incurred by the Secured Party pursuant to the foregoing authorization
and any unreimbursed amounts shall constitute amounts outstanding under the Note for all purposes
hereof. The above power of attorney is irrevocable and coupled with an interest.
Section 9. Indemnification. The Company shall defend, indemnify and hold harmless the
Secured Party for any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disbursements (including reasonable attorneys’ fees) of any
kind whatsoever which may be imposed on, incurred by or asserted against the Secured Party in
connection with or in any way arising out of or relating to the Collateral or this Agreement,
except to the extent the same is finally determined by a court of competent jurisdiction to have
arisen as a result of the willful misconduct or bad faith of the Secured Party.
Section 10. Amendments. No amendment or waiver of any provision of this Agreement,
and no consent to any departure by Debtor herefrom, shall in any event be effective unless the same
shall be in writing and signed by the Secured Party. Any waiver, express or implied, of any breach
or default shall not be considered a waiver of any subsequent breach or default.
Section 11. Continuing Security Interest. This Agreement shall create a continuing
security interest in the Collateral and shall (a) remain in full force and effect until the payment
in full of the Obligations and all other amounts payable under the Note (b) be binding upon Debtor,
its successors and assigns and (c) inure to the benefit of, and be enforceable by, the Secured
Party and its successors, transferees and assigns.
Section 12. Severability. Whenever possible each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Note shall be or become prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 13. Notices. Any notice or other communication herein required or permitted
to be given shall be in writing and may be personally served or sent by facsimile or United States
mail or courier service and shall be deemed to have been given when delivered in person or by
courier service, upon receipt of facsimile, or three business days after depositing it in the
United States mail with postage prepaid and properly addressed. For the purposes hereof, the
address of each party hereto shall be the address for such party set forth in the Purchase
Agreement or such other address as shall be designated by such party in a written notice delivered
to the other parties hereto.
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Section 14. Governing Law. This Agreement was executed in, and the transactions
contemplated by and the provisions of this Agreement shall be governed by and construed in
accordance with, the laws of the State of California, without giving effect to the conflict of laws
provisions thereof; and both parties consent to the jurisdiction of the state and federal courts
sitting in California.
Section 15. Counterparts. This Agreement may be executed in counterparts and shall be
effective when each party has executed at least one of the counterparts even though both parties
have not executed the same counterpart.
* * * * * * *
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IN WITNESS WHEREOF, Debtor has duly executed and delivered this Agreement, and the Secured
Party has caused this Agreement to be duly executed and delivered, as of the date first above
written.
| DEBTOR: CLEANTECH BIOFUELS, INC. |
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| By: | ||||
| Title: | ||||
| SECURED PARTY: WORLD WASTE TECHNOLOGIES, INC. |
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| By: | ||||
| Title: | ||||
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