Exhibit 10.10
CONVERTIBLE NOTE SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of July 31st,
2003, by and between SOLOMON TECHNOLOGIES, INC., a Delaware corporation
("Solomon"), and PINETREE (BARBADOS) INC., a corporation existing under the laws
of Barbados ("Pinetree").
WITNESSETH:
WHEREAS, on the date hereof, Solomon and Pinetree entered into a
Memorandum of Understanding (the "MOU") and a Convertible Secured Promissory
Note (the "Secured Note") to be secured by a Convertible Security Agreement; and
WHEREAS, this Agreement constitutes such Convertible Note Security
Agreement.
NOW, THEREFORE, for and in consideration of the above premises and the
mutual covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. Security Interest.
1.1 Solomon hereby grants and assigns to Pinetree a continuing security
interest in and security title to (the "Security Interest") all of its property,
whether now owned or hereafter created, acquired or reacquired, including,
without limitation, the property described below and all substitutions
therefore, accessions thereto and improvements thereon, whether now owned or
hereafter created, acquired or reacquired:
(a) All of Solomon's inventory, now or hereafter acquired, of
whatsoever nature and kind and wheresoever situated (the "Inventory");
(b) All machinery, equipment, marine vessels of any nature and
supplies (installed and uninstalled), now or hereafter acquired, and not
included in Inventory above, including motor vehicles and watercraft and all
accretions and accessions thereto (the "Equipment");
(c) All rights to payment of a monetary obligation, now or
hereafter acquired, whether or not earned by performance, for property that has
been or is to be sold, leased, licensed, assigned or otherwise disposed of, for
services rendered or to be rendered, for a policy of insurance issued or to be
issued or for a secondary obligation incurred or to be incurred, including,
without limitation, all agreements with and sums due from customers, and all
books and records recording, evidencing or relating to such accounts or any part
thereof (the "Accounts");
(d) With the exception of the Solomon Marine Applications,
defined in
Section 1.2, all general intangibles, now or hereafter acquired, including
personal property not included above, such as, without limitation, all goodwill,
trademarks, trademark applications, trade names, patents, patent applications,
patent extensions, industrial designs, other industrial or intellectual property
or rights therein, whether under license or otherwise, registered or pending,
including, but not limited to, those patents and patent application listed in
the attached Schedule 1.1(d) (collectively, the "Patents") and programs,
software, software source codes, programming material and tax refunds, (the
"Intangibles");
(e) All contracts and contractual rights, remedies or
provisions now existing or hereafter arising in favor of Solomon, together with
all amendments thereto and all other documents executed in connection therewith
(the "Contracts");
(f) All investment property, including, without limitation,
all securities, whether certificated or uncertificated, security entitlements,
securities accounts, commodity contracts and commodity accounts, including,
without limitation, all shares in the capital stock of Town Creek Industries,
Inc. (the "Investment Property");
(g) All membership rights, privileges and interests of Solomon
in any natural person, partnership, corporation, trust, association, government
or other entity, ("Person"), including, without limitation, (i) the right to
receive distributions at any time or from time to time in cash or other
property, (ii) the right to any specific property of such Person, if any, and
(iii) all of Solomon's right to participate in the management of such Person
(the "Membership Interests");
(h) All cash proceeds and any other tangible personal property
acquired through the disposition of an award from any lawsuit or lawsuit
settlement, including, but not limited to, any cash proceeds from enforcing its
patent rights against any third parties ("Litigation Proceeds"); and
(i) All goods, chattel paper, documents, instruments, choses
in action, claims, money, deposits, certificates of deposit, stock or share
certificates and licenses and other rights in intellectual property, and other
tangible personal property not included above (the "Miscellaneous Items"); and
(j) All proceeds of any of the above, and all proceeds of any
loss of, damage to or destruction of the above, whether insured or not insured,
and all other proceeds of any sale, lease or other disposition of any property
or interest therein referred to above, or of any franchise, license, permit or
operating right issued by any governmental or regulatory body or agency, whether
or not constituting a license, including, without limitation, the proceeds of
the sale or other disposition of any licenses, together with all proceeds of any
policies of insurance covering any or all of the above, indemnity or warranty
payments with respect to any of the above, the proceeds of any award in
condemnation with respect to any of Solomon's property, any rebates or refunds,
whether for taxes or otherwise, and all proceeds of any such proceeds (the
"Proceeds").
1.2 All general intangibles, patents, industrial designs, other
industrial or intellectual property or rights therein, whether under license or
otherwise, registered or pending, and stated in the attached Schedule 1.2 shall
be hereinafter referred to as the "Solomon Marine
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Applications". Solomon shall grant and assign to Pinetree a continuing interest
in the Solomon Marine Applications, and the Solomon Marine Applications shall be
considered part of the Collateral, hereinafter defined, six (6) months from the
date of this Agreement.
1.3 The Inventory, Equipment, Accounts, Intangibles, Contracts,
Investment Property, Membership Interests, Litigation Proceeds, Miscellaneous
Items, Solomon Marine Applications and Proceeds thereof, as described in this
Section, are hereinafter collectively referred to as the "Collateral". This
Agreement and the Security Interest secure payment of all Obligations.
1.4 For purposes of this Agreement, "Obligations" means all amounts
owing by Solomon to Pinetree from time to time under the Secured Note.
SECTION 2. Further Assurances. Solomon hereby authorizes Pinetree to
file such financing statements and such other documents as Pinetree may deem
necessary or desirable to protect or perfect its security interest in the
Collateral, and Solomon further irrevocably appoints Pinetree as Solomon's
attorney-in-fact, with power of attorney to execute on behalf of Solomon such
Uniform Commercial Code financing statement amendment forms as Pinetree may,
from time to time, deem necessary or desirable. Such power of attorney is
coupled with an interest and shall be irrevocable for so long as any of the
Obligations remains unpaid or unperformed. In addition, Solomon agrees to make,
execute, deliver or cause to be done, executed and delivered, from time to time,
all such further acts, documents and things as Pinetree may reasonably require
for the purpose of perfecting or protecting its rights hereunder or otherwise
giving effect to this Agreement, all promptly upon request. With the exception
of the tax liens, stated and described in the attached Schedule 2, Solomon shall
take or cause to be performed such acts and actions as shall be necessary or
appropriate to assure that the Security Interest upon the Collateral shall not
be or become subordinate or junior to the security interests, liens or claims of
any other Person.
Solomon represents and warrants that it owns all of the right, title
and interest in and to the Patents and that it is capable of granting to
Pinetree a valid security interest therein. Solomon further represents and
warrants that it will not transfer, assign or otherwise dispose of its right,
title and interest in and to the Patents without the prior written consent of
Pinetree.
SECTION 3. Location of Collateral, and Change of Jurisdiction or Name.
Solomon further represents and warrants that its chief executive office and all
of its records concerning the Collateral is located at:
0000 Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx,
X.X.X. 00000
Solomon hereby covenants and agrees that it shall not keep any of such records
at any other address, except for the offices of its attorneys, unless written
notice thereof is given to Pinetree at least thirty (30) days prior to the
effective date of any new address for the keeping of such records. Solomon
further agrees that it shall promptly advise Pinetree in writing of the opening
of any new place of business or any change in the location of the place where it
keeps the Collateral. Solomon hereby covenants and agrees that (i) its
jurisdiction of incorporation is the
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State of Delaware, and (ii) it shall not change its jurisdiction of
incorporation or its name unless written notice thereof is given to Pinetree
within ten (10) days of the effective date of such change.
SECTION 4. Covenants Concerning Contracts.
4.1 Solomon shall (a) fulfill, perform and observe each and every
material condition and covenant contained in any of the Contracts, (b) at the
sole cost and expense of Solomon, enforce the performance and observance of each
and every material covenant and condition of the Contracts, to be performed or
observed by other parties to any of the Contracts, and (c) appear in and defend
any action growing out of or in any manner connected with any Contract. The
rights and interest transferred and assigned to Pinetree hereunder include all
of Solomon's rights and titles (a) to modify the Contracts, (b) to terminate the
Contracts, and (c) to waive or release the performance or observance of any
obligation or condition of the Contracts, provided that such rights will not be
enforced unless an Event of Default, as hereinafter defined, has occurred and
remains uncured after the expiration of the cure period, and the failure to
exercise such rights, in Pinetree's view, would result in a material decrease in
the value of the Collateral securing the Obligations.
4.2 Any of the following shall be an "Event of Default":
(a) Solomon defaults in the payment of any principal or
interest on any Obligation for a period of fifteen (15) business days after such
payment becomes due and payable, by acceleration or otherwise; or
(b) Solomon's failure to cure within fifteen (15) business
days after receipt of written notice from Pinetree of Solomon's breach of any
part or subsection of Sections 1, 2, 4 or 7 of this Agreement; or
(c) Solomon's failure to cure within (15) business days after
receipt of written notice from Pinetree of a material breach of any other of its
representations, warranties, covenants or other undertakings under this
Agreement or any of the STI Settlement Documents; or
(d) Without Pinetree's prior written consent, which shall not
be unreasonably withheld or delayed, Xxxxxxx xxxxx, assigns, transfers, or
otherwise disposes of all or any substantial part of the Collateral, its assets
or any subsidiary corporation, or merges or amalgamates with or is acquired by
any other corporation, or there is a change of control of Solomon; or
(e) Except with respect to the payment of taxes disclosed in
Schedule 3.1(f) of the MOU, Solomon commits a default with respect to any other
material indebtedness and such default continued for a period of (15) business
days, or there is entered any final judgment against Solomon for any payment in
excess of $100,000; or
(f) Solomon's failure to provide notice to Pinetree of any
material change of the location of Collateral, as required by section 3 of this
Agreement, such that the financing
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statement, perfecting Pinetree's security interest in the Collateral, would no
longer be effective; or
(g) An uninsured material loss, theft, damage or destruction
to any of the Collateral; or
(h) Except for the outstanding tax liabilities disclosed in
Schedule 2 of this Agreement, any lien against or the making of any lien,
seizure or attachment of or on the Collateral, which has a material adverse
affect on Solomon's business; or
(i) Solomon's failure to cure within fifteen (15) business
days after receipt of written notice from Pinetree of the occurrence of an Event
of Default under the STI Settlement Documents.
4.3 Nothing in this Agreement or the Settlement Documents shall be
construed to prevent Solomon from continuing to carry its business in the
ordinary course, except in the Event of Default.
4.4 Special Bankruptcy Provisions. Solomon hereby agrees that if
Solomon shall:
(a) file with any bankruptcy court or be the subject of any
petition under Title 11 of the U.S. Code, as amended;
(b) be the subject of any order for relief issued under such
Title 11 of the U.S. Code, as amended;
(c) file or be the subject of any petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future federal or state act
or law relating to bankruptcy, insolvency, or other relief for debtors;
(d) seek, consent to, or acquiesce in the appointment of any
trustee, receiver, conservator, or liquidator; or
(e) be the subject of any order, judgment, or decree entered
by any court of competent jurisdiction approving a petition filed against
Solomon for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future federal
or state act or law relating to bankruptcy, insolvency, or relief for debtors,
that any such event shall constitute an Event of Default hereunder
(provided, however, that in any such case, if the same is dismissed or vacated
within 30 days of being instituted, then any such default shall be deemed
cured), and Solomon: (i) agrees that it will not contest, object to, or
interpose any defense, all of which are waived, with respect to any motion by
Pinetree seeking relief from any automatic stay imposed by Section 362 of Title
11 of the U.S. Code, as amended, or from any other stay or suspension of
remedies imposed in any other manner with respect to the exercise of the rights
and remedies otherwise available to Pinetree with respect to the Collateral
under the Settlement Documents, and (ii) acknowledges and stipulates that
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Solomon cannot provide Pinetree with adequate protection (as that term is
defined in Section 361 of the Bankruptcy Code) and therefore it will not use or
seek approval for continued use of, any of Pinetree's cash collateral (as that
term is defined in Section 363 of the Bankruptcy Code), including any of the
Collateral.
SECTION 5. Remedies.
5.1. Upon the occurrence and during the continuance of an Event of
Default, Pinetree shall have such rights and remedies as are set forth in the
Secured Note, those rights set forth herein, and all the rights, powers and
privileges of a secured party under the Uniform Commercial Code of the State of
Maryland or any other applicable jurisdiction, and all other rights and remedies
available to Pinetree at law or in equity. Solomon covenants and agrees that any
notification of intended disposition of any Collateral, if such notice is
required by law, shall be deemed reasonably and properly given if given in the
manner provided for in section 12 hereof at least fifteen business (15) days
prior to such disposition. Upon the occurrence and during the continuance of an
Event of Default, Pinetree shall have the right to the appointment of a receiver
for the properties and assets of Solomon, and Solomon hereby consents to such
rights and such appointment and hereby waives any objection Solomon may have
thereto or the right to have a bond or other security posted by Pinetree in
connection therewith.
5.2. Upon the occurrence and during the continuance of an Event of
Default, Pinetree may proceed to perform any and all of the Obligations of
Solomon contained in any of the Contracts and exercise any and all rights of
Solomon therein contained as fully as Solomon itself could. Solomon hereby
appoints Pinetree its attorney-in-fact, effective upon the occurrence and during
the continuance of an Event of Default, with power of substitution, to take such
action, execute such documents, and perform such work as Pinetree may deem
appropriate in exercise of the rights and remedies granted Pinetree herein. The
powers herein granted shall include, but not be limited to, powers to xxx on the
Contracts. The power of attorney granted herein is coupled with an interest and
shall be irrevocable for so long as any of the Obligations remain unpaid or
unperformed.
5.3. Upon the occurrence and during the continuance of an Event of
Default, should Solomon fail to perform or observe any covenant or comply with
any condition contained in any of the Contracts then Pinetree may, without
obligation to do so and without releasing Solomon from its obligation to do so,
perform such covenant or condition and, to the extent that Pinetree shall incur
any reasonable costs or pay any reasonable expenses in connection therewith,
including any reasonable costs or expenses of litigation associated therewith,
such costs, expenses or payments shall be included in the Obligations secured
hereby and shall bear interest from the payment of such costs or expenses at the
rate of 11% per annum, calculated and compounded monthly. Pinetree shall not be
obligated to perform or discharge any obligation of Solomon under any of the
Contracts and, except as may result from the gross negligence or willful
misconduct of Pinetree, Solomon agrees to indemnify and hold Pinetree harmless
from and against any and all liability, loss and damage which Pinetree may incur
under any of the Contracts or under or by reason of this Agreement, and any and
all claims and demands whatsoever which may be asserted against Solomon by
reason of an act of Pinetree under any of the terms of this Agreement or under
the Contracts.
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5.4. Solomon hereby acknowledges that the Obligations arose out of a
commercial transaction, and agrees that if an Event of Default shall occur and
be continuing, Pinetree shall have the right to an immediate writ of possession
without notice of a hearing, and hereby knowingly and intelligently waives any
and all rights it may have to any notice and posting of a bond by Pinetree prior
to seizure by Pinetree, or any of its transferees, assigns or successors in
interest, of the Collateral or any portion thereof.
SECTION 6. Pinetree Attorney-In-Fact. Solomon hereby further appoints
Pinetree as its attorney-in-fact, effective upon the occurrence and during the
continuance of an Event of Default, with the power of substitution, and with the
authority to receive, open and dispose of all mail addressed to Solomon, and to
notify the postal authorities to change the address for delivery of mail
addressed to Solomon to such address as Pinetree may designate, to endorse the
name of Solomon on any note, acceptance, check, draft, money order or other
evidence of debt or of payment which may come into the possession of Pinetree,
and generally to do such other things and acts in the name of Solomon as are
necessary or appropriate to protect or enforce the rights hereunder of Pinetree.
Solomon further authorizes Pinetree effective upon the occurrence and during the
continuance of an Event of Default, to compromise and settle or to sell, assign
or transfer or to ask, collect, receive or issue any and all claims possessed by
Solomon all in the name of Solomon. After deducting all reasonable expenses and
charges (including Pinetree's reasonable attorneys' fees) of retaking, keeping,
storing and selling the Collateral, Pinetree shall apply the proceeds in payment
of any of the Obligations and, if a deficiency results after such application,
Solomon covenants and agrees to pay such deficiency to Pinetree. The power of
attorney granted herein is coupled with an interest and shall be irrevocable for
so long as any of the Obligations remains unpaid or unperformed. Solomon agrees
that if steps are taken by Pinetree to enforce rights hereunder, or to realize
upon any of the Collateral, Solomon shall pay to Pinetree the amount of the
reasonable costs, including reasonable attorneys' fees, incurred in connection
with such enforcement, and Solomon's obligation to pay such amounts shall be
deemed to be a part of the Obligations secured hereunder.
SECTION 7. Indemnification and Expenses.
7.1. Solomon shall indemnify and hold harmless Pinetree and any other
person acting hereunder on behalf of Pinetree, including, but not limited to,
officers, directors, employees and affiliates of Pinetree and Pinetree Capital
Corp. (collectively, a "Pinetree Agent"), from and against all losses, costs,
damages, fees and expenses whatsoever associated with the exercise of the powers
of attorney granted herein and shall release Pinetree, Pinetree Capital Corp.
and any Pinetree Agent from all liability whatsoever for the exercise of the
foregoing powers of attorney and all actions taken pursuant thereto, except in
the case of gross negligence or willful misconduct by Pinetree and any Pinetree
Agent.
7.2 Solomon will, upon demand, pay to Pinetree the amount of any and
all reasonable expenses, including the disbursements and reasonable fees of
Pinetree's counsel and of any experts, Pinetree's and Pinetree's Agents, which
Pinetree may incur upon the occurrence and during the continuation of an Event
of Default, in connection with (i) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any Collateral;
(ii) the exercise or enforcement of any of the rights of Pinetree hereunder; or
(iii) the failure by Solomon to perform or observe any of the provisions hereof.
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SECTION 8. Remedies Cumulative. Solomon agrees that the rights of
Pinetree under this Agreement shall be cumulative, and that Pinetree may from
time to time exercise such rights and such remedies as Pinetree, or any of them,
may have thereunder and under the laws of the United States of America and any
state, as applicable, in the manner and at the time that Pinetree in its sole
discretion desires. Solomon further expressly agrees that Pinetree shall not in
any event be under any obligation to resort to any Collateral prior to
exercising any other rights that Pinetree may have against Solomon or its
properties, or to resort to any other collateral for the Obligations prior to
the exercise of remedies hereunder.
SECTION 9. Waiver. Pinetree shall not, by any act, delay, omission or
otherwise, be deemed to have waived any of its rights or remedies hereunder,
unless such waiver is in writing and signed by Pinetree. A waiver by Pinetree of
any right or remedy on any occasion shall not be construed as a bar to the
exercise of any such right or remedy which Pinetree would otherwise have had on
any other occasion.
SECTION 10. Assignment by Pinetree. Solomon agrees that this Agreement
and the rights of Pinetree may, in the sole discretion of Pinetree, be assigned
in whole or in part by Pinetree, provided that the Secured Note is assigned to
the same third party and in accordance with the assignment provisions set forth
in the Secured Note. In the event that this Agreement is so assigned by
Pinetree, the term "Pinetree" wherever used herein shall be deemed to refer to
and include any such assignee or assignees, as appropriate.
SECTION 11. Assignment by Solomon. This Agreement shall be binding upon
and enure to the benefit of the parties hereto and their respective legal
successors and permitted assigns, provided that (i) if Solomon assigns this
agreement or merges or consolidates with any corporation, or sells, leases,
transfers or otherwise disposes of all or any substantial part of its assets
whether now owned or hereafter acquired (an "Assignment"), Solomon shall remain
liable hereunder together with any successor, assignee or transferee and (ii)
Solomon provides written notice to Pinetree within fifteen (15) business days of
any Assignment.
SECTION 12. Terms. All capitalized terms used herein and not defined
herein shall have the meaning ascribed to such term in the Settlement Documents.
SECTION 13. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be given in a manner and at
the addresses set forth in the Secured Note.
SECTION 14. Binding Agreement. The provisions of this Agreement shall
be construed and interpreted, and all rights and obligations of the parties
hereto determined, in accordance with the laws of the State of Maryland. This
Agreement, together with all documents referred to herein, constitutes the
entire Agreement between the parties with respect to the matters addressed
herein, and may not be modified except by a writing executed by Pinetree and
Solomon and delivered by each party to the other. The parties agree that the
sole agreements in force as of the date hereof are the MOU, the Secured Note and
this Agreement and their attachments, in addition to the TCI Convertible Note
Security Agreement among the parties hereto and Town Creek Industries, Inc.
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SECTION 15. Severability. If any paragraph or part thereof shall for
any reason be held or adjudged to be invalid, illegal or unenforceable by any
court of competent jurisdiction, such paragraph or part thereof so adjudicated
as invalid, illegal or unenforceable shall be deemed separate, distinct and
independent, and the remainder of this Agreement shall remain in full force and
effect and shall not be affected by such holding or adjudication.
SECTION 16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, this Security Agreement has been executed and
delivered as of the date first above written.
SOLOMON TECHNOLOGIES, INC.
/s/ XXXXX X. TETHER
-------------------
Name:Xxxxx X. Tether
Title: President and CEO
PINETREE (BARBADOS), INC.
/s/ DR. J. XXXXXX XXXXXX
------------------------
Name:Dr. J. Xxxxxx Xxxxxx
Title: Director
PINETREE (BARBADOS), INC.
/s/ XXXXX XXXXXXXX
------------------
Name:Xxxxx Xxxxxxxx
Title: Director
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SCHEDULE 1.1(d)
SOLOMON TECHNOLOGIES, INC.
PATENTS
COUNTRY FILED SERIAL # ISSUED PATENT # STATUS
METHOD AND APPARATUS FOR PROPELLING A MARINE VESSEL
EUROPEAN PATENT CO 04/29/96 97922660.2 Pending
JAPAN 04/29/97 9-539268 Published
UNITED STATES 04/29/96 08/639,436 01/26/99 5,863,228 IssueD
WIPO 04/29/97 PCT/US97/07557 National Phase
entered - Chapter
II demand filed
10/27/97
SYSTEM AND APPARATUS FOR A MULTIPLE INPUT AND DUAL OUTPUT ELECTRIC DIFFERENTIAL MOTOR TRANSMISSION DEVICE
JAPAN 11/04/97 10-523770 PUBLISHED
UNITED STATES 11/19/96 08/751,982 12/22/98 5,851,162 ISSUED
WIPO 11/04/97 PCT/US97/ National Phase
20916 entered - Chapter
II demand filed
05/20/98
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SCHEDULE 1.2
STI Marine Applications
METHOD AND APPARATUS FOR PROPELLING A MARINE VESSEL
The STI Marine Applications are: (a) the STI patent (5,563,225) entitled "Method
and Apparatus for Propelling a Marine Vessel"; and (b) the STI Patent
(5,851,162) entitled "System and Apparatus for a Multiple Input and Dual Output
Electric Differential Motor Transmission Device", but only to the extent that
this patent is applied in the marine industry.
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SCHEDULE 2
Solomon Tax Liens
1. State.
Due, but unpaid, Maryland taxes are $27,000 give or take a few hundred,
including penalties and interest. The State of Maryland has filed tax liens
against STI in both St. Mary's County and Xxxxxxx County. However, STI has
entered into a payment plan with the State of Maryland in connection with such
taxes.
Due, but unpaid, Maryland employment taxes are $3,000, plus interest
and penalties. The State of Maryland has filed tax liens against STI in both St.
Mary's County and Xxxxxxx County. However, STI has entered into a payment plan
with the State of Maryland in connection with such taxes.
2. Federal.
Due, but unpaid, federal taxes are $160,000, plus interest and
penalties. STI has engaged a law firm (called 20/20) which specializes in
negotiating federal tax debt settlements.
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