Exhibit 10.5
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of November 1, 2005 (as the same may
from time to time be amended, supplemented or otherwise modified, this "Security
Agreement"), by and between the individuals and entities set forth on the
signature pages hereto (each, a "Secured Party" and collectively, the "Secured
Parties"), and World Waste Technologies, Inc., a California corporation
("Debtor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in an offering (the "Offering") of up to
$3.0 million aggregate principal amount of its 10% senior secured bridge notes
(plus up to an additional $3.0 million of notes to cover over-allotments)
(collectively, the "Notes"), pursuant to the terms of the Company's Confidential
Private Placement Memorandum dated as of October 7, 2005, as amended; and
WHEREAS, each of the Secured Parties has agreed to purchase Notes pursuant
to the Offering and a Subscription Agreement entered into by such Secured Party
with the Company; and
WHEREAS, it is a condition precedent to the obligations of each Secured
Party to acquire Notes that, inter alia, the Debtor execute and deliver this
Security Agreement to the Secured Parties.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used herein, capitalized terms defined in this
Agreement and not otherwise defined herein are used herein as so defined.
"Account Debtor" shall mean the person who is obligated on a Receivable.
"Accounts" shall mean "accounts" as such term is defined in the UCC.
"Chattel Paper" shall mean "chattel paper" as such term is defined in the
UCC.
"Collateral" shall have the meaning assigned to it in Article II hereof.
"Collateral Records" shall mean books, records, computer software,
computer printouts, customer lists, blueprints, technical specifications,
manuals, and similar items which relate to any Collateral other than such items
obtained under license or franchise security agreements which prohibit
assignment or disclosure of such items.
"Commercial Tort Claims" shall mean "commercial tort claims" as defined in
the UCC.
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"Deposit Account" shall mean a "deposit account" as defined in the UCC.
"Documents" shall mean "documents" as defined as in the UCC.
"Equipment" shall mean "equipment" as defined in the UCC.
"Event of Default" shall have the meaning assigned to it in the Notes.
"Financial Assets" shall mean "financial assets" as defined in the UCC.
"General Intangibles" shall mean "general intangibles" as such term is
defined in the UCC.
"Goods" shall mean "goods" as defined in the UCC.
"Instruments" shall mean instruments as defined in the UCC.
"Inventory" shall mean "inventory" as such term is defined in the UCC,
including without limitation, all goods (whether such goods are in the
possession of the Debtor or of a bailee or other Person for sale, lease,
storage, transit, processing, use or otherwise and whether consisting of whole
goods, spare parts, components, supplies, materials or consigned or returned or
repossessed goods), including without limitation, all such goods which are held
for sale or lease or are to be furnished (or which have been furnished) under
any contract of service or which are raw materials or work in progress or
materials used or consumed in the Debtor's business.
"Investment Property" shall mean "investment property" as such term is
defined in the UCC.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement of any kind or nature whatsoever, including, without
limitation, the filing of any financing statement or similar instrument under
the UCC or comparable law of any jurisdiction, domestic or foreign.
"Permitted Liens" shall mean any of the following (1) Liens for taxes,
fees, assessments or other governmental charges which are not yet due and
payable or which are being contested in good faith with a reserve or other
appropriate provision having been made therefor; (2) Liens of landlords,
carriers, suppliers, vendors, warehousemen, mechanics, materialmen and other
similar Liens which are incurred in the ordinary course of business; (3) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (4) easements, reservations, rights of way, restrictions, minor
defects or irregularities in title and other similar Liens not interfering in
any material respect with the ordinary conduct of the business of the Debtor and
not adversely affecting the Lien of the Secured Parties in the Collateral; (5)
Liens in favor of the Secured Parties; and (6) Liens existing on the date hereof
and indicated on Schedule A attached hereto.
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"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or agency, department or instrumentality
thereof.
"Proceeds" shall mean "proceeds" as such term is defined in the UCC.
"Receivables" shall mean all rights to payment for goods sold or leased or
services rendered, whether or not earned by performance and all rights in
respect of the Account Debtor, including without limitation, all such rights in
which the Debtor has any right, title or interest by reason of the purchase
thereof by the Debtor.
"Receivables Records" shall mean (a) all original copies of all documents,
instruments or other writings evidencing the Receivables, (b) all books,
correspondence, credit or other files, records, ledger sheets or cards,
invoices, and other papers relating to Receivables, including without limitation
all tapes, cards, computer tapes, computer discs, computer runs, record keeping
systems and other papers and documents relating to the Receivables, whether in
the possession or under the control of the Debtor or any computer bureau or
agent from time to time acting for the Debtor or otherwise, (c) all evidences of
the filing of financing statements and the registration of other instruments in
connection therewith and amendments, supplements or other modifications thereto,
notices to other creditors or secured parties, and certificates,
acknowledgments, or other writings, including without limitation lien search
reports, from filing or other registration officers, (d) all credit information,
reports and memoranda relating thereto, and (e) all other written or non-written
forms of information related in any way to the foregoing or any Receivable.
"Secured Obligations" shall mean all obligations, liabilities and
indebtedness of every nature of the Debtor to the Secured Parties, now existing
or hereafter incurred, arising under or in connection with the Notes and this
Security Agreement, as they may be amended, restated, supplemented or otherwise
modified from time to time.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that any or all of the attachment, perfection or priority of the Secured
Parties' security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the state of
incorporation of the Debtor, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection of priority and for purposes of
definitions related to such provisions.
ARTICLE II
GRANT OF SECURITY INTERESTS
As security for the prompt and complete payment and performance in full of
all the Secured Obligations, the Debtor hereby assigns, conveys, mortgages,
pledges, hypothecates and transfers to the Secured Parties and hereby grants to
the Secured Parties a security interest in and continuing lien on all of the
Debtor's right, title and interest in, to and under the following, in each case,
whether now owned or existing or hereafter acquired or arising, and wherever
located (all of which being hereinafter collectively called the "Collateral"):
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All Goods (including, without limitation, Inventory and Equipment,
Accounts, Receivables Records, Collateral Records, Investment Property,
Financial Assets, Deposit Accounts, money, General Intangibles, Chattel Paper,
Commercial Tort Claims and Proceeds of any and all of the foregoing).
ARTICLE III
RIGHTS OF THE SECURED PARTIES; COLLECTION OF ACCOUNTS.
(a) The Secured Parties authorize the Debtor to collect its
Accounts, provided that such collection is performed in a prudent and
businesslike manner, and the Secured Parties may, upon the occurrence and during
the continuation of any Event of Default and without notice, limit or terminate
said authority at any time. Upon the occurrence and during the continuance of
any Event of Default, at the request of the Secured Parties, the Debtor shall
deliver all original and other documents evidencing and relating to the
performance of labor or service which created such Accounts, including, without
limitation, all original orders, invoices and shipping receipts.
(b) The Secured Parties may, at any time following the occurrence
and during the continuance of any Event of Default, without notice to Debtor,
notify Account Debtors of Debtor that the Accounts and the right, title and
interest of the Debtor in and under such Accounts have been assigned to the
Secured Parties and that payments shall be made directly to the Secured Parties.
Upon the request of the Secured Parties, the Debtor shall so notify such Account
Debtors. Following the occurrence and during the continuance of any Event of
Default, the Secured Parties may, in its name or in the name of others,
communicate with such Account Debtors to verify with such parties, to the
Secured Parties' reasonable satisfaction, the existence, amount and terms of any
such Accounts.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Debtor hereby represents and warrants to the Secured Parties, which
representations and warranties shall survive execution and delivery of this
Security Agreement, as follows:
4.1 Validity, Perfection and Priority.
(a) The security interests in the Collateral granted to the Secured
Parties hereunder constitute valid and continuing security interests in the
Collateral; and
(b) upon (i) filing financing statements naming the Debtor as
"debtor" and the Secured Parties as "Secured Parties" in the filing offices of
the Secretary of State of the State of California, the security interests in the
Collateral (other than money, registered copyrights, deposit accounts or
letter-of-credit rights) granted to the Secured Parties hereunder will
constitute perfected security interests superior and prior to all Liens, rights
or claims with respect to the Collateral of all other Persons, except for
Permitted Liens.
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4.2 No Liens; Other Financing Statements.
(a) The Debtor is the sole legal and equitable owner of each item of
Collateral in which it purports to grant a security interest hereunder, and, as
to all Collateral whether now existing or hereafter acquired, will continue to
own each item of the Collateral free and clear of any and all Liens, rights or
claims of all other Persons, except for Permitted Liens, and the Debtor shall
defend the Collateral against all claims and demands of all Persons at any time
claiming the same or any interest therein materially adverse to the Secured
Parties.
(b) No financing statement or other evidence of Lien covering or
purporting to cover any of the Collateral is on file in any public office other
than (i) financing statements filed in connection with the security interests
granted to the Secured Parties hereunder, (ii) financing statements for which
proper termination statements have been delivered to the Debtor for filing and
(iii) financing statements evidencing Permitted Liens set forth on Schedule A.
(c) This Security Agreement creates a legal, valid and continuing
security interest on and in all of the Collateral in which Debtor now has rights
and, except with respect to money, registered copyrights, deposit accounts and
letter-of-credit rights, all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly taken. Accordingly,
except for Permitted Liens, the Secured Parties have a fully perfected first
priority security interest in all of the Collateral in which Debtor now has
rights. Except for Permitted Liens, this Security Agreement will create a legal,
valid, continuing and fully perfected first priority security interest in the
Collateral in which Debtor later acquires rights, when Debtor acquires those
rights.
4.3 Representations and Covenants Related to Perfection. The Debtor
represents and warrants to the Secured Parties as follows: (a) the Debtor's
exact legal name is as indicated on page 1 of this Security Agreement and on the
signature page hereof and (b) the Debtor is an organization of the type and is
organized in the jurisdiction set forth on page 1 of this Security Agreement.
ARTICLE V
COVENANTS
The Debtor covenants and agrees with the Secured Parties that from and
after the date of this Security Agreement:
5.1 Further Assurances. The Debtor will from time to time at the expense
of the Debtor, promptly execute, deliver, file and record all further
instruments, endorsements and other documents, and take such further action as
the Secured Parties may deem reasonably desirable in obtaining the full benefits
of this Security Agreement and of the rights, remedies and powers herein
granted, including, without limitation, the following:
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(i) the filing of any financing statements, in a form reasonably
acceptable to the Secured Parties under the Uniform Commercial Code in effect in
any jurisdiction with respect to the Liens and security interests granted
hereby. The Debtor also hereby authorizes the Secured Parties to file any such
financing statements, including without limitation continuation statements, and
amendments thereto, in all jurisdictions and with all filing offices as the
Secured Parties may determine, in its reasonable discretion, are necessary or
advisable to perfect the security interests granted to the Secured Parties in
connection herewith, without the signature of the Debtor to the extent permitted
by applicable law. Such financing statements may describe the Collateral in the
same manner as described in this Agreement or may contain an indication or
description of Collateral that describes such property in any other manner as
the Secured Parties may determine, in its reasonable discretion, is necessary,
advisable or prudent to ensure the perfection of the security interests in the
Collateral granted to the Secured Parties in connection herewith. A photocopy or
other reproduction of this Security Agreement shall be sufficient as a financing
statement and may be filed in lieu of the original to the extent permitted by
applicable law. The Debtor will pay or reimburse the Secured Parties for all
filing fees and related expenses reasonably incurred in connection therewith;
and
(ii) furnishing to the Secured Parties from time to time of
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Secured Parties may
reasonably request, all in reasonable detail and in form reasonably satisfactory
to the Secured Parties.
5.2 Change of Name; Identity; Corporate Structure; Chief Executive Office;
or Location of Inventory. The Debtor will not change its name, identity,
corporate structure or the location of its chief executive office or location of
its Inventory (other than sales of Inventory in the ordinary course of business)
without (i) giving the Secured Parties at least thirty (30) days' prior written
notice clearly describing such new name, identity, corporate structure or new
location and providing such other information in connection therewith as the
Secured Parties may reasonably request, and (ii) taking all action satisfactory
to the Secured Parties as the Secured Parties may reasonably request to maintain
the security interest of the Secured Parties in the Collateral intended to be
granted hereby at all times fully perfected with the same or better priority and
in full force and effect.
(a) Maintain Records. The Debtor will keep and maintain at its own
cost and expense reasonably satisfactory and complete records of the Collateral.
5.3 Insurance. The Debtor will maintain, with financially sound and
reputable insurers insurance with respect to the Collateral and its use, against
loss or damage of the kinds customarily insured against by reputable companies
in the same or similar businesses, similarly situated, such insurance to be of
such types and in such amounts (with such deductible amounts) as is customary
for such companies under the same or similar circumstances
5.4 Payment Obligations. The Debtor will pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the Collateral, as
well as all claims of any kind (including, without limitation, claims for labor,
materials, supplies and services) against or with respect to the Collateral,
except that no such charge need be paid if (i) the validity thereof is being
contested in good faith by appropriate proceedings, (ii) the Debtor has promptly
notified the Secured Parties of the existence of such proceedings and such
proceedings do not involve, in the good faith and reasonable opinion of the
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Secured Parties, any material danger for the sale, forfeiture or loss of any
material portion of the Collateral or any material interest therein and (iii)
such charge is adequately reserved against on the Debtor's books in accordance
with generally accepted accounting principles.
5.5 Negative Pledge. Without the consent of the Secured Parties, the
Debtor will not create, incur or permit to exist, will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien or
claim on or to the Collateral, other than the Liens created hereby and other
than Permitted Liens.
5.6 Limitations on Dispositions of Collateral. Without the consent of the
Secured Parties, the Debtor will not sell, transfer, lease or otherwise dispose
of any of the Collateral, or attempt, offer or contract to do so, except for
sales of Inventory in the ordinary course of its business.
ARTICLE VI
REMEDIES; RIGHTS UPON DEFAULT
6.1 Rights and Remedies Generally. If an Event of Default shall occur and
be continuing, then and in every such case, the Secured Parties shall have all
the rights of a secured party under the UCC, shall have all rights now or
hereafter existing under all other applicable laws, and, subject to any
mandatory requirements of applicable law then in effect, shall have all the
rights set forth in this Security Agreement and the Notes.
6.2 Assembly of Collateral. If an Event of Default shall occur and be
continuing, upon five days' notice to the Debtor, the Debtor shall, at its own
expense, assemble the Collateral (or from time to time any portion thereof) and
make it available to the Secured Parties at any place or places designated by
the Secured Parties which is reasonably convenient to both parties.
6.3 Disposition of Collateral. The Secured Parties will give the Debtor
reasonable notice of the time and place of any public sale of the Collateral or
any part thereof or the time after which any private sale or any other intended
disposition thereof is to be made. The Debtor agrees that the requirements of
reasonable notice to it shall be met if such notice is mailed, postage prepaid
to its address specified in Section 7.4 of this Security Agreement (or such
other address that the Debtor may provide to the Secured Parties in writing) at
least ten (10) days before the time of any public sale or after which any
private sale may be made. The proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed by the
Secured Parties in the following order of priorities: First, to the Secured
Parties in an amount sufficient to pay in full the reasonable costs of the
Secured Parties in connection with such sale, disposition or other realization,
including all fees, costs, expenses, liabilities and advances reasonably
incurred or made by the Secured Parties in connection therewith, including,
without limitation, reasonable attorneys' fees; Second, to the Secured Parties
in an amount equal to the then unpaid Secured Obligations (with each Secured
Party receiving its pro rata share based upon such Secured Party's principal
amount of Notes acquired pursuant to the Offering; and finally, upon payment in
full of the Secured Obligations, to the Debtor or its representatives, in
accordance with the UCC or as a court of competent jurisdiction may direct.
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6.4 Recourse. The Debtor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Secured Obligations. The Debtor shall also be liable for all
expenses of the Secured Parties reasonably incurred in connection with
collecting such deficiency, including, without limitation, the reasonable fees
and disbursements of one firm of attorneys employed by the Secured Parties to
collect such deficiency.
6.5 Expenses; Attorneys' Fees. The Debtor shall reimburse the Secured
Parties for all their reasonable expenses in connection with the exercise of
their rights hereunder, including, without limitation, all reasonable attorneys'
fees and legal expenses of one firm of attorneys incurred by the Secured
Parties. Expenses of retaking, holding, preparing for sale, selling or the like
shall include the reasonable attorneys' fees and legal expenses of one firm of
attorneys of the Secured Parties. All such expenses shall be secured hereby.
6.6 Limitation on Duties Regarding Preservation of Collateral. The Secured
Parties' sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in their possession, under Section 9-207 of the
UCC or otherwise, shall be to deal with it in the same manner as the Secured
Parties deal with similar property for their own account.
(a) The Secured Parties shall have no obligation to take any steps
to preserve rights against prior parties to any Collateral.
(b) None of the Secured Parties nor any of their directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Debtor or otherwise.
ARTICLE VII
MISCELLANEOUS
7.1 Limitation on the Secured Party's Duty in Respect of Collateral. The
Secured Parties shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if they take such action
as the Debtor requests in writing, but failure of the Secured Parties to comply
with any such request shall not in itself be deemed a failure to act reasonably,
and no failure of the Secured Parties to do any act not so requested shall be
deemed a failure to act reasonably.
7.2 Reinstatement. This Security Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
the Debtor for liquidation or reorganization, should the Debtor become insolvent
or make an assignment for the benefit of creditors or should a receiver or
trustee be appointed for all or any significant part of the Debtor's property
and assets, and shall continue to be effective or be reinstated, as the case may
be, if at any time payment and performance of the Secured Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
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event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
7.3 Governing Law. THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
7.4 Notices. All notices shall be given in accordance with the provisions
of the Subscription Agreements. -------
7.5 Successors and Assigns. This Security Agreement shall be binding upon
and inure to the benefit of the Debtor, the Secured Parties, all future holders
of the Secured Obligations and their respective successors and assigns, except
that the Debtor may not assign or transfer any of its rights or obligations
under this Security Agreement without the prior written consent of the Secured
Parties.
7.6 Waivers and Amendments. Any provisions in this Security Agreement may
be waived, amended, supplemented or otherwise modified with the written consent
of the Company and the Secured Parties holding at least 75% in aggregate
principal amount of the Notes issued in the Offering.
7.7 No Waiver; Remedies Cumulative. No failure or delay on the part of the
Secured Parties in exercising any right, power or privilege hereunder and no
course of dealing between the Debtor shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Secured Parties of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Secured Parties would otherwise have on any future
occasion. The rights and remedies herein expressly provided are cumulative and
may be exercised singly or concurrently and as often and in such order as the
Secured Parties deem expedient and are not exclusive of any rights or remedies
which the Secured Parties would otherwise have whether by security agreement or
now or hereafter existing under applicable law. No notice to or demand on the
Debtor in any case shall entitle the Debtor to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the Secured Parties to any other or future action in any circumstances without
notice or demand.
7.8 Termination; Release. When the Secured Obligations have been
indefeasibly paid and performed in full this Security Agreement shall terminate,
and the Secured Parties, at the request and sole expense of the Debtor, will
execute and deliver to the Debtor the proper instruments (including UCC
termination statements) acknowledging the termination of this Security
Agreement, and will duly assign, transfer and deliver to the Debtor, without
recourse, representation or warranty of any kind whatsoever, such of the
Collateral as may be in the possession of the Secured Parties and has not
theretofore been disposed of, applied or released.
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7.9 Headings Descriptive. The headings of the several Sections and
subsections of this Security Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Security Agreement.
7.10 Additional Secured Parties. Additional parties acquiring Notes
pursuant to the Offering after the date hereof may become parties to this
Agreement by executing the signature page hereto, whereupon such parties shall
be included in the definition of "Secured Parties" for all purposes under this
Agreement
7.11 Action by Secured Parties. Any action required or permitted to be
taken under this Agreement or with respect to the Collateral by the Secured
Parties, including but not limited to the granting of consents, amending or
waiving any provision of this Agreement, or declaring an Event of Default, may
only be taken if consented to by Secured Parties holding at least 75% in
aggregate principal amount of the Notes issued in the Offering.
7.12 Severability. In case any provision in or obligation under this
Security Agreement or the Secured Obligations shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the Debtor and the Secured Parties have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
WORLD WASTE TECHNOLOGIES, INC.
By:
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Name:
---------------------------
Title:
--------------------------
Address:
SECURED PARTIES
By:
Its:
By:
-----------------------------
Name:
---------------------------
Its:
Address:
Fax:
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SCHEDULE A
EXISTING LIENS
Secured Party Secured Property
NONE
A-1
