Exhibit 4.04
SECURITY AGREEMENT
1. Identification.
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This Security Agreement (the "Agreement"), dated May 9, 2002, is
entered into by and between Liquidix, Inc., a Florida corporation ("Debtor"),
and Xxxx Xxxx, as collateral agent acting in the manner and to the extent
described in the Collateral Agent Agreement defined below (the "Collateral
Agent"), for the benefit of the parties identified on Schedule A hereto being
collectively, the "Lenders" and each a "Lender".
2. Recitals.
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2.1 The Lenders have made loans ("Loans") to Debtor evidenced by those
certain Convertible Notes ("Secured Notes" or "Notes") dated at or about May 9,
2002, and issued or to be issued pursuant to a subscription agreement dated at
or about the issue date of the Notes ("Subscription Agreement. The Secured Notes
are described on Schedule A hereto. The Notes are or will be executed by Debtor
as the "Borrower" thereof, for the benefit of each individual Lender as the
"Holder" thereof.
2.2 In order to induce Lenders to make the Loans, and as security for
Debtor's performance of its obligations under the Notes and as security for the
repayment of the Notes and any and all other sums due from Debtor to Lender
whether arising under the Notes issued pursuant to the Subscription Agreement,
or pursuant to other written instruments and agreements entered into by the
Debtor and a Lender, whether before or after the date hereof, including up to
additional convertible notes in the principal amount of up to $550,000, and
further specifically including all of the Debtor's obligations arising under the
Notes and the Subscription Agreement relating thereto (collectively, the
"Obligations"), the Lenders and Debtor, for good and valuable consideration,
receipt of which is acknowledged, have agreed to grant to the Collateral Agent,
for the benefit of the Lenders, a security interest in the Collateral (as such
term is hereinafter defined), on the terms and conditions hereinafter set forth.
Such Loans are specifically made with recourse as to Debtor.
Defined Terms. The following defined terms which are defined in the
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Uniform Commercial Code in effect in the State of California on the date hereof
are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment,
General Intangibles, Instruments, Inventory and Proceeds.
3. Grant of General Security Interest in Collateral.
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3.1 As security for the Obligations, Debtor hereby grant the Collateral Agent,
for the benefit of the Lenders, a security interest in the Collateral.
3.2 "Collateral" shall mean all of the following property of the Debtor:
(a) All now owned and hereafter acquired right, title and
interest of Debtor and its wholly-owned subsidiary,
Advanced Fluid Systems Ltd., in, to and in respect of all:
Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, and Inventory and agreements or
property securing or relating to any of the items referred
to above; and
(b) All products and Proceeds of the foregoing in whatever form
and wherever located, including, without limitation, all
insurance proceeds and all claims against third parties for
loss or destruction of or damage to any of the foregoing.
3.3 The Collateral Agent is hereby specifically authorized to transfer
any Collateral into the name of the Collateral Agent after the occurrence of an
Event of Default as defined in Section 9, and to take any and all action deemed
advisable to the Collateral Agent to remove any transfer restrictions affecting
the Collateral.
4. Perfection of Security Interest. Debtor shall execute and deliver to the
Collateral Agent UCC-1 Financing Statements ("Financing Statements") relating to
the security interests in Debtor's right, title and interest in and to the
Collateral. Debtor hereby authorizes the Collateral Agent to file such Financing
Statement at the Debtor's expense, in such filing locations as the Collateral
Agent deems appropriate.
5. Distribution on Liquidation.
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5.1 If any sum is paid as a liquidating distribution on or with respect
to the Collateral, Debtor shall accept same in trust for the Lenders and shall
deliver same to the Collateral Agent to be applied to the Obligations then due,
in accordance with the terms of the Notes.
5.2 Prior to any Event of Default (as defined herein), Debtor shall be
entitled to exercise all voting power pertaining to any of the Collateral,
provided such exercise is not contrary to the interests of the Lenders and does
not impair the Collateral.
6. Further Action By Debtor and Covenants and Warranties.
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6.1 Collateral Agent at all times shall have a perfected security
interest in the Collateral which shall be prior to any other unperfected
interest therein. Subject to the security interest described herein, Debtor have
and will continue to have full title to the Collateral free from any liens,
leases, encumbrances, judgments or other claims. Collateral Agent's security
interest in the Collateral constitutes and will continue to constitute a first,
prior and indefeasible security interest in favor of Collateral Agent. Debtor
will do all acts and things, and will execute and file all instruments
(including but not limited to security agreements, financing statements,
continuation statements, etc.) reasonably requested by Collateral Agent to
establish, maintain and continue the perfected security interest of Collateral
Agent in the Collateral, and will promptly on demand, pay all costs and expenses
of filing and recording, including the costs of any searches deemed necessary by
Collateral Agent from time to time to establish and determine the validity and
the continuing priority of the security interest of Collateral Agent, and also
pay all other claims and charges that in the opinion of Collateral Agent might
prejudice, imperil or otherwise affect the Collateral or its security interest
therein.
6.2 Debtor will not sell, transfer, assign or pledge those items of
Collateral and Debtor will not allow any such items to be sold, transferred,
assigned or pledged, without the prior written consent of Collateral Agent.
Although Proceeds of Collateral are covered by this Security Agreement, this
shall not be construed to mean that Collateral Agent consents to any sale of the
Collateral.
6.3 Debtor will, at all reasonable times, allow Collateral Agent or its
representatives free and complete access to all of Debtor 's records which in
any way relate to the Collateral, for such inspection and examination as
Collateral Agent deems necessary.
6.4 Debtor, at its sole cost and expense, will protect and defend this
Security Agreement, all of the rights of Collateral Agent hereunder, and the
Collateral against the claims and demands of all other parties.
6.5 Debtor will promptly notify Collateral Agent of any levy, distraint
or other seizure by legal process or otherwise of any part of the Collateral,
and of any threatened or filed claims or proceedings that might in any way
affect or impair any of the rights of Collateral Agent under this Security
Agreement.
6.6 Debtor, at its own expense, will obtain and maintain in force
insurance policies covering losses or damage to those items of Collateral which
constitute physical personal property, if any. The insurance policies to be
obtained by Debtor shall be in form and amounts reasonably acceptable to
Collateral Agent. Debtor shall make the Collateral Agent a loss payee thereon.
Collateral Agent is hereby irrevocably appointed Debtor's attorney-in-fact to
endorse any check or draft that may be payable to Debtor, so that Collateral
Agent may collect the proceeds payable for any loss under such insurance. The
proceeds of such insurance, less any costs and expenses incurred or paid by
Collateral Agent in the collection thereof, shall be applied either toward the
cost of the repair or replacement of the items damaged or destroyed, or on
account of any sums secured hereby, whether or not then due or payable.
6.7 Collateral Agent may, at its option, and without any obligation to
do so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Debtor, and all amounts
expended by Collateral Agent in so doing shall become part of the Obligations
secured hereby, and shall be immediately due and payable by Debtor to Collateral
Agent upon demand and shall bear interest at 18% per annum from the dates of
such expenditures until paid.
6.8 Upon the request of Collateral Agent, Debtor will furnish within
five (5) days thereafter to Collateral Agent, or to any proposed assignee of
this Security Agreement, a written statement in form satisfactory to Collateral
Agent, duly acknowledged, certifying the amount of the principal and interest
then owing under the Obligations, whether any claims, offsets or defenses exist
against the Obligations or against this Security Agreement, or any of the terms
and provisions of any other agreement of Debtor securing the Obligations. In
connection with any assignment by Collateral Agent of this Security Agreement,
Debtor hereby agrees to cause the insurance policies required hereby to be
carried by Debtor, if any, to be endorsed in form satisfactory to Collateral
Agent or to such assignee, with loss payable clauses in favor of such assignee,
and to cause such endorsements to be delivered to Collateral Agent within ten
(10) calendar days after request therefore by Collateral Agent.
6.9 The Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take further steps relating to the
Collateral and other property or rights covered by the security interest hereby
granted, as the Collateral Agent may reasonable require.
6.10 Debtor represents and warrants that he/she is the true and lawful
exclusive owner of the Collateral, free and clear of any liens and encumbrances.
6.11 Debtor hereby agrees not to divest themselves of any right under
the Collateral absent prior written approval of the Collateral Agent.
7. Power of Attorney.
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Debtor hereby irrevocably constitutes and appoints the Collateral Agent
as the true and lawful attorney of Debtor, with full power of substitution, in
the place and stead of Debtor and in the name of Debtor or otherwise, at any
time or times, in the discretion of the Collateral Agent, to take any action and
to execute any instrument or document which the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement which Debtor
fail to take or fail to execute within five (5) business days of the Collateral
Agent's reasonable request therefor. This power of attorney is coupled with an
interest, is irrevocable and shall not be affected by any subsequent disability
or incapacity of Debtor.
8. Performance By The Collateral Agent.
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If Debtor fails to perform any material covenant, agreement, duty or
obligation of Debtor under this Agreement, the Collateral Agent may, at any time
or times in its discretion, take action to effect performance of such
obligation. All reasonable expenses of the Collateral Agent incurred in
connection with the foregoing authorization shall be payable by Debtor as
provided in Paragraph 12.1 hereof. No discretionary right, remedy or power
granted to the Collateral Agent under any part of this Agreement shall be deemed
to impose any obligation whatsoever on the Collateral Agent with respect
thereto, such rights, remedies and powers being solely for the protection of the
Collateral Agent.
9. Event of Default.
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An event of default ("Event of Default") shall be deemed to have
occurred hereunder upon the occurrence of any event of default as defined in the
Notes or Subscription Agreement. Upon and after any Event of Default, after the
applicable cure period, if any, any or all of the Obligations shall become
immediately due and payable at the option of the Collateral Agent, for the
benefit of the Lenders, and the Collateral Agent may dispose of Collateral as
provided below. A default by Debtor of any of their obligations pursuant to this
Agreement including but not limited to the obligations set forth in Section 6 of
this Agreement, or a misrepresentation by Debtor of a material fact stated
herein, shall be deemed an Event of Default hereunder and an event of default as
defined in the Obligations.
10. Disposition of Collateral.
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Upon and after any Event of Default,
(a) The Collateral Agent may exercise its rights with respect to each
and every component of the Collateral, without regard to the existence of any
other security or source of payment for the Obligations or any other component
of the Collateral. In addition to other rights and remedies provided for herein
or otherwise available to it, the Collateral Agent shall have all of the rights
and remedies of a lender on default under the Uniform Commercial Code then in
effect in the State of California.
(b) If any notice to Debtor of the sale or other disposition of
Collateral is required by then applicable law, five (5) days prior notice (or,
if longer, the shortest period of time permitted by then applicable law) to
Debtor of the time and place of any public sale of Collateral or of the time
after which any private sale or any other intended disposition is to be made,
shall constitute reasonable notification.
(c) The Collateral Agent is authorized, at any such sale, if the
Collateral Agent deems it advisable to do so, in order to comply with any
applicable securities laws, to restrict the prospective bidders or purchasers to
persons who will represent and agree, among other things, that they are
purchasing the Collateral for their own account for investment, and not with a
view to the distribution or resale thereof, or otherwise to restrict such sale
in such other manner as the Collateral Agent deems advisable to ensure such
compliance. Sales made subject to such restrictions shall be deemed to have been
made in a commercially reasonable manner.
(d) All cash proceeds received by the Collateral Agent for the
benefit of the Lenders in respect of any sale, collection or other enforcement
or disposition of Collateral, shall be applied (after deduction of any amounts
payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against the
Obligations pro rata among the Lenders in proportion to the interest in the
Obligations. Upon payment in full of all Obligations, Debtor shall be entitled
to the return of all Collateral, including cash, which has not been used or
applied toward the payment of Obligations or used or applied to any and all
costs or expenses of the Collateral Agent incurred in connection with the
liquidation of the Collateral (unless another person is legally entitled
thereto). Any assignment of Collateral by the Collateral Agent to Debtor shall
be without representation or warranty of any nature whatsoever and wholly
without recourse. Each Lender may purchase the Collateral and pay for such
purchase by offsetting any sums owed to such Lender by Debtor arising under the
Obligations or any other source.
(e) No exercise by the Collateral Agent of any right hereby given it,
no dealing by the Collateral Agent with Debtor, or any other person, and no
change, impairment or suspension of any right or remedy of the Collateral Agent
shall in any way affect any of the obligations of Debtor hereunder or any
Collateral furnished by Debtor or give Debtor any recourse against the
Collateral Agent.
11. Waiver of Automatic Stay.
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The Debtor acknowledges and agrees that should a proceeding under any bankruptcy
or insolvency law be commenced by or against the Debtor, or if any of the
Collateral (as defined in the Security Agreement) should become the subject of
any bankruptcy or insolvency proceeding, then the Collateral Agent should be
entitled to, among other relief to which the Collateral Agent may be entitled
under the Note, Security Agreement, Subscription Agreement and any other
agreement to which the Debtor, Lenders or Collateral Agent are parties,
(collectively "Loan Documents") and/or applicable law, an order from the court
granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section
362 to permit the Collateral Agent to exercise all of its rights and remedies
pursuant to the Loan Documents and/or applicable law. THE DEBTOR EXPRESSLY
WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362.
FURTHERMORE, THE DEBTOR EXPRESSLY ACKNOWLEDGES AND AGREE THAT NEITHER 11 U.S.C.
SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR
RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL
AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. The Debtor hereby consents to any motion for relief from stay
which may be filed by the Collateral Agent in any bankruptcy or insolvency
proceeding initiated by or against the Debtor, and further agree not to file any
opposition to any motion for relief from stay filed by the Collateral Agent. The
Debtor represent, acknowledge and agree that this provision is a specific and
material aspect of this Agreement, and that the Collateral Agent would not agree
to the terms of this Agreement if this waiver were not a part of this Agreement.
The Debtor further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Collateral Agent
nor any person acting on behalf of the Collateral Agent has made any
representations to induce this waiver, that the Debtor has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel selected by the Debtor
and that the Debtor has had the opportunity to discuss this waiver with counsel.
The Debtor further agrees that any bankruptcy or insolvency proceeding initiated
by the Debtor will only be brought in courts within the geographic boundaries of
California State.
12. Miscellaneous.
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12.1 Expenses. Debtor shall severally pay to the Collateral Agent, on
demand, the amount of any and all reasonable expenses, including, without
limitation, attorneys' fees, legal expenses and brokers' fees, which the
Collateral Agent may incur in connection with (a) sale, collection or other
enforcement or disposition of Collateral; (b) exercise or enforcement of any the
rights, remedies or powers of the Collateral Agent hereunder or with respect to
any or all of the Obligations; or (c) failure by Debtor to perform and observe
any agreements of Debtor contained herein which are performed by the Collateral
Agent.
12.2 Waivers, Amendment and Remedies. No course of dealing by the
Collateral Agent and no failure by the Collateral Agent to exercise, or delay by
the Collateral Agent in exercising, any right, remedy or power hereunder shall
operate as a waiver thereof, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy or power of the Collateral Agent. No amendment, modification or
waiver of any provision of this Agreement and no consent to any departure by
Debtor therefrom, shall, in any event, be effective unless contained in a
writing signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The rights, remedies and powers of the Collateral Agent, not only
hereunder, but also under any instruments and agreements evidencing or securing
the Obligations and under applicable law are cumulative, and may be exercised by
the Collateral Agent from time to time in such order as the Collateral Agent may
elect.
12.3 Notices. Any notice or other communications under the provisions
of this Agreement shall be given in writing and delivered to the recipient in
person, by reputable overnight courier or delivery service, by facsimile machine
(receipt conformed) with a copy sent by first class mail on the date of
transmission, or by registered or certified mail, return receipt requested,
directed to its address set forth below (or to any new address of which a party
hereto shall have informed the other by the giving of notice in the manner
provided herein):
To Debtor:
With a copy to:
To Lenders: To the addresses and telecopier numbers
Set forth on Schedule A hereto
To the Collateral Agent:
Xxxx X. Xxxx , Law Offices of Xxxx X. Xxxx,
0000 Xxxxxxxx Xxxx., #000,
Xxx Xxxxxxx XX 00000,
telecopier number (000) 000-0000
Any party may change its address by written notice in accordance with this
paragraph.
12.4 Term; Binding Effect. This Agreement shall (a) remain in full
force and effect until payment and satisfaction in full of all of the
Obligations; (b) be binding upon Debtor, and their successors and assigns; and
(c) inure to the benefit of the Collateral Agent, for the benefit of the Lenders
and their heirs, legal representatives, successors in title and permitted
assigns.
12.5 Captions. The captions of Paragraphs, Articles and Sections in
this Agreement have been included for convenience of reference only, and shall
not define or limit the provisions hereof and have no legal or other
significance whatsoever.
12.6 Governing Law; Venue; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of California
without regard to principles of conflicts or choice of law, except to the extent
that the perfection of the security interest granted hereby in respect of any
item of Collateral may be governed by the law of another jurisdiction. Any legal
action or proceeding against the Debtor with respect to this Agreement may be
brought in the courts of the State of California or of the United States for the
Southern District of California, and, by execution and delivery of this
Agreement, the Debtor hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The Debtor hereby irrevocably waives any objection which they may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
aforesaid courts and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum. If any provision of this
Agreement, or the application thereof to any person or circumstance, is held
invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provision or application, and to this end the
provisions hereof shall be severable and the remaining, valid provisions shall
remain of full force and effect.
12.7 Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Security Agreement, as of the date first written above.
"DEBTOR"
LIQUIDIX, INC.
a Florida corporation
By:
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Its:
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"THE COLLATERAL AGENT"
XXXX XXXX
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APPROVED:
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This Security Agreement may be executed by facsimile signature and
delivered by confirmed facsimile transmission.
SCHEDULE A TO SECURITY AGREEMENT
LENDERS PRINCIPAL AMOUNT OF SECURED
CONVERTIBLE NOTES
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Kazi Management VI, Inc., 00 Xxxxxxxxxxx Xxxx, Xxxxx X 30, $300,000
St. Xxxxxx, Virgin Islands 00802, telecopier 000-000-0000
Kazi Management VI, Inc., 00 Xxxxxxxxxxx Xxxx, Xxxxx X 30, $250,000
Xx. Xxxxxx, Xxxxxx Xxxxxxx 00000, telecopier 000-000-0000
TOTAL $550,000
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SECURITY AGREEMENT - SCHEDULE B
