EXHIBIT 10.5
WINDSWEPT ENVIRONMENTAL GROUP, INC.AND CERTAIN OF ITS
SUBSIDIARIES
MASTER SECURITY AGREEMENT
To: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx House
South Church Street
Xxxxxx Town
Grand Cayman, Cayman Islands
Date: June 30, 2005
To Whom It May Concern:
1. To secure the payment of all Obligations (as hereafter defined),
WINDSWEPT ENVIRONMENTAL GROUP, INC., a Delaware corporation (the "Company"),
each of the other undersigned parties (other than Laurus Master Fund, Ltd.,
"Laurus")) and each other entity that is required to enter into this Master
Security Agreement (each an "Assignor" and, collectively, the "Assignors")
hereby assigns and grants to Laurus a continuing security interest in all of the
following property now owned or at any time hereafter acquired by such Assignor,
or in which such Assignor now has or at any time in the future may acquire any
right, title or interest (the "Collateral"): all cash, cash equivalents,
accounts, accounts receivable, deposit accounts (including, without limitation,
Lockbox Deposit Accounts), inventory, equipment, goods, documents, instruments
(including, without limitation, promissory notes), contract rights, general
intangibles (including, without limitation, payment intangibles and an absolute
right to license on terms no less favorable than those current in effect among
such Assignor's affiliates), chattel paper, supporting obligations, investment
property (including, without limitation, all partnership interests, limited
liability company membership interests and all other equity interests owned by
any Assignor), letter-of-credit rights, trademarks, trademark applications,
tradestyles, patents, patent applications, copyrights, copyright applications
and other intellectual property in which such Assignor now has or hereafter may
acquire any right, title or interest, all proceeds and products thereof
(including, without limitation, proceeds of insurance) and all additions,
accessions and substitutions thereto or therefor. In the event any Assignor
wishes to finance the acquisition in the ordinary course of business of any
hereafter acquired equipment and has obtained a written commitment from an
unrelated third party financing source to finance such equipment, Laurus shall
release its security interest on such hereafter acquired equipment so financed
by such third party financing source. Except as otherwise defined herein, all
capitalized terms used herein shall have the meanings provided such terms in the
Securities Purchase Agreement referred to below.
2. The term "Obligations" as used herein shall mean and include all
debts, liabilities and obligations owing by each Assignor to Laurus arising
under, out of, or in connection with: (i)
that certain Securities Purchase Agreement dated as of the date hereof by
and between the Company and Laurus (the "Securities Purchase Agreement") and
(ii) the Related Agreements referred to in the Securities Purchase Agreement
(the Securities Purchase Agreement and each Related Agreement, as each may be
amended, modified, restated and/or supplemented from time to time, collectively,
the "Documents"), and in connection with any documents, instruments or
agreements relating to or executed in connection with the Documents or any
documents, instruments or agreements referred to therein or otherwise, and in
connection with any other indebtedness, obligations or liabilities of each such
Assignor to Laurus, whether now existing or hereafter arising, direct or
indirect, liquidated or unliquidated, absolute or contingent, due or not due and
whether under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or otherwise, including, without limitation, obligations and
liabilities of each Assignor for post-petition interest, fees, costs and charges
that accrue after the commencement of any case by or against such Assignor under
any bankruptcy, insolvency, reorganization or like proceeding (collectively, the
"Debtor Relief Laws") in each case, irrespective of the genuineness, validity,
regularity or enforceability of such Obligations, or of any instrument
evidencing any of the Obligations or of any collateral therefor or of the
existence or extent of such collateral, and irrespective of the allowability,
allowance or disallowance of any or all of the Obligations in any case commenced
by or against any Assignor under any Debtor Relief Law.
3. Each Assignor hereby jointly and severally represents, warrants and
covenants to Laurus that:
(a) it is a corporation, partnership or limited liability company,
as the case may be, validly existing, in good standing and formed under the
respective laws of its jurisdiction of formation set forth on Schedule A,
and each Assignor will provide Laurus thirty (30) days' prior written
notice of any change in any of its respective jurisdiction of formation;
(b) its legal name is as set forth in its Certificate of
Incorporation or other organizational document (as applicable) as
amended through the date hereof and as set forth on Schedule A, and it will
provide Laurus thirty (30) days' prior written notice of any change in its
legal name;
(c) its organizational identification number (if applicable) is as
set forth on Schedule A hereto, and it will provide Laurus thirty (30)
days' prior written notice of any change in its organizational
identification number;
(d) it is the lawful owner of its Collateral and it has the sole
right to grant a security interest therein and will defend the Collateral
against all claims and demands of all persons and entities;
(e) it will keep its Collateral free and clear of all attachments,
levies, taxes, liens, security interests and encumbrances of every kind and
nature ("Encumbrances"), except (i) Encumbrances securing the Obligations,
(ii) Encumbrances securing indebtedness of each such Assignor not to exceed
$75,000 in the aggregate for all such Assignors so long as all such
Encumbrances are removed or otherwise released to Laurus' satisfaction
within ten (10) days of the creation thereof and (iii) Encumbrances
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upon fixed assets securing Purchase Money Indebtedness (as defined in
Section 6.12(e) of the Securities Purchase Agreement) related thereto but
only if such Lien shall at all times be confined solely to the asset the
purchase price of which was financed or refinanced through the incurrence
of the Purchase Money Indebtedness secured by such Lien and only if such
Lien secures only such Purchase Money Indebtedness;
(f) it will, at its and the other Assignors' joint and several cost
and expense keep the Collateral in good state of repair (ordinary wear and
tear excepted) and will not waste or destroy the same or any part thereof
other than ordinary course discarding of items no longer used or useful in
its or such other Assignors' business;
(g) it will not, without Laurus' prior written consent, sell,
exchange, lease or otherwise dispose of any Collateral, whether by sale,
lease or otherwise, except for the sale of inventory in the ordinary course
of business and for the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out equipment or
equipment no longer necessary for its ongoing needs, having an aggregate
fair market value of not more than $75,000 and only to the extent that:
(i) the proceeds of each such disposition are used to acquire
replacement Collateral which is subject to Laurus' first priority
perfected security interest, or are used to repay the Obligations or
to pay general corporate expenses; or
(ii) following the occurrence of an Event of Default which
continues to exist the proceeds of which are remitted to Laurus to be
held as cash collateral for the Obligations;
(h) it will insure or cause the Collateral to be insured in Laurus'
name (as an additional insured and loss payee) against loss or damage by
fire, theft, burglary, pilferage, loss in transit and such other hazards as
Laurus shall specify in amounts and under policies by insurers acceptable
to Laurus and all premiums thereon shall be paid by such Assignor and the
policies delivered to Laurus. If any such Assignor fails to do so, Laurus
may procure such insurance and the cost thereof shall be promptly
reimbursed by the Assignors, jointly and severally, and shall constitute
Obligations;
(i) it will at all reasonable times allow Laurus or Laurus'
representatives free access to and the right of inspection of the
Collateral;
(j) such Assignor (jointly and severally with each other Assignor)
hereby indemnifies and saves Laurus harmless from all loss, costs, damage,
liability and/or expense, including reasonable attorneys' fees, that Laurus
may sustain or incur to enforce payment, performance or fulfillment of any
of the Obligations and/or in the enforcement of this Master Security
Agreement or in the prosecution or defense of any action or proceeding
either against Laurus or any Assignor concerning any matter growing out of
or in connection with this Master Security Agreement, and/or any of the
Obligations and/or any of the Collateral except to the extent caused by
Laurus' own gross negligence
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or willful misconduct (as determined by a court of competent jurisdiction
in a final and nonappealable decision); and
(k) On or prior to the Closing Date (or such later date as may be
agreed by Laurus in writing), each Assignor will (x) irrevocably direct all
of its present and future Account Debtors (as defined below) and other
persons or entities obligated to make payments constituting Collateral to
make such payments directly to the lockboxes maintained by such Assignor
(the "Lockboxes") with XX Xxxxxx Xxxxx Bank or such other financial
institution accepted by Laurus in writing as may be selected by the Company
(the "Lockbox Bank") (each such direction pursuant to this clause (x), a
"Direction Notice") and (y) provide Laurus with copies of each Direction
Notice, each of which shall be agreed to and acknowledged by the respective
Account Debtor. The Lockbox Bank shall agree to deposit the proceeds of
such payments immediately upon receipt thereof in that certain deposit
account maintained at the Lockbox Bank and evidenced by the account name of
Trade-Winds Environmental Restoration Inc. and the account number of
2704054713, or such other deposit account accepted by Laurus in writing
(the "Lockbox Deposit Account"). On or prior to the Closing Date, the
Company shall and shall cause the Lockbox Bank to enter into all such
documentation acceptable to Laurus pursuant to which, among other things,
the Lockbox Bank agrees to, following notification by Laurus (which
notification Laurus shall only give following the occurrence and during the
continuance of an Event of Default), comply only with the instructions or
other directions of Laurus concerning the Lockbox and the Lockbox Deposit
Account. All of each Assignor's invoices, account statements and other
written or oral communications directing, instructing, demanding or
requesting payment of any Account (as hereinafter defined) of any such
Assignor or any other amount constituting Collateral shall conspicuously
direct that all payments be made to the Lockbox or such other address as
Laurus may direct in writing. If, notwithstanding the instructions to
Account Debtors, any Assignor receives any payments, such Assignor shall
immediately remit such payments to the Lockbox Deposit Account in their
original form with all necessary endorsements. Until so remitted, the
Assignors shall hold all such payments in trust for and as the property of
Laurus and shall not commingle such payments with any of its other funds or
property. For the purpose of this Master Security Agreement, (x) "Accounts"
shall mean all "accounts", as such term is defined in the Uniform
Commercial Code as in effect in the State of New York on the date hereof,
now owned or hereafter acquired by any Assignor and (y) "Account Debtor"
shall mean any person or entity who is or may be obligated with respect to,
or on account of, an Account.
4. The occurrence of any of the following events or conditions shall
constitute an "Event of Default" under this Master Security Agreement:
(a) any covenant or any other term or condition of this Master
Security Agreement is breached in any material respect and such breach, to
the extent subject to cure, shall continue without remedy for a period of
fifteen (15) days after the occurrence thereof;
(b) any representation or warranty, or statement made or furnished to
Laurus under this Master Security Agreement by any Assignor or on any
Assignor's behalf
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should prove to any time be false or misleading in any material respect on
the date as of which made or deemed made;
(c) the loss, theft, substantial damage, destruction, sale or
encumbrance to or of any of the Collateral or the making of any levy,
seizure or attachment thereof or thereon except to the extent:
(i) such loss is covered by insurance proceeds which are used to
replace the item or repay Laurus; or
(ii) said levy, seizure or attachment does not secure
indebtedness in excess of $100,000 in the aggregate for all Assignors
and such levy, seizure or attachment has been removed or otherwise
released within ten (10) days of the creation or the assertion
thereof;
(d) an Event of Default shall have occurred under and as defined in
any Document.
5. Upon the occurrence of any Event of Default and at any time
thereafter, Laurus may declare all Obligations immediately due and payable
and Laurus shall have the remedies of a secured party provided in the Uniform
Commercial Code as in effect in the State of New York, this Agreement and other
applicable law. Upon the occurrence of any Event of Default and at any time
thereafter, Laurus will have the right to take possession of the Collateral and
to maintain such possession on any Assignor's premises or to remove the
Collateral or any part thereof to such other premises as Laurus may desire. Upon
Laurus' request, each Assignor shall assemble or cause the Collateral to be
assembled and make it available to Laurus at a place designated by Laurus. If
any notification of intended disposition of any Collateral is required by law,
such notification, if mailed, shall be deemed properly and reasonably given if
mailed at least ten (10) days before such disposition, postage prepaid,
addressed to the applicable Assignor either at such Assignor's address shown
herein or at any address appearing on Laurus' records for such Assignor. Any
proceeds of any disposition of any of the Collateral shall be applied by Laurus
to the payment of all expenses in connection with the sale of the Collateral,
including reasonable attorneys' fees and other legal expenses and disbursements
and the reasonable expenses of retaking, holding, preparing for sale, selling,
and the like, and any balance of such proceeds may be applied by Laurus toward
the payment of the Obligations in such order of application as Laurus may elect,
and each Assignor shall be liable for any deficiency. For the avoidance of
doubt, following the occurrence and during the continuance of an Event of
Default, Laurus shall have the immediate right to withdraw any and all monies
contained in any deposit account in the name of any Assignor and controlled by
Laurus and apply same to the repayment of the Obligations (in such order of
application as Laurus may elect).
6. If any Assignor defaults in the performance or fulfillment of any of
the terms, conditions, promises, covenants, provisions or warranties on
such Assignor's part to be performed or fulfilled under or pursuant to this
Master Security Agreement, Laurus may, at its option without waiving its right
to enforce this Master Security Agreement according to its terms, immediately or
at any time thereafter and without notice to any Assignor, perform or fulfill
the same or cause the performance or fulfillment of the same for each Assignor's
joint and several account and at each Assignor's joint and
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several cost and expense, and the cost and expense thereof (including
reasonable attorneys' fees) shall be added to the Obligations and shall be
payable on demand with interest thereon at the highest rate permitted by law,
or, at Laurus' option, debited by Laurus from any other deposit accounts in the
name of any Assignor and controlled by Laurus.
7. Each Assignor appoints Laurus, any of Laurus' officers, employees or
any other person or entity whom Laurus may designate as such Assignor's
attorney, with power to execute such documents in each such Assignor's behalf
and to supply any omitted information and correct patent errors in any documents
executed by any Assignor or on any Assignor's behalf; to file financing
statements against such Assignor covering the Collateral (and, in connection
with the filing of any such financing statements, describe the Collateral as
"all assets and all personal property, whether now owned and/or hereafter
acquired" (or any substantially similar variation thereof)); to sign such
Assignor's name on public records; and to do all other things Laurus deem
necessary to carry out this Master Security Agreement. Each Assignor hereby
ratifies and approves all acts of the attorney and neither Laurus nor the
attorney will be liable for any acts of commission or omission, nor for any
error of judgment or mistake of fact or law other than gross negligence or
willful misconduct (as determined by a court of competent jurisdiction in a
final and non-appealable decision). This power being coupled with an interest,
is irrevocable so long as any Obligations remains unpaid.
8. No delay or failure on Laurus' part in exercising any right, privilege
or option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by Laurus and then only to the extent therein set forth, and no
waiver by Laurus of any default shall operate as a waiver of any other default
or of the same default on a future occasion. Laurus' books and records
containing entries with respect to the Obligations shall be admissible in
evidence in any action or proceeding, shall be binding upon each Assignor for
the purpose of establishing the items therein set forth and shall constitute
prima facie proof thereof. Laurus shall have the right to enforce any one or
more of the remedies available to Laurus, successively, alternately or
concurrently. Each Assignor agrees to join with Laurus in executing such
documents or other instruments to the extent required by the Uniform Commercial
Code in form satisfactory to Laurus and in executing such other documents or
instruments as may be required or deemed necessary by Laurus for purposes of
affecting or continuing Laurus' security interest in the Collateral.
9. THIS MASTER SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS. All of the rights, remedies, options, privileges and
elections given to Laurus hereunder shall inure to the benefit of Laurus'
successors and assigns. The term "Laurus" as herein used shall include Laurus,
any parent of Laurus', any of Laurus' subsidiaries and any co-subsidiaries of
Laurus' parent, whether now existing or hereafter created or acquired, and all
of the terms, conditions, promises, covenants, provisions and warranties of this
Agreement shall inure to the benefit of each of the foregoing, and shall bind
the representatives, successors and assigns of each Assignor.
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10. Each Assignor hereby consents and agrees that the state of federal
courts located in the County of New York, State of New York shall have exclusive
jurisdiction to hear and determine any claims or disputes between Assignor, on
the one hand, and Laurus, on the other hand, pertaining to this Master Security
Agreement or to any matter arising out of or related to this Master Security
Agreement, provided, that Laurus and each Assignor acknowledges that any appeals
from those courts may have to be heard by a court located outside of the County
of New York, State of New York, and further provided, that nothing in this
Master Security Agreement shall be deemed or operate to preclude Laurus from
bringing suit or taking other legal action in any other jurisdiction to collect,
the Obligations, to realize on the Collateral or any other security for the
Obligations, or to enforce a judgment or other court order in favor of Laurus.
Each Assignor expressly submits and consents in advance to such jurisdiction in
any action or suit commenced in any such court, and each Assignor hereby waives
any objection which it may have based upon lack of personal jurisdiction,
improper venue or forum non conveniens. Each Assignor hereby waives personal
service of the summons, complaint and other process issues in any such action or
suit and agrees that service of such summons, complaint and other process may be
made by registered or certified mail addressed to such assignor at the address
set forth on the signature lines hereto and that service so made shall be deemed
completed upon the earlier of such Assignor's actual receipt thereof or three
(3) days after deposit in the U.S. mails, proper postage prepaid.
The parties desire that their disputes be resolved by a judge applying such
applicable laws. Therefore, to achieve the best combination of the benefits of
the judicial system and of arbitration, the parties hereto waive all rights to
trial by jury in any action, suite, or proceeding brought to resolve any
dispute, whether arising in contract, tort, or otherwise between Laurus, and/or
any Assignor arising out of, connected with, related or incidental to the
relationship established between them in connection with this Master Security
Agreement or the transactions related hereto.
11. It is understood and agreed that any person or entity that desires to
become an Assignor hereunder, or is required to execute a counterpart of this
Master Security Agreement after the date hereof pursuant to the requirements of
any Document, shall become an Assignor hereunder by (x) executing a Joinder
Agreement in form and substance satisfactory to Laurus, (y) delivering
supplements to such exhibits and annexes to such Documents as Laurus shall
reasonably request and (z) taking all actions as specified in this Master
Security Agreement as would have been taken by such Assignor had it been an
original party to this Master Security Agreement, in each case with all
documents required above to be delivered to Laurus and with all documents and
actions required above to be taken to the reasonable satisfaction of Laurus.
12. All notices from Laurus to any Assignor shall be sufficiently given if
mailed or delivered to such Assignor's address set forth below.
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Very truly yours,
WINDSWEPT ENVIRONMENTAL
GROUP, INC.
By: /s/ Xxxxxxx X'Xxxxxx
--------------------------------
Name: Xxxxxxx X'Xxxxxx
Title: President
Address:
TRADE-WINDS ENVIRONMENTAL
RESOTRATION INC.
By: /s/ Xxxxxxx X'Xxxxxx
--------------------------------
Name: Xxxxxxx X'Xxxxxx
Title: President
Address:
NORTH ATLANTIC LABORATORIES,
INC.
By: /s/ Xxxxxxx X'Xxxxxx
--------------------------------
Name: Xxxxxxx X'Xxxxxx
Title: President
Address:
ACKNOWLEDGED:
LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx Grin
--------------------------------
Name: Xxxxx Grin
Title: Director
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SCHEDULE A
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Entity Jurisdiction of Organization Identification
Formation Number
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Windswept Environmental Group, Inc. Delaware 00-0000000
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Trade-Winds Environmental Restoration Inc. New York 00-0000000
------------------------------------------ ---------------- ---------------------------
North Atlantic Laboratories, Inc. New York 00-0000000
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