SECURITY AGREEMENT
Exhibit 10.7
1. Identification.
This Security Agreement (the
“Agreement”), dated as of May 8, 2009, is entered into by and
between Clear Skies Solar, Inc., a Delaware corporation (“Debtor”), the lenders set forth on Schedule
I hereto (the “Lenders”).
2. Recitals.
2.1 At or about the date hereof,
the Lenders are making loans (the “Loan”) to Debtor. It is beneficial to
Debtor that the
Loan is made.
2.2 The Loan will be evidenced by promissory
notes (“Notes”) issued by Debtor on or about the date of this Agreement
pursuant to subscription agreement (the “Subscription Agreement”) to which Debtor and Lenders are parties. The
Notes are in the principal amount of
$400,000 and were or will be executed by Debtor as “Borrower” or “Debtor” for the benefi
t of each Lender as
the “Holder” or “Lender” thereof.
2.3 In consideration of the Loan made and to be made by Lenders to Debtor and for other good and valuable
consideration, and as security for the performance by Debtor of its obligations under the Notes, and as security for the repayment of the
Loan and all other sums due from Debtor to
Lenders arising under the Transaction Documents
(as defined in the
Subscription Agreement) and
any other agreement between or among them (collectively, the “Obligations”), Debtor, for good and valuable
consideration, receipt of which is acknowledged, has agreed to grant to the Lenders a security interest in the Collateral
(as such term is hereinafter defined), on the terms and conditions hereinafter
set forth. Obligations include all future
advances and
loans by Lenders to Debtor that may be made pursuant to the Subscription
Agreement or any other
agreements.
2.4 The following defined terms which are
defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are
used herein as so defined: Accounts, Chattel Paper, Documents,
Equipment, General Intangibles, Instruments, Inventory and Proceeds. Other capitalized terms
employed herein shall have the meanings attributed to them in the Subscription
Agreement.
3. Grant of
General Security Interest in Collateral.
3.1 As security for the Obligations of Debtor,
Debtor hereby grants the
Lenders, a security interest in the
Collateral.
3.2 “Collateral” shall mean all of the following property of Debtor:
(A) All now owned and hereafter acquired
right, title and interest
of Debtor in, to and in
respect of all Accounts, Goods, real or personal property, all present and
future books and records relating to the foregoing and all products and
Proceeds of the foregoing,
and as set forth below:
(i) All now owned and hereafter acquired
right, title and interest
of Debtor in, to and in
respect of all: Accounts, interests in goods represented by Accounts, returned,
reclaimed or repossessed goods with respect thereto and rights as an unpaid
vendor; contract rights; Chattel Paper; investment property; General Intangibles
(including but not limited to, tax and duty claims and refunds, registered and
unregistered patents, trademarks, service marks, certificates, copyrights trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims, and existing and future leasehold interests and claims in and to equipment, real estate and fixtures);
Documents; Instruments; letters of credit, bankers’ acceptances or guaranties; cash moneys,
deposits; securities, bank accounts, deposit accounts, credits and other
property now or hereafter owned or held in any capacity by Debtor, as well as agreements or property
securing or relating to any of the items referred to above;
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(ii) Goods: All now owned and hereafter
acquired right, title and
interest of Debtor in, to
and in respect of goods, including, but not limited
to:
(a) All Inventory, wherever located, whether
now owned or hereafter acquired, of whatever kind, nature or description,
including all raw materials, work-in-process, finished goods, and materials
to be used or consumed in
Debtor’s business; finished goods, timber cut or to be cut, oil, gas,
hydrocarbons, and minerals extracted or to be extracted, and all names or marks affixed to or to
be affixed thereto for purposes of selling same by the seller, manufacturer,
lessor or licensor thereof
and all Inventory which may
be returned to Debtor by
its customers or
repossessed by Debtor and
all of Debtors’ right, title and interest in and to
the foregoing (including
all of Debtor’s rights as a seller of
goods);
(b) All Equipment and fixtures, wherever located, whether now owned
or hereafter acquired, including, without limitation, all machinery, furniture
and fixtures, and any and all additions, substitutions, replacements (including
spare parts), and accessions thereof and thereto (including, but not limited to Debtor’s rights to acquire any of the foregoing,
whether by exercise of a purchase option or otherwise);
(iii) Property: All now owned and hereafter
acquired right, title and
interests of Debtor in, to
and in respect of any other personal property in or upon which
Debtor has or may hereafter
have a security interest, lien or right of setoff;
(iv) Books and
Records: All
present and future books and records relating to any of the above including,
without limitation, all computer programs, printed output and computer
readable data in the possession or control of the
Debtor, any computer
service bureau or other third party; and
(v) Products and
Proceeds: 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.
(B) All now owned and hereafter acquired
right, title and interest
of Debtor in, to and in
respect of the
following:
(i) all shares of stock, partnership
interests, member interests or other equity interests from time to time acquired
by Debtor, in any current
Subsidiary or any Subsidiary that is not a Subsidiary of the Debtor
on the date hereof (“Future
Subsidiaries”), the
certificates representing such shares, and other rights, contractual or
otherwise, in respect thereof and all dividends, distributions, cash,
instruments, investment property and other property from time to time received,
receivable or otherwise distributed in respect
of or in exchange for any or all of such shares, interests or equity;
and
(ii) all security entitlements of Debtor in,
and all Proceeds of any and all of the foregoing in each case, whether now owned
or hereafter acquired by
Debtor and howsoever its interest therein may arise or appear (whether by
ownership, security interest, lien, claim or otherwise).
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3.3 The Lenders are hereby specifically authorized, after
the Maturity Date (defined in the Notes) accelerated or otherwise, and after the occurrence of an Event of Default (as defined herein)
and the expiration of any applicable cure period, to transfer any Collateral
into the name of the Lenders and to take any and all action deemed
advisable to the Lenders to remove any transfer restrictions affecting
the Collateral.
3.4 Additional Security.
(a) Debtor is the owner of property
described on Schedule 3.4 hereto (“Mojave Property”). In the event the Debtor
does not file its Form 10-K in the manner required under the 1934 Act on or before May 18, 2009, then
the Debtor will, not later than June 8, 2009, prepare and file such documents as
are necessary to grant, memorialize and perfect in Lenders a perfected senior
security interest in the Mojave Property (collectively, the “Mortgage”). In the event the Mortgage
is not timely filed, then Debtor shall promptly deliver to Lenders in the
aggregate 5,000,000 shares of Common Stock (“Liquidated Damages Shares”) in proportion to the amount of Notes
acquired by them pursuant to the Subscription
Agreement. Debtor shall be required to file the Mortgage regardless
of the obligation to issue and deliver such 5,000,000 shares of Common
Stock.
(b) In the event Debtor does not raise
$5,000,000 as an investment in the Mojave Property on or before six months after the date of
this Agreement and the Lenders do not already hold a Mortgage, then Debtor must
either (i) promptly file the Mortgage, or (ii) issue Liquidated Damages Shares
to the Lenders in addition to any Liquidated Damages Shares that may have been issued pursuant to Section
3.4(a)
above.
4. Perfection of Security
Interest.
4.1 Debtor
shall prepare, execute and deliver to the Lenders UCC-1 Financing
Statements. The Lenders are instructed to prepare and file at
Debtor’s cost and expense, financing statements in such jurisdictions deemed
advisable to Lenders, including but not limited to the State of
Delaware.
4.2 All
other certificates and instruments constituting Collateral from time to time
required to be pledged to Lenders pursuant to the terms hereof (the “Additional
Collateral”) shall be delivered to Lenders promptly upon receipt thereof by or
on behalf of Debtor. All such certificates and instruments shall be
held by or on behalf of Lenders pursuant hereto and shall be delivered in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment or undated stock powers executed in blank,
all in form and substance satisfactory to Lenders. If any Collateral
consists of uncertificated securities, unless the immediately following sentence
is applicable thereto, Debtor shall cause Lenders (or its custodian, nominee or
other designee) to become the registered holder thereof, or cause each issuer of
such securities to agree that it will comply with instructions originated by
Lenders with respect to such securities without further consent by
Debtor. If any Collateral consists of security entitlements, Debtor
shall transfer such security entitlements to Lenders (or its custodian, nominee
or other designee) or cause the applicable securities intermediary to agree that
it will comply with entitlement orders by Lenders without further consent by
Debtor.
4.3 If
Debtor shall receive, by virtue of Debtor being or having been an owner of any
Collateral, any (i) stock certificate (including, without limitation, any
certificate representing a stock dividend or distribution in connection with any
increase or reduction of capital, reclassification, merger, consolidation, sale
of assets, combination of shares, stock split, spin-off or split-off),
promissory note or other instrument, (ii) option or right, whether as an
addition to, substitution for, or in exchange for, any Collateral, or otherwise,
(iii) dividends payable in cash (except such dividends permitted to be retained
by Debtor pursuant to Section 5.2 hereof) or in securities or other property or
(iv) dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, Debtor shall receive such stock certificate,
promissory note, instrument, option, right, payment or distribution in trust for
the benefit of Lenders, shall segregate it from Debtor’s other property and
shall deliver it forthwith to Lenders, in the exact form received, with any
necessary endorsement and/or appropriate stock powers duly executed in blank, to
be held by Lenders as Collateral and as further collateral security for the
Obligations.
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5. Distribution.
5.1 So long as an Event of Default does not exist, 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.
5.2. At any time an Event of Default exists or has occurred and is continuing, all rights of Debtor, upon notice given by
Lenders, to exercise the
voting power and receive payments, which it would otherwise be entitled to
pursuant to Section 5.1, shall cease and all such rights shall thereupon
become vested in Lenders,
which shall thereupon have the sole right to exercise such voting power and
receive such payments.
5.3 All dividends, distributions, interest
and other payments which
are received by Debtor contrary to the provisions of Section
5.2 shall be received in trust for the
benefit of Lenders as security and Collateral for payment of the
Obligation, shall be segregated from other funds
of Debtor, and shall be forthwith paid over to
Lenders as Collateral in the exact form received with any
necessary endorsement and/or appropriate stock powers duly executed in blank, to
be held by Lenders as Collateral and as further collateral
security for the Obligations.
6. Further
Action By Debtor; Covenants
and Warranties.
6.1 Subject to the terms of this Agreement,
Lenders at all times shall have a perfected
security interest in the
Collateral. Debtor
represents that, other than the security interests described on Schedule
6.1, it has and will
continue to have full title
to the Collateral free from any liens, leases, encumbrances, judgments or other
claims. The Lenders’ security interest in the Collateral
constitutes and will continue to constitute a first, prior and indefeasible
security interest in favor of Lenders, subject only to the security interests
described on Schedule
6.1. 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
Lenders to establish,
maintain and continue the perfected security interest of Lenders in the perfected Collateral, and will
promptly on demand, pay all costs and expenses of filing and recording,
including the costs of any searches reasonably deemed necessary by
Lenders from time to time to establish and
determine the validity and the continuing priority of the security interest of
Lenders, and also pay all
other claims and charges that, in the opinion of Lenders are reasonably likely to materially prejudice, imperil or
otherwise affect the Collateral or Lenders’ security interests
therein.
6.2 Except (i) in connection with sales of Collateral,
in the ordinary course of business, for fair value and in cash, (ii) the assets described on Schedule
6.2 (referred to as the
“XTRAX Assets”) which may be sold, transferred or
assigned to an entity in which Debtor holds not less than 20% of the outstanding
equity and right to receive equity at the time the XTRAX Assets are conveyed,
and (iii) for Collateral which is substituted by
assets of identical or greater value (subject to the consent of the
Lenders) or which
is inconsequential in
value, Debtor will not
sell, transfer, assign or pledge those items of Collateral (or allow any such
items to be sold,
transferred, assigned or pledged), without the prior written consent of
Lenders other than a transfer of the Collateral
to a wholly-owned United States formed and located subsidiary on prior notice to Lenders, and provided the Collateral remains
subject to the security
interest herein described. Although Proceeds of Collateral are
covered by this Agreement, this shall not be construed to mean that
Lenders consent to any sale of the Collateral,
except as provided herein. Sales of Collateral in the ordinary course of
business and as described above shall be free of the security interest
of Lenders and Lenders shall promptly execute such documents
(including without limitation releases and termination statements) as may be required by
Debtor to evidence or effectuate the
same.
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6.3 Debtor will, at all reasonable times
during regular business hours and upon reasonable notice, allow
Lenders or their representatives free and complete access
to the Collateral and all
of Debtor’s records that in any way relate to the Collateral, for such
inspection and examination as Lenders reasonably deem
necessary.
6.4 Debtor, at its sole cost and expense,
will protect and defend this Security Agreement, all of the rights of
Lenders hereunder, and the Collateral
against the claims and
demands of all other persons.
6.5 Debtor will promptly notify
Lenders 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 are reasonably likely to affect or impair any of
the rights of Lenders under this Security Agreement in any
material respect.
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, which insurance shall be of the types
customarily insured against by companies in the same or similar business,
similarly situated, in such amounts (with such deductible amounts) as is
customary for such companies under the same or similar
circumstances, similarly
situated. Debtor
shall make the Lenders loss payee thereon to the extent of its
interest in the Collateral. Lenders are hereby irrevocably (until the
Obligations are indefeasibly paid in full) appointed Debtor’s attorney-in-fact to endorse any check
or draft that may be payable to Debtor so that Lenders 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 Lenders 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 In order to protect the Collateral
and Lenders’ interest therein, Lenders may, at Lenders’ 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 upon Debtor’s failure to do so. All amounts expended by
Lenders in so doing shall become part of the
Obligations secured hereby, and shall be immediately due and payable by Debtor
to Lenders upon demand and shall bear interest at the lesser of
15% per annum or the highest legal amount allowed from the dates of such
expenditures until paid.
6.8 Upon the request of Lenders, Debtor will furnish to Lenders within five (5) business days
thereafter, or to any proposed assignee of this Security Agreement, a written
statement in form reasonably satisfactory to
Lenders, duly acknowledged,
certifying the amount of the principal and interest and any other sum then owing
under the Obligations, whether to its knowledge 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
Lenders 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 Lenders or to such assignee, with loss payable
clauses in favor of such assignee, and to cause such endorsements to be
delivered to Lenders within ten (10) calendar days after
request therefor by
Lenders.
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6.9 Debtor will, at its own expense, make,
execute, endorse, acknowledge, file and/or deliver to the Lenders from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer
endorsements, powers of attorney, certificates, reports and other reasonable
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
Lenders may reasonably require to perfect their
security interest
hereunder.
6.10 Debtor represents and warrants that they are the true and lawful
exclusive owners of the Collateral, free and clear of any liens, encumbrances and claims other than those listed on Schedule
6.1.
6.11 Debtor hereby agrees not to divest
itself of any right under the Collateral except as permitted herein absent prior
written approval of the Lenders, except to a subsidiary organized and
located in the United States on prior notice to Lenders provided the Collateral remains subject to
the security interest herein described.
6.12 Debtor shall cause each Subsidiary of
Debtor in existence on the
date hereof and each Future
Subsidiary to execute and deliver to Lenders promptly and in any event
within ten (10) days after
the formation, acquisition or change in status thereof (A) if requested by
Lenders, a security and pledge agreement
substantially in the form of this Agreement together with (x) certificates
evidencing all of the capital stock of each Subsidiary of and any entity owned by
such Subsidiary, (y) undated stock powers executed in blank with signatures
guaranteed, and (z) such opinion of counsel and such approving certificate of
such Subsidiary as Lenders may reasonably request in respect
of complying with any
legend on any such certificate or any other matter relating to such shares and
(B) such other agreements,
instruments, approvals, legal opinions or other documents reasonably requested
by Lenders in order to create, perfect, establish
the first priority of or
otherwise protect any lien purported to be covered by any such pledge and
security agreement or otherwise to effect the intent that all property and
assets of such Subsidiary shall become Collateral for the
Obligations. For purposes of this Agreement, “Subsidiary” means, with respect to any entity at
any date, any corporation, limited or general partnership, limited liability
company, trust, estate, association, joint venture or other business
entity, of which more than 30% of
(A) the outstanding
capital stock having (in the absence of contingencies) ordinary voting power to
elect a majority of the board of directors or other managing body of such
entity, (B) in the case of a partnership or limited liability company, the
interest in the capital or profits of such
partnership or limited liability company or (C) in the case of a trust,
estate, association, joint venture or other entity, the beneficial interest in
such trust, estate, association or other entity is, at the time of
determination, owned or controlled directly or
indirectly through one or more intermediaries, by such
entity. Schedule
6.12
annexed hereto contains a list of all Subsidiaries of
the Debtor as of the date of
this Agreement.
6.13 Debtor will notify Lenders within ten days of the occurrence of any change of
Debtor’s name, domicile, address or jurisdiction of
incorporation. The timely giving of this
notice is a material obligation of Debtor.
7. Power of
Attorney.
At any time an Event of Default has occurred, and only after the applicable cure period
as set forth in this Agreement and the other Transaction Documents, and is continuing, Debtor hereby irrevocably constitutes
and appoints Lenders 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 Lenders, to take any action and to execute any
instrument or document which the Lenders may deem necessary or advisable to
accomplish the purposes of
this Agreement. This power of attorney is coupled with an interest
and is irrevocable until the Obligations are satisfied.
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8. Performance
By The Lenders.
If Debtor fails to perform any material covenant,
agreement, duty or
obligation of Debtor under this Agreement,
Lenders may, after any applicable cure period,
at any time or times in its discretion, take action to effect performance of
such obligation. All reasonable expenses of the Lenders 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 Lenders under any part of this Agreement shall
be deemed to impose any obligation whatsoever on the Lenders with respect thereto, such rights, remedies and powers
being solely for the protection of the Lenders.
9. Event of
Default.
An event of default (“Event of Default”) shall be deemed to have occurred
hereunder upon the occurrence of any event of default as defined and described in this Agreement, in the Notes, the Subscription Agreement, Transaction Documents (as defined in
the Subscription Agreement), and any other agreement to which Debtor
and Lenders are parties. 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
Lenders, and the Lenders may dispose of Collateral as provided
below. A default
by Debtor of any of its material obligations pursuant to this Agreement and any of the
Transaction Documents shall be an Event of Default hereunder and an “Event of Default” as defined in the Notes, and Subscription
Agreement.
10. Disposition
of Collateral.
Upon and after any Event of Default
which is then continuing,
10.1 The Lenders may exercise their 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, in order to satisfy the
Obligations. In
addition to other rights
and remedies provided for herein or otherwise available to it, the Lenders 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 New York.
10.2 If any notice to Debtor of the sale or other disposition of Collateral
is required by then applicable law, five (5) business days prior written notice (which
Debtor agrees is reasonable notice within the meaning
of Section 9.612(a) of the Uniform Commercial Code) shall be given to
Debtor of the time and
place of any sale of
Collateral which Debtor
hereby agrees may be by private sale. The
rights granted in this Section are in addition to any and all rights available
to Lenders under the Uniform Commercial
Code.
10.3 The Lenders are authorized, at any such sale, if the
Lenders deem 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 Lenders deem advisable to ensure such
compliance. Sales made subject to such restrictions shall be deemed to have
been made in a commercially reasonable manner.
10.4 All proceeds received by 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 Lenders pursuant to Paragraph
12.1 hereof) against 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
Lenders incurred in connection with the
liquidation of the Collateral (unless another person is legally entitled
thereto). Any assignment of Collateral by the Lenders to Debtor shall be without representation or
warranty of any nature whatsoever and wholly without recourse. To the
extent allowed by law, Lenders may purchase the Collateral and pay for
such purchase by offsetting the purchase price with sums owed to
Lenders by Debtor arising under the Obligations or any
other source.
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10.5 Rights of
Lenders to Appoint
Receiver. Without limiting, and
in addition to, any other rights, options and remedies Lenders have under the Transaction Documents, the
UCC, at law or in equity,
or otherwise, upon the occurrence and continuation of an Event of Default,
Lenders shall have the right to apply for and
have a receiver appointed by a court of competent jurisdiction. Debtor
expressly agrees that such
a receiver will be able to manage, protect and preserve the Collateral and
continue the operation of
the business of Debtor to
the extent necessary to collect all revenues and profits thereof and to apply
the same to the payment of all expenses and other charges of such receivership,
including the compensation
of the receiver, until a sale or other disposition of such Collateral shall be
finally made and
consummated. Debtor waives any right to require a bond to be
posted by or on behalf of any such receiver.
11. Waiver of
Automatic Stay. Debtor acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against Debtor, or if any of the Collateral should become the subject of any
bankruptcy or insolvency proceeding, then the Lenders should be entitled to, among other relief to which
the Lenders may be entitled under the
Notes, Subscription Agreement, Transaction Documents, and any other agreement to which the
Debtor and Lenders 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 Lenders to exercise all of their rights and remedies pursuant to the
Loan Documents and/or applicable law. DEBTOR EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED
BY 11 U.S.C. SECTION 362. FURTHERMORE, DEBTOR EXPRESSLY ACKNOWLEDGES AND AGREES 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
LENDERS TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. Debtor hereby consents to any motion for
relief from stay which may
be filed by the Lenders in any bankruptcy or insolvency
proceeding initiated by or against Debtor, and further agrees not to file any
opposition to any motion for relief from stay filed by the Lenders. Debtor represents,
acknowledges and agrees
that this provision is a specific and material aspect of this Agreement, and
that the Lenders would not agree to the terms of this
Agreement if this waiver were not a part of this Agreement. Debtor
further represents, acknowledges and agrees that this waiver is knowingly, intelligently
and voluntarily made, that neither the Lenders nor any person acting on behalf of the
Lenders has made any representations to induce
this waiver, that 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 Debtor and that Debtor has had the opportunity to discuss this
waiver with counsel. Debtor further agrees that any bankruptcy
or insolvency proceeding initiated by Debtor will
only be brought in the Federal Court within the Southern District of New
York.
12. Miscellaneous.
12.1 Expenses. Debtor shall pay to the Lenders, on demand, the amount of any and all
reasonable expenses, including, without limitation,
attorneys’ fees, legal expenses and
brokers’ fees, which the Lenders 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 Lenders hereunder or with respect to any or all
of the Obligations upon breach or threatened breach; or (c) failure by
Debtor to perform and
observe any agreements of Debtor contained herein which are performed by
Lenders.
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12.2 Waivers,
Amendment and
Remedies. No
course of dealing by the Lenders and no failure by the Lenders to exercise, or delay by the
Lenders 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 Lenders. 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 Lenders, 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 Lenders, 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 Lenders from time to time in such order as the
Lenders may elect.
12.3 Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being faxed (provided that a copy is
delivered by first class mail) to the party to receive the same at its address set forth below or to such
other address as either party shall hereafter give to the other by notice duly
made under this Section:
|
To Debtor:
|
||
|
000 Xxx Xxxxxxx Xxxx, Xxxxx
000
|
||
|
Xxxxxxx, XX
00000
|
||
|
Attn: Xxxx Xxxxx,
CEO
|
||
|
Fax: (000)
000-0000
|
|
With
a copy by fax only to:
|
Xxxxxx
Xxxxxx
|
|
|
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
|
||
|
00
Xxxxxxxx, 00xx
Xxxxx
|
||
|
Xxx
Xxxx, XX 00000
|
||
|
Fax:
(000) 000-0000
|
||
|
To Lender:
|
To the addresses set forth on Schedule I | |
| with a copy by fax only to: | ||
| Grushko & Xxxxxxx, P.C. | ||
| 000 Xxxxx Xxxxxx, Xxxxx 0000 | ||
| Xxx Xxxx, Xxx Xxxx 00000 | ||
| Fax: (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 its successors and permitted
assigns; and (c) inure to the benefit of the Lenders and its successors and
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 of this agreement and have no legal or other significance
whatsoever.
9
12.6 Governing
Law; Venue;
Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to conflicts
of laws principles that
would result in the application of the substantive laws of another
jurisdiction, 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 Debtor with
respect to this Agreement must be brought only in the courts in the State of New
York or of the United States for
the Southern District of New York, and, by execution and delivery of this Agreement, Debtor hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the
aforesaid courts. 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 Entire
Agreement. This
Agreement contains the entire agreement of the parties and supersedes all other
agreements and understandings, oral or written, with respect to the matters contained
herein.
12.8 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 electronic transmission.
13. Termination;
Release. When
the Obligations have been indefeasibly paid and performed in full or all
outstanding Notes have been converted to common stock pursuant to the terms of
the Notes and the Subscription Agreements, this Agreement shall be terminated, and the Lenders, 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 the Security Agreement, and 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 Lenders.
14. Lenders
Powers.
14.1 Lenders
Powers. The
powers conferred on the Lenders hereunder are solely to protect
Lenders’ interest in the Collateral and shall not
impose any duty on it to
exercise any such powers.
14.2 Reasonable
Care. The
Lenders are required to exercise reasonable care in
the custody and preservation of any Collateral in its possession; provided,
however, that the Lenders shall be deemed to have exercised reasonable care in the custody
and preservation of any of the Collateral if it takes such action for that
purposes as any owner thereof reasonably requests in writing at times other than
upon the occurrence and during the continuance of any Event of Default, but failure of the
Lenders to comply with any such request at any
time shall not in itself be deemed a failure to exercise reasonable
care.
10
14.3 Majority in
Interest. The rights of the Lenders hereunder, except as
otherwise set forth herein
shall be exercised upon the approval of Lenders holding 70% of the outstanding
Obligations (“Majority in
Interest”) at the time such
approval is sought or given. Possession of any tangible or physical
Collateral shall be held by Alpha Capital Anstalt pursuant to this Agreement and on behalf of
all Lenders as to their respective rights. The Collateral, to the
extent it may be transferred to Lenders, may be held in the name of Alpha
Capital Anstalt or in “street name”. Unless agreed to otherwise
by a Majority in Interest, Alpha Capital Anstalt
is authorized to act on behalf of all the Lenders in connection with the Lenders
rights under this Agreement.
[THIS SPACE INTENTIONALLY LEFT
BLANK]
11
IN WITNESS WHEREOF,
the undersigned have
executed and delivered this
Security Agreement, as of the date first written above.
|
“DEBTOR”
|
|||||
|
a Delaware corporation
|
|||||
| By: |
/s/
Xxxx
Xxxxx
|
||||
| Its: | Chief Executive Officer | ||||
“LENDERS”
|
/s/ Xxxxxx
Xxxxxxxx,
Director
|
/s/
Xxxxx Xxxxx
|
|||
|
ALPHA
CAPITAL ANSTALT
|
XXXXX
XXXXX
|
|
/s/
Xxxxxxx Xxxxxxx
|
||||
|
XXXXXXX
XXXXXXX
|
This Security Agreement may be
signed by facsimile
signature and
delivered by confirmed facsimile
transmission.
12
Schedule
I
|
LENDER AND
ADDRESS
|
PURCHASE
PRICE
|
NOTE
PRINCIPAL
|
WARRANT
SHARES
|
|||||||||
|
ALPHA
CAPITAL ANSTALT
|
$ | 175,000 | $ | 175,000 | 1,750,000 | |||||||
|
XXXXX
XXXXX
|
$ | 175,000 | $ | 175,000 | 1,750,000 | |||||||
|
XXXXXXX
XXXXXXX
|
$ | 50,000 | $ | 50,000 | 500,000 | |||||||
13
