Exhibit 10.37
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), dated December 22, 2006, is by
and between AMERICAN SOIL TECHNOLOGIES, INC., a Nevada corporation (the
"Debtor") and XXX XXXXXXX, an individual (the "Secured Party") (individually, a
"Party"; collectively, the "Parties").
For valuable consideration, receipt of which is acknowledged, the Parties
agree as follows:
1. Grant of Security Interest. Debtor hereby grants to Secured Party a first
priority security interest in the property described in Paragraph 2 below
(collectively and severally, the "Collateral") to secure the prompt and complete
payment and performance of the obligations of Debtor to Secured Party described
in Paragraph 3 below (collectively and severally, the "Obligations").
2. Collateral. The Collateral consists of all of that certain intellectual
property acquired by the Debtor pursuant to the Intellectual Property Purchase
Agreement with Xxx Xxxxxxx, dated December 20, 2006 (the "Purchase Agreement"),
together with all additions and accessions thereto and replacements therefor and
all proceeds of the foregoing, including but not limited to money, deposit
accounts, chattel paper, documents, notes, drafts, instruments, goods,
inventory, equipment, general intangibles, insurance proceeds, and other
tangible or intangible property received upon the sale or disposition of the
foregoing.
3. Obligations. The Obligations of Debtor secured by this Agreement consist of:
(a) The payment and performance of Debtor's indebtedness and obligations to
Secured Party under that certain Secured Convertible Debenture, dated December
15, 2006, in the original principal amount of $1,500,000 executed by Debtor, as
Company, in favor of Secured Party, as Holder, and any and all extensions,
renewals, modifications, amendments and replacements thereof(the "Debenture");
and
(b) The payment and performance of all Debtor's indebtedness and
obligations to Secured Party under (i) this Agreement, (ii) the Purchase
Agreement, (iii) any and all agreements, instruments or documents now or
hereafter evidencing or securing the Debenture, and (iv) any and all extensions,
renewals, modifications, amendments and replacements thereof.
4. Representations and Covenants of Debtor. Debtor represents, warrants, and
agrees as follows:
(a) At the request of Secured Party, Debtor will join with Secured Party in
executing one or more Financing Statements, pursuant to the Uniform Commercial
Code, in a form satisfactory to Secured Party and will pay the cost of filing
the same or filing or recording this Agreement in all public offices wherever
filing or recording is deemed by Secured Party to be necessary or desirable.
Additionally, Debtor authorizes and requests that the Register of Copyrights and
the Commissioner of Patents and Trademarks record this Agreement.
(b) Debtor will do all acts which may be necessary to maintain, preserve
and protect the Collateral, not to commit or permit any waste thereof, to
maintain the Collateral in good order, repair and condition, reasonable wear and
tear excepted, and to comply with all laws, regulations and ordinances relating
to the possession, operation, maintenance and control of the Collateral.
(c) Debtor will not remove any of the Collateral from the business premises
of Debtor, except for the purposes of repair or replacement with other articles
of substantially similar quality and value, and except for sales of products in
the ordinary course of business.
(d) Debtor will not sell, assign, lease, sub-license, encumber, or
otherwise dispose of all or any of the Collateral without the prior written
consent of Secured Party.
(e) Debtor will pay, at least ten days before delinquency, all taxes,
assessments and liens now or hereafter imposed on the Collateral.
(f) Debtor will procure, execute and deliver from time to time any
agreements, endorsements, assignments, financing statements and other writings
and take such other actions deemed necessary or appropriate by Secured Party to
create, confirm, perfect, maintain and protect its security interest hereunder
and the priority thereof.
(g) Upon the closing of the Purchase Agreements, Debtor shall be the sole
owner of the Collateral;
(h) Performance of this Agreement does not conflict with or result in a
breach of any agreement to which Debtor is party or by which Debtor is bound;
(i) Debtor shall promptly advise Secured Party of any material change in
the composition of the Collateral;
(j) Debtor shall (i) protect, defend and maintain the validity and
enforceability of any trademarks, patents and copyrights included in the
Collateral, (ii) use its best efforts to detect infringements of the trademarks,
patents and copyrights and promptly advise Secured Party in writing of any
material infringements and (iii) not allow any trademarks, patents or copyrights
to be abandoned, forfeited or dedicated to the public without the written
consent of Secured Party;
(k) This Agreement creates in favor of Secured Party a valid and perfected
first priority security interest in the Collateral in the United States securing
the payment and performance of the Obligations upon making the filings
contemplated hereby;
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(l) Debtor shall not enter into any agreement that would materially impair
or conflict with Debtor's obligations hereunder without Secured Party's prior
written consent, which consent shall not be unreasonably withheld; and
(m) Upon any executive officer of Debtor obtaining actual knowledge
thereof, Debtor will promptly notify Secured Party in writing of any event that
materially adversely affects the value of any Collateral, the ability of Debtor
to dispose of any Collateral or the rights and remedies of Secured party in
relation thereto, including the levy of any legal process against any of the
Collateral.
5. Authorized Action by Secured Party. If Debtor fails to make any payment or do
any act as herein required, then Secured Party, without obligation to do so and
without notice to or demand upon Debtor, may make such payments and do such acts
as Secured Party may deem necessary to protect its security interest in the
Collateral. Debtor hereby agrees to repay immediately and without demand all
sums so expended by Secured Party pursuant to the provisions of this Section 5
with interest from date of expenditure at the maximum rate allowed by law.
6. Default. Debtor shall be in default under this Agreement upon the happening
of any of the following events or conditions:
(a) Default by Debtor in the payment of any or all of the Obligations
secured hereby, or failure by Debtor to perform any agreement herein contained
or referred to herein or secured hereby, or the occurrence of any event of
default under any and all other related agreements.
(b) Any warranty, representation or statement, made or furnished to Secured
Party by or on behalf of Debtor, including those contained in the Purchase
Agreements, that proves to have been false in any material respect when made or
furnished;
(c) Substantial uninsured damage, destruction, or danger, in the opinion of
Secured Party, or misuse or confiscation of the Collateral or the making of any
levy, seizure or attachment thereof or therein; or,
(d) Termination of existence, dissolution, insolvency, business failure,
appointment of a receiver of any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceedings under any
bankruptcy or insolvency laws by, or against, Debtor.
7. Rights upon Default. Upon any such default, Secured Party, following written
notice and a failure to cure the default within 30 days from the date that such
notice is given, may declare all Obligations secured hereby to be immediately
due and payable, and Secured Party shall have all the rights and remedies
provided a secured party under the Uniform Commercial Code as enacted in
California. Additionally, following Debtor's default and failure to cure after
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written notice, Secured Party may immediately obtain possession and control of
the Collateral. Additionally, following Debtor's default and failure to cure
after written notice, Secured Party shall be released from any and all
provisions prohibiting Secured Party from, (i) competing with the Debtor or any
of its affiliates, and (ii) using any confidential information (including
confidential information that is included in the Collateral) for his own
benefit, including without limitation those restrictive provisions contained in
the Purchase Agreement or in any of the agreements delivered in connection
therewith. Debtor will pay any expenses (including reasonable attorneys' fees)
incurred by Secured Party in connection with the exercise of any of Secured
Party's rights under this Article 7. All of Secured Party's rights and remedies
with respect to the Collateral shall be cumulative. All rights and remedies of
Secured Party under this Agreement are in addition to all rights and remedies
given to Secured Party contained in any other agreement, instrument or document
or available to Secured Party at law, by statute or in equity. All such rights
and remedies are cumulative and not exclusive and may be exercised successively,
concurrently and repeatedly.
8. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Debtor will make, execute, acknowledge and
deliver, and file and record in the proper filing and recording places in the
United States, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office and the Register of Copyrights, and take all
such action as may reasonably be deemed necessary or advisable, or as requested
by Secured Party, to perfect Secured Party's security interest in all Collateral
and otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to Secured Party the grant or perfection of a security
interest in all Collateral.
(b) Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor, from time to time in Secured Party's discretion, to take any
action and to execute any instrument which Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including (i) to file,
in its sole discretion, one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature of
Debtor where permitted by law and (ii) after the occurrence of an event of
default, to transfer the Collateral into the name of Secured Party.
9. Indemnity. Each Party (the "Indemnifying Party") agrees to indemnify, defend,
and hold harmless the other Party (the "Indemnified Party") from and against any
and all claims, damages, and liabilities, including any and all expense and
costs, legal or otherwise, caused by the negligent act or omission of the
Indemnifying Party, its subcontractors, agents, or employees, incurred by the
Indemnified Party in the investigation and defense of any claim, demand, or
action arising out of the work performed under this Agreement; including breach
of the Indemnifying Party of this Agreement. The Indemnifying Party shall not be
liable for any claims, damages, or liabilities caused by the sole negligence of
the Indemnified Party, its subcontractors, agents, or employees.
The Indemnified Party shall notify promptly the Indemnifying Party of the
existence of any claim, demand, or other matter to which the Indemnifying
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Party's indemnification obligations would apply, and shall give them a
reasonable opportunity to settle or defend the same at their own expense and
with counsel of their own selection, provided that the Indemnified Party shall
at all times also have the right to fully participate in the defense. If the
Indemnifying Party, within a reasonable time after this notice, fails to take
appropriate steps to settle or defend the claim, demand, or the matter, the
Indemnified Party shall, upon written notice, have the right, but not the
obligation, to undertake such settlement or defense and to compromise or settle
the claim, demand, or other matter on behalf, for the account, and at the risk,
of the Indemnifying Party.
The rights and obligations of the Parties under this Article shall be
binding upon and inure to the benefit of any successors, assigns, and heirs of
the Parties.
10. Waivers. Debtor waives any right to require Secured Party to (a) proceed
against any person, (b) proceed against, apply or exhaust any Collateral or any
other security for the Obligations secured hereby, or (c) pursue any other
remedy in Secured Party's power. Debtor waives any defenses arising by reason of
any disability or other defense of any person, or by reason of the cessation
from any cause whatsoever of the liability of any other person.
11. Miscellaneous.
(a) This Agreement may be assigned by Secured Party only. Any assignment of
this Agreement by Debtor is null and void and shall constitute a default by
Debtor. This Agreement shall bind and inure to the benefit of the Parties'
successors and assigns.
(b) References to the Uniform Commercial Code refer to the Uniform
Commercial Code as adopted by the State of California.
(c) This Agreement and the rights of the Parties hereunder shall be
governed by and construed in accordance with the laws of the State of California
including all matters of construction, validity, performance, and enforcement
and without giving effect to the principles of conflict of laws. The Parties
submit to the jurisdiction of the Courts of the County of Orange, State of
California or a Federal Court empaneled in the State of California for the
resolution of all legal disputes arising under the terms of this Agreement. In
the event any Party hereto shall commence legal proceedings against the other to
enforce the terms hereof, or to declare rights hereunder, as the result of a
breach of any covenant or condition of this Agreement, the prevailing Party in
any such proceeding shall be entitled to recover from the losing Party its costs
of suit, including reasonable attorneys' fees, as may be fixed by the court.
(d) Upon performance of the obligation and payment of the debt secured
hereby, Secured Party shall execute such documents as Debtor may request to
release and relinquish the security interest created hereby.
(e) This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
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instrument. The Parties agree that facsimile signatures of this Agreement shall
be deemed a valid and binding execution of this Agreement.
(f) Any forbearance, failure or delay by Secured Party in exercising any
right or remedy. shall not preclude the further exercise thereof, and every
right or remedy of Secured Party shall continue in full force and effect until
such right or remedy is specifically waived in a writing executed by Secured
Party.
(g) This Agreement constitutes the entire agreement with respect to the
subject matter hereof. The terms and provisions of this Agreement may not be
amended, waived, altered or modified except by written agreement signed by
Debtor and Secured Party.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of
the date first written hereinabove.
DEBTOR:
AMERICAN SOIL TECHNOLOGIES, INC.,
a Nevada corporation
/s/ Xxxx X. Xxxxx
-----------------------------
By: Xxxx X. Xxxxx
Its: President
SECURED PARTY:
/s/ Xxx Xxxxxxx
-----------------------------
By: Xxx Xxxxxxx
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