Exhibit 10.3
PACIFIC BIOMETRICS, INC. AND CERTAIN OF ITS SUBSIDIARIES
MASTER SECURITY AGREEMENT
To: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services, Ltd.
X.X. Xxx 0000 G.T
Queensgate House
South Church Street
Grand Cayman, Cayman Islands
Date: May 28, 2004
To Whom It May Concern:
1. To secure the payment of all Obligations (as hereafter defined),
PACIFIC BIOMETRICS, 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 any Assignor, or in which any
Assignor now have or at any time in the future may acquire any right, title or
interest (the "Collateral"): all cash, cash equivalents, accounts, 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 our
affiliates), chattel paper, supporting obligations, investment property
(including, without limitation, all 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 any Assignor now have 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. Notwithstanding the foregoing, the Collateral
shall not include any of such property that is subject on the date hereof to
certain outstanding security interests (and the related UCC-1 financing
statements relating thereto) granted by any Assignor to third parties in
connection with certain equipment financed by Transamerica Technology Finance
Corporation (as successor to Transamerica Business Credit Corp.), Franklin
Funding , Inc. or Roche Diagnostics Corp., or any successor thereto. In the
event any Assignor wishes to finance the acquisition in the ordinary course of
business of any hereafter acquired equipment and have obtained a commitment from
a financing source to finance such equipment from an unrelated third party,
Laurus agrees to release its security interest on such hereafter acquired
equipment so financed by such third party financing source. In addition, so long
as no Event of Default hereunder shall have occurred and be continuing, Laurus'
security interest in the assets of PBI Technology Inc., whether now existing or
hereafter arising (the "PBI Technology Assets") shall be automatically released
from the Collateral granted to Laurus upon (i) the Company obtaining financing
in excess of $1,000,000 to be secured by such PBI Technology Assets (ii) the
Company entering into a definitive strategic joint venture arrangement where the
PBI Technology Assets are contributed to the venture or (iii) the Company
entering into one or more bona fide licensing agreements with unaffiliated third
parties, which shall be on commercially reasonable terms and which provides for
either (a) up front payments and royalties which based on such third party's
projected sales, would reasonably be expected to produce, in the aggregate, more
than $1,000,000 in gross revenue, or (b) a grant of security interest in the
licensed technology to the third party licensee. Upon the occurrence of an
event specified in clauses (i), (ii) and (iii) above, Laurus hereby authorizes
the Company to file the appropriate financing statements to effect such release.
Except as otherwise defined herein, all capitalized terms used herein shall have
the meaning 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, as each may be amended, modified, restated or
supplemented from time to time, are collectively referred to herein as 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 any 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, 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 Xxxxx 00, Xxxxxx Xxxxxx Code, including, without limitation,
obligations or indebtedness of each Assignor for post-petition interest, fees,
costs and charges that would have accrued or been added to the Obligations but
for the commencement of such case, provided, however, upon the irrevocable
payment in full of all obligations and liabilities of the Company with respect
to the Note, this Agreement shall terminate and be of no further force or
effect. Laurus hereby agrees to file the appropriate financing statements and to
take such other reasonable action required to effect such termination and
release promptly after receipt of such payment.
3. Each Assignor hereby jointly and severally represents, warrants and
covenants to Laurus that:
(a) it is a corporation validly existing, in good standing and organized
under the respective laws of its jurisdiction of organization 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 organization;
(b) its legal name is as set forth in its respective Certificate of
Incorporation or other organizational document (as applicable) as
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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 any of its organizational
identification number;
(d) Subject to the Assignors' disclosures on Schedule 4.9 of the
Securities Purchase Agreement it is the lawful owner of the respective
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) Subject to the Assignors' disclosures on Schedule 4.9 of the
Securities Purchase Agreement, it will keep its respective 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 and (ii) Encumbrances
expressly subordinate to the security interests granted to Laurus
herein, and (iii) to the extent said Encumbrance does not secure
indebtedness in excess of $75,000 and such Encumbrance is removed or
otherwise released within ten (10) days of the creation thereof;
(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 the Collateral, whether by sale, lease
or otherwise, except for the sale of inventory, or licensing of
technology 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 $25,000 and only to the extent that:
(i) the proceeds of any such disposition are used to acquire
replacement Collateral which is subject to Laurus' first
priority perfected security interest, or are used to repay
Obligations or to pay general corporate expenses; and
(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 as provided in
the Securities Purchase Agreement. 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;
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(i) it will at all reasonable times and reasonable prior notice during
normal business hours 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 or willful
misconduct (as determined by a court of competent jurisdiction in a
final and nonappealable decision).
4. The occurrence of any of the following events or conditions shall
constitute an "Event of Default" under this Master Security Agreement:
(a) Company shall (i) apply for, consent to, or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or other fiduciary of itself or of all or a
substantial part of its property, (ii) make a general assignment for
the benefit of creditors, (iii) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (iv)
be adjudicated a bankrupt or insolvent, (v) file a petition seeking to
take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within sixty (60) days,
any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting
any of the foregoing;
(b) the Company shall repudiate, purport to revoke or fail to perform any
or all of its obligations under any Note (after passage of applicable
cure period, if any); or
(c) an Event of Default under and as defined in any Document shall have
occurred and be continuing beyond any applicable grace period. .
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 our premises or to remove the Collateral or any part thereof to
such other premises as Laurus may desire. Upon Laurus' request, each of the
Assignors 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 any 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
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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 expense 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. Laurus shall pay any surplus to the Company or as a court of
competent jurisdiction shall direct.
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 several reasonable
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.
7. Each Assignor appoints Laurus, any of Laurus' officers, employees or
any other person or entity whom Laurus may designate as its respective attorney,
with power to execute such documents in each of our 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 each
respective 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 each respective 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 financing
statements 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.
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9. This Master Security Agreement shall be governed by and construed in
accordance with the laws of the State of New York and cannot be terminated
orally. 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. Laurus and each Assignor hereby (a)
waive any and all right to trial by jury in litigation relating to this
Agreement and the transactions contemplated hereby and each Assignor agrees not
to assert any counterclaim in such litigation, (b) submit to the nonexclusive
jurisdiction of any New York State court sitting in the borough of Manhattan,
the city of New York and (c) waive any objection Laurus or each Assignor may
have as to the bringing or maintaining of such action with any such court.
10. All notices from Laurus to any Assignor shall be sufficiently given if
mailed or delivered to such Assignor's address set forth below.
Very truly yours,
PACIFIC BIOMETRICS, INC.
By: /s/ Xxxxxx X. Xxxx
---------------------------------
Name: Xxxxxx Xxxx
Title: Chief Executive Officer
Address: 000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
BIOQUANT, INC.
By: /s/ Xxxxxx X. Xxxx
---------------------------------
Name: Xxxxxx Xxxx
Title: Chief Executive Officer
Address: 000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
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PACIFIC BIOMETRICS, INC.
(Washington State Lab)
By: /s/ Xxxxxx X. Xxxx
---------------------------------
Name: Xxxxxx Xxxx
Title: Chief Executive Officer
Address: 000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
PBI TECHNOLOGY, INC.
By: /s/ Xxxxxx X. Xxxx
---------------------------------
Name: Xxxxxx Xxxx
Title: Chief Executive Officer
Address: 000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
ACKNOWLEDGED:
LAURUS MASTER FUND, LTD.
By: /s/
---------------------------------
Name: Xxxxxx Grin
Title: Director
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SCHEDULE A
Entity Jurisdiction of Organization Identification
Organization Number
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Pacific Biometrics, Inc. Delaware
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Pacific Biometrics, Inc. Washington
(Washington State Lab)
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PBI Technology, Inc. Washington
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BioQuant, Inc. Michigan
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