SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the
“Agreement”), is entered into and made
effective as of July 16, 2010 by and between MEGOLA, INC., a Nevada
corporation with its principal place of business located at 000 Xxxx Xxxxxx,
Xxxxx 000, Xxxxx Xxxxxx, Xxxxxxx X0X 0X0 (the “Company”), and TANGIERS
INVESTORS, LP (the “Secured
Party”).
WHEREAS, the Company has
issued and sold to the Secured Party, a Secured Convertible Debenture of even
date herewith in the amount of Twenty Thousand Dollars ($20,000) (the “Convertible
Debenture”), which is convertible into shares of the Company’s common
stock, par value $0.001 (the “Common Stock”) (as
converted, the “Conversion
Shares”);
WHEREAS, the Secured Party is
willing to provide such financing on the condition that such financing is
secured hereunder and under the UCC-1 filed in connection with the issuance of
the Convertible Debenture to the Secured Party;
WHEREAS, to induce the Secured
Party to purchase the Convertible Debenture from the Company, the Company the
Company hereby grants to the Secured Party a security interest in and to the
pledged property identified on Exhibit A hereto
(collectively referred to as the “Pledged Property”)
until the satisfaction of the Obligations, as defined herein below.
NOW, THEREFORE, in
consideration of the promises and the mutual covenants herein contained, and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE
1.
DEFINITIONS AND
INTERPRETATIONS
Section
1.1. Recitals.
The above
recitals are true and correct and are incorporated herein, in their entirety, by
this reference.
Section
1.2. Interpretations.
Nothing
herein expressed or implied is intended or shall be construed to confer upon any
person other than the Secured Party any right, remedy or claim under or by
reason hereof.
Section
1.3. Obligations
Secured.
The
obligations secured hereby are any and all obligations of the Company now
existing or hereinafter incurred to the Secured Party, whether oral or written
and whether arising before, on or after the date hereof including, without
limitation, those obligations of the Company to the Secured Party under this
Agreement, the Transaction Documents, the Prior Convertible Debentures, and any
other amounts now or hereafter owed to the Secured Party by the Company
thereunder or hereunder (collectively, the “Obligations”).
ARTICLE
2.
PLEDGED COLLATERAL,
ADMINISTRATION OF COLLATERAL
AND TERMINATION OF SECURITY
INTEREST
Section
2.1. Pledged
Property.
(a) Company
hereby pledges to the Secured Party, and creates in the Secured Party for its
benefit, a security interest for such time until the Obligations are paid in
full, in and to all of the property of the Company as set forth in Exhibit “A”
attached hereto (collectively, the “Pledged
Property”):
The
Pledged Property, as set forth in Exhibit “A”
attached hereto, and the products thereof and the proceeds of all such items are
hereinafter collectively referred to as the “Pledged
Collateral.”
(b) Simultaneously with
the execution and delivery of this Agreement, the Company shall make, execute,
acknowledge, file, record and deliver to the Secured Party any documents
reasonably requested by the Secured Party to perfect its security interest in
the Pledged Property. Simultaneously with the execution and delivery of this
Agreement, the Company shall make, execute, acknowledge and deliver to the
Secured Party such documents and instruments, including, without limitation,
financing statements, certificates, affidavits and forms as may, in the Secured
Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or
to continue and preserve, the security interest of the Secured Party in the
Pledged Property, and the Secured Party shall hold such documents and
instruments as secured party, subject to the terms and conditions contained
herein.
Section
2.2. Rights; Interests;
Etc.
(a) So long as no
Event of Default (as hereinafter defined) shall have occurred and be
continuing:
(i) the Company
shall be entitled to exercise any and all rights pertaining to the Pledged
Property or any part thereof for any purpose not inconsistent with the terms
hereof; and
(ii) the Company
shall be entitled to receive and retain any and all payments paid or made in
respect of the Pledged Property.
(b) Upon the
occurrence and during the continuance of an Event of Default:
(i) All rights of
the Company to exercise the rights which it would otherwise be entitled to
exercise pursuant to Section 2.2(a)(i) hereof and to receive payments
which it would otherwise be authorized to receive and retain pursuant to
Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Collateral
such payments; provided,
however, that if the Secured Party shall become entitled and shall elect
to exercise its right to realize on the Pledged Collateral pursuant to
Article 5 hereof, then all cash sums received by the Secured Party, or held
by Company for the benefit of the Secured Party and paid over pursuant to
Section 2.2(b)(ii) hereof, shall be applied against any outstanding
Obligations; and
(ii) All interest,
dividends, income and other payments and distributions which are received by the
Company contrary to the provisions of Section 2.2(b)(i) hereof shall
be received in trust for the benefit of the Secured Party, shall be segregated
from other property of the Company and shall be forthwith paid over to the
Secured Party; or
(iii) The Secured
Party in its sole discretion shall be authorized to sell any or all of the
Pledged Property at public or private sale in order to recoup all of the
outstanding principal plus accrued interest owed pursuant to the Convertible
Debenture as described herein
(c) An Event of
Default hereunder shall be deemed to occur upon an Event of Default under the
Convertible Debentures.
ARTICLE
3.
ATTORNEY-IN-FACT;
PERFORMANCE
Section
3.1. Secured Party Appointed
Attorney-In-Fact.
Upon the
occurrence of an Event of Default, the Company hereby appoints the Secured Party
as its attorney-in-fact, with full authority in the place and stead of the
Company and in the name of the Company or otherwise, from time to time in the
Secured Party’s discretion to take any action and to execute any instrument
which the Secured Party may reasonably deem necessary to accomplish the purposes
of this Agreement, including, without limitation, to receive and collect all
instruments made payable to the Company representing any payments in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same. The Secured Party may demand, collect, receipt for, settle, compromise,
adjust, xxx for, foreclose, or realize on the Pledged Property as and when the
Secured Party may determine. To facilitate collection, the Secured Party may
notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.
Section
3.2. Secured Party May
Perform.
If the
Company fails to perform any agreement contained herein, the Secured Party, at
its option, may itself perform, or cause performance of, such agreement, and the
expenses of the Secured Party incurred in connection therewith shall be included
in the Obligations secured hereby and payable by the Company under
Section 8.3.
ARTICLE
4.
REPRESENTATIONS AND
WARRANTIES
Section
4.1. Authorization;
Enforceability.
Each of
the parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby; and upon execution and delivery, this
Agreement shall constitute a valid and binding obligation of the respective
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors’ rights or by the principles governing the
availability of equitable remedies.
Section
4.2. Ownership of Pledged
Property.
The
Company warrants and represents that it is the legal and beneficial owner of the
Pledged Property free and clear of any lien, security interest, option or other
charge or encumbrance.
ARTICLE
5.
DEFAULT; REMEDIES;
SUBSTITUTE COLLATERAL
Section
5.1. Default and
Remedies.
(a) If an Event
of Default occurs, then in each such case the Secured Party may declare the
Obligations to be due and payable immediately, by a notice in writing to the
Company, and upon any such declaration, the Obligations shall become immediately
due and payable. If an Event of Default occurs and is continuing for the period
set forth therein, then the Obligations shall automatically become immediately
due and payable without declaration or other act on the part of the Secured
Party.
(b) Upon the
occurrence of an Event of Default, the Secured Party shall: (i) be entitled
to receive all distributions with respect to the Pledged Collateral,
(ii) to cause the Pledged Property to be transferred into the name of the
Secured Party or its nominee, (iii) to dispose of the Pledged Property, and
(iv) to realize upon any and all rights in the Pledged Property then held
by the Secured Party.
Section
5.2. Method of Realizing Upon the
Pledged Property: Other Remedies.
Upon the
occurrence of an Event of Default, in addition to any rights and remedies
available at law or in equity, the following provisions shall govern the Secured
Party’s right to realize upon the Pledged Property:
(a) Any item of
the Pledged Property may be sold for cash or other value in any number of lots
at brokers board, public auction or private sale and may be sold without demand,
advertisement or notice (except that the Secured Party shall give the Company
twenty (20) days’ prior written notice of the time and place or of the
time after which a private sale may be made (the “Sale Notice”)), which
notice period is hereby agreed to be commercially reasonable. At any sale or
sales of the Pledged Property, the Company may bid for and purchase the whole or
any part of the Pledged Property and, upon compliance with the terms of such
sale, may hold, exploit and dispose of the same without further accountability
to the Secured Party. The Company will execute and deliver, or cause to be
executed and delivered, such instruments, documents, assignments, waivers,
certificates, and affidavits and supply or cause to be supplied such further
information and take such further action as the Secured Party reasonably shall
require in connection with any such sale.
(b) Any cash
being held by the Secured Party as Pledged Collateral and all cash proceeds
received by the Secured Party in respect of, sale of, collection from, or other
realization upon all or any part of the Pledged Collateral shall be applied as
follows:
(i) to the
payment of all amounts due the Secured Party for the expenses reimbursable to it
hereunder or owed to it pursuant to Section 8.3 hereof;
(ii) to the
payment of the Obligations then due and unpaid.
(iii) the balance,
if any, to the person or persons entitled thereto, including, without
limitation, the Company.
(c) In addition
to all of the rights and remedies which the Secured Party may have pursuant to
this Agreement, the Secured Party shall have all of the rights and remedies
provided by law, including, without limitation, those under the Uniform
Commercial Code.
(i) If the
Company fails to pay such amounts due upon the occurrence of an Event of Default
which is continuing, then the Secured Party may institute a judicial proceeding
for the collection of the sums so due and unpaid, may prosecute such proceeding
to judgment or final decree and may enforce the same against the Company and
collect the monies adjudged or decreed to be payable in the manner provided by
law out of the property of Company, wherever situated.
(ii) The Company
agrees that it shall be liable for any reasonable fees, expenses and costs
incurred by the Secured Party in connection with enforcement, collection and
preservation of the Transaction Documents, including, without limitation,
reasonable legal fees and expenses, and such amounts shall be deemed included as
Obligations secured hereby and payable as set forth in Section 8.3
hereof.
Section
5.3. Proofs of
Claim.
In case
of the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relating to the Company or the property of the Company or of such
other obligor or its creditors, the Secured Party (irrespective of whether the
Obligations shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Secured Party shall have made any
demand on the Company for the payment of the Obligations), subject to the rights
of Previous Security Holders, shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(i) to file and
prove a claim for the whole amount of the Obligations and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Secured Party (including any claim for the reasonable legal fees and
expenses and other expenses paid or incurred by the Secured Party permitted
hereunder and of the Secured Party allowed in such judicial proceeding),
and
(ii) to collect
and receive any monies or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by the Secured Party to make such payments to
the Secured Party and, in the event that the Secured Party shall consent to the
making of such payments directed to the Secured Party, to pay to the Secured
Party any amounts for expenses due it hereunder.
Section
5.4. Duties Regarding Pledged
Collateral.
The
Secured Party shall have no duty as to the collection or protection of the
Pledged Property or any income thereon or as to the preservation of any rights
pertaining thereto, beyond the safe custody and reasonable care of any of the
Pledged Property actually in the Secured Party’s possession.
ARTICLE
6.
AFFIRMATIVE
COVENANTS
The
Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4
hereof):
Section
6.1. Existence, Properties,
Etc.
(a) The Company
shall do, or cause to be done, all things, or proceed with due diligence with
any actions or courses of action, that may be reasonably necessary (i) to
maintain Company’s due organization, valid existence and good standing under the
laws of its state of incorporation, and (ii) to preserve and keep in full
force and effect all qualifications, licenses and registrations in those
jurisdictions in which the failure to do so could have a Material Adverse Effect
(as defined below); and (b) the Company shall not do, or cause to be done,
any act impairing the Company’s corporate power or authority (i) to carry
on the Company’s business as now conducted, and (ii) to execute or deliver
this Agreement or any other document delivered in connection herewith,
including, without limitation, any UCC-1 Financing Statements required by the
Secured Party to which it is or will be a party, or perform any of its
obligations hereunder or thereunder. For purpose of this Agreement, the term
“Material Adverse
Effect” shall mean any material and adverse affect as determined by
Secured Party in its sole discretion, whether individually or in the aggregate,
upon (a) the Company’s assets, business, operations, properties or
condition, financial or otherwise; (b) the Company’s to make payment as and
when due of all or any part of the Obligations; or (c) the Pledged
Property.
Section
6.2. Financial Statements and
Reports.
The
Company shall furnish to the Secured Party within a reasonable time such
financial data as the Secured Party may reasonably request, including, without
limitation, the following:
(a) The balance
sheet of the Company as of the close of each fiscal year, the statement of
earnings and retained earnings of the Company as of the close of such fiscal
year, and statement of cash flows for the Company for such fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently applied, certified by the chief executive and chief
financial officers of the Company as being true and correct and accompanied by a
certificate of the chief executive and chief financial officers of the Company,
stating that the Company has kept, observed, performed and fulfilled each
covenant, term and condition of this Agreement during such fiscal year and that
no Event of Default hereunder has occurred and is continuing, or if an Event of
Default has occurred and is continuing, specifying the nature of same, the
period of existence of same and the action the Company proposes to take in
connection therewith;
(b) A balance
sheet of the Company as of the close of each month, and statement of earnings
and retained earnings of the Company as of the close of such month, all in
reasonable detail, and prepared substantially in accordance with generally
accepted accounting principles consistently applied, certified by the chief
executive and chief financial officers of the Company as being true and correct;
and
(c) Copies of all
accountants' reports and accompanying financial reports submitted to the Company
by independent accountants in connection with each annual examination of the
Company.
Section
6.3. Accounts and
Reports.
The
Company shall maintain a standard system of accounting in accordance with
generally accepted accounting principles consistently applied and provide, at
its sole expense, to the Secured Party the following:
(a) as soon as
available, a copy of any notice or other communication alleging any nonpayment
or other material breach or default, or any foreclosure or other action
respecting any material portion of its assets and properties, received
respecting any of the indebtedness of the Company in excess of $50,000 (other
than the Obligations), or any demand or other request for payment under any
guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $50,000,
including any received from any person acting on behalf of the Secured Party or
beneficiary thereof; and
(b) within
fifteen (15) days after the making of each submission or filing, a copy of
any report, financial statement, notice or other document, whether periodic or
otherwise, submitted to the shareholders of the Company, or submitted to or
filed by the Company with any governmental authority involving or affecting (i)
the Company that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Collateral; or (iv) any of
the transactions contemplated in this Agreement or the Loan
Instruments.
Section
6.4. Maintenance of Books and
Records; Inspection.
The
Company shall maintain its books, accounts and records in accordance with
generally accepted accounting principles consistently applied, and permit the
Secured Party, its officers and employees and any professionals designated by
the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and
financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof.
Section
6.5. Maintenance and
Insurance.
(a) The Company
shall maintain or cause to be maintained, at its own expense, all of its assets
and properties in good working order and condition, making all necessary repairs
thereto and renewals and replacements thereof.
(b) The Company
shall maintain or cause to be maintained, at its own expense, insurance in form,
substance and amounts (including deductibles), which the Company deems
reasonably necessary to the Company’s business, (i) adequate to insure all
assets and properties of the Company, which assets and properties are of a
character usually insured by persons engaged in the same or similar business
against loss or damage resulting from fire or other risks included in an
extended coverage policy; (ii) against public liability and other tort
claims that may be incurred by the Company; (iii) as may be required by the
Transaction Documents and/or applicable law and (iv) as may be reasonably
requested by Secured Party, all with adequate, financially sound and reputable
insurers.
Section
6.6. Contracts and Other
Collateral.
The
Company shall perform all of its obligations under or with respect to each
instrument, receivable, contract and other intangible included in the Pledged
Property to which the Company is now or hereafter will be party on a timely
basis and in the manner therein required, including, without limitation, this
Agreement.
Section
6.7. Defense of Collateral,
Etc.
The
Company shall defend and enforce its right, title and interest in and to any
part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a Material
Adverse Effect, the Company shall defend the Secured Party’s right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.
Section
6.8. Payment of Debts, Taxes,
Etc.
The
Company shall pay, or cause to be paid, all of its indebtedness and other
liabilities and perform, or cause to be performed, all of its obligations in
accordance with the respective terms thereof, and pay and discharge, or cause to
be paid or discharged, all taxes, assessments and other governmental charges and
levies imposed upon it, upon any of its assets and properties on or before the
last day on which the same may be paid without penalty, as well as pay all other
lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due.
Section
6.9. Taxes and Assessments; Tax
Indemnity.
The
Company shall (a) file all tax returns and appropriate schedules thereto
that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or
levies that, if unpaid, might become a lien or charge upon any of its
properties; provided,
however, that the Company in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect
thereto.
Section
6.10. Compliance with Law and
Other Agreements.
The
Company shall maintain its business operations and property owned or used in
connection therewith in material compliance with (a) all applicable
federal, state and local laws, regulations and ordinances governing such
business operations and the use and ownership of such property, and (b) all
agreements, licenses, franchises, indentures and mortgages to which the Company
is a party or by which the Company or any of its properties is bound. Without
limiting the foregoing, the Company shall pay all of its indebtedness promptly
in accordance with the terms thereof.
Section
6.11. Notice of
Default.
The
Company shall give written notice to the Secured Party of the occurrence of any
default or Event of Default under this Agreement, the Transaction Documents or
any other Loan Instrument or any other agreement of Company for the payment of
money, promptly upon the occurrence thereof.
Section
6.12. Notice of
Litigation.
The
Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or materially affecting
any of the assets of the Company, and (b) any dispute, not resolved within
fifteen (15) days of the commencement thereof, between the Company on the one
hand and any governmental or regulatory body on the other hand, which might
reasonably be expected to have a Material Adverse Effect on the business
operations or financial condition of the Company.
ARTICLE
7.
NEGATIVE
COVENANTS
The
Company covenants and agrees that, from the date hereof until the Obligations
have been fully paid and satisfied, the Company shall not, unless the Secured
Party shall consent otherwise in writing:
Section
7.1. Liens and
Encumbrances.
The
Company shall not directly or indirectly make, create, incur, assume or permit
to exist any assignment, transfer, pledge, mortgage, security interest or other
lien or encumbrance of any nature in, to or against any part of the Pledged
Property, or offer or agree to do so, or own or acquire or agree to acquire any
asset or property of any character subject to any of the foregoing encumbrances
(including any conditional sale contract or other title retention agreement), or
assign, pledge or in any way transfer or encumber its right to receive any
income or other distribution or proceeds from any part of the Pledged Property;
or enter into any sale-leaseback financing respecting any part of the Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
Section
7.2. Certificate of
Incorporation, By-Laws, Mergers, Consolidations, Acquisitions and
Sales.
Without
the prior express written consent of the Secured Party, the Company shall not,
except for the increase of the Company’s authorized common stock, amend its
Certificate of Incorporation or By-Laws.
Section
7.3. Management,
Ownership.
The
Company shall not materially change its ownership, executive staff or management
without the prior written consent of the Secured Party. The ownership, executive
staff and management of the Company are material factors in the Secured Party's
willingness to institute and maintain a lending relationship with the
Company.
Section
7.4. Dividends,
Etc.
The
Company shall not declare or pay any dividend of any kind, in cash or in
property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in respect thereof, nor make any return of capital to shareholders,
nor make any payments in respect of any pension, profit sharing, retirement,
stock option, stock bonus, incentive compensation or similar plan (except as
required or permitted hereunder), without the prior written consent of the
Secured Party.
Section
7.5. Guaranties;
Loans.
The
Company shall not guarantee nor be liable in any manner, whether directly or
indirectly, or become contingently liable after the date of this Agreement in
connection with the obligations or indebtedness of any person or persons, except
for (i) the indebtedness currently secured by the liens identified on the
Pledged Property identified on Exhibit A hereto and (ii) the endorsement of
negotiable instruments payable to the Company for deposit or collection in the
ordinary course of business. The Company shall not make any loan, advance or
extension of credit to any person other than in the normal course of its
business.
Section
7.6. Debt.
The
Company shall not create, incur, assume or suffer to exist any additional
indebtedness of any description whatsoever in an aggregate amount in excess of
$100,000 (excluding any indebtedness of the Company to the Secured Party, trade
accounts payable and accrued expenses incurred in the ordinary course of
business and the endorsement of negotiable instruments payable to the Company,
respectively for deposit or collection in the ordinary course of
business).
Section
7.7. Conduct of
Business.
The
Company will continue to engage, in an efficient and economical manner, in a
business of the same general type as conducted by it on the date of this
Agreement.
Section
7.8. Places of
Business.
The
location of the Company’s chief place of business is 000 Xxxx Xxxxxx, Xxxxx 000 Xxxxx
Xxxxxx, Xxxxxxx X0X 0X0. The Company shall not change the location of its
chief place of business, chief executive office or any place of business
disclosed to the Secured Party or move any of the Pledged Property from its
current location without thirty (30) days' prior written notice to the Secured
Party in each instance.
ARTICLE
8.
MISCELLANEOUS
Section
8.1.Notices.
All
notices or other communications required or permitted to be given pursuant to
this Agreement shall be in writing and shall be considered as duly given on:
(a) the date of delivery, if delivered in person, by nationally recognized
overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
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If
to the Secured Party:
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Tangiers
Investors, LP
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000
Xxxx Xxxxxxxx
Xxxxx
000
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Xxx
Xxxxx, Xxxxxxxxxx 00000
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Telephone:
000-000-0000
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Facsimile:
000-000-0000
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And
if to the Company:
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Megola,
Inc.
000
Xxxx Xxxxxx, Xxxxx 000
Xxxxx
Xxxxxx, Xxxxxxx X0X 0X0
c/o Xxxx Xxxxxxx
Telephone: (000)
000-0000
Facsimile:
(519)_336-0625
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Any party
may change its address by giving notice to the other party stating its new
address. Commencing on the tenth (10th) day after the giving of such
notice, such newly designated address shall be such party’s address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section
8.2. Severability.
If any
provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
Section
8.3. Expenses.
In the
event of an Event of Default, the Company will pay to the Secured Party the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel, which the Secured Party may incur in connection with:
(i) the custody or preservation of, or the sale, collection from, or other
realization upon, any of the Pledged Property; (ii) the exercise or
enforcement of any of the rights of the Secured Party hereunder or
(iii) the failure by the Company to perform or observe any of the
provisions hereof.
Section
8.4. Waivers, Amendments,
Etc.
The
Secured Party’s delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not waiver, affect, or diminish any right of the Secured Party under this
Agreement to demand strict compliance and performance herewith. Any waiver by
the Secured Party of any Event of Default shall not waive or affect any other
Event of Default, whether such Event of Default is prior or subsequent thereto
and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
Section 8.5. Continuing Security
Interest.
This
Agreement shall create a continuing security interest in the Pledged Property
and shall: (i) remain in full force and effect until payment in full of the
Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its
successors and assigns. Upon the payment or satisfaction in full of the
Obligations, the Company shall be entitled to the return, at its expense, of
such of the Pledged Property as shall not have been sold in accordance with
Section 5.2 hereof or otherwise applied pursuant to the terms
hereof.
Section
8.6. Independent
Representation.
Each
party hereto acknowledges and agrees that it has received or has had the
opportunity to receive independent legal counsel of its own choice and that it
has been sufficiently apprised of its rights and responsibilities with regard to
the substance of this Agreement.
Section
8.7. Applicable Law:
Jurisdiction.
This
Agreement shall be governed by and interpreted in accordance with the laws of
the State of California without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard in
California, and expressly consent to the jurisdiction and venue of the Superior
Court of California and the United States District Court for the District of
California for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section
8.8. Waiver of Jury
Trial.
AS A
FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS
TRANSACTION.
Section
8.9. Entire
Agreement.
This
Agreement constitutes the entire agreement among the parties and supersedes any
prior agreement or understanding among them with respect to the subject matter
hereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the
parties hereto have executed this Security Agreement as of the date first above
written.
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MEGOLA,
INC.
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Xxxx
Xxxxxxx, CEO
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TANGIERS
INVESTORS, LP
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Xxxxxxx
Xxxxxx, Partner
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EXHIBIT
A
DEFINITION OF PLEDGED
PROPERTY
For the
purpose of securing prompt and complete payment and performance by the Company
of all of the Obligations, the Company unconditionally and irrevocably hereby
grants to the Secured Party a continuing security interest in and to, and lien
upon, the following Pledged Property of the Company:
Book
Debts, Inventory, Accounts Receivables and Notes Receivables
