SECURITY AGREEMENT
Exhibit
10.12
THIS
SECURITY AGREEMENT (the “Agreement”), is entered into and made
effective as of June 29, 2007, by and between BUKEYE VENTURES, INC.,
(the “Company”), and the BUYER(S) listed on
Schedule I attached to the Securities Purchase Agreement dated the date hereof
(the “Secured Party”).
WHEREAS,
the Company shall issue and sell to the Secured Party, as provided
in
the Securities Purchase Agreement dated the date hereof between the Company
and
the Secured Party (the “Securities Purchase Agreement”), and the Secured Party
shall purchase up to Five Million Dollars ($5,000,000) of secured convertible
debentures (the “Convertible Debentures”), which shall be convertible
into shares of the Company’s common stock, par value $.001 (the “Common
Stock”) (as converted, the “Conversion Shares”, in the respective
amounts set forth opposite each Buyer(s) name on Schedule I attached to the
Securities Purchase Agreement;
WHEREAS,
to induce the Secured Party to enter into the transaction contemplated
by the Securities Purchase Agreement, the Secured Convertible Debenture,
the
Investor Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions, the Warrant, the Pledge Agreement, and the Escrow Agreement,
each
as defined in the Securities Purchase Agreement (collectively referred to
as the
“Transaction Documents”), the Company hereby grants to the Secured Party
a security interest in and to the pledged collateral identified on Attachment
1 hereto until the satisfaction of the Obligations, as defined herein
below.
NOW,
THEREFORE, in consideration of the premises 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 the
Securities Purchase Agreement, the Secured Convertible Debenture,
the
1
Investor
Registration Rights Agreement and Irrevocable Transfer Agent Instructions,
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. Grant of Security Interest.
(a) As
security for the Obligations, Company hereby pledges to Secured Party and
grants
to Secured Party a security interest in all right, title and interests of
Company (and of all companies acquired by the Company that result in funding
being provided to the Company by the Buyer under the Securities Purchase
Agreement) in and to the property described in Attachment 1 hereto, and the
products thereof and the proceeds of all such items whether now existing
or
hereafter from time to time acquired (collectively, 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 Collateral. 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 Collateral, 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 Collateral 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 Collateral.
(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
2
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 Collateral 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” shall have the same meaning as set forth in the
Convertible Debentures.
ARTICLE
3.
ATTORNEY-IN-FACT;
PERFORMANCE
Section
3.1. Secured Party Appointed Attorney-In-Fact.
Upon
the
occurrence and during the continuance 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. Upon the occurrence and during the continuance
of
any Event of Default: (a) the Secured Party may demand, collect, receipt
for,
settle, compromise, adjust, xxx for, foreclose, or realize on the Pledged
Collateral as and when the Secured Party may determine. and (b) to facilitate
collection, the Secured Party may notify account debtors and obligors on
any
Pledged Collateral 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.
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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 Collateral.
Except
for the liens and security interests described on Schedule 7.1 attached hereto,
the Company warrants and represents that it is the legal and beneficial owner
of
the Pledged Collateral free and clear of any lien, security interest, option
or
other charge or encumbrance except for the security interest created by this
Agreement.
ARTICLE
5.
DEFAULT;
REMEDIES; SUBSTITUTE COLLATERAL
Section
5.1. Default and Remedies.
(a) If
an
Event of Default described in Section 2.2(c)(i) and (ii) 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 described in Sections 2.2(c)(iii) or (iv) 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 and during the continuance of an Event of Default, the Secured
Party
shall be entitled to; (i) receive all distributions with respect to the Pledged
Collateral, (ii) cause the Pledged Collateral to be transferred to the Secured
Party or its nominee, (iii) dispose of the Pledged Collateral, and (iv) realize
upon any and all rights in the Pledged Collateral then held by the Secured
Party.
Section
5.2. Method of Realizing Upon the Pledged Collateral: 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 Collateral:
(a)
Any
item of the Pledged Collateral 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 ten (10) days’ prior written notice of the time and place or of the time
after which a private sale
4
may
be
made (the “Sale Notice”)), which notice period shall in any event is
hereby agreed to be commercially reasonable. At any sale or sales of the
Pledged
Collateral, the Company may bid for and purchase the whole or any part of
the
Pledged Collateral 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.
(d) If
the
Company fails to pay any 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.
(e) 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 senior or prior security holders, shall be entitled and empowered, by
intervention in such proceeding or otherwise:
5
(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) deemed
to be allowed claims, and
(ii) to
the
extent permitted by law, 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 Collateral 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 Collateral 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 Collateral.
6
Section
6.2. Financial Statements and Reports.
The
Company shall furnish to the Secured Party such financial data as the Secured
Party may reasonably request. Without limiting the foregoing, the Company
shall
furnish to the Secured Party (or cause to be furnished to the Secured Party)
the
following:
(a) as
soon
as practicable and in any event within ninety (90) days after the end of
each
fiscal year of the Company, the balance sheet of the Company as of the close
of
such 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) within
thirty (30) days of the end of each calendar month, a balance sheet of the
Company as of the close of such 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) promptly
upon receipt thereof, 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 $25,000 (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 $25,000
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 Transaction Documents.
7
Section
6.4. Maintenance of Books and Records; Inspection.
The
Company shall permit the Secured Party, its officers and employees and any
professionals designated by the Secured Party in writing, at any time following
the occurrence of an Event of Default and once every six (6) month period
before
the occurrence of an Event of Default to visit and inspect any of its properties
(including but not limited to the Pledged collateral), corporate books and
financial records, and to discuss its accounts, affairs and finances with
any
employee, officer or director thereof; provided that Secured Party shall
give
the Company reasonable prior notice of any visit or inspection and such visits
and inspections shall take place during normal business hours.
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, normal wear and
tear
excepted, 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; and (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
Collateral 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, to the extent the failure to perform would have a Material Adverse
Effect.
Section
6.7. Defense of Collateral, Etc.
The
Company shall defend and enforce its right, title and interest in and to
any
part of its assets and properties, including specifically the Pledged Collateral
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 Collateral, 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
8
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, to the extent the failure to do so would have
a
Material Adverse Effect.
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 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 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.
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:
9
Section
7.1. Indebtedness.
Other
than in the ordinary course of business consistent with past practice, the
Company shall not directly or indirectly permit, create, incur, assume, permit
to exist, increase, renew or extend on or after the date hereof any indebtedness
on its part, including commitments, contingencies and credit availabilities,
or
apply for or offer or agree to do any of the foregoing.
Section
7.2. Liens and Encumbrances.
Except
for the liens and security interests described on Schedule 7.1 attached hereto,
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 Collateral or of the Company’s capital stock, 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 Collateral or the Company’s capital stock;
or enter into any sale-leaseback financing respecting any part of the Pledged
Collateral as lessee, or cause or assist the inception or continuation of
any of
the foregoing.
Section
7.3. Certificate of Incorporation, By-Laws, Mergers,
Consolidations,Acquisitions and Sales.
Other
than in the ordinary course of business consistent with past practice, without
the prior express written consent of the Secured Party, the Company shall
not:
(a) Amend its Certificate of Incorporation or By-Laws; (b) issue or sell
its
stock, stock options, bonds, notes or other corporate securities or obligations;
(c) be a party to any merger, consolidation or corporate reorganization,
(d)
purchase or otherwise acquire all or substantially all of the assets or stock
of, or any partnership or joint venture interest in, any other person, firm
or
entity, (e) sell, transfer, convey, grant a security interest in or lease
all or
any substantial part of its assets, nor (f) create any subsidiaries nor convey
any of its assets to any subsidiary.
Section
7.4. 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
7.5. 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.
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Section
7.6. 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 Collateral 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
7.7. Debt.
Other
than in the ordinary course of business, 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 $25,000 (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
7.8. Conduct of Business.
The
Company will continue to engage in a business of the same general type as
conducted by it on the date of this Agreement.
Section
7.9. Places of Business.
The
location of the Company’s chief place of business is at the address set forth in
Section 8.1 hereof. 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 Collateral from its current location
(other than in the ordinary course of business) 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:
11
|
If
to the Secured Party:
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Trafalgar
Capital Specialized Investment Fund 0-00 Xxx Xxxxxxx
Xxxxx
|
|
|
XX
0000
|
||
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X-0000
Xxxxxxxxxx
|
||
|
Attention:
|
Xxxxxx
Xxxxx, Chairman of the Board of Trafalgar Capital Sarl, General
Partner
|
|
|
Facsimile:
|
011-44-207-405-0161
and
|
|
|
001-786-323-165
1
|
||
|
With
Copy to:
|
Xxxxx
X. Xxxxxxx XX, P.A.
|
|
|
0000
Xxxxxxxx Xxx
|
||
|
Xxxx
Xxxxx, XX 00000
|
||
|
Attention:
|
Xxxxx
Xxxxxxx, Esq.
|
|
|
Telephone:
|
(000)
000-0000
|
|
|
Facsimile:
|
(000)
000-0000
|
|
|
If
to the Company, to:
|
||
|
0000
Xxxxxx Xxxxxx, Xxxxx 0
|
||
|
Xxx
Xxxxx, XX 00000
|
||
|
Attention:
|
Xxxxx
Xxxxxxxxx
|
|
|
Telephone:
|
(000)
000-0000
|
|
|
Facsimile:
|
(000)
000-0000
|
|
|
With
a copy to:
|
Xxxx
X. Xxxxxx, Esq.
|
|
|
Xxxxx
& Berne LLP
|
||
|
0000
Xxxx Xxxxxx Xx., Xxx. 0000
|
||
|
Xxxxxxxxx,
Xxxx 00000-0000
|
||
|
Telephone:
|
(000)
000-0000
|
|
|
Facsimile:
|
(000)
000-0000
|
|
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.
12
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 Collateral; (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 Collateral
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
Collateral 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 Florida without regard to the principles of conflict of laws.
The
parties further agree that any action between them shall be heard in Florida
and
expressly consent to the jurisdiction and venue of the Florida State Court
sitting in Broward County, Florida and the United States District Court for
the
Southern District of Florida for the adjudication of any civil action asserted
pursuant to this Paragraph.
13
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]
14
IN
WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the date first above written.
|
COMPANY:
|
|||
|
|
By:
|
||
| Name: | |||
| Title: | CEO | ||
| SECURED PARTY: | |||
| TRAFALGAR CAPITAL SPECIALIZED INVESTMENT FUND, LUXEMBOURG | |||
| By: Trafalgar Capital Sarl | |||
| Its: General Partner | |||
| By: | |||
| Name: | |||
| Title: Portfolio Manager | |||
15
EXHIBIT
A
DEFINITION
OF PLEDGED COLLATERAL
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, all of the assets of the Company and of any company acquired by the
Company which results in funding being provided to the Company by the Buyers
under the Securities Purchase Agreement, including specifically the following
pledged collateral of the Company and any such acquired
company(ies):
(a) all
goods
of the Company and such acquired company(ies), including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Company or such acquired company(ies) or in which
the
Company or such acquired company(ies) may have or may hereafter acquire any
interest, and all replacements, additions, accessions, substitutions and
proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any
of
the foregoing;
(b) all
inventory of the Company and such acquired company(ies) , including, but
not
limited to, all goods, wares, merchandise, parts, supplies, finished products,
other tangible personal property, including such inventory as is temporarily
out
of Company’s or such acquired company’s custody or possession and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing;
(c) all
contract rights and general intangibles of the Company or such acquired
company(ies), including, without limitation, goodwill, trademarks, trade
styles,
trade names, leasehold interests, partnership or joint venture interests,
patents and patent applications, copyrights, deposit accounts whether now
owned
or hereafter created;
(d) all
documents, warehouse receipts, instruments and chattel paper of the Company
or
such acquired company(ies) whether now owned or hereafter created;
(e) all
accounts and other receivables, instruments or other forms of obligations
and
rights to payment of the Company or such acquired company(ies) (herein
collectively referred to as “Accounts”), together with the proceeds
thereof, all goods represented by such Accounts and all such goods that may
be
returned by the Company’s or such acquired company’s customers, and all proceeds
of any insurance thereon, and all guarantees, securities and liens which
the
Company or such acquired company(ies) may hold for the payment of any such
Accounts including, without limitation, all rights of stoppage in transit,
replevin and reclamation and as an unpaid vendor and/or lienor, all of which
the
Company or such acquired company(ies) represent and warrant will be bona
fide
and existing obligations of its respective customers, arising out of the
sale of
goods by the Company in the ordinary course of business;
(f) to
the
extent assignable, all of the Company’s and such acquired company’s rights under
all present and future authorizations, permits, licenses and franchises issued
or granted in connection with the operations of any of its
facilities;
(g) all
products and proceeds (including, without limitation, insurance proceeds)
from
the above-described Pledged Collateral.
16
Schedule
7.1
Purchase
money security interests granted in the ordinary course of business to secure
the acquisition of equipment and vehicles.
17
