EXHIBIT 4.02
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "AGREEMENT"), is entered
into and made effective as of December 14, 2005, by and between NANOSCIENCE
TECHNOLOGIES, INC., a Nevada corporation (the "COMPANY") and the BUYER(S) listed
on Schedule I attached to the Securities Purchase Agreement (as defined below)
(the "SECURED PARTY").
WHEREAS, the Company issued to Xxxxxxxxxx Equity Partners, LP and the
Secured Party One Million Four Thousand Six Hundred and Twenty Three Dollars and
Twenty Nine Cents ($1,004,623.29) aggregate principal amount of five percent
(5%) secured convertible debentures, convertible into shares of the Company's
common stock, par value $0.001, for a total purchase price of One Million Four
Thousand Six Hundred and Twenty Three Dollars and Twenty Nine Cents
($1,004,623.29) (as amended and restated, the "ORIGINAL DEBENTURES");
WHEREAS, the Company, Xxxxxxxxxx Equity Partners, LP and the Secured Party
entered into a Security Agreement, dated December 13, 2004 (the "SECURITY
AGREEMENT"), related to the Original Debentures that this Agreement amends and
restates;
WHERAS, Xxxxxxxxxx Equity Partners, LP has assigned its rights under the
Original Debentures and the Security Agreement to the Secured Party;
WHERAS, the Company has requested the Secured Party to make additional
financing available to the Company;
WHEREAS, the Secured Party is willing to provide such additional financing
on the condition that such additional financing is secured hereunder and under
the UCC-1 Financing Statement filed in Nevada on February 24, 2005, file number
2005006071-7, in connection with the Securities Purchase Agreement dated
December 13, 2004 and the Original Debentures (the "UCC-1 STATEMENT");
WHEREAS, all of the Company's obligations to the Secured Party are secured
by this Agreement, which was perfected pursuant to the UCC-1 Statement;
WHEREAS, the Company shall issue and sell to the Secured Party, as
provided in the Securities Purchase Agreement dated the date hereof (the
"SECURITIES PURCHASE AGREEMENT"), and the Secured Party shall purchase up to One
Million, Six Hundred Ninety Thousand and Three Hundred Fifty Nine Dollars and
Twenty Cents ($1,690,359.20) of eight percent (8%) secured convertible
debentures (the "CONVERTIBLE DEBENTURES"), which shall be convertible into
shares of the Company's common stock, par value $0.001 (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 Convertible Debenture,
the Investor Registration Rights
Agreement, the Escrow Shares Escrow Agreement, the Irrevocable Transfer Agent
Instructions and the Escrow Agreement (all dated the date hereof and
collectively referred to as the "TRANSACTION DOCUMENTS"), 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 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. DEFINITIONS.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Securities Purchase Agreement.
Section 1.4. 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
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. PLEDGED PROPERTY.
(a) The Company hereby pledges to the Secured Party, and creates in
the Secured Party for its benefit, a security interest in and to all of the
Pledged Property for such time until the Obligations are paid in full.
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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 the 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;
(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; and
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(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 Debentures as described herein
(c) Each of the following events shall constitute a default under
this Agreement (each an "EVENT OF DEFAULT"):
(i) any default, whether in whole or in part, shall occur in
the payment to the Secured Party of principal or interest under the Convertible
Debentures or other item comprising the Obligations as and when due or with
respect to any other debt or obligation of the Company to a party other than the
Secured Party;
(ii) any default, whether in whole or in part, shall occur in
the due observance or performance of any obligations or other covenants, terms
or provisions to be performed under this Agreement or the Transaction Documents;
(iii) the Company shall: (1) make a general assignment for the
benefit of its creditors; (2) apply for or consent to the appointment of a
receiver, trustee, assignee, custodian, sequestrator, liquidator or similar
official for itself or any of its assets and properties; (3) commence a
voluntary case for relief as a debtor under the United States Bankruptcy Code;
(4) file with or otherwise submit to any governmental authority any petition,
answer or other document seeking: (A) reorganization, (B) an arrangement with
creditors or (C) to take advantage of any other present or future applicable law
respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief
of debtors, dissolution or liquidation; (5) file or otherwise submit any answer
or other document admitting or failing to contest the material allegations of a
petition or other document filed or otherwise submitted against it in any
proceeding under any such applicable law, or (6) be adjudicated a bankrupt or
insolvent by a court of competent jurisdiction;
(iv) any case, proceeding or other action shall be commenced
against the Company for the purpose of effecting, or an order, judgment or
decree shall be entered by any court of competent jurisdiction approving (in
whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any
receiver, trustee, assignee, custodian, sequestrator, liquidator or other
official shall be appointed with respect to the Company, or shall be appointed
to take or shall otherwise acquire possession or control of all or a substantial
part of the assets and properties of the Company, and any of the foregoing shall
continue unstayed and in effect for any period of thirty (30) days;
(v) a breach by the Company of any material contract that
would have a Material Adverse Effect (as defined in Section 6.1 below).
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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 except for the security interest created
by this Agreement.
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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) through (vi) 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 be entitled: (i) 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 ten (10) 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.
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(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 of the State of Nevada.
(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 the Company,
wherever situated.
(ii) The Company agrees that they shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of the obligations, 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), 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
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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 or this Agreement shall otherwise
terminate, 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 Debtor'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 (which other loan instruments collectively shall be referred as
"LOAN INSTRUMENTS") 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 effect 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;
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(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 received by the Company alleging any nonpayment or other material
breach or default, or any foreclosure or other action respecting any material
portion of its assets and properties, respecting any of the indebtedness of the
Company in excess of $15,000 (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 $15,000, 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 stockholders 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 Transaction Documents 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 Pledged Property and Collateral
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.
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(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 the Loan Instruments and/or the 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 their 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.
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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 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 are a party
or by which the Company or any of their properties are bound. Without limiting
the foregoing, the Company shall pay all of their 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 other
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 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 or this Agreement shall otherwise
terminate, the Company shall not, unless the Secured Party shall consent
otherwise in writing:
Section 7.1. LIENS AND ENCUMBRANCES.
Except as may already exist as of the date hereof which is disclosed in
the Company's SEC Documents (as defined in the Securities Purchase Agreement)
(the "Existing Liens"), the Company, 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 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 Property or
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the Company's capital stock; 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.
From and after the date hereof and until satisfaction in full of the
Obligations, without the prior express written consent of the Secured Party, the
Company shall not: (a) Amend its Articles of Incorporation or By-Laws; (b) issue
or sell its stock, stock options, bonds, notes or other corporate securities or
obligations (except as permitted under the Securities Purchase Agreement); (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, or (f) create any subsidiaries or convey any
of its assets to any subsidiary.
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 (other than the redemption
rights under the Convertible Debentures and any other securities of the Company
in existence as of the date hereof), 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.
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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 $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 7.7. 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 New York, New
York. 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 Company, to: Nanoscience Technologies, Inc.
00 Xxxxxxxxxxx Xx., Xxxxx 0000 #00
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Reitler Xxxxx & Xxxxxxxxxx LLC
000 Xxxxx Xxxxxx, 00xx floor
Attention: Xxxxxx X. Xxxxx, Esq.
Xxx Xxxx, XX 00000
Telephone: (0000 000-0000
Facsimile: (000) 000-0000
If to the Secured Party: Highgate House Funds, Ltd.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to: Xxxx X. Xxxxxxxxxx, Esq.
Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
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.
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
14
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 the Company of any undertakings, agreements or
covenants shall not waive, 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; (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.
The parties hereto acknowledge that the transactions contemplated by this
Agreement and the exhibits hereto bear a reasonable relation to the State of New
York. The parties hereto agree that the internal laws of the State of New York
shall govern this Agreement and the exhibits hereto, including, but not limited
to, all issues related to usury. Any action to enforce the terms of this
Agreement or any of its exhibits shall be brought exclusively in the state
and/or federal courts situated in the County and State of New York. Service of
process in any action by the Secured Party to enforce the terms of this
Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier to the
Company at its principal address set forth in this Agreement.
15
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
WAIVE 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]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
NANOSCIENCE TECHNOLOGIES, INC.
By: /s/ Xxxxx Xxxxxx
------------------------------------------
Name: Xxxxx Xxxxxx
Title: Secretary, Chief Operating Officer
SECURED PARTY:
HIGHGATE HOUSE FUNDS, LTD.
By: /s/ Xxxx X. Xxxxxxxxxx
------------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Portfolio Manager
17
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:
(a) all goods of the Company, 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 in which the Company 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, 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
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,
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 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 (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 customers, and all proceeds of any insurance thereon, and all
guarantees, securities and liens which the Company 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 represents and warrants 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 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 Property.
A-1
