SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") entered into this 20th day of
May, 2005, by and between Techsphere Systems International, LLC, a Georgia
limited liability company (the "Debtor") and Cyber Defense Systems, Inc., a
Florida corporation (the "Secured Party").
In consideration of the mutual covenants contained herein, the parties
agree as follows:
1. GRANT OF SECURITY INTEREST. The Debtor hereby grants the Secured
Party a security interest in the following-described property (collectively the
"Collateral"):
(a) Accounts Receivable and Other Intangibles. All of the
Debtor's accounts, contract rights, instruments, documents, chattel paper,
general intangibles (including, but not limited to, software, payment
intangibles, chooses in action, tax refunds, and insurance proceeds); any other
obligations or indebtedness owed to the Debtor from whatever source arising; all
rights of the Debtor to receive any payments in money or in kind; all guaranties
of the foregoing and security therefor; all the right, title, and interest of
the Debtor in and with respect to the goods, services, or other property that
gave rise to or that secure any of the foregoing and insurance policies and
proceeds relating thereto; all rights of the Debtor as an unpaid seller of goods
and services, including, but not limited to, the rights of stoppage in transit,
replevin, reclamation, and resale; and all of the foregoing, whether or not now
owned or hereafter created or acquired.
(b) Inventory. All goods, merchandise, and other personal
property now owned or hereafter acquired by the Debtor that are held for sale or
lease, or are furnished to or to be furnished under any contract of services or
are raw materials, work-in- process, supplies, or materials used or consumed in
the Debtor's business, and all products thereof, and all substitutions,
replacements, additions, or accessions therefor or thereto.
(c) Machinery, Equipment, Furniture, and Fixtures. All
machinery and equipment and furniture and fixtures now owned, or hereafter
acquired, by the Debtor and used or acquired for use in the business of the
Debtor, together with all accessions thereto and all substitutions and
replacements thereof and parts therefor.
(d) Proceeds. All cash and noncash proceeds of the foregoing,
including, but not limited to, insurance proceeds, cash, checks, monies on
deposit in any bank or banks, and accounts receivable; provided that this
provision shall not be construed as a waiver of any restriction contained in
this Security Agreement against alienating or encumbering the Collateral.
(e) Documents and Similar Items. All ledger sheets, files,
records, documents, and instruments (including, but not limited to computer
programs, tapes, disks, diskettes, and related electronic processing software)
evidencing an interest in or relating to the above.
2. OBLIGATIONS SECURED. The obligations secured by this Security
Agreement are:
(a) Promissory Note. Payment of the principal and interest due
upon the Promissory Note dated May 20, 2005 in the principal amount of
$1,000,000.00 (plus such additional amount as may be provided pursuant to
Section 1 of that certain Agreement between Debtor and Secured Party of even
date), in which the Debtor is the maker and the Secured Party is the payee
("Promissory Note").
(b) Other Covenants and Conditions. Performance or observance
by the Debtor of the other covenants and conditions of the Promissory Note and
of the covenants and conditions of this Security Agreement.
(c) [intentionally omitted]
(d) Expenses of Secured Party. All expenses incurred or paid
by the Secured Party for purposes of conserving and protecting the Collateral,
including, but not limited to, reasonable attorney's fees and other legal
expenses incurred in connection with retaking, holding, preparing for sale, and
selling the Collateral.
(e) Legal Expenses. Reasonable attorney's fees and other
expenses incurred by the Secured Party in any legal proceeding, in the trial
court or on appeal, brought to enforce or to collect any obligation secured by
this Security Agreement, or to enforce any term or provision of this Security
Agreement, including any legal proceeding brought to foreclose or otherwise
realize upon the Collateral.
3. DEBTOR'S REPRESENTATIONS AND WARRANTIES. The Debtor represents and
warrants to the Secured Party that:
(a) Organization. The Debtor is a limited liability company
duly organized, validly existing, and in good standing under the laws of the
state of Georgia, with all corporate powers necessary to own its assets and
property and to carry on its business as now owned and conducted. Debtor's
organizational identification number is ____________.
(b) Authority. The Debtor has full corporate power and
authority to execute and deliver this Security Agreement, to perform the
Debtor's obligations under this Security Agreement, and the execution and
delivery of this agreement has been duly authorized and approved by the Debtors
board of managers. This Security Agreement will not result in or constitute a
default or an event that, with notice or lapse of time or both, would be a
default, breach, or violation of the articles of organization or operating
agreement or any other charter document of the Debtor, or any lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument, or arrangement to which the
Debtor is a party or by which the Debtor, or any of the Collateral, is bound.
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(c) Ownership of Collateral. Debtor is the sole owner of the
Collateral, free and clear of any and all liens or encumbrances, and will defend
the same against all claims and demands of all persons.
(d) Accounts Receivable. Each of the accounts receivable
included in the Collateral is genuine, valid, and represents an existing claim
arising out of products sold or services rendered by the Debtor to the account
debtor.
4. DEBTOR'S RIGHTS AND COVENANTS.
(a) Possession of Collateral. Until there is a default under
the terms of this Security Agreement, the Debtor may retain possession of the
Collateral and may use the Collateral in a manner not inconsistent with this
Security Agreement.
(b) No Disposition of Collateral. Except for its inventory,
which the Debtor may sell, lease, or otherwise transfer in the ordinary course
of the Debtor's business, the Debtor shall not sell, transfer, lease, license,
or otherwise dispose of the Collateral.
(c) Use of Collateral. The Debtor shall keep the Collateral in
good order and repair and shall protect the Collateral from waste, loss, or
damage. The Debtor shall not cause or permit the Collateral to be attached or
affixed to real estate in such manner that it will become a fixture. Debtor
shall not use or permit the use of the Collateral in violation of any applicable
law, statute, ordinance, or regulation. Except for the sale of inventory and the
use of equipment in the ordinary course of the Debtor's business, the Debtor
shall not remove any collateral from the address set forth below for the giving
of notices to the Debtor.
(d) Liens, Encumbrances, and Taxes. The Debtor shall keep the
Collateral free and clear of any and all liens and encumbrances, excepting only
the lien created by this Security Agreement and the liens created upon the
purchase of machinery and equipment. The Debtor shall pay when due all taxes,
fees, or assessments imposed upon or with respect to the Collateral.
(e) Records and Inspection. The Debtor shall at all times
maintain complete and accurate records of the Debtor's business, specifically
including Debtor's accounts receivable and contract rights, in accordance with
generally accepted accounting procedures and practices. The Secured Party, and
the Secured Party's agents or representatives, shall have the right to inspect
and audit the Debtor's books and records at all reasonable times. The Secured
Party, and the Secured Party's agents or representatives, shall also have the
right to come upon Debtor's place of business for the purpose of inspecting or
examining the Collateral or to take a physical inventory of the Debtor's
inventory and stock of merchandise.
(f) Insurance. The Debtor shall keep the Collateral insured
against fire or other casualty in an amount equal to its full insurable value
with loss payable to the Secured Party and the Debtor as their interests may
appear at the time of loss, with priority in payment to the Secured Party. Such
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insurance shall be obtained under policies that are not subject to cancellation
or modification by the insurer without at least 10 days' prior written notice to
the Secured Party. The Debtor shall furnish the Secured Party with such evidence
of the Debtor's compliance with this Section 4.6 as the Secured Party may, from
time to time, reasonably require.
(g) Name; Organization. Debtor will not change its name
without the prior written consent of Secured Party.
5. DEFAULT. Time is of the essence of this Security Agreement. Any of
the following shall constitute a default under this Security Agreement:
(a) Payment Defaults. The Debtor shall fail to pay when due
any installment of principal or interest on any obligation secured by this
Security Agreement.
(b) Other Defaults. The Debtor shall fail to observe or
perform any covenant, agreement, or provision contained in this Security
Agreement to be performed by the Debtor (other than payment of the obligations
secured) and such default shall continue for a period of 10 days after notice by
the Secured Party to the Debtor of such default.
(c) Representations and Warranties. Any representation or
warranty made by the Debtor in this Security Agreement proves to have been
untrue in any material respect as of the date when made or furnished.
(d) Loss of or Damage to Collateral. Collateral with a book
value of $5,000 or more, as determined from the Debtor's books, is lost,
destroyed, stolen, or substantially damaged, and such loss, destruction, theft,
or damage is not covered by insurance.
(e) Financial Distress. The Debtor shall (a) discontinue
business; (b) make a general assignment for the benefit or creditors; (c) apply
for or consent to the appointment of a receiver, a trustee, or liquidator of the
Debtor or of all or a substantial part of the Debtor's assets; (d) be
adjudicated a bankrupt or insolvent; (e) file a voluntary petition in bankruptcy
or file a petition or answer seeking reorganization or an arrangement with
creditors or seeking to take advantage of any other law (whether federal or
state) relating to relief of debtors, or admit (by answer by default or
otherwise) the material allegations of a petition filed against it in any
bankruptcy, reorganization, arrangement, insolvency, or other proceeding
(whether federal or state) relating to relief or debtors; (f) there shall have
been entered any judgment, decree, or order entered by a court of competent
jurisdiction that approves a petition seeking reorganization of the Debtor,
appoints a receiver, trustee, or liquidator of the Debtor or of all or a
substantial part of the Debtor's assets, or takes any other action that in the
reasonable opinion of the Secured Party would jeopardize the security interest
created by this Security Agreement; or (g) the Debtor takes or omits to take any
action for the purpose or with the result of effecting or permitting any of the
foregoing.
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(f) Foreclosure Suit. Commencement of a foreclosure action or
proceeding by any third party against the Collateral if the Secured Party
reasonably determines that such action or proceeding would jeopardize the
security interest created by this Security Agreement.
6. RIGHTS OF SECURED PARTY
(a) Assignment. The Secured Party shall have the right to
assign this Security Agreement and the interest of the Secured Party under this
Security Agreement, or to grant a security interest in the same, upon terms that
do not impair the rights of the Debtor under this Security Agreement, only if
the Option to Merge described in the Agreement of even date between the Debtor
and Secured Party is not exercised.
(b) Acceleration and Remedies. Upon default by the Debtor, the
Secured Party may, at the option of Secured Party, declare the unpaid balances
of all indebtedness owed by the Debtor to the Secured Party immediately due and
payable, and the Secured Party shall have and may exercise each and all of the
remedies granted to the Secured Party by the Uniform Commercial Code, together
with any other remedies which may be available to Secured Party under this
Security Agreement or by applicable law.
(c) Accounts Receivable. Following default by the Debtor, the
Secured Party may notify any account debtor or obligor of Debtor to make payment
to the Secured Party. The Debtor hereby authorizes the Secured Party to endorse
any checks, drafts, or other instruments received by the Secured Party as the
act and deed of the Debtor. At the request of the Secured Party at any time
after the Secured Party is entitled to notify account debtors, the Debtor shall
deliver to the Secured Party all original documents evidencing the sale and
delivery of merchandise or services performed which created any of the accounts
receivable that are part of the Collateral, including original contracts,
orders, invoices, bills of lading, warehouse receipts, and shipping receipts.
The Debtor shall also deliver to the Secured Party all security or guarantees
held by the Debtor with respect to such accounts receivable.
(d) Documents. Following default by the Debtor, or any time
before default when the Secured Party reasonably deems the Secured Party to be
insecure, the Secured Party may require the Debtor to deliver to the Secured
Party all original documents, drafts, acceptances, notes, securities,
instruments, and chattel paper that constitutes part of the Collateral.
(e) Payment of Debtor's Obligations. If the Debtor fails to
insure the collateral as required under the terms of this Security Agreement, or
if the Debtor fails to pay any premium for such insurance, or fails to pay any
tax, fee, or assessment imposed upon or with respect to the Collateral, or fails
to pay any debt or obligation giving rise to any lien or encumbrance on the
Collateral, Secured Party may pay the same, whether before or after default by
the Debtor. All such amounts paid by the Secured Party shall constitute an
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obligation of the Debtor to the Secured Party, shall be payable upon demand,
shall bear interest at three percentage points above the announced prime rate of
[Name of Bank], and shall be secured by this Security Agreement.
(f) Assembling the Collateral. In exercising its rights
following default by the Debtor, the Secured Party may require the Debtor to
assemble the Collateral and make the Collateral available to the Secured Party
at a place to be designated by the Secured Party that is reasonably convenient
to both parties.
(g) Notice. Unless the Collateral is perishable or threatens
to decline speedily in value or is of the type customarily sold on a recognized
market, the Secured Party shall give the Debtor reasonable notice of the time
and place of any public sale or of the time after which any private sale or
other disposition of the Collateral is to be made. For this purpose, notice
given at least 10 days before the time of the sale or other disposition shall be
conclusively presumed to be reasonable (provided that setting forth of this one
commercially reasonable method of disposing of the collateral is not intended to
limit its disposition to that method only).
(h) Disposal of Collateral. In connection with any sale,
lease, license, or other disposal (collectively a "sale") of the Collateral, the
Debtor agrees that it is commercially reasonable to sell the Collateral at
public or private sale as one lot or in several lots and at prices that are
substantially lower than those for which the Collateral would sell in the
ordinary course of retail sales. A public sale in the following fashion shall be
conclusively presumed to be reasonable:
(i) The sale shall be held in the county of the
Debtor's principal place of business or the county in which the
Collateral, or any part of the Collateral, is located.
(ii) The sale shall be by auction, but the sale does
not need to be conducted by a professional auctioneer.
(iii) The terms of sale shall require that payment be
made at the time of the sale in cash or by cashier's check.
(iv) The Collateral shall be sold "as is" and without
any preparation for sale.
(v) The Secured Party may bid on all or any portion
of the Collateral.
(i) Other Disposition. Secured Party shall be under no
obligation to sell the Collateral and is under no obligation to complete a sale
of the Collateral if, in the reasonable business judgment of the Secured Party,
none of the offers received reasonably approximates the fair value of the
Collateral. If the Secured Party elects not to sell the Collateral, the Secured
Party may elect to follow the procedures set forth in the Uniform Commercial
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Code for retaining the Collateral in satisfaction of the obligations secured by
this Security Agreement, subject to the Debtor's rights under such procedures.
(j) Receiver. In addition to the other rights granted under
this Security Agreement, the Secured Party shall, in the event of a default by
the Debtor, be entitled to the appointment of a receiver for the Collateral as a
matter of right whether or not the apparent value of the Collateral exceeds the
outstanding principal amount of the obligations secured by this Security
Agreement. Any receiver appointed may serve without bond. Employment by Secured
Party shall not disqualify a person from serving as receiver.
(k) Marshaling. The Secured Party shall not be required to
marshal security and may proceed to foreclose or otherwise realize upon the
Collateral and any other security for the obligations secured by this Security
Agreement in such order and in such manner as the Secured Party may determine in
the Secured Party's sole discretion.
7. FINANCING STATEMENTS. Secured Party may from time to time, file one
or more financing statements pursuant to the Uniform Commercial Code in order to
perfect the Secured Party's security interest under this Security Agreement.
8. MISCELLANEOUS PROVISIONS
(a) Binding Effect. The provisions of this agreement shall be
binding upon and inure to the benefit of the heirs, personal representatives,
successors, and assigns of the parties; provided that this provision shall not
be construed as a waiver of any restriction contained in this Security Agreement
against alienating or encumbering the Collateral. If more than one person is
named in this Security Agreement as the Debtor, each of such persons shall be
jointly and severally liable for the obligations of the Debtor under this
Security Agreement.
(b) Notice. Any notice or other communication required or
permitted to be given under this Security Agreement or the Uniform Commercial
Code shall be in writing and shall be mailed by certified mail, return receipt
requested, postage prepaid, and addressed to the parties at the following
addresses:
If to Debtor: Techsphere Systems International, L.L.C.
000 Xxxxxxx Xxxxx, Xxxxxxxx 00, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxx Xxxxxx, President
If to Secured Party: Cyber Defense Systems Inc.
00000 Xxxxxxxxx Xxxx.
Xxxxx 000X
Xx. Xxxxxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx, CEO
All notices and other communications shall be deemed to be given at the
expiration of three days after the date of mailing. The address of a party to
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which notices or other communications shall be mailed may be changed from time
to time by giving written notice to the other party.
(c) Litigation Expense. If any legal proceeding is commenced
for the purpose of interpreting or enforcing any provision of this Security
Agreement, or for the purpose of collecting any obligation secured by this
Security Agreement, the Secured Party shall be entitled to recover a reasonable
attorney's fee in such proceeding, or any appeal thereof, to be set by the court
without the necessity of hearing testimony or receiving evidence, in addition to
the costs and disbursements allowed by law. In addition, the Secured Party shall
be entitled to recover reasonable attorney's fees and legal expenses incurred by
the Secured Party in connection with retaking, holding, preparing for sale, and
selling the Collateral.
(d) Waiver. No waiver of any provision of this Security
Agreement or any obligation secured by this Security Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
(e) Applicable Law. This Security Agreement shall be governed
by and shall be construed in accordance with the laws of the state of Oklahoma.
"Debtor"
Techsphere Systems International, LLC
By:
--------------------------------
Xxxx Xxxxxx, President
"Secured Party"
Cyber Defense Systems, Inc.
By:
--------------------------------
Xxxxxxx X. Xxxxxxxx, CEO
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