SECURITY AGREEMENT
THIS
SECURITY AGREEMENT (this “Security
Agreement”)
is
made as of November 14, 2008, by and between MDWERKS, INC., a Delaware
corporation (“Debtor”),
and
DEBT OPPORTUNITY FUND, LLLP, a limited liability limited partnership
organized under the laws of the State of Florida (the “Lender”).
RECITALS
A. Pursuant
to a Loan and Securities Purchase Agreement of even date herewith by and
between, Lender, Xeni Financial Services, Corp., a Florida corporation (“XFSC”),
and Debtor (as amended or modified from time to time, the “Loan
Agreement”),
Debtor and XFSC borrowed up to $10,300,000 from Lender (the “Loan”)
evidenced by the issuance of a Senior Secured Promissory Note in the form
attached thereto (the “Note”).
B. It
is a
condition precedent to the Loan that the Debtor execute and deliver to Lender
a
security agreement in the form hereof to secure its obligations under the Note.
This is the Security Agreement referred to in the Loan Agreement.
AGREEMENTS
In
consideration of the Recitals and for other good and valuable consideration,
the
receipt and sufficiency of which are hereby acknowledged, Debtor hereby agrees
with Lender as follows:
ARTICLE
I
DEFINITIONS
Capitalized
terms used herein but not defined herein shall have the respective meanings
given to them in the Loan Agreement. Terms not otherwise defined herein and
defined in the UCC shall have, unless the context otherwise requires, the
meanings set forth in the UCC as in effect on the date hereof (except that
the
term “document” shall only have the meaning set forth in the UCC for purposes of
clause (d) of the definition of Collateral). When used in this Security
Agreement, the following terms shall have the following meanings:
Accounts.
“Accounts” shall mean all accounts, including without limitation all rights to
payment for goods sold or services rendered that are not evidenced by
instruments or chattel paper, whether or not earned by performance, and any
associated rights thereto.
Affliate.
“Affiliate” means, with respect to any Person, any other Person that directly,
or indirectly through one of more intermediaries, controls, is controlled by,
or
is under common control with, such Person. The term “control” (including the
terms “controls,” “controlled by” and “under common control with”) means the
possession, direct or indirect, of the power to direct or cause the direction
of
the management and policies of a Person, whether through the ownership or voting
interests or capital stock, by contract or otherwise.
Collateral.
“Collateral” shall mean all personal properties and assets of Debtor, wherever
located, whether tangible or intangible, and whether now owned or hereafter
acquired or arising, including without limitation:
(a) all
Inventory and documents relating to Inventory;
(b) all
Accounts and documents relating to Accounts;
(c) all
equipment, fixtures and other goods, including without limitation machinery,
furniture and trade fixtures;
(d) all
general intangibles (including without limitation payment intangibles, software,
customer lists, sales records and other business records, contract rights,
causes of action, and licenses, permits, franchises, patents, copyrights,
trademarks, and goodwill of the business in which the trademark is used, trade
names, or rights to any of the foregoing), promissory notes, contract rights,
chattel paper, documents, letter-of-credit rights and instruments;
(e) (i)
all
deposit accounts and (ii) all cash and cash equivalents deposited with or
delivered to Lender from time to time and pledged as additional security for
the
Obligations;
(f) all
investment property;
(g) all
commercial tort claims; and
(h) all
additions and accessions to, all spare and repair parts, special tools,
equipment and replacements for, and all supporting obligations, proceeds and
products of, any and all of the foregoing assets described in Sections (a)
through (g), inclusive, above.
Event
of Default.
“Event
of Default” shall have the meaning specified in the Loan Agreement.
Inventory.
“Inventory” shall mean all inventory, including without limitation all goods
held for sale, lease or demonstration or to be furnished under contracts of
service, goods leased to others, trade-ins and repossessions, raw materials,
work in process and materials used or consumed in Debtor’s business, including,
without limitation, goods in transit, wheresoever located, whether now owned
or
hereafter acquired by Debtor, and shall include such property the sale or other
disposition of which has given rise to Accounts and which has been returned
to
or repossessed or stopped in transit by Debtor.
Obligations.
“Obligations” shall mean (a) all obligations under the Note, including, without
limitation, all principal, interest, costs, expenses and other amounts now
or
hereafter due under the Note (including, without limitation, all principal
amounts advanced thereunder before, on or after the date hereof) and (b) all
debts, liabilities, obligations, covenants and agreements of Debtor arising
from
or contained in the Transaction Documents.
Person.
“Person” shall mean and include an individual, partnership, corporation, trust,
unincorporated association and any unit, department or agency of
government.
Security
Agreement.
“Security Agreement” shall mean this Security Agreement, together with the
schedules attached hereto, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
Security
Interest.
“Security Interest” shall mean the security interest of Lender in the Collateral
granted by Debtor pursuant to this Security Agreement.
UCC.
“UCC”
shall mean the Uniform Commercial Code as adopted in the State of New York
and
in effect from time to time.
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ARTICLE
II
THE
SECURITY INTEREST; REPRESENTATIONS AND WARRANTIES
2.1 The
Security Interest.
To
secure the full and complete payment and performance when due (whether at stated
maturity, by acceleration, or otherwise) of each of the Obligations, Debtor
hereby grants to Lender a security interest in all of Debtor’s right, title and
interest in and to the Collateral.
2.2 Representations
and Warranties.
Debtor
hereby represents and warrants to Lender that:
(a) The
records of Debtor with respect to the Collateral are presently located only
at
the address(es) listed on Schedule
1
attached
to this Security Agreement.
(b) The
Collateral is presently located only at the location(s) listed on Schedule 1
attached
to this Security Agreement.
(c) The
chief
executive office and chief place(s) of business of Debtor are presently located
at the address(es) listed on Schedule
1
to this
Security Agreement.
(d) Debtor
is
a Delaware corporation and its exact legal name is set forth in the definition
of “Debtor” in the introductory paragraph of this Security Agreement. The
organization identification number of Debtor is listed on Schedule
1
to this
Security Agreement.
(e) All
of
Debtor’s present patents and trademarks, if any, including those that have been
registered with, or for which an application for registration has been filed
in,
the United States Patent and Trademark Office are listed on Schedule
2
attached
to this Security Agreement. All of Debtor’s present copyrights registered with,
or for which an application for registration has been filed in, the United
States Copyright Office or any similar office or agency of any state or any
other country are listed on Schedule
2
attached
to this Security Agreement.
(f) Debtor
has good title to, or valid leasehold interest in, all of the Collateral, and
there are no Liens on any of the Collateral except Permitted Liens.
2.3 Authorization
to File Financing Statements.
Debtor
hereby irrevocably
authorizes Lender at any time and from time to time to file in any UCC
jurisdiction any initial financing statements and amendments thereto that (a)
indicate the Collateral (i) as all assets of Debtor or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the UCC or such other jurisdiction, or (ii)
as
being of an equal or lesser scope or with greater detail, and (b) contain any
other information required by part 5 of Article 9 of the UCC for the sufficiency
of filing office acceptance of any financing statement or amendment, including
whether Debtor is an organization, the type of organization and any state or
federal organization identification number issued to Debtor. Debtor agrees
to
furnish any such information to Lender promptly upon written
request.
ARTICLE
III
AGREEMENTS
OF DEBTOR
From
and
after the date of this Security Agreement, and until all of the Obligations
are
paid in full, Debtor shall:
3.1 Sale
of Collateral. Not
sell, lease, transfer or otherwise dispose of Collateral or any interest
therein, except as provided for in the Loan Agreement and for sales of Inventory
in the ordinary course of business.
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3.2 Maintenance
of Security Interest.
(a) At
the
expense of Debtor, defend the Security Interest against any and all claims
of
any Person adverse to Lender (but only to the extent the claim of such Person
is
subordinate or junior to the Security Interest of Lender) and take such action
and execute such financing statements and other documents as Lender may from
time to time reasonably request in writing to maintain the perfected status
of
the Security Interest. Debtor shall not further encumber or grant a security
interest in any of the Collateral except as provided for in the Loan
Agreement.
(b) Debtor
further agrees to take any other commercially reasonable action reasonably
requested in writing by Lender if necessary to ensure the attachment, perfection
and priority of, and the ability of Lender to enforce its security interest
in
any and all of the Collateral including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the UCC, to the extent, if any, that Debtor’s signature
thereon is required therefor, (ii) complying with any provision of any
statute, regulation or treaty of the United States as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of Lender to enforce, its security interest in such
Collateral, (iii) taking all actions required by any earlier versions of the
UCC
(to the extent applicable) or by other law, as applicable in any relevant UCC
jurisdiction, or by other law as applicable in any foreign jurisdiction, (iv)
obtaining waivers from landlords where any material portion of the tangible
Collateral is located in form and substance reasonably satisfactory to Lender,
and (v) executing such documents and cooperating with the Lender and any
third-party to allow Lender to obtain control of any Collateral consisting
of
deposit accounts or investment property.
3.3 Locations.
Give
Lender at least thirty (30) days prior written notice of Debtor’s intention to
relocate any of the Collateral (other than Inventory in transit) or any of
the
records relating to the Collateral from the locations listed on Schedule
1
attached
to this Security Agreement, in which event Schedule
1
shall be
deemed amended to include the new location. Any additional filings or refilings
requested in writing by Lender as a result of any such relocation in order
to
maintain the Security Interest in such Collateral shall be at Debtor’s
expense.
3.4 Insurance.
Maintain insurance (including, without limitation, commercial general liability
and property insurance) with respect to the Collateral consisting of tangible
personal property in such amounts, against such risks, in such form and with
responsible and reputable insurance companies or associations as is required
by
any governmental authority having jurisdiction with respect thereto or as is
carried generally in accordance with sound business practice by companies in
similar businesses similarly situated. If requested in writing by Lender, and
if
the existing third-party loss payee agrees to relinquish its position as loss
payee, Debtor will obtain lender’s loss payable endorsements on applicable
insurance policies in favor of Lender and will provide to Lender certificates
of
such insurance or copies thereof. If such request is made, and if the existing
third-party loss payee agrees to relinquish its position as loss payee, Debtor
shall use commercially reasonable efforts to cause each insurer to agree, by
endorsement on the policy or policies or certificates of insurance issued by
it
or by independent instrument furnished to Lender, that such insurer will give
thirty (30) days written notice to Lender before such policy will be altered
or
canceled. No settlement of any insurance claim shall be made without Lender’s
prior consent, which consent will not be unreasonably withheld, conditioned
or
delayed. In the event of any insured loss, Debtor shall promptly notify Lender
thereof in writing, and, after an Event of Default shall have occurred and
be
continuing, Debtor hereby authorizes and directs any insurer concerned to make
payment of such loss directly to Lender as its interest may appear. Lender
is
authorized, in the name and on behalf of Debtor, to make proof of loss and
to
adjust, compromise and collect, in such manner and amounts as it reasonably
shall determine, all claims under all policies; and Debtor agrees to sign,
on
written demand of Lender, all receipts, vouchers, releases and other instruments
which may be necessary in aid of this authorization. After an Event of Default
shall have occurred and be continuing, the proceeds of any insurance from loss,
theft, or damage to the Collateral shall be held in a segregated account
established by Lender and disbursed and applied at the discretion of Lender,
either in reduction of the Obligations or applied toward the repair, restoration
or replacement of the Collateral.
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3.5 Name;
Legal Status.
(a)
Without providing at least 30 days prior written notice to Lender, Debtor will
not change its name, its place of business or, if more than one, chief executive
office, or its mailing address or organizational identification number if it
has
one, (b) if Debtor does not have an organizational identification number and
later obtains one, Debtor shall forthwith notify Lender of such organizational
identification number, and (c) Debtor will not change its type of organization
or jurisdiction of organization.
ARTICLE
IV
RIGHTS
AND REMEDIES
4.1 Right
to Cure.
In case
of failure by Debtor after receipt of written notice from Lender to procure
or
maintain insurance, or to pay any fees, assessments, charges or taxes (subject
to Debtor’s right to contest in good faith, such assessments, charges or taxes)
arising with respect to the Collateral, Lender shall have the right, but shall
not be obligated, to effect such insurance or pay such fees, assessments,
charges or taxes, as the case may be, and, in that event, the cost thereof
shall
be payable by Debtor to Lender immediately upon demand, together with interest
at an annual rate of 8% from the date of disbursement by Lender to the date
of
payment by Debtor. If Lender effects any insurance on behalf of Debtor, Debtor
thereafter may cancel such insurance so effected after providing Lender with
evidence that Debtor or another secured party having cure rights similar to
those set forth in this Section 4.1 has obtained insurance as required by this
Security Agreement.
4.2 Rights
of Parties.
Upon
the occurrence and during the continuance of an Event of Default, in addition
to
all the rights and remedies provided in the Transaction Documents or in
Article 9 of the UCC and any other applicable law, Lender may (but is under
no obligation so to do):
(a) require
Debtor to assemble the Collateral at a place designated by Lender, which is
reasonably convenient to the parties; and
(b) take
possession of all Collateral and of Debtor’s records pertaining to all
Collateral that are necessary to properly administer and control the Collateral
or the handling and collection of Collateral, and sell, lease or otherwise
dispose of the Collateral in a commercially reasonable manner in whole or in
part, at public or private sale, on or off the premises of Debtor;
and
(c) collect
any and all money due or to become due and enforce in Debtor’s name all rights
with respect to the Collateral; and
(d) settle,
adjust or compromise any dispute with respect to any Account; and
(e) receive
and open mail addressed to Debtor; and
(f) on
behalf of Debtor, endorse checks, notes, drafts, money orders, instruments
or
other evidences of payment.
4.3 Power
of Attorney.
Upon
the occurrence and during the continuance of an Event of Default, Debtor does
hereby constitute and appoint Lender as Debtor’s true and lawful attorney with
full power of substitution for Debtor in Debtor’s name, place and stead for the
purposes of performing any obligation of Debtor under this Security Agreement
and taking any action and executing any instrument which Lender may deem
necessary to perform any obligation of Debtor under this Security Agreement,
which appointment is irrevocable and coupled with an interest, and shall not
terminate until the Obligations are paid in full.
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4.4 Right
to Collect Accounts.
Upon
the occurrence and during the continuance of an Event of Default, and without
limiting Debtor’s obligations under the Transaction Documents: (a) Debtor
authorizes Lender to notify any and all debtors on the Accounts to make payment
directly to Lender (or to such place as Lender may direct); (b) Debtor agrees,
on written notice from Lender, to deliver to Lender promptly after receipt
thereof, in the form in which received (together with all necessary
endorsements), all payments received by Debtor on account of any Account; and
(c) Lender may, at its option, apply all such payments against the Obligations
or remit all or part of such payments to Debtor.
4.5 Reasonable
Notice.
Written
notice, when required by law, sent in accordance with the provisions of Section
12.6 of the Loan Agreement and given at least ten (10) business days (counting
the day of sending) before the date of a proposed disposition of the Collateral
shall be reasonable notice.
4.6 Limitation
on Duties Regarding Collateral. The
sole duty of Lender with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
UCC
or otherwise, shall be to deal with it in the same manner as Lender deals with
similar property for its own account. Neither Lender nor any of its directors,
officers, employees or agents, shall be liable for failure to demand, collect
or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of Debtor or otherwise.
4.7 Lock
Box; Collateral Account.
This
Section 4.7 shall be effective only upon the occurrence and during the
continuance of an Event of Default. If Lender so requests in writing, Debtor
will direct each of its debtors on the Accounts to make payments due under
the
relevant Account or chattel paper directly to a special lock box to be under
the
control of Lender. Debtor hereby authorizes and directs Lender to deposit into
a
special collateral account to be established and maintained by Lender all
checks, drafts and cash payments received in said lock box. All deposits in
said
collateral account shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation until so applied. At its option, Lender
may, at any time, apply finally collected funds on deposit in said collateral
account to the payment of the Obligations, in the order of application set
forth
in Section 4.8, or permit Debtor to withdraw all or any part of the balance
on
deposit in said collateral account. If a collateral account is so established,
Debtor agrees that it will promptly deliver to Lender, for deposit into said
collateral account, all payments on Accounts and chattel paper received by
it.
All such payments shall be delivered to Lender in the form received (except
for
Debtor’s endorsement where necessary). Until so deposited, all payments on
Accounts and chattel paper received by Debtor shall be held in trust by Debtor
for and as the property of Lender and shall not be commingled with any funds
or
property of Debtor.
4.8 Application
of Proceeds.
Lender
shall apply the proceeds resulting from any sale or disposition of the
Collateral in the following order:
(a) to
the
reasonable costs of any sale or other disposition;
(b) to
the
reasonable expenses incurred by Lender in connection with any sale or other
disposition, including attorneys’ fees;
(c) to
the
payment of the Obligations then due and owing in any order selected by Lender
in
a commercially reasonable manner; and
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(d) to
Debtor.
4.9 Other
Remedies.
No
remedy herein conferred upon Lender is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Security Agreement and the
Transaction Documents now or hereafter existing at law or in equity or by
statute or otherwise. No failure or delay on the part of Lender in exercising
any right or remedy hereunder shall operate as a waiver thereof nor shall any
single or partial exercise of any right hereunder preclude other or further
exercise thereof or the exercise of any other right or remedy.
ARTICLE
V
MISCELLANEOUS
5.1 Expenses
and Attorneys’ Fees.
Debtor
shall pay all reasonable fees and expenses incurred by Lender, including the
reasonable fees of counsel, in connection with the preparation, administration
and amendment of this Security Agreement and the protection, administration
and
enforcement of the rights of Lender under this Security Agreement or with
respect to the Collateral, including without limitation the protection and
enforcement of such rights in any bankruptcy.
5.2 Setoff.
Debtor
agrees that, upon the occurrence and during the continuance of an Event of
Default, Lender shall have all rights of setoff and bankers’ lien provided by
applicable law.
5.3 Assignability;
Successors.
Debtor’s rights and liabilities under this Security Agreement are not assignable
or delegable, in whole or in part, without the prior written consent of Lender.
The provisions of this Security Agreement shall inure to the benefit of and
be
binding upon the successors and assigns of the parties.
5.4 Survival.
All
agreements, representations and warranties made in this Security Agreement
or in
any document delivered pursuant to this Security Agreement shall survive the
execution and delivery of this Security Agreement, and the delivery of any
such
document.
5.5 Governing
Law.
This
Security Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York applicable to contracts
made
and wholly performed within such state.
5.6 Execution;
Headings.
This
Security Agreement may be executed in two or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the
same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
The article and section headings in this Security Agreement are inserted for
convenience of reference only and shall not constitute a part
hereof.
5.7 Notices.
All
notices, requests and demands to or upon Lender or Debtor shall be delivered
in
the manner set forth in Section 12.6 of the Loan Agreement.
5.8 Amendment.
No
amendment of this Security Agreement shall be effective unless in writing and
signed by Debtor and Lender.
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5.9 Severability.
Any
provision of this Security Agreement which is prohibited or unenforceable in
any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Security Agreement in such jurisdiction or affecting the
validity or enforceability of any provision in any other
jurisdiction.
5.10 WAIVER
OF RIGHT TO JURY TRIAL.
EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF ANY
CONTROVERSY THAT MAY ARISE UNDER THIS SECURITY AGREEMENT.
5.11 Submission
to Jurisdiction.
(a) EACH
OF
THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED
THE STATE AND COUNTY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT. EACH OF THE PARTIES TO THIS
SECURITY AGREEMENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURTS AND ANY CLAIM THAT
ANY
SUCH PROCEEDING BROUGHT IN ANY SUCH COURTS HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
(b) EACH
OF
THE PARTIES TO THIS SECURITY AGREEMENT HEREBY CONSENTS TO SERVICE OF PROCESS
BY
NOTICE IN THE MANNER SPECIFIED IN SECTION 12.6 OF THE LOAN AGREEMENT AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION SUCH
PARTY MAY NOW OR HEREAFTER HAVE TO SERVICE OF PROCESS IN SUCH
MANNER.
[Signature
Page Follows]
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IN
WITNESS WHEREOF, this Security Agreement has been executed as of the day and
year first above written.
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By:
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/s/
Xxxxxx X. Xxxx
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Name:
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Xxxxxx
X. Xxxx
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Title:
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Chief
Executive Officer
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DEBT
OPPORTUNITY FUND, LLLP,
a
Florida limited liability limited partnership
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By:
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Total
Capital Management, LLC,
a
Florida limited liability company,
as
its General Partner
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By:
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/s/
Xxxx Xxxxx
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Name:
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Xxxx
Xxxxx
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Title:
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Manager
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