Exhibit 10.50
GENERAL SECURITY AGREEMENT
General Security Agreement dated ____________, 2004, made by
Molecular Diagnostics, Inc. a Delaware corporation ("Debtor") having an office
at __________________________, in favor of the parties listed on Schedule B
attached hereto (the "Secured Parties").
Debtor hereby agrees in favor of Secured Parties as follows:
1. In consideration for loans made or to be made to Debtor
substantially for the benefit of Debtor by Secured Parties, evidenced by the
Promissory Notes of Debtor in the principal amounts set forth on Schedule B
hereto, payable to the order of Secured Parties (such notes, as amended,
modified, supplemented, replaced or substituted from time to time, being herein
referred to as the "Notes"), Debtor hereby grants to Secured Parties a
continuing security interest in, lien upon and a right of setoff against, and
Debtor hereby assigns to Secured Parties, all of Debtor's right, title and
interest in and to the Collateral described in Section 2, to secure the full and
prompt payment, performance and observance of all present and future
indebtedness, obligations, liabilities and agreements of any kind of Debtor to
Secured Parties arising under or in connection with the Notes, which is existing
now or hereafter (all of the foregoing being herein referred to as the
"Obligations").
2. The Collateral is described on Schedule A annexed hereto as part
hereof and on any separate schedule(s) identified as Collateral at any time or
from time to time furnished by Debtor to Secured Parties (all of which are
hereby deemed part of this Security Agreement) and includes claims of Debtor
against third parties for loss or damage to or destruction of any Collateral.
3. Debtor hereby warrants, represents, covenants and agrees (as of
the date hereof and so long as any Obligation remains outstanding) that: (a) the
chief executive office and other places of business of Debtor, the books and
records relating to the Collateral (except for such records as are in the
possession or control of Secured Parties) and the Collateral are located at the
address set forth below and Debtor will not change any of the same, or merge or
consolidate with any person or change its name or conduct its business under any
trade, assumed or fictitious name, without prior written notice to and consent
of Secured Parties; (b) the Collateral is and will be used in the business of
Debtor and not for personal, family, household or farming use; (c) the
Collateral is now, and at all times will be, owned by Debtor free and clear of
all liens, security interests, claims and encumbrances, except as are created by
this Security
Agreement and those that are set forth on Schedule C; (d) Debtor will not
abandon or assign, sell, lease, transfer or otherwise dispose of, other than in
the ordinary course of Debtor's business, nor will Debtor suffer or permit any
of the same to occur with respect to, any Collateral, without prior written
notice to and consent of a designated representative of the Secured Parties; (e)
Debtor will make payment or will provide for the payment, when due, of all
taxes, assessments or contributions or other public or private charges which
have been or may be levied or assessed against Debtor, whether with respect to
the Collateral, to any wages or salaries paid by Debtor, or otherwise, will
deliver to Secured Parties, on demand, certificates or other evidence
satisfactory to Secured Parties attesting thereto and shall cause Debtor's
subsidiaries to take any such action as described under this section 3(e); (f)
Debtor will use the Collateral for lawful purposes only, with all reasonable
care and caution and in conformity in all material respects with all applicable
laws, ordinances and regulations; (g) Debtor will, at Debtor's sole cost and
expense, keep the Collateral in good order, repair, running condition and in
substantially the same condition as on the date hereof, reasonable wear and tear
excepted, and Debtor will not, without the prior written consent of Secured
Parties, alter or remove any identifying symbol or number upon any of the
Collateral; (h) Secured Parties shall at all times have free access to and right
of inspection of any Collateral and any papers, instruments and records
pertaining thereto (and the right to make extracts from and to receive from
Debtor originals or true copies of such records, papers and instruments upon
request therefor) and Debtor hereby grants to Secured Parties a security
interest in all such records, papers and instruments to secure the payment,
performance and observance of the Obligations; (i) the Collateral is now and
shall remain personal or intangible property, and Debtor will not permit any
Collateral to become a fixture without prior written notice to and consent of
Secured Parties and without first making all arrangements, and delivering, or
causing to be delivered, to Secured Parties all instruments and documents,
including, without limitation, waivers and subordination agreements by any
landlords or mortgagees, requested by and satisfactory to Secured Parties to
preserve and protect the primary security interest granted herein against all
persons; (j) Debtor will, at its sole cost and expense, perform all acts and
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execute all documents requested by Secured Parties from time to time to
evidence, perfect, maintain or enforce Secured Parties' first priority security
interest granted herein or otherwise in furtherance of the provisions of this
Security Agreement; (k) at any time and from time to time, Debtor shall, at its
sole cost and expense, execute and deliver to Secured Parties such financing
statements pursuant to the Uniform Commercial Code ("UCC"), applications for
certificate of title and other papers, documents or instruments as may be
requested by Secured Parties in connection with this Security Agreement, and to
the extent permitted by applicable law, Debtor hereby authorizes Secured Parties
to execute and file at any time and from time to time one or more financing
statements or copies thereof or of this Security Agreement with respect to the
Collateral signed only by Secured Parties, and Debtor agrees to pay any
recording tax or similar tax arising in connection with the filing of any such
financing statement and further agrees to pay any additional recording or
similar tax which is incurred in connection therewith; (l) Debtor assumes all
responsibility and liability arising from the Collateral; (m) in their
discretion, Secured Parties may, at any time and from time to time, upon the
occurrence and during the continuance of a Default (as hereinafter defined),
demand, xxx for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for, or make any compromise or
settlement deemed desirable by Secured Parties with respect to, any Collateral,
and/or extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any of the Obligations and/or the
Collateral, or any obligor, maker, endorser, acceptor, surety or guarantor of,
or any Parties to, any of the Obligations or the Collateral, all without notice
to or consent by Debtor and without otherwise discharging or affecting the
Obligations, the Collateral or the first priority security interest granted
herein; (n) in their discretion, Secured Parties may, at any time and from time
to time, for the account of Debtor, pay any amount or do any act required of
Debtor hereunder and which Debtor fails to do or pay, and any such payment shall
be deemed an advance by Secured Parties to Debtor payable on demand together
with interest at the highest rate then payable on any of the Obligations; (o)
Debtor will promptly pay Secured Parties for any and all sums, costs, and
expenses which Secured Parties may pay or incur pursuant to the provisions of
this Security Agreement or in perfecting, defending, protecting or enforcing
this Security Agreement or the first priority security interest granted herein
or in enforcing payment of the Obligations or otherwise in connection with the
provisions hereof, including but not limited to all search, filing and recording
fees, taxes, fees and expenses for the service and filing of papers, premium on
bonds and undertakings, fees of marshals, sheriffs, custodians, auctioneers,
court costs, collection charges, travel expenses, and reasonable attorneys'
fees, all of which together with interest at the highest rate then payable on
any of the Obligations, shall be part of the Obligations and be payable on
demand; (p) upon the occurrence and during the continuance of a Default, any
proceeds of the Collateral received by Debtor shall not be commingled with other
property of Debtor, but shall be segregated, held by Debtor in trust for Secured
Parties, and immediately delivered to Secured Parties in the form received, duly
endorsed in blank where appropriate to effectuate the provisions hereof, the
same to be held by Secured Parties as additional Collateral hereunder or, at
Secured Parties' option, to be applied to payment of the Obligations, whether or
not due and in any order; (q) in their sole discretion, Secured Parties may, at
any time and from time to time, assign, transfer or deliver to any transferee of
any Obligations, any Collateral, whereupon Secured Parties shall be fully
discharged from all responsibility and the transferee shall be vested with all
powers and rights of Secured Parties hereunder with respect thereto, but Secured
Parties shall retain all rights and powers with respect to any Collateral not
assigned, transferred or delivered; and (r) upon request of Secured Parties, at
any time and from time to time, Debtor shall, at its cost and expense, execute
and deliver to Secured Parties reports as to the Collateral listing all items
thereof, describing the condition of same and setting forth the value thereof
(lower of cost or market) all in form and substance reasonably satisfactory to
Secured Parties.
4. The term Default as used in this Security Agreement shall mean
any event of default, as such term is defined in the Notes.
5. Upon the occurrence and during the continuance of any Default,
Secured Parties may, without notice to (except as herein set forth) or demand
upon Debtor, declare any Obligations immediately due and payable and Secured
Parties shall have the following rights and remedies (to the extent permitted by
applicable law) in addition to all rights and remedies of a Secured Parties
under the UCC or of Secured Parties under the Obligations, all such rights and
remedies being cumulative, not exclusive and enforceable alternatively,
successively or concurrently:
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(a) Secured Parties may, at any time and from time to time, with or
without judicial process or the aid and assistance of others, (i) enter upon any
premises in which any Collateral may be located and, without resistance or
interference by Debtor, take possession of the Collateral, (ii) dispose of any
part or all of the Collateral on any such premises, (iii) require Debtor to
assemble and make available to Secured Parties at the expense of Debtor any part
or all of the Collateral at any place and time designated by Secured Parties
which is reasonably convenient to both parties, (iv) remove any part or all of
the Collateral from any such premises for the purpose of effecting sale or other
disposition thereof (and if any of the Collateral consists of motor vehicles,
Secured Parties may use Debtor's license plates), and (v) sell, resell, lease,
assign and deliver, grant options for or otherwise dispose of any part or all of
the Collateral in its then condition or following any commercially reasonable
preparation or processing, at public or private sale or proceedings or
otherwise, by one or more contracts, in one or more parcels, at the same or
different times, with or without having the Collateral at the place of sale or
other disposition, for cash and/or credit, and upon any terms, at such place(s)
and time(s) and to such person(s) as Secured Parties deems best, all without
demand, notice or advertisement whatsoever except that where an applicable
statute requires reasonable notice of sale or other disposition Debtor hereby
agrees that the sending of ten days' notice by overnight mail, postage prepaid,
to any address of Debtor set forth in this Security Agreement shall be deemed
reasonable notice thereof. If any Collateral is sold by Secured Parties upon
credit or for future delivery, Secured Parties shall not be liable for the
failure of the purchaser to pay for same and in such event Secured Parties may
resell or otherwise dispose of such Collateral. Secured Parties may buy any part
or all of the Collateral at any public sale and, if any part or all of the
Collateral is of a type customarily sold in a recognized market or is of the
type which is the subject of widely distributed standard price quotations,
Secured Parties may buy such Collateral at private sale and in each case may
make payment therefor by any means, whether by credit against the Obligations or
otherwise. Secured Parties may apply the cash proceeds actually received from
any sale or other disposition to the reasonable expenses of retaking, holding,
preparing for sale, selling, leasing and the like, to reasonable attorneys' fees
and all legal, travel and other expenses which may be incurred by Secured
Parties in attempting to collect the Obligations, proceed against the Collateral
or enforce this Security Agreement or in the prosecution or defense of any
action or proceeding related to the Obligations, the Collateral or this Security
Agreement; and then to the Obligations in such order and as to principal or
interest as Secured Parties may desire; and Debtor shall remain liable and will
pay Secured Parties on demand any deficiency remaining, together with interest
thereon at the highest rate then payable on the Obligations and the balance of
any expenses unpaid, with any surplus to be paid to Debtor, subject to any duty
of Secured Parties imposed by law to the holder of any subordinate security
interest in the Collateral known to Secured Parties.
(b) Secured Parties may, at any time and from time to time, as
appropriate, set off and apply to the payment of the Obligations, any Collateral
in or coming into the possession of Secured Parties or their agents, without
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notice to Debtor and in such manner as Secured Parties may in their discretion
determine.
6. To the extent necessary to enforce their rights hereunder, and
after the occurrence and during the continuance of a Default, Debtor and Secured
Parties hereby designate and appoint [ ] ("Agent") as attorney-in-fact of
Debtor, irrevocably and with power of substitution, with authority to: endorse
the name of Debtor on any notes, acceptances, checks, drafts, money orders,
instruments or other evidences of Collateral that may come into Secured Parties'
possession; sign the name of Debtor on any invoices, documents, assignments;
execute proofs of claim and loss; execute endorsements, assignments or other
instruments of conveyance or transfer; adjust and compromise any claims under
insurance policies or otherwise; execute releases; and do all other acts and
things necessary or advisable in the sole discretion of Secured Parties to carry
out and enforce this Security Agreement or the Obligations. Neither Secured
Parties nor any designee or agent thereof shall be liable for any acts of
commission or omission done in good faith, for any error of judgment or for any
mistake of fact or law. This power of attorney being coupled with an interest is
irrevocable while any Obligations shall remain unpaid. A majority in interest of
the Secured Parties may replace the Agent.
7. With respect to the enforcement of Secured Parties' rights under
this Security Agreement, Debtor hereby releases Secured Parties and Agent from
any claims, causes of action and demands at any time arising out of or with
respect to this Security Agreement, the Obligations, the Collateral and its use
and/or any actions taken or omitted to be taken by Secured Parties or Agent in
good faith with respect thereto, and Debtor hereby agrees to hold Secured
Parties and Agent harmless from and with respect to any and all such claims,
causes of action and demands.
8. Secured Parties' prior recourse to any Collateral shall not
constitute a condition of any demand, suit or proceeding for payment or
collection of the Obligations nor shall any demand, suit or proceeding for
payment or collection of the Obligations constitute a condition of any recourse
by Secured Parties to the Collateral. Any suit or proceeding by Secured Parties
to recover any of the Obligations shall not be deemed a waiver of, or bar
against, subsequent proceedings by Secured Parties with respect to any other
Obligations and/or with respect to the Collateral. No act, omission or delay by
Secured Parties shall constitute a waiver of their rights and remedies hereunder
or otherwise. No single or partial waiver by Secured Parties of any covenant,
warranty, representation, Default or right or remedy which they may have shall
operate as a waiver of any other covenant, warranty, representation, Default,
right or remedy or of the same covenant, warranty, representation, Default,
right or remedy on a future occasion. Debtor hereby waives presentment, notice
of dishonor and protest of all instruments included in or evidencing any
Obligations or Collateral, and all other notices and demands whatsoever (except
as expressly provided herein).
9. Debtor hereby agrees to pay, on demand, all out-of-pocket
expenses incurred by Secured Parties in connection with the enforcement of the
Notes, this Security Agreement, and the Obligations and in connection with any
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amendment, including, without limitation, the fees and disbursements of counsel
to Secured Parties.
10. In the event of any litigation with respect to any matter
connected with this Security Agreement, the Obligations, the Collateral or the
Notes, Debtor hereby waives the right to a trial by jury and all rights of
setoff. Debtor hereby waives personal service of any process in connection with
any such action or proceeding and agrees that the service thereof may be made by
certified or registered mail directed to Debtor at any address of Debtor set
forth in this Security Agreement. Debtor so served shall appear or answer to
such process within thirty days after the mailing thereof. Should Debtor so
served fail to appear or answer within said thirty-day period, Debtor shall be
deemed in default and judgment may be entered by Secured Parties against Debtor
for the amount or such other relief as may be demanded in any process so served.
In the alternative, Secured Parties may in their discretion effect service upon
Debtor in any other form or manner permitted by law.
11. Debtor shall deliver to Secured Parties on the date of execution
of this Security Agreement duly executed UCC-1 financing statements with respect
to the Collateral. Upon the payment in full or conversion of the Notes and
satisfaction of all Obligations in accordance with the Notes, the security
interest granted hereby in the Collateral shall terminate and all rights to the
Collateral under this Agreement shall revert to Debtor. Upon any such
termination, the Secured Parties shall execute and deliver UCC -3 financing
statement releases or other documents of release reasonably requested by Debtor.
12. Secured Parties may assign their rights and obligation hereunder
to any Affiliate of Secured Parties provided that such Affiliate assumes all of
the liabilities or obligations of Secured Parties hereunder. For purposes of
this section, "Affiliate" of any person means any other person or entity which,
directly or indirectly, controls or is controlled by that person, or is under
common control with that person or entity. "Control" (including, with
correlative meaning, the terms "controlled by" and "under common control with"),
as used with respect to any person or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise.
13. All terms herein shall have the meanings as defined in the UCC,
unless the context otherwise requires. No provision hereof shall be modified,
altered, waived, released, terminated or limited except by a written instrument
expressly referring to this Security Agreement and to such provision, and
executed by the Parties to be charged. The execution and delivery of this
Security Agreement has been authorized by the Board of Directors of Debtor and
by any necessary vote or consent of stockholders of Debtor. This Security
Agreement and all Obligations shall be binding upon the successors and assigns
of Debtor and shall, together with the rights and remedies of Secured Parties
hereunder, inure to the benefit of Secured Parties, their executors,
administrators, successors, endorsees and assigns. This Security Agreement and
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the Obligations shall be governed in all respects by the laws of the State of
Illinois applicable to contracts executed and to be performed in such state. If
any term of this Security Agreement shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby. Secured Parties is authorized to annex hereto any schedules
referred to herein. Debtor acknowledges receipt of a copy of this Security
Agreement.
14. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally, by overnight
mail or mailed by certified mail, return receipt requested, to the parties (and
shall also be transmitted by facsimile to the persons receiving copies thereof)
at the following addresses (or to such other address as a party may have
specified by notice given to the other party pursuant to this provision):
If to Debtor: Molecular Diagnostics, Inc.
000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xx. Xxxxx Xxxxxxxx
With a copy to: Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx Xxxxxxxxx, Esq.
If to Secured Parties:
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With a copy to:
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IN WITNESS WHEREOF, the undersigned has executed or caused this
security agreement to be executed in the State of New York on the date first
above set forth.
MOLECULAR DIAGNOSTICS, INC.
By___________________________
Xxxxx Xxxxxxxx, Chief Executive Officer
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SCHEDULE A
The property covered by this Security Agreement consists of covers all of
Debtor's right, title and interest in, to and under the following properties,
assets and rights of the Debtor, in each case whether now or hereafter existing
or arising or in which Debtor now has or hereafter owns, acquires or develops an
interest and wherever located (collectively, the "Collateral"):
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses, all rights to xxx for past, present or future
infringement thereof, all rights arising therefrom and pertaining thereto and
all reissues, divisions, continuations, renewals, extensions and continuations
in-part thereof;
(ii) all general intangibles and all intangible intellectual or
other similar property of Debtor of any kind or nature, associated with or
arising out of any of the aforementioned properties and assets and not otherwise
described above;
(iii) all personal and fixture property of every kind and nature
including without limitation all goods (including inventory, equipment and any
accessions thereto), instruments (including promissory notes), documents,
accounts, chattel paper (whether tangible or electronic), deposit accounts,
letter-of-credit rights (whether or not the letter of credit is evidenced by a
writing), securities and all other investment property, supporting obligations,
any other contract rights or rights to the payment of money, insurance claims
and proceeds, and all general intangibles (including all payment intangibles);
and
(iv) all proceeds of any and all of the foregoing Collateral
(including license royalties, rights to payment, accounts and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance (whether or not Secured Party is the loss payee thereof) or any
indemnity, warranty or guaranty payable by reason of loss or damage to or
otherwise with respect to the foregoing Collateral).
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Schedule B
Name of Investor Address of Investor Amount of Promissory Notes
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Schedule C
Liens
o Debtor is delinquent in filing certain Federal and State Income Tax
returns for 2002 and 2001. Debtor is also delinquent in paying a portion
of Federal and State employee and employer payroll taxes for 2003, 2002
and 2001. Debtor owed $736,000 and $678,000 as of September 30, 2003 and
December 31, 2002, respectively, in past-due payroll taxes, including
$241,000 and $250,000 respectively in assessed and estimated statutory
penalties and interest. The Internal Revenue Service has filed a lien
against Debtor's assets to secure the unpaid payroll taxes. Debtor is
currently in the process of communicating through counsel with the
Internal Revenue Service to resolve this matter. The amount is included in
accrued payroll costs in the accompanying balance sheet. Debtor is also
delinquent in paying various state franchise taxes.
o On April 2, 2003, Debtor issued a $1,000,000 Convertible Promissory Note
to an affiliate, Xxxxxxx X. Xxxxxxxx, the wife of Xxxxx Xxxxxxxx, Debtor's
Chairman and CEO, in exchange for cash. The note bears interest at the
rate of 12% per annum and is convertible into the common stock of MDI at a
conversion price of $0.10 per share. Debtor also granted the holder a
first priority security interest in all of Debtor's assets.
o Beginning in October 2002, Debtor began an issue of up to $4,000,000 in
series Bridge II Convertible Promissory Notes to accredited investors. The
notes bear interest at 12 % per annum payable at maturity date in kind in
the form of shares of common stock and were due July 31, 2003. The notes
are convertible at any time into the common stock of Debtor. Debtor
granted a junior security position in all of the Debtor's assets to the
holders of the Bridge II convertible promissory notes. The Bridge II notes
automatically convert into shares of Common Stock (subject to adjustments
for stock splits, etc.) upon a "Qualified Financing Transaction," which
means a transaction in which the Company closes a new debt or equity
financing prior to the maturity date that results in net proceeds to the
Company of at least four million dollars ($4,000,000). Through September
30, 2003, Debtor issued $1,858,200 in principal amount of Bridge II
convertible promissory notes in exchange for cash. Between October 1, 2003
and November 10, 2003, MDI issued an additional $122,000 in principal
amount of Bridge II convertible promissory notes in exchange for cash. In
September 2003 an amendment to the Bridge II Convertible Promissory Notes
was sent to holders requesting an extension of the notes to July 31, 2004.
As additional consideration for the extension, holders were offered an
increase in the interest rate from 12% to 15%. In addition, an amendment
to the indenture offered an increase in the warrant coverage ratio from
25% to 33%.
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