SECURITY AGREEMENT
AGREEMENT dated as of December 15, 2003, between VITAL LIVING, INC., a
Nevada corporation, having an address at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company"), the persons and entities listed on
Schedule I hereto, as Schedule I may be amended from time to time to include
Additional Investors (as defined in Section 6.7) in accordance with Sections 6.7
of this Agreement (the "Investors") and HCFP/▇▇▇▇▇▇▇ SECURITIES, LLC, having an
address at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, as Agent
(as hereinafter defined).
W I T N E S S E T H:
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ARTICLE I
THE SENIOR FINANCING/GRANT OF SECURITY INTEREST
SECTION 1.1 Private Offering of Senior Notes and Warrants. Concurrently
with the execution of this Agreement, the Company has consummated an initial
closing of a private offering ("Offering") of its 12% senior secured convertible
notes in the aggregate principal amount of $3,087,738 ("Initial Notes") and
warrants ("Initial Warrants") to purchase a 3,087,738 shares of the Company's
Common Stock. Subsequent closings may take place at which the Company may issue
additional notes of like tenor to the Initial Notes ("Additional Notes") and
additional warrants ("Other Warrants") will be issued. At any subsequent closing
of the Offering, the Additional Investors (as defined in Section 6.7) will
become parties to this Agreement in accordance with Section 6.7. The Initial
Notes and Additional Notes are hereinafter referred to collectively as the
"Notes" and individually as a "Note." The Initial Warrants and the Other
Warrants are collectively referred to as the "Warrants" and individually as a
"Warrant." HCFP/▇▇▇▇▇▇▇ Securities, LLC is acting as the agent for all of the
Investors in the Offering ("Agent"). This Security Agreement is being signed in
connection with the Offering to secure the indebtedness underlying the Notes.
SECTION 1.2 Notes. Concurrently with the execution of this Agreement, the
Company has executed and delivered to each Investor, a Note in the principal
amount of such Investor's investment in the Offering.
SECTION 1.3 Grant of Security Interest. In consideration of the receipt of
the funds raised in the Offering and to secure the Company's obligation to repay
to the Investors the principal amount and interest represented by the Notes, the
Company hereby grants to the Investors a continuing first priority security
interest in and to all of the assets of the Company, whether now or hereafter
existing or now owned or hereafter acquired and wherever located, of every kind
and description, tangible or intangible, including, but not limited to, all
goods, equipment, inventory, documents, accounts, deposit accounts, chattel
paper, instruments, investment property, money, general intangibles (including,
but not limited to, intellectual property and all rights relating to such
intellectual property), credits, claims, demands and any other property, rights
and interests of the Company, all substitutions and replacements therefor and
all products and proceeds thereof, new value thereof or proceeds of insurance
thereon (collectively, "Collateral"). Notwithstanding the foregoing, the
Investors acknowledge and agree that the lien granted by the Company to the
Investors in the Collateral may be subordinated to the extent necessary for the
Company to obtain a financing secured only by the Company's accounts receivable
and inventory ("Allowed Financing").
The security interest granted herein to each Investor is an undivided
interest in the Collateral as a tenant-in-common with every other Investor. Each
Investor may realize upon the Collateral, subject to and in accordance with
Section 4 hereof, to the extent of its Investment Percentage (as hereinafter
defined), as computed from time to time. The amount of each Investor's
"Investment Percentage" shall be the percentage computed by dividing the
outstanding principal and interest owed to such Investor pursuant to its Note,
by the aggregate outstanding principal and interest owed to all the Investors
pursuant to the Notes.
SECTION 1.4 Financing Statements. The Agent, for itself and on behalf of
each of the Investors, is hereby authorized by the Company to sign on behalf of
the Company and file any documents, including, without limitation, UCC-1
financing statements and/or any other documents with any domestic or foreign
government or regulatory office or agency, including the United States Patent
and Trademark Office, to perfect and/or record the security interest in the
Collateral granted herein and to file Form UCC-3 Amendments, Releases and
Termination Statements.
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SECTION 1.5 Assignment. The rights under this Agreement and the security
interest granted hereby only may be assigned or transferred by an Investor
together with the Note in accordance with the terms thereof.
ARTICLE II
REPRESENTATIONS OF THE COMPANY
SECTION 2.1 In order to induce the Investors to lend money to the Company
and purchase the Notes and Warrants, the Company hereby represents and warrants
to the Investors as follows:
(a) The Company has full power to execute and deliver the Notes, and the
other agreements, instruments and documents contemplated hereby and thereby,
including without limitation a Uniform Commercial Code Financing Statement
(collectively the "Other Security Documents"), and to incur and perform all the
obligations provided for herein and therein.
(b) The obligations of the Company under this Agreement constitute, and the
obligations of the Company under the Other Security Documents when executed and
delivered pursuant hereto will constitute, the valid and legally binding
obligations of the Company ranking senior in all respects with all other
obligations of the Company and enforceable in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification or contribution
provision may be limited under the federal and state securities laws, and (iii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
Notwithstanding the foregoing, the lien granted by the Company to the Investors
may be subordinated to the extent necessary to secure the Allowed Financing.
(c) The execution, delivery and performance by the Company of this
Agreement and the Other Security Documents does not contravene any law,
regulation, order or contractual restriction binding on or affecting the
Company, its business or properties.
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(d) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Company of this Agreement or the
matters contemplated herein and for the Investors to enjoy the benefits
conferred hereby except such filings as may be necessary to perfect the security
interest granted the Investors hereunder and under the Other Security Documents.
(e) The Company is the sole beneficial owner of the Collateral. The lien
granted by the Company to the Investors in the Collateral is a first priority
security interest, subject to such lien being subordinated to the extent
necessary to secure the Allowed Financing. There are no other mortgages,
pledges, liens, security interests, claims, encumbrances or charges of any kind
("Encumbrances") on any of the Collateral, other than the liens permitted by
Section 3.2(b) hereof.
(f) The issuance of the Notes and the granting of a security interest in
the Collateral to the Investors are contemporaneous exchanges for new value
given by the Investors to the Company in an amount equivalent to the value given
by the Company to the Investors.
ARTICLE III
THE COMPANY'S COVENANTS
SECTION 3.1 Affirmative Covenants. The Company hereby covenants that so
long as this Agreement remains in effect or any amount due hereunder or under
the Notes remains outstanding and unpaid, it will, unless otherwise consented to
in writing by Majority Consent of the Note holders (as defined in Section 5.7):
(a) Do all things necessary to preserve and keep in full force and effect
its corporate existence, including, without limitation, all licenses or similar
qualifications required by it to engage in its business in all jurisdictions in
which it is at the time so engaged; and continue to engage in business of the
same general type as conducted as of the date hereof; and (ii) continue to
conduct its business substantially as now conducted or as otherwise permitted
hereunder;
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(b) Pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
in respect of its property before the same shall become delinquent or in
default, which, if unpaid, might reasonably be expected to give rise to liens or
charges upon such properties or any part thereof, unless, in each case, the
validity or amount thereof is being contested in good faith by appropriate
proceedings and the Company has maintained adequate reserves with respect
thereto in accordance with GAAP;
(c) Comply in all material respects with all federal, state and local laws
and regulations, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements applicable to it
(collectively, "Requirements") of all governmental bodies, departments,
commissions, boards, companies or associations insuring the premises, courts,
authorities, officials or officers which are applicable to the Company or any of
its properties, except where the failure to so comply would not have a material
adverse effect ("Material Adverse Effect") on the Company or any of its
properties; provided, however, that nothing provided herein shall prevent the
Company from contesting the validity or the application of any Requirements;
(d) Keep proper records and books of account with respect to its business
activities, in which proper entries, reflecting all of their financial
transactions, are made in accordance with GAAP. Such books and records shall be
open at reasonable times and upon reasonable notice to the inspection of each
Investor and the Agent;
(e) Notify the Agent and the Investors in writing, promptly upon learning
thereof, of any litigation or administrative proceeding commenced or threatened
against the Company which involve a claim in excess of $50,000;
(f) Promptly pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income and profits, or upon any
properties belonging to it before the same shall be in default; provided,
however, that the Company shall not be required to pay any such tax, assessment,
charge or levy which is being contested in good faith by proper proceedings and
adequate reserves for the accrual of same are maintained if required by GAAP;
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(g) Maintain at all times, preserve, protect and keep its property used or
useful in the conduct of its business in good repair, working order and
condition, and from time make all needful and proper repairs, renewals,
replacements and improvement thereof as shall be reasonably required in the
conduct of its business;
(h) To the extent necessary for the operation of its business, keep
adequately insured by financially sound reputable insurers, all property of a
character usually insured by similar corporations and carry such other insurance
as is usually carried by similar corporations;
(i) Defend the title to the Collateral against all persons and against all
claims and demands whatsoever;
(j) Keep the Collateral free and clear of all further Encumbrances except
as authorized herein;
(k) On at least twenty (20) days notice in writing by the Agent, furnish
further assurance of title, execute any written agreement or do any other acts
necessary to effectuate the purposes and provisions of this Agreement, execute
any instrument or statement required by law or otherwise in order to perfect,
continue or terminate the security interest of the Investors, in the Collateral
and pay all costs of filing in connection therewith;
(l) Retain possession of the Collateral and not remove, sell, exchange,
assign, loan, deliver, lease, license, mortgage or otherwise dispose of same
outside of the normal course of business without the prior written consent of
the Agent; and
(m) Promptly give notice in writing to the Agent and the Investors of the
occurrence of any default or Event of Default (as hereinafter defined) under
this Agreement or of any default under any other material instrument or
agreement to which it is a party.
SECTION 3.2 Negative Covenants. The Company hereby covenants that so long
as this Agreement remains in effect or any amount due hereunder or under the
Notes remains outstanding and unpaid, it will not, unless otherwise consented to
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in writing by the Majority Consent of the Note holders:
(a) Create, incur, assume or suffer to exist, any indebtedness
(institutional or otherwise) except (i) under the Notes, (ii) which is
subordinate in right of payment to the Notes and (iii) in connection with the
Allowed Financing;
(b) Create, incur, assume or suffer to exist, any Encumbrance upon any of
its property (tangible or intangible) or assets, income or profits secured
hereunder, whether now owned or hereafter acquired, except for (i) liens
contemplated by this Agreement and the Other Security Documents; (ii) statutory
liens; (iii) purchase money liens and other liens granted in the ordinary course
of business on equipment, fixtures and similar property; and (iv) liens which,
singly or in the aggregate, would not be reasonably expected to have a Material
Adverse Effect;
(c) Guarantee, assume or otherwise become responsible for (directly or
indirectly) the indebtedness for borrowed funds, performance, obligations, of
any person, or the agreement by the Company or any of its subsidiaries to do any
of the foregoing;
(d) Except for the Company's existing obligations with respect to its
outstanding classes of preferred stock, declare or pay, directly and indirectly,
any dividends or make any distributions, whether in cash, property, securities
or a combination thereof, with respect to (whether by reduction of capital or
otherwise) any shares of its capital stock, except for dividends payable in
shares of common stock or preferred stock;
(e) Consummate any merger, combination or consolidation involving the
Company (whether in one transaction or a related series of transactions) in
which the Company is not the surviving entity, or the Company is the survivor
but the owners of the voting stock of the Company before the transaction own
less than 50% of the voting stock of the Company after the transaction, or sell,
lease, transfer or assign to any persons or otherwise dispose of (whether in one
transaction or a related series of transactions) all or substantially all of its
consolidated properties or assets (whether now owned or hereafter acquired);
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(f) Purchase or acquire any stock, obligations, assets or securities of, or
any interest in, or make any capital contribution or loan or advance of money,
credit or property to, any other person (excluding, for the purposes hereof,
customary advances made to the Company's officers, director and employees to
cover business expenses), or make any other investments, except that the Company
may purchase or acquire (i) other businesses, whether by asset or stock
acquisition or merger; (ii) existing subsidiaries or subsidiaries formed for the
purposes of facilitating acquisitions or carrying out the ordinary business of
the Company; (iii) certificates of deposits of any commercial banks registered
to do business in any state of the United States having capital and surplus in
excess of $50,000,000; (iv) readily marketable, direct obligations of the United
States government or any agency thereof which are backed by the full faith and
credit of the United States; and (v) investments in prime commercial paper;
provided, however, that in each case mentioned in (iii), (iv) or (v) above, such
obligations shall mature not more than 180 days from the date of acquisition
thereof; and
(g) Sell, transfer, discount or otherwise dispose of any claim or debt
owing to it, including, without limitation, any notes, accounts receivable or
other rights to receive payment, except for reasonable consideration and in the
ordinary course of business.
ARTICLE IV
DEFAULT; ACCELERATION
SECTION 4.1 Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) the Company shall (i) fail to pay any amounts owed under the Notes when
due (provided such failure has not been cured within 10 days after notice
thereof) or (ii) have an event of default occur and be continuing under
indebtedness of the Company of more than $250,000 (other than the Notes) such
that the holders of such indebtedness have declared the outstanding principal
and accrued interest to be immediately due and payable; or
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(b) if the Company shall:
(i) admit in writing its inability to pay its debts generally as they
become due;
(ii) file a petition in bankruptcy or a petition to take advantage of
any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of the whole or any
substantial part of its assets;
(v) on a petition in bankruptcy filed against it, be adjudicated a
bankrupt; or
(vi) file a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other applicable law or statute of
the United States of America or any State, district or territory thereof;
(c) if a court of competent jurisdiction shall enter an order, judgment, or
decree appointing, without the consent of the Company, a receiver of the whole
or any substantial part of the Company's assets, and such order, judgment or
decree shall not be vacated or set aside or stayed within 90 days from the date
of entry thereof;
(d) if, under the provisions of any other law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or control of
the whole or any substantial part of Company's assets and such custody or
control shall not be terminated or stayed within 90 days from the date of
assumption of such custody or control; or
(e) the Company shall default (and not cure within 10 days after written
notice of such default) in the performance of, or violate any material
representation or warranty contained in this Agreement, the Securities Purchase
Agreement pursuant to which the Notes were issued and/or the Registration Rights
Agreement or in any written statement pursuant thereto or hereto, or any report,
financial statement or certificate made or delivered to the Investors by the
Company shall be untrue or incorrect in any material respect, as of the date
when made or deemed made.
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SECTION 4.2 Acceleration. In addition to any other remedies provided by the
Notes, upon the occurrence of an Event of Default, the Investors and/or the
Agent on behalf of the Investors may, by notice to the Company, take any or all
of the following actions, without prejudice to the rights of the holders of any
Other Notes, to enforce the Investors' claims against the Company: (i) declare
the principal of and any accrued interest and all other amounts payable under
the Notes to be due and payable, whereupon the same shall become forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Company, (ii) enforce or cause to be
enforced any remedy provided under this Agreement or the Other Security
Documents, or (iii) exercise any other remedies available at law or in equity,
including specific performance of any covenant or other agreement contained in
this Agreement. In addition to any other remedies provided by the Notes, upon
the occurrence of an Event of Default as set forth in Section 4.1 of this
Agreement, then without prejudice to the rights and remedies specified in clause
(iii) above, the Notes and other obligations of the Company pursuant to this
Agreement shall automatically be immediately due and payable with interest and
other fees, if any, thereon without notice, demand or any other act by the Agent
or any Investor.
SECTION 4.3 Remedies.
(a) On the occurrence of an Event of Default and/or acceleration pursuant
to Section 4.2, the Investors and the Agent on behalf of the Investors, shall
have the following rights and remedies, which are cumulative in nature and are
in addition to the rights set forth in the Notes and shall be immediately
available to the Investors:
(i) All rights and remedies provided by law, including but not limited
to those provided by the Uniform Commercial Code, and equitable remedies
for specific performance and injunctive relief;
(ii) All rights and remedies provided in this Agreement; and
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(iii) All rights and remedies provided in the Notes and Other Security
Documents.
(b) Upon any default by the Company hereunder, the Investors and the Agent
on behalf of the Investors, shall have all the rights, remedies and privileges
with respect to repossession, retention and sale of any or all of the Collateral
of the Company and disposition of the proceeds as are accorded by the applicable
sections of the Uniform Commercial Code.
(c) Upon any default by the Company hereunder and upon demand of the Agent,
the Company shall assemble the Collateral and make it available to the Agent at
the place and at the time designated in the demand.
ARTICLE V
THE AGENT
SECTION 5.1 Authorization.
(a) Each Investor has irrevocably authorized the Agent, as agent hereunder,
to take such action on its behalf and as its agent under this Agreement, the
Note executed in favor of such Investor and all other documents executed in
connection therewith, and to exercise such powers as are specifically delegated
to it hereunder and thereunder, including, without limitation, powers with
respect to the enforcement and collection of the obligations underlying the
Notes, and to exercise such other powers as are reasonably incidental thereto
and the Agent has agreed to act in such capacity; provided, however, that the
Agent shall not, without the express authorization of the Majority Consent of
the Note holders, be authorized to waive any payment default under the Notes.
Notwithstanding anything to the contrary herein, the Agent is authorized to
enter into any intercreditor or other agreement or other instruments on behalf
of the Investors with respect to the Collateral, including agreements and
instruments necessary to implement the Allowed Financing.
(b) Except as set forth in subparagraph (a) directly above, the Agent shall
not be required to, but may, in its sole discretion, exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Consent of the Note holders, and such instructions
shall be binding upon all the Investors; provided, however, that the Agent shall
not be required to take any action which exposes the Agent to personal liability
or which is contrary to this Agreement or applicable law.
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SECTION 5.2 Notices.
(a) The Agent shall transmit promptly to each Investor each notice received
by it from the Company hereunder which the Company is not required to furnish to
the Investors and each Investor shall transmit promptly to the Agent each notice
received by it from the Company which is not otherwise required to be delivered
to the Agent by the terms hereof. The Agent shall be under no obligation toward
any Investor to ascertain or inquire as to the performance or observance of any
of the terms, covenants or conditions hereof to be performed or observed by the
Company, but the Agent and each Investor shall promptly notify one another of
any Event of Default of which it has actual knowledge.
(b) Each Investor expressly authorizes the Agent to collect all sums due
such Investor under this Agreement and the Other Security Documents, other than
regular principal and interest payments made by the Company on the Notes. The
Agent shall promptly disburse to the Investors (in proportion to the outstanding
Investment Percentage of each Investor) any such available funds received by it
for the benefit of the Investors.
SECTION 5.3 Exculpation. In exercising its duties and powers hereunder, the
Agent shall exercise the same care which it would exercise in dealing with loans
for its own account, but neither the Agent nor any of its directors, officers,
employees or attorneys shall be responsible for the truth or accuracy of any
representations or warranties given or made herein or for the validity,
effectiveness, sufficiency or enforceability of this Agreement, or any Other
Security Documents, and the Agent or any of its directors, officers, employees
or attorneys shall not be liable to any of the Investors for any action taken or
omitted to be taken by it or any of them under this Agreement or the Other
Security Documents. Each of the Investors represents and warrants to the Agent
that it has made its own independent judgment with respect to entering into this
Agreement and the Other Security Documents and undertaking its obligations
hereunder and thereunder. Each Investor also acknowledges that it will,
independently and without reliance upon the Agent or any other Investor and
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based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the Other Security Documents. Except for the accounting
for monies actually received by it hereunder, the Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to the Collateral. Neither
the Agent nor any of its principals, directors, officers, employees or attorneys
shall have any responsibility (1) to the Company on account of the failure or
delay in performance or breach of any Investor of any of its obligations
hereunder, or (2) to any Investor on account of the failure of or delay in
performance or breach by any other Investor or the Company of any of its
obligations hereunder.
SECTION 5.4 Reliance. The Agent, as Agent hereunder, (a) shall be entitled
to rely on any communication, instrument or document believed by it to be
genuine or correct and to have been signed or sent by a person or persons
believed by it to be the proper person or persons; (b) shall be entitled to
consult with legal counsel, independent public accountants and other
professional advisers and experts selected by it, and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Investor and shall not be responsible to any Investor for
any statements, warranties or representations made in or in connection with this
Agreement; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement on the part of the Company or to inspect the property (including the
books and records) of the Company; (e) shall not be responsible to any Investor
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or venue of this Agreement or any other instrument or document
furnished pursuant hereto; and (f) shall incur no liability under or in respect
of this Agreement by acting upon notice, consent, certificate or other
instrument or writing (which may be by telegram, telecopier, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
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SECTION 5.5 Expenses and Indemnification. Each Investor agrees (a) to
reimburse the Agent, as agent hereunder, on demand, pro rata in accordance with
its Investment Percentage, for all expenses incurred by the Agent, including
reasonable attorneys' fees, in connection with the preparation, execution,
operation and enforcement of, or legal advice in respect of rights or
responsibilities under, this Agreement and any document delivered in connection
herewith, to the extent that such expenses are not timely reimbursed or
reimbursable by the Company, and (b) to indemnify and hold harmless the Agent
and any of its principals, directors, officers or employees, on demand, pro rata
in accordance with its Investment Percentage, from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of the Other Security Documents or any action taken or omitted by the Agent
under the Other Security Documents, to the extent that expenses and costs
incurred by it in connection with such liability are not reimbursed by the
Company; provided that no Investor shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct.
SECTION 5.6 Other Investors. None of the Investors shall be deemed to be
agent of any other Investors; none of such Investors or any of their respective
directors, officers or employees shall have any responsibility to the Company on
account of the failure or delay in performance or breach of any other Investor
of any of its obligations hereunder or to any other Investor on account of the
failure of or delay in performance or breach by any other Investor or the
Company of its obligations hereunder.
SECTION 5.7 Removal or Resignation of Agent. The Agent may resign at any
time by giving written notice thereof to the Investors and the Company and may
be removed at any time, with or without cause, by the "Majority Consent of the
Note holders" (defined below), and upon any such resignation or removal the
Majority Consent of the Note holders shall have the right to appoint a successor
Agent. "Majority Consent of the Note holders" shall mean any Investor or
Investors holding Notes evidencing, in the aggregate, an amount equal to not
less than 50.1% of the aggregate principal amount of all Notes then outstanding.
If no successor Agent shall have been so appointed by the Majority Consent of
the Note holders, and shall have accepted such appointment, within thirty (30)
days after the retiring Agent's giving of notice of resignation or the Majority
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Consent of the Note holders' removal of the retiring Agent, then the retiring
Agent may, on behalf of the Investors, appoint a successor Agent. Upon the
acceptance by a successor Agent of its appointment as Agent hereunder, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Section 5 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
SECTION 5.8 Fees and Expenses of Agent. Upon any Event of Default, the
reasonable attorneys' fees and the legal and other expenses for pursuing,
searching for, receiving, taking, keeping, storing, advertising for the sale of
and selling the Collateral incurred by the Agent shall be chargeable to and paid
by the Company.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Notices. Any and all notices, requests, demands, consents,
approvals or other communications required or permitted to be given under any
provision of this Agreement shall be in writing and shall be deemed given upon
personal delivery or the mailing thereof by first class, registered or certified
mail, return receipt requested, postage prepaid, by telecopier or facsimile, or
by overnight delivery service or by courier service to the addresses listed at
the head of this Agreement with respect to the Company and with respect to the
Investors to the respective addresses and/or telecopier/facsimile numbers listed
on Schedule I hereto. Any party may change its address for the purposes of this
Agreement by notice to the other party given as aforesaid.
SECTION 6.2 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Investors, any right, power or privilege
hereunder or under the Notes or any Other Security Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
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privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies provided by
law. No modification, or waiver of any provision of this Agreement or the Notes,
no consent to any departure by the Company from the provisions hereof or thereof
shall be effective unless the same shall be effective only in the specific
instance and for the purpose for which it is given. The provisions set forth in
Articles III and IV of this Agreement may be waived by written Majority Consent
of the Note holders. No notice to the Company shall entitle the Company to any
other or further notice in other or similar circumstances unless expressly
provided for herein. No course of dealing between the Company and the Investors
shall operate as a waiver of any of the rights of the Investors under this
Agreement.
SECTION 6.3 Captions. The captions of the various sections and subsections
of this Agreement have been inserted only for the purposes of convenience, and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement.
SECTION 6.4 Payment of Fees. The Company agrees to pay all costs and
expenses of the Investors and the Agent in enforcing or preserving any of the
rights and remedies available to the Investors under this Agreement, the Notes
or under any other documents, instruments or writings executed and delivered to
the Investors or the Agent in connection herewith including, without limitation,
legal fees, costs and disbursements of the Investors' or Agent's attorneys in
the enforcement thereof.
SECTION 6.5 Liability for Deficiency. The Company shall remain liable for
any deficiency relating to the obligations underlying the Notes resulting from a
sale of the Collateral and shall pay any such deficiency forthwith on demand.
SECTION 6.6 Survival of Agreements. All agreements, representations and
warranties made herein and in any certificates delivered pursuant hereto shall
survive the execution and delivery of this Agreement, the Notes and the Other
Security Documents, and shall continue in full force and effect until the
indebtedness of the Company under the Notes and all other obligations hereunder
and thereunder have been paid in full. The provisions of Section 1.3 shall
survive the exercise of the Investors' rights under the Notes.
16
SECTION 6.7 Additional Investors. In the event that, at any time or from
time to time, the Company holds an additional closing with respect to the
Offering and issues Additional Notes to additional investors (collectively the
"Additional Investors" and individually an "Additional Investor"), as a
condition precedent to such closing and Note issuance, the Company shall
countersign a copy of this Agreement with each Additional Investor and each such
Additional Investor shall agree to sign a copy of this Agreement (for and on
behalf of himself or itself, his or its legal representatives and his or its
transferees and assigns) thereby agreeing to be bound by all applicable
provisions of this Agreement as a party hereto and in the capacity of an
Investor. Except as provided herein, upon any such additional closing with
respect to the Offering and Note issuance, all references herein to the
Investors or to any Investor shall thereafter be deemed to include such
Additional Investor, and upon such closing, each such Additional Investor shall
be added to Schedule I.
SECTION 6.8 Amendments. Except as set forth above in Section 6.7, the
Company and Agent may amend this Agreement only by written agreement between the
Company and the Agent upon receipt of written Majority Consent of the Note
holders; provided, that no such amendment shall have the effect of modifying in
any manner the definition of "Majority Consent of the Note holders" set forth in
Section 5.7.
SECTION 6.9 Third Party Beneficiary. To the extent that the Agent, in
accordance with Section 5.1(a) herein, enters into any agreement or instrument
pursuant to which a third party is granted senior rights to the Collateral or
any portion thereof, the parties hereto agree that such third party shall be a
third party beneficiary of this Agreement.
SECTION 6.10 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Company and the Investors and their respective
successors and assigns, except that the Company may not transfer or assign any
of its rights or interests hereunder without the prior written consent of the
Investors, which consent may be given or withheld in the Investors' absolute
discretion. An Investor may assign this Agreement and its rights or interests
hereunder in accordance with Section 1.5 hereof.
17
SECTION 6.11 Construction of Agreement; Jurisdiction and Venue. This
Agreement, the Notes and Other Security Documents and the rights and obligations
of the parties hereunder and thereunder shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York, without regard
to principles of conflicts of law. THE COMPANY AND EACH INVESTOR, IN ANY
LITIGATION IN WHICH ANY INVESTOR OR THE COMPANY SHALL BE AN ADVERSE PARTY,
WAIVES TRIAL BY JURY, WAIVES THE RIGHT TO CLAIM THAT A FORUM OR VENUE SPECIFIED
HEREIN IS AN INCONVENIENT FORUM OR VENUE AND WAIVES THE RIGHT TO INTERPOSE ANY
SETOFF, DEDUCTION OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, AND IRREVOCABLY
CONSENTS TO THE JURISDICTION OF THE NEW YORK STATE SUPREME COURT, COUNTY OF NEW
YORK, AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE COMPANY AND EACH INVESTOR
FURTHER AGREE TO ACCEPT AND ACKNOWLEDGE SERVICE OF ANY AND ALL PROCESS WHICH MAY
BE SERVED UPON THEM IN ANY SUCH SUIT, ACTION OR PROCEEDING CERTIFIED MAIL TO THE
ADDRESS AS SET FORTH ON THE COVER OF THIS AGREEMENT WITH RESPECT TO THE COMPANY
AND ON SCHEDULE I HERETO WITH RESPECT TO THE INVESTORS. If any of the provisions
of this Agreement shall be or become illegal or unenforceable under any law, the
other provisions shall remain in full force and effect.
SECTION 6.12 Interest. Anything in the Agreement, the Notes or the Other
Security Documents to the contrary notwithstanding, the Investors shall not
charge, take or receive, and the Company shall not be obligated to pay, interest
in excess of the maximum rate from time to time permitted by applicable law.
SECTION 6.13 Currency. All amounts of currency expressed hereunder or under
the Notes or the Other Security Documents shall refer to United States dollars.
18
SECTION 6.14 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
VITAL LIVING, INC.
By:_________________________________
[Name and Title]
HCFP/▇▇▇▇▇▇▇ SECURITIES, LLC, AGENT
By:_________________________________
[Name and Title]
INVESTORS LISTED ON SCHEDULE I
20
[COUNTERPART SIGNATURE PAGE]
IN WITNESS WHEREOF, the following party hereto has executed this
Security Agreement, dated as of December _____, 2003, indicating its intent to
be bound by the terms and conditions of the Security Agreement, as of the date
set forth below.
______________________________
[NAME OF INVESTOR]
Date:_______________________________ By:______________________________
Name:
Title:
Address for Notices:
ACCEPTED AS OF
December __, 2003
VITAL LIVING, INC.
By:______________________________________
Name:
Title:
21
SCHEDULE I
LIST OF INVESTORS
Telephone and
Name Address Facsimile Number
i
