Exhibit 10.9
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of July 14, 2006, by and
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among Xxxx Xxxxx, ("Roman"), and Dutchess Private Equities Fund, LP and Dutchess
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Private Equities Fund, II, LP, both Delaware Limited partnerships, as the
secured parties signatory hereto and their respective endorsees, transferees and
assigns (collectively, the "Secured Party") (sometimes hereinafter the Company
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and the Secured Party are collectively referred to as the "parties").
W I T N E S S E T H:
WHEREAS, pursuant to Subscription Agreement, dated the date hereof between
SimplaGENE USA, Inc. (the "Company") and the Secured Party (the "Subscription
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Agreement"), the Company has agreed to issue to the Secured Party and the
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Secured Party has agreed to purchase from Company certain of Company's ten
percent (10%) Secured Convertible Debentures, due five years from the date of
issue (the "Debentures"), which are convertible into shares of Company's Common
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Stock, par value $.001 per share (the "Common Stock"). In connection therewith,
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the Company shall issue to the Secured Party certain Common Stock purchase
warrants dated as of the date hereof to purchase the number of shares of Common
Stock (the "Warrants"); and
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WHEREAS, in order to induce the Secured Party to purchase the Debentures, Roman
has agreed to execute and deliver to the Secured Party this Agreement for the
benefit of the Secured Party and to grant to it a first priority security
interest in certain property of Roman to secure the prompt payment, performance
and discharge in full of all of Company's obligations under the Debentures and
exercise and discharge in full of Company's obligations under the Warrants.
NOW, THEREFORE, in consideration of the agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
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shall have the meanings set forth in this Section 1.
(a) "Collateral" means any shares of the Company's common stock ("Common
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Stock") or the contractual right to purchase Common Stock pursuant to all stock
options granted to Roman by the Company, whether currently owned or hereafter
acquired by Roman, his affiliates, heirs, agents or corporations or other legal
entities controlled by Roman, in which the Secured Party is granted a security
interest by this Agreement.
(b) "Obligations" means all of the Company's obligations under the
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Debentures, whether now or hereafter existing, voluntary or involuntary, direct
or indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later decreased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly from the
Secured Party as a preference, fraudulent transfer or otherwise as such
obligations may be amended, supplemented, converted, extended or modified from
time to time.
(c) "UCC" means the Uniform Commercial Code, as currently in effect in the
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Commonwealth of Massachusetts.
2. Grant of Security Interest. As an inducement for the Secured Party to
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purchase the Debentures and to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the
Obligations, Roman hereby, unconditionally and irrevocably, pledges, grants and
hypothecates to the Secured Party, a continuing security interest in, a
continuing first lien upon, an unqualified right to possession and disposition
of and a right of set-off against, in each case to the fullest extent permitted
by law, all of Roman's right, title and interest of whatsoever kind and nature
in and to the Collateral (the "Security Interest").
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3. Representations, Warranties, Covenants and Agreements of Roman. Roman
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represents and warrants to, and covenants and agrees with, the Secured Party as
follows:
(a) Roman has the requisite legal capacity to enter into this Agreement and
otherwise to carry out his obligations thereunder. This Agreement constitutes a
legal, valid and binding obligation of Roman enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor's rights generally.
(b) Roman is the sole owner of the Collateral, free and clear of any liens,
security interests, encumbrances, rights or claims, and is fully authorized to
grant the Security Interest in and to pledge the Collateral. There is not on
file in any governmental or regulatory authority, agency or recording office an
effective financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that have been filed in favor
of the Secured Party pursuant to this Agreement) covering or affecting any of
the Collateral. So long as this Agreement shall be in effect, Roman shall not
execute and shall not knowingly permit to be on file in any such office or
agency any such financing statement or other document or instrument (except to
the extent filed or recorded in favor of the Secured Party pursuant to the terms
of this Agreement).
(c) No part of the Collateral has been judged invalid or unenforceable. No
written claim has been received that any Collateral or Roman's use of any
Collateral violates the rights of any third party. There has been no adverse
decision to the Roman's claim of ownership rights in or exclusive rights to use
the Collateral in any jurisdiction or to Roman's right to keep and maintain such
Collateral in full force and effect, and there is no proceeding involving
said rights pending or, to the best knowledge of Roman, threatened before any
court, judicial body, administrative or regulatory agency, arbitrator or other
governmental authority.
(d) This Agreement creates in favor of the Secured Party a valid security
interest in the Collateral securing the payment and performance of the
Obligations.
(e) On the date of execution of this Agreement, Roman will deliver to the
Secured Party one or more executed UCC financing statements on Form-1 with
respect to the Security Interest for filing in New York and with such other
jurisdictions as may be requested by the Secured Party.
(f) This Agreement creates in favor of the Secured Party a valid security
interest in the Collateral securing the payment and performance of the
Obligations of the Company.
(g) The execution, delivery and performance of this Agreement does not
conflict with or cause a breach or default, or an event that with or without the
passage of time or notice, shall constitute a breach or default, under any
agreement to which the Company is a party or by which Roman is bound. No
consent (including, without limitation, from creditors of Roman) is required for
Roman to enter into and perform his obligations hereunder.
(h) Roman shall at all times maintain the liens and Security Interest
provided for hereunder as valid first priority liens and security interests in
the Collateral in favor of the Secured Party until this Agreement and the
Security Interest hereunder shall terminate pursuant to Section 11. Roman
hereby agrees to defend the same against any and all persons. Roman shall
safeguard and protect all Collateral for the account of the Secured Party. At
the request of the Secured Party, Roman will sign and deliver to the Secured
Party at any time or from time to time one or more financing statements pursuant
to the UCC (or any other applicable statute) in form reasonably
satisfactory to the Secured Party and the Company will pay the cost of filing
the same in all public offices wherever filing is, or is deemed by the Secured
Party to be, necessary or desirable to effect the rights and obligations
provided for herein. Without limiting the generality of the foregoing, the
Company shall pay all fees, taxes and other amounts necessary to maintain the
Collateral and the Security Interest hereunder, and the Company shall obtain and
furnish to the Secured Party from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.
(i) Roman will not transfer, pledge, hypothecate, encumber, license, sell or
otherwise dispose of any of the Collateral without the prior written
consent of the Secured Party.
(j) Roman shall permit the Secured Party and its representatives and agents
to inspect the Collateral at any time, and to make copies of records pertaining
to the Collateral as may be requested by the Secured Party from time to time.
(k) Roman will take all steps reasonably necessary to diligently pursue and
seek to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral.
(l) Roman shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral in excess of ten thousand dollars ($10,000) and of
any other information received by the Company that may materially affect
the value of the Collateral, the Security Interest or the rights and remedies of
the Secured Party hereunder.
(m) All information heretofore, herein or hereafter supplied to the Secured
Party by or on behalf of Roman with respect to the Collateral is accurate and
complete in all material respects as of the date furnished.
4. Defaults. The following events shall be "Events of Default":
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(a) The occurrence of an Event of Default (as defined in the Transaction
Documents between the Company and the Secured Party of this date) under the
Transaction Documents, or breach of the terms of the Transaction Documents.
(b) Any representation or warranty of Roman in this Agreement shall prove to
have been incorrect in any material respect when made;
(c) The failure by Roman to observe or perform any of its obligations
hereunder in any material respect.
5. Duty To Hold In Trust. Upon the occurrence of any Event of Default and
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at any time thereafter while uncured, if subject to cure, and after exhausting
all remedies against the Company, including all collateral granted to the
Secured Party by the Company, the Secured Party shall be entitled to sell,
transfer or dispose of the Collateral for application to the satisfaction of the
Obligations.
6. Rights and Remedies Upon Default. Upon occurrence of any Event of
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Default and at any time thereafter while uncured, if subject to cure, and after
exhausting all remedies against the Company, including all collateral granted to
the Secured Party by the Company, the Secured Party shall have the right to
exercise all of the remedies conferred hereunder and under the Debentures, and
the Secured Party shall have all the rights and remedies of a secured party
under this Agreement. The Secured Party shall have the following rights and
powers:
(a) The Secured Party shall have the right to take possession of the
Collateral set forth in Section 1 (a).
(b) The Secured Party shall have the right to the Collateral and shall have
the right to assign, sell, or otherwise dispose of and deliver all or any part
of the Collateral, at public or private sale or otherwise, either with or
without special conditions or stipulations, for cash or on credit or for future
delivery, in such parcel or parcels and at such xxx and times and at such place
or places, and at such amount or amounts, upon such terms and conditions as the
Secured Party may deem commercially reasonable.
(c) In no event will the Secured Party have the right to any other
assets of Roman other than the Collateral.
7. Applications of Proceeds. The proceeds of any such sale, or other
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disposition of the Collateral hereunder shall be applied first, to the expenses
of retaking, processing and preparing for sale, selling, and the like
(including, without limitation, any taxes, fees and other costs incurred in
connection therewith) of the Collateral, to the reasonable attorneys' fees and
expenses incurred by the Secured Party in enforcing its rights hereunder and in
connection with collecting, storing and disposing of the Collateral, and then to
satisfaction of the Obligations, and to the payment of any other amounts
required by applicable law, after which the Secured Party shall pay to Roman any
surplus proceeds. To the extent permitted by applicable law, Roman waives all
claims, damages and demands against the Secured Party arising out of the
repossession, removal, retention or sale of the Collateral, unless due to the
gross negligence or willful misconduct of the Secured Party.
8. Costs and Expenses. The Company agrees to pay all out-of-pocket fees,
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costs and expenses incurred in connection with any filing required
hereunder, including without limitation, any financing statements, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured Party. The
Company shall also pay all other claims and charges which in the reasonable
opinion of the Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest therein. The Company will also, upon
demand, pay to the Secured Party the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, which the Secured Party may incur in connection with (i) the enforcement
of this Agreement, (ii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, or (iii) the
exercise or enforcement of any of the rights of the Secured Party under the
Debentures. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Debentures and shall bear interest at the rate of 18%
per annum.
9. Responsibility for Collateral. Roman assumes all liabilities and
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responsibility in connection with all Collateral.
10. Security Interest Absolute. All rights of the Secured Party and all
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Obligations of the Company, shall be absolute and unconditional, irrespective
of: (a) any lack of validity or enforceability of this Agreement, the
Debentures, the Warrants or any agreement entered into in connection with the
foregoing, or any portion hereof or thereof; (b) any change in the time, manner
or place of payment or performance of, or in any other term of, all or any of
the Obligations, or any other amendment or waiver of or any consent to any
departure from the Debentures, the Warrants or any other agreement entered into
in connection with the foregoing; (c) any exchange, release or
nonperfection of any of the Collateral, or any release or amendment or waiver of
or consent to departure from any other collateral for, or any guaranty, or any
other security, for all or any of the Obligations; (d) any action by the Secured
Party to obtain, adjust, settle and cancel in its sole discretion any insurance
claims or matters made or arising in connection with the Collateral; or (e) any
other circumstance which might otherwise constitute any legal or equitable
defense available to the Company or Roman, or a discharge of all or any part of
the Security Interest granted hereby. Until the Obligations shall have been
paid and performed in full, the rights of the Secured Party shall continue even
if the Obligations are barred for any reason, including, without limitation, the
running of the statute of limitations or bankruptcy. The Company expressly
waives presentment, protest, notice of protest, demand, notice of nonpayment and
demand for performance. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Party hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Party, then, in any such event, the Company's obligations
hereunder shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this
Agreement, but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. The Company and Roman waive
all right to require the Secured Party to proceed against any other person or to
apply any Collateral which the Secured Party may hold at any time, or to marshal
assets, or to pursue any other remedy. The Company waives any defense arising
by reason of the application of the statute of limitations to any obligation
secured hereby.
11. Term of Agreement. This Agreement and the Security Interest shall
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terminate on the date on which all payments under the Debentures have been made
in full and all other Obligations of the Company have been paid or discharged.
Upon such termination, the Secured Party, at the request and at the expense of
the Company, will join in executing any termination statement with respect to
any financing statement executed and filed pursuant to this Agreement.
Notwithstanding anything to the contrary contained herein, Roman shall at all
times be free to dispose of the Collateral in accordance with the provisions of
the Leak-out Agreement dated the date hereof with Secured Party. Further, this
Agreement shall terminate automatically upon termination of the restrictions
contained in the Leak-out Agreement.
12. Power of Attorney; Further Assurances.
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(a) Roman authorizes the Secured Party, and does hereby make, constitute and
appoint it, and its respective officers, agents, successors or assigns with
full power of substitution, as Roman's true and lawful attorney-in-fact, with
power, in its own name or in the name of Roman, to, after the occurrence and
during the continuance of an Event of Default (i) to pay or discharge taxes,
liens, security interests or other encumbrances at any time levied or placed on
or threatened against Collateral; (ii) generally, to do, at the option of the
Secured Party, and at Roman's expense, at any time, or from time to time, all
acts and things which the Secured Party deems necessary to protect, preserve and
realize upon the Collateral and the Security Interest granted therein in order
to effect the intent of this Agreement, the Debentures and the Warrants, all as
fully and effectually as Roman might or could do; and Roman hereby ratifies all
that said attorney shall lawfully do or cause to be done by virtue hereof. This
power of attorney is coupled with an interest and shall be irrevocable for the
term of this Agreement and thereafter as long as any of the Obligations shall be
outstanding.
(b) Roman hereby irrevocably appoints the Secured Party as the Company's
attorney-in-fact, with full authority in the place and stead of Roman and in the
name of Roman, from time to time in the Secured Party's discretion, to take
any action and to execute any instrument which the Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement, including
the filing, in its sole discretion, of one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral without the
signature of the Company where permitted by law.
13. Notices. All notices, requests, demands and other communications
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hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:
If to Roman:
Xxxx Xxxxx
SimplaGene USA, Inc,
000 Xx-Xxxxxx Xxxx. Xxx. 000
Xxxxxxxxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
With Copy to:
Xxxx X. Xxxxxxxx
Xxxxxxxx & Xxxxx, LLP
000 Xxxxxxx Xxxxxxxxxx - Xxxxx 000
Xxxxxxx, Xxx Xxxx 00000
Phone: 000-000-0000, Ext. 47
Fax: 000-000-0000
If to the Secured Party:
Dutchess Capital Management, LLC
Xxxxxxx Xxxxxxxx
00 Xxxxxxxxxxxx Xxx, Xxxxx 0
Xxxxxx, XX 00000
(000) 000-0000
(000) 000-0000
14. Miscellaneous.
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(a) No course of dealing between Roman and the Secured Party, nor any
failure to exercise, nor any delay in exercising, on the part of the Secured
Party, any right, power or privilege hereunder or under the Debentures shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
(b) All of the rights and remedies of the Secured Party with respect to the
Collateral, whether established hereby or by the Debentures or by any other
agreements, instruments or documents or by law shall be cumulative and may be
exercised singly or concurrently.
(c) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect to the subject matter
hereof. Except as specifically set forth in this Agreement, no provision of
this Agreement may be modified or amended except by a written agreement
specifically referring to this Agreement and signed by the parties hereto.
(d) In the event that any provision of this Agreement is held to be invalid,
prohibited or unenforceable in any jurisdiction for any reason, unless such
provision is narrowed by judicial construction, this Agreement shall, as to such
jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this Agreement
shall be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach or
default or right, whether of the same or similar nature or otherwise.
(f) This Agreement shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns.
(g) Each party shall take such further action and execute and deliver such
further documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.
(h) The validity, terms, performance and enforcement of this Agreement shall
be governed and construed by the provisions hereof and in accordance with
the laws of the Commonwealth of Massachusetts applicable to agreements that are
negotiated, executed, delivered and performed solely in the Commonwealth of
Massachusetts.
(i) All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in
Boston, Massachusetts before a single arbitrator of the American Arbitration
Association ("AAA"). The arbitrator shall be selected by application of the
rules of the AAA, or by mutual agreement of the parties, except that such
arbitrator shall be an attorney admitted to practice law in the Commonwealth of
Massachusetts. No party to this agreement will challenge the jurisdiction or
venue provisions as provided in this section. Nothing in this section shall
limit the Holder's right to obtain an injunction for a breach of this Agreement
from a court of law.
(j) This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed on the day and year first above written.
ROMAN
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/s/Xxxx X. Xxxxx
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Xxxx X. Xxxxx
DUTCHESS PRIVATE EQUITIES FUND, L.P.
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By: /s/Xxxxxxx X. Xxxxxxxx
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Name: Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
