EXHIBIT 10.4
SECURITY AGREEMENT
(STOCK PLEDGE)
This Security Agreement (the "Agreement") is made as of April 25, 2002
between ▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇ as pledgors (cumulatively
"Pledgor"), and Sofcon Limited (the "Secured Party") (singly a "Party" and
cumulatively the "Parties").
For good and valuable consideration, receipt of which is hereby
acknowledged, Pledgor and Secured Party hereby agree as follows:
1. Grant of Security Interest. Pledgor hereby grants to Secured
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Party a security interest in 4,000,000 shares of Diversified Product
Inspections, Inc. common stock (the "Shares" also referred to as the
"Collateral"), currently issued in the names of ▇▇▇▇ ▇▇▇ ▇▇▇▇ (2,000,000
SHARES), ▇▇▇▇▇▇ ▇▇▇▇▇ (1,000,000 SHARES) and ▇▇▇ ▇▇▇▇▇▇▇ (1,000,000 SHARES) and
in all proceeds thereof, including, without limitation: (a) any and all shares
issued in replacement thereof; (b) any and all shares issued as a stock dividend
or issued in connection with any increase or decrease of capital,
reclassification, reorganization, merger, consolidation, sale of assets,
combination of shares, stock split, spin-off or split-off; (c) any and all
options, warrants or rights, whether as an addition to, or in substitution or
exchange for any of said stock or otherwise; and (d) any and all dividends or
distributions, whether payable in cash or in property.
Pledgor and Secured Party acknowledge their mutual intent that all security
interests contemplated herein are given as a contemporaneous exchange for new
value to Pledgor.
2. Debts Secured. The security interest granted by this Agreement
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shall secure the following obligation, which is a full recourse obligation of
the Pledgor and Diversified Product Inspections, Inc.: convertible debentures of
Diversified Product Inspections, Inc. issued in favor of Secured Party in the
aggregate principal amount of up to THREE HUNDRED THOUSAND DOLLARS ($300,000)
(the "Debentures"), any and all renewals, extensions, replacements,
modifications and amendments thereof (including any which increase the original
principal amount).
3. Perfection and Enforcement of Assignment and Security Interest.
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Pledgor agrees to deliver any and all stock certificates, or similar instruments
evidencing the Collateral, to secured Party or an escrow agent to be designated
by Pledgor and Secured Party, at the time of execution of this Agreement.
Pledgor agrees to give good faith, diligent cooperation to Secured Party and to
perform such other acts as reasonably requested by Secured Party for perfection
and enforcement of said security interest. Pledgor will promptly deliver to
Secured Party all written notices, dividends, stock certificates, or other
documents constituting or relating to the Collateral, which are received in the
future and will promptly give Secured Party written notice of any other notices
which are received in the future by Pledgor with respect to the Collateral.
4. No Transfer of Ownership Prior to Default. Pledgor does hereby
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make, constitute and appoint Secured Party and its designees, as Pledgor's true
and lawful attorney in fact, with full power of substitution, to transfer the
Collateral on the books of the issuing corporation, or any transfer agent, to
the name of Secured arty or such other name as designated by Secured Party.
Such power may be exercised in the sole discretion of Secured Party, but only
upon a default under the terms of this Agreement.
Pledgor agrees to give full cooperation and to use its best efforts to
cause any issuer, transfer agent, or registrar of the Collateral to take all
such actions and to execute all such documents as may be necessary or
appropriate to effect any sale, transfer or other disposition of the Collateral,
upon Pledgor's default.
Pledgor agrees to pay any and all expenses and out of pocket costs,
including, reasonably attorney's fees and legal expenses, incurred by Secured
Party in the event of a default and the payment thereof shall be secured by the
Collateral.
5. Voting Rights. Except as otherwise provided herein and so long
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as no event of default hereunder has occurred, Pledgor shall have the right,
where applicable, to vote said stock constituting Collateral on all corporate
questions, or otherwise exercise such similar rights as may arise from the
Collateral. Upon the occurrence of an event of default hereunder, such right
shall terminate, whereupon Secured Party may exercise all such rights.
6. Exercise of Options. In the event that during the term of this
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Agreement subscription warrants or any other rights or options shall be issued
in connection with the Collateral, such warrants, rights and options shall
constitute part of the Collateral, Secured Party may elect (without any duty to
do so) to exercise such warrants, rights and options on behalf of Pledgor.
Payment of all costs and expenses incurred by Secured Party in such exercise,
including sums paid to exercise such options or warrants and reasonable
attorneys fees and legal expenses, shall be payable by Pledgor and the payment
thereof shall be secured by the Collateral. If Secured Party elects not to
exercise such warrants, rights and options on behalf of Pledgor. Pledgor may
elect to exercise such warrants, rights and options at Pledgor's cost and
expense. All new shares of stock or other interests so acquired shall be
subject to and held under the terms hereof as Collateral.
7. Duty of Secured Party. Beyond the exercise of reasonable care to
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assure safe custody of the certificates evidencing the collateral while held
hereunder, Secured Party shall have no duty or liability to preserve rights
pertaining to the Collateral and shall be relieved of all responsibility for the
Collateral upon surrendering the certificates or tendering surrender of the
certificates to Pledgor or the agreed upon escrow agent, as the case may be.
8. Representations and Warranties Concerning Collateral. Pledgor
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represents and warrants that:
a. Pledgor is the sole owner of the Collateral as set forth in
Section 1 of this Agreement.
b. The Collateral is not subject to any security interest, lien,
prior assignment, or other encumbrance of any nature whatsoever except for
current taxes and assessments which are not delinquent and the security interest
created by this Agreement.
c. Pledgor is an affiliate of Diversified Product Inspections, Inc. and owns
that number of shares of Diversified Product Inspections, Inc. common stock
as set forth in Section 1 of this Agreement, which were acquired on March __,
2001, pursuant to the reverse merger of Diversified Product Inspections, Inc.
9. Covenants Concerning Collateral. Pledgor covenants that:
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a. Pledgor will keep the Collateral free and clear of any and all
security interests, liens, assignments or other encumbrances, except those for
current taxes and assessments which are not delinquent and those arising from
this Agreement.
b. Pledgor agrees to give good faith, diligent cooperation to
Secured Party and to perform such other acts reasonably requested by Secured
Party for perfection and enforcement of said security interests.
c. Except for $10,000 worth of shares of common stock that each
Pledgor may sell prior to the filing of the registration statement, each Pledgor
represents and warrants that Pledgor will not sell any shares of Diversified
Product Inspections, Inc. Common Stock that it currently owns or may own after
the signing of this Agreement until the earlier of (i) the date that the
registration statement covering the Common Stock underlying the Debentures is
declared effective or (ii) the date that the Debentures are redeemed or
converted in full, including accrued but unpaid interest and liquidated damages,
if any.
10. Right to Perform for Pledgor. Secured Party may, in its sole
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discretion and without any duty to do so, elect to discharge taxes, tax liens,
security interests, or any other encumbrance upon the Collateral, perform any
duty or obligation of Pledgor, pay filing, recording, insurance and other
charges payable by Pledgor, or provide insurance as provided herein if Pledgor
fails to do so. Any such payments advanced by Secured Party shall be repaid by
Pledgor upon demand, together with interest thereon from the date of advance
until repaid at the rate of ten percent (10%) per annum.
11. Possession of Collateral. All Collateral shall be held by Secured
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Party or an escrow agent to be agreed upon by Pledgor and Secured Party, who
shall act as Secured Party's agent for the purpose of perfecting Secured Party's
security interest in the Collateral.
12. Default. Time is of the essence of this Agreement. The
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occurrence of any of the following events shall constitute a default under this
Agreement:
a. Any representation or warranty made by or on behalf of Pledgor
in this Agreement is materially false or materially misleading when made;
b. Pledgor fails in the payment or performance of any obligation,
covenant, agreement or liability created by or contemplated by this Agreement or
secured by this Agreement;
c. The registration statement covering the Common Stock underlying
the Debentures and Warrants is not declared effective prior to the one hundredth
eightieth (180th) calendar day following the funding of the first tranche in the
amount of $100,000.
d. The registration statement covering the Common Stock underlying
the Debentures and Warrants is not filed within ninety (90) calendar days
following the funding of the first tranche in the amount of $100,000.
e. The Company fails to respond within thirty (30) calendar days
of receipt of comments from the Securities and Exchange Commission.
f. Any default in the payment or performance of any amounts,
obligation, covenant, agreement or liability under the terms of the Debentures
or this Agreement.
No course of dealing or any delay or failure to assert any default shall
constitute a waiver of that default or of any prior or subsequent default.
13. Remedies. Upon the occurrence of any default under this
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Agreement, Secured Party shall have the following rights and remedies, in
addition to all other rights and remedies existing at law, in equity, or by
statute or provided in the Debentures;
a. Secured Party shall have all the rights and remedies available
under the Uniform Commercial Code:
b. If Pledgor fails to cure any default within seven (7) business
days after Pledgor's receipt of written notice of default from Secured Party,
Secured Party may sell, deliver or otherwise dispose of any or all of the
Collateral for cash and/or credit and upon such terms and at such place or
places, and at such time or times, and to such person, firms, companies or
corporation as Secured Party reasonably believes expedient, without any
advertisement whatsoever, and, after deducting the reasonable costs and
out-of-pocket expenses incurred by Secured Party, including, without limitation,
(i) reasonable attorneys fees and legal expenses, (ii) advertising of sale of
the Collateral, (iii) sale commissions, (iv) sales tax, and (v) costs for
preservation and protection of the Collateral, apply the remainder to pay, or to
hold as a reserve against, the obligations secured by this Agreement.
c. Secured Party and Pledgor agree to enter into an escrow
agreement with Secured Party's counsel as escrow agent that shall provide in the
event Pledgor is unable to cure any default within three (3) business days then
escrow agent shall release that number of the Shares being held in escrow, equal
to 130% of the principal balance owed on the Debentures, plus accrued but unpaid
interest and liquidated damages, if any, based on the 5-day average closing bid
price of the common stock for the five (5) trading days immediately preceding
the third (3rd) business day after the Pledgor receives written notice of
default from the Secured Party. After the shares delivered to Secured Party have
been sold, the Secured Party shall show written documentation of the net amount
recovered and if such amount was insufficient to cover 130% of the principal
balance owed on the Debentures, plus accrued but unpaid interest and liquidated
damages, if any, the escrow agent shall release additional shares to the Secured
Party until the Secured Party is able to recover such amount, net of customary
brokerage commissions. Secured Party shall provide a weekly accounting to
escrow agent and Pledgor of the sales, amounts and brokerage commissions. Once
Secured Party has recovered 130% of the principal balance owed on the
Debentures, plus accrued but unpaid interest and liquidated damages, if any, the
Secured Party shall return the balance of any Shares to the escrow agent and the
escrow agent shall return to the Pledgor the balance of any of the Shares he is
holding in escrow.
Pledgor agrees to forward an additional 200,000 shares of Common Stock to
Secured Party each calendar week until Secured Party is able to recover 130% of
the principal balance owed on the Debentures plus accrued but unpaid interest
and liquidated damages, if any, net of reasonable and customary broker's
commissions and brokerage costs.
d. The rights and remedies herein conferred are cumulative and not
exclusive of any other rights and remedies and shall be in addition to every
other right, power and remedy herein specifically granted or hereafter existing
at law, in equity, or by statute which Secured Party might otherwise have, and
any and all such rights and remedies may be exercised from time to time and as
often and in such order as Secured Party may deem expedient. No delay or
omission in the exercise of any such right, power or remedy or in the pursuance
of any remedy shall impair any such right, power or remedy or be construed to be
a waiver thereof or of any default or to be an acquiescence therein.
e. In the event of breach or default under the terms of this
Agreement by Pledgor, Pledgor agrees to pay all reasonable attorneys fees and
legal expenses incurred by or on behalf of Secured Party in enforcement of this
Agreement, in exercising any remedy arising from such breach or default, or
otherwise related to such breach or default. Pledgor additionally agrees to pay
all reasonable costs and out-of-pocket expenses, including, without limitation,
(i) reasonable attorneys fees and legal expenses, (ii) advertising of sale of
the Collateral, (iii) sale commissions, (iv) sales tax, and (v) costs for
preservation and protection of the Collateral, incurred by Secured Party in
obtaining possession of Collateral, preparation for sale, sale or other
disposition, and otherwise incurred in foreclosing upon the Collateral. Any and
all such costs and out-of-pocket expenses shall be payable by Pledgor upon
demand, together with interest thereon at ten percent (10.0%) per annum.
f. Regardless of any breach or default, Pledgor agrees to pay all
expenses, including reasonable attorneys fees and legal expenses, incurred by
Secured Party in any bankruptcy proceeding of any type involving Pledgor, the
Collateral, or this Agreement, including, without limitation, expenses incurred
in modifying or lifting the automatic stay, determining adequate protection, use
of cash collateral, or relating to any plan of reorganization.
g. If Pledgor shall be in default under the terms of the Debentures or
this Agreement, Secured Party, immediately and at any time thereafter, may
declare all of the indebtedness secured pursuant to this Agreement immediately
due and payable, shall have all rights available in law or at equity, including,
without limitation, specific performance of this Agreement or for an injunction
against violations of any of the terms hereof, and the rights and all the
remedies of a secured party under applicable law.
14. Notices. Any notices or other communications required or permitted
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to be given under the terms of this Agreement must be in writing and will be
deemed to have been delivered (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending Party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the Party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Company or Pledgor:
Diversified Product Inspections, Inc.
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇ ▇▇▇▇, CEO
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇ ▇▇▇▇▇▇, Esq.
▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Investor:
At the address listed in the Questionnaire.
With a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
15. Indemnification. Pledgor agrees to indemnify Secured Party for
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any and all claims and liabilities, and for damages which may be awarded against
Secured Party and for all reasonable attorneys fees, legal expenses, and other
out-of-pocket expenses incurred in defending such claims, arising from or
related in any manner to the negotiation, execution, or performance of this
Agreement, excluding any claims and liabilities based upon breach or default by
Secured Party under this Agreement or upon the negligence or misconduct of
Secured Party. Secured Party shall have sole and complete control of the
defense of any such claims, and is hereby given the authority to settle or
otherwise compromise any such claims as Secured Party in good faith determines
shall be in its best interests.
Secured Party agrees to indemnify Pledgor for any and
all claims and liabilities, and for damages which may be awarded against Pledgor
and for all reasonable attorneys fees, legal expenses, and other out-of-pocket
expenses incurred in defending such claims, arising from or related in any
manner to the negotiation, execution, or performance of this Agreement,
excluding any claims and liabilities based upon breach or default by Pledgor
under this Agreement or upon the negligence or misconduct of Pledgor. Pledgor
shall have sole and complete control of the defense of any such claims, and is
hereby given the authority to settle or otherwise compromise any such claims as
Pledgor in good faith determines shall be in its best interests.
16. General. This Agreement is made for the sole and exclusive
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benefit of Pledgor and Secured Party and is not intended to benefit any third
party. No such third party may claim any right or benefit or seek to enforce
any term or provision of this Agreement.
In recognition of Secured Party's right to have all its attorneys fees and
expenses incurred in connection with this Agreement secured by the Collateral,
notwithstanding payment in full of the obligations secured by the Collateral,
Secured Party shall not be
required to release, reconvey, or terminate any security interest in the
Collateral unless and until Pledgor has executed and delivered to Secured Party
a general release in form and substance satisfactory to Secured Party.
Secured Party and its officers, directors, employees, representatives,
agents, attorneys, shall not be liable to Pledgor for consequential damages
arising from or relating to any breach of contract, tort, or other wrong in
connection with or relating to this Agreement or the Collateral.
If the incurring of any debt by Pledgor or the payment of any money or
transfer of property to Secured Party by or on behalf of Pledgor should for any
reason subsequently be determined to be "voidable" or avoidable" in whole or in
part within the meaning of any state or federal law (collectively "voidable
transfers"), including, without limitation, fraudulent conveyances or
preferential transfers under the United States Bankruptcy Code or any other
federal or state law, and Secured Party is required to repay or restore any
voidable transfers or the amount or any portion thereof, or upon the advise of
Secured Party's counsel is advised to do so, then, as to any such amount or
property repaid or restored, including all reasonable costs, expenses, and
attorneys fees of Secured Party related thereto, the liability of Pledgor and
Guarantor, and each of them, and this Agreement, shall automatically be revived,
reinstated and restored and shall exist as though the voidable transfers had
never been made.
Pledgor represents that there are no actions, suits, investigations or
proceedings pending or threatened against or affecting the validity or
enforceability of the Debentures or this Agreement, any guaranty or any
instrument, document or agreement concerning the Collateral or of which, if
adversely determined, would have a material adverse effect on the financial
condition, operations, business or properties of the Pledgor, and there are no
outstanding orders or judgments of any court or governmental authority or awards
of any arbitrator or arbitration board against the Pledgor.
All agreements, representations, warranties and covenants made by Pledgor
shall survive the execution and delivery of this Agreement, the filing and
consummation of any bankruptcy proceedings, and shall continue in effect so long
as any obligation to Secured Party contemplated by this Agreement is outstanding
and unpaid, notwithstanding any termination of this Agreement. All agreements,
representations, warranties and covenants in this Agreement shall bind the Party
making the same and its heirs and successors, and shall be to the benefit of and
be enforceable by each Party for whom made their respective heirs, successors
and assigns.
Pledgor waives presentment, demand for payment, notice of dishonor, protest
and any other notices or demands in connections with the delivery, acceptance,
performance, default and enforcement of any promissory Debentures or instrument
representing all or any part of the indebtedness
Pledgor will pay to Secured Party on demand any costs, expenses, reasonable
attorneys' fees and their reasonable disbursements incurred or paid by Secured
Party in
protecting or enforcing its rights in the Collateral and in collecting any part
of the indebtedness and such amounts extended pursuant to this section shall be
added to the indebtedness.
Any delay, failure or waiver by Secured Party to exercise any right it may have
under this Agreement is not a waiver of Secured Party's right to exercise the
same or any other right at any other time.
If any provision of this Agreement or the application of any provision to
any person or circumstance shall be invalid or unenforceable, neither the
balance of this Agreement nor the application of the provision to other persons
or circumstances shall be affected. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
In the interest of a speedy resolution of any lawsuit which may arise
hereunder, Pledgor waives a trial by jury in any action with respect to this
Agreement and as to any issues arising relating to this Agreement.
The Parties hereto expressly agree that this Agreement shall be governed
by, interpreted under, and construed and enforced in accordance of the laws of
the State of Connecticut. Any action to enforce, arising out of, or relating in
any way to, any provisions of this Agreement shall be brought in the federal
courts for the State of Connecticut.
All references in this Agreement to the singular shall be deemed to include
the plural if the context so requires and vice versa. Reference in the
collective or conjunctive shall also include the disjunctive unless the context
otherwise clearly requires a different interpretation. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same Agreement.
This Agreement constitutes the entire agreement between Pledgor and Secured
Party as to the subject matter hereof and may not be altered or amended except
by written agreement signed by Pledgor and Secured Party. All other prior and
contemporaneous understandings between the Parties hereto as to the subject
matter hereof are rescinded.
[Balance of this page intentionally left balnk.]
The Parties hereto have executed this Agreement as of the date first above
written.
SECURED PARTY:
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇
_____________________________
PLEDGOR: ▇▇▇▇ ▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇ ▇▇▇▇
By: ______________________________
PLEDGOR: ▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
By: ______________________________
PLEDGOR: ▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇▇
By: _____________________________