Exhibit 10.13
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of the 14th day of April 2004, by and
between NIGHTHAWK SYSTEMS, INC., a Nevada corporation, located at ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, ("Debtor"), and STAR MARKETING
SERVICE, INC., a Texas corporation whose mailing address is ▇.▇. ▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ("Secured Party").
1. Security Interest. Subject to the terms and provisions of this Security
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Agreement (the "Security Agreement"), Debtor grants to Secured Party a
continuing lien on and Security Interest (the "Security Interest") in and to the
Collateral (as defined herein) to secure the payment and performance of the
Obligation (as defined herein).
2. Obligation, This Security Agreement and the Security Interest granted
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here in secures the following described obligations (collectively, the
"Obligation"):
(a) The performance by Debtor of all of its obligations to Secured Party
pursuant to: (i) Promissory Note in the original amount of FIFTY THOUSAND
AND NO/100 DOLLARS ($50,000.00) DATE August 21, 2003 executed by Debtor and
Lender, as subsequently amended by that certain Renewal, Extension and
Modification Agreement dated April 14, 2004, between Debtor and Lender
(collectively, the "Note").
(b) All costs incurred by Secured Party to obtain, preserve, and enforce
this Security Agreement, collect the Obligation, and maintain and preserve
the Collateral, including specifically, but without limitation, all taxes,
assessments, reasonable attorneys' fees and legal expenses and expenses of
sale.
(c) Unless otherwise provided in any instrument evidencing the Obligation,
the Obligation shall bear interest at the rate or rates per annum set forth
in the Note, but not in excess of the highest rate permitted by applicable
law, if any, from date of accrual of the Obligation until paid.
3. Collateral. The Security Interest granted hereby covers the following
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collateral (the "Collateral"): (i) all items described on Exhibit "A" attached
hereto, (ii) all insurance policies relating in whole or in part to any of the
foregoing, (iii) all Proceeds (as defined herein) of any of the foregoing, (iv)
all substitutions for and replacements of and all additions and accessions to
any of the foregoing, (v) all guaranties and security for any of the foregoing,
and (vi) all the rights, title and interest of Debtor in and to all books and
records relating in whole or in part to any of the foregoing.
As used herein, the term "Proceeds" shall have the meaning assigned to it
under Section 9,102(a)(65) of the Texas Business and Commerce Code (the "Code")
and, to the extent not otherwise included, shall include, but not be limited
to, (i) any and all proceeds of any insurance, causes and rights of action,
settlements thereof, judicial and arbitration judgments and awards, and
indemnity, warranty or guaranty payments payable to Debtor from time to time
with, respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental department, commission, board,
bureau, authority, agency or body (domestic or foreign), (iii) all claims of the
Debtor for losses or damages arising out of or related to or for any breach of
any agreements, covenants, representations or warranties or any default under
any of the foregoing Collateral (without limiting any direct or independent
rights of Secured Party with respect to the Collateral), and (iv) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral.
Portions of the Collateral may constitute accounts, general intangibles or
contract rights, and all records concerning such Collateral are and will be
located at the offices of Debtor specified above.
4. Debtor's Warranties
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(a) Ownership Free of Encumbrances. Except for the Security Interest
granted hereby and any liens, security interests, claims or encumbrances
permitted by the Note, Debtor now owns the Collateral free from any lien,
security interest, claim or encumbrance,
(b) Place of Business. Debtor has no place of business other than that at
the addresses set forth in the first paragraph of this Security Agreement.
Debtor will notify Lender and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Pulman, P.C. of any
additional or new places of business in the future.
(c) Books and Records. AH books, records and documents relating to the
Collateral are and will be genuine and in all respects what they purport to
be.
(d) Lien on Collateral. The Security Interest granted to the Secured Party
pursuant to this Security Agreement constitutes and creates a valid and
continuing lien on and security interest in the Collateral in favor of the
Secured Party, prior to all other liens, encumbrances, security interests,
chattel mortgages, privileges, statements of assignment and rights of
others, except as permitted by paragraph 4(j) hereof. The Security
Agreement is enforceable as such as against any third parties, including,
without limitation, any owner of real property in any state where any of
the Collateral is or may hereafter be located and as against any purchaser
of such real property and any present or future creditor obtaining a lien
on such real property. All action necessary or desirable to perfect the
Security Interest in each item of the Collateral in each state in which any
item of Collateral is or will be located has been or will forthwith be duly
taken,
(e) Representations and Warranties in Note. All representations and
warranties contained in the Note are true and correct.
(f) Power and Authority. The Debtor has full power, authority and legal
right to pledge all of the Collateral pursuant to this Security Agreement.
(g) Due Authorization, Execution and Delivery. This Security Agreement has
been duly authorized, executed and delivered by Debtor and constitutes the
legal, valid and binding obligation of Debtor enforceable in accordance
with its terms.
(h) Consents, No consent of any other party (including, without limitation,
creditors of Debtor) and no consent, license, permit, approval or
authorization of, exemption by, notice or report to, or registration,
filing or declaration with, any governmental authority, domestic or
foreign, is required to be obtained by the Debtor in connection with the
execution, delivery or performance of this Security Agreement.
(i) No Conflict. The execution, delivery and performance of this Security
Agreement will not violate any provision of any applicable law or
regulation or of any order, judgment, writ, award or decree of any court,
arbitrator or governmental authority, domestic or foreign, or of the
certificate of incorporation or by-laws of the Debtor or of any securities
issued by the Debtor, or of any mortgage, indenture, lease, contract, or
other agreement, instrument or undertaking to which Debtor is a party or
which purports to be binding upon Debtor or upon any of its assets, and
will not result in the creation or imposition of any lien, charge or
encumbrance on or security interest in any of the assets of Debtor except
as contemplated by this Security Agreement.
(j) Condition of Collateral. All machinery and equipment constituting part
of the Collateral are in all respects in good and serviceable condition,
repair and working order (ordinary wear and tear excepted), adequate for
the contemplated uses and purposes thereof in connection with Debtor's
business as it is presently being conducted.
5. Debtor's Covenants.
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(a) Ownership of Collateral. At the time Debtor pledges, sells, assigns,
transfers to Secured Party or grants to Secured Party a Security Interest
in any Collateral or any interest therein, Debtor shall be the absolute
owner thereof and shall have the absolute right to pledge, sell, assign or
transfer the same. Debtor shall defend the Collateral against all claims
and demands of all persons at any time claiming the same or any interest
therein adverse to Secured Party,
(b) Maintenance. Debtor shall keep the Collateral free from liens and
security interests other than the Security Interest created hereby and any
liens, security interests, claims, or encumbrances permitted by the Note,
and shall not create or suffer to exist any lien or security interest in
Collateral hereafter acquired except for the Security Merest hereby granted
and any liens, security interests, claims, or encumbrances permitted by the
Note. Debtor shall pay all costs necessary to obtain, preserve, defend and
enforce the Security Merest, collect the Obligation, and preserve, defend,
enforce and collect the Collateral, including specifically, but without
limitation, the payment of taxes, assessments, reasonable attorneys' fees
and legal expenses, and expenses of sales. Whether the Collateral is or is
not in Secured Party's possession, and without any obligation to do so,
Secured Party may, at its option, pay any such costs and expenses,
discharge encumbrances on the Collateral, and pay for insuring the
Collateral. Debtor agrees to reimburse Secured Party on demand for any
payments so made and until such reimbursement, the amount of any such
payment shall be a part of the Obligation. Debtor shall, at its sole
expense, maintain the Collateral in first class condition and shall comply
with industry standards, applicable laws and regulations, and requirements
for enforcing warranty claims.
(c) Information and Inspection. Debtor shall furnish to Secured Party any
reports and other information with respect to the Collateral requested by
Secured Party, will allow Secured Party to inspect the Collateral at any
time and wherever located, and will allow Secured Party to inspect and
copy, or will furnish Secured Party with copies of, all records relating to
the Collateral and the Obligation. Debtor shall furnish to Secured Party
such information as Secured Party may request to identify notes receivable,
accounts receivable, chattel paper, general intangibles and contract rights
assigned hereunder at the times and in the form and substance requested by
Secured Party.
(d) Additional Documents. Debtor shall furnish Secured Party with financing
statements upon request and Debtor shall sign any other documents or
instruments furnished by Secured Party which are necessary in the judgment
of Secured Party to obtain, maintain and perfect the Security Interest in
any applicable jurisdiction and to assist Secured Party in complying with
the Federal Assignment of Claims Act, where necessary to enable Secured
Party to become an assignee under such Act, and any expense of Secured
Party SO incurred shall be a part of the Obligation, hi this regard, Debtor
agrees to execute all such collateral chattel and/or other mortgages,
assignments of accounts receivable and any and all other financing
statements arid security devices as Secured Party may request to perfect or
continue perfection of the Security Interest under the laws of any state in
which the Collateral is located.
(e) Parties Liable on Collateral. Debtor will take all necessary steps to
preserve the liability of account debtors, obligors and secondary parties
to any obligations which are part of the Collateral. Secured Party shall
have no duty to preserve such liability but it may do so, and any expense
of Secured Party so incurred shall be a part of the Obligation.
(f) Modification of Accounts or Contract Rights. Debtor will not agree to
any material modification of any of the terms of any notes or accounts
receivable, contract rights, chattel paper or other instruments evidencing
or pertaining to Collateral assigned hereunder other than in the ordinary
course of business, without the prior written consent of Secured Party.
(g) Right of Secured Party to Notify Account and Contract Debtors. Upon the
occurrence of an Event of Default (hereinafter defined), Secured Party
shall have the right to notify persons obligated on any instruments,
accounts, or contracts which are part of the Collateral to make payment
thereof directly to Secured Party and to take control of all proceeds of
any of the Collateral. Until such time as Secured Party elects to exercise
such rights, Debtor, as the agent of Secured Party, shall collect and
enforce all such contracts and accounts. The cost of such collection and
enforcement, including attorneys' fees and expenses, shall be borne by
Debtor, whether the same is incurred by Secured Party or Debtor. If paid by
Secured Party, such payment shall become a part of the Obligation.
(h) Books of Account. Debtor will, at all times, maintain accurate books
and records with respect to the Collateral. Secured Party is hereby given
the right to audit the books and records of Debtor relating to said
Collateral at any time, and from time to time, as Secured Party deems
proper. At Secured Party's request, Debtor shall cause to be marked
conspicuously all documents constituting the Collateral with a legend in
form and substance satisfactory to Secured Party.
(i) Notice of Changes. Debtor will notify Secured Party of any material
change occurring in or to the Collateral, of a change in Debtor's mailing
address, or in any material change in any fact or circumstance warranted or
represented by Debtor in this Security Agreement or furnished to Secured
Party, or if any Event of Default occurs, prior to or immediately following
the occurrence thereof.
(j) Use and Disposition of Collateral. Debtor will not use the Collateral
illegally or encumber the same without the prior written consent of Secured
Party. Without the prior written consent of Secured Party, Debtor will not
sell, lease, otherwise transfer, hypothecate or anticipate the Collateral.
(k) Removal of Collateral. Except in the ordinary course of Debtor's
business, Debtor will not remove any material portion of the Collateral
from its present location to another State or local jurisdiction in which
Secured Party determines that the Security Interest granted hereby may not
be perfected, unless and until Debtor: (i) gives the Secured Party prior
written notice of such intended move and receives the written consent of
the Secured Party, and (ii) provides the Secured Party with an opinion of
counsel for Debtor that the security interest in favor of the Secured Party
created by this Security Agreement constitutes a valid and perfected lien
on, and a perfected security interest in, such machinery and equipment in
the county, jurisdiction and State in which such machinery and equipment is
to be moved. Notwithstanding the foregoing, it is understood and agreed
that if for any reason any of Debtor's machinery or equipment at any time
is kept or located at locations other than those above listed or contained
in any aforementioned notice given to Secured Party, Secured Party shall
nevertheless have and retain a security interest therein. All tangible
personal property included in the Collateral will be maintained and
preserved in first class repair, condition and appearance, and Debtor shall
forthwith, or in the case of any loss or damage to any of the tangible
personal property as quickly or practicable after the occurrence thereof,
make or cause to be made all replacements and other improvements in
connection therewith that are necessary or desirable to such end. Debtor
shall furnish to Secured Party a statement respecting any loss or material
damage to any of the tangible personal property. Debtor shall pay promptly
when due all property and other taxes, assessments and governmental charges
or levies imposed upon, and all. claims (including claims for labor,
materials and supplies) against the tangible personal property except to
the extent that the validity thereof is being contested in good faith.
(l) Security. Debtor acknowledges and agrees that the Note shall be secured
by a security interest in the Collateral,
6. Rights and Powers of Secured Party. Secured Party may, in its
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discretion, upon the occurrence of an Event of Default, do any one or more of
the following: Require Debtor to give possession or control of the Collateral to
Secured Party; take physical possession of the Collateral and maintain it on
Debtor's premises, in a public warehouse or at such other place as to which
Secured Party may remove the Collateral or any part thereof; contact account
debtors directly to verify information furnished by Debtor; take control of
proceeds and use cash proceeds to reduce any part of the Obligation; take any
action Debtor is required to take or any other necessary action to obtain,
preserve, and enforce this Security Agreement, and maintain and preserve the
Collateral, without notice to Debtor, and add costs of same to the Obligation
(but Secured Party is under no duty to take any such action); release Collateral
in its possession to Debtor, temporarily or otherwise; take control of funds
generated by the Collateral such as cash dividends and interest, and use same to
reduce any part of the Obligation; vote any stock which is part of the
Collateral; use cash collateral to reduce any part of the Obligation; and
exercise all other rights which an owner of such stock may exercise and exercise
all rights which account holders or obligees may exercise with respect to any of
the Collateral. Secured Party may at any time in its discretion transfer any of
the Collateral or evidence thereof into its own name or that of its nominee and
receive the proceeds therefrom and hold the same as security for the Obligation,
or, following the occurrence and continuance of an Event of Default, apply the
same thereon. Secured Party may, following the occurrence and continuance of an
Event of Default, but shall be under no duty to, demand, collect, receipt for,
settle, compromise, adjust, ▇▇▇ for, foreclose, or realize upon Collateral, in
its own name or in the name of Debtor, as the Secured Party may determine.
Secured Party shall not be liable for any act or omission on the part of the
Secured Party, its officers, agents, or employees, except willful misconduct and
gross negligence. The foregoing rights and powers of Secured Party shall be in
addition to, and not a limitation upon, any rights and powers of Secured Party
given by law, custom, elsewhere by this Security Agreement, the Note or
otherwise.
7. Default
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(a) Events of Default Debtor shall be in default under this Security
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Agreement upon the happening of any of the following events or conditions
("Events of Default"):
i) Default in the timely payment or performance of the
Obligation or any covenant or liability contained herein or secured hereby; or
ii) Any representation or warranty contained herein shall be false
or misleading in any material respect when made.
(b) Remedies of Secured Party Upon Default. When an Event of Default
occurs, and at any time thereafter, Secured Party may declare the
Obligation or any part thereof immediately due and payable and may proceed
to enforce payment of the same and to exercise any and all of the rights
and remedies provided by the Code as well as all other rights and remedies
possessed by Secured Party under this Security Agreement or otherwise.
Secured Party may require Debtor to assemble the Collateral and make it
available to Secured Party at any place \q be designated by the Secured
Party which is reasonably convenient to all parties. Unless the Collateral
threatens to decline rapidly in value or is of a type customarily sold on a
recognized market, Secured Party will give Debtor reasonable notice of the
time after which any private sale or any other intended disposition thereof
is to be made. Expenses of retaking, holding, preparing for sale, selling,
leasing and the like shall include Secured Party's reasonable attorneys'
fees and legal expenses. Secured Party shall be entitled to immediate
possession of the Collateral and shall have authority to enter upon any
premises upon which the same may be situated and remove the same therefrom.
If Secured Party disposes of the Collateral, or any portion thereof,
following default, the proceeds of such disposition available to satisfy
the Obligation shall be applied by Secured Party to the Obligation in such
order and in such manner as Secured Party in its discretion shall decide.
8. General.
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(a) Assignment of Collateral by Secured Party. The Secured Party may assign
all or any part of the Obligation, and may assign, transfer, or deliver to
any transferee any or all of the Collateral, and thereafter Secured Party
shall be fully discharged from all responsibility with respect to the
Collateral so assigned, transferred or delivered. Such transferee shall be
vested with all the powers and rights of the Secured Party hereunder with
respect to such Collateral, but the Secured Party shall retain all rights
and powers hereby given with respect to any of the Collateral not so
assigned or transferred.
(b) Waiver. No delay on the part of the Secured Party in exercising any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right. No waiver by Secured
Party of any right hereunder or of any Event of Default by Debtor shall be
binding upon Secured Party unless in writing, and no failure by Secured
Party to exercise any right hereunder or waiver of any Event of Default of
Debtor shall operate as a waiver of any other or further exercise of such
right or of any further Event of Default.
(c) Parties Bound. The rights of Secured Party hereunder shall inure to the
benefit of its successors and assigns. The terms of this Security Agreement
shall be binding upon the successors and assigns of the parties hereto. All
representations, warranties and agreements of Debtor shall bind Debtor's
successors and assigns. This Security Agreement shall constitute a
continuing agreement, applying to all future transactions of a character
contemplated at the date of this Security Agreement.
(d) Definitions. Unless the context indicates otherwise, definitions in the
Texas Business and Commerce Code ("Code") apply to words and phrases in
this Agreement; if Code definitions conflict, Article 9 of the Code
definitions apply,
(e) Notice, Any notices or other communications required or permitted here
under shall be sufficiently given if delivered personally or sent by
registered or certified mail, postage prepaid, to the applicable party at
its address above given or at such other address as shall be furnished in
writing by such party to the other, and shall be deemed to have been given
as of the date so delivered or deposited in the United States Mail. Notice
mailed in accordance with this section at least five (5) days prior to the
related action (or if the Code elsewhere requires a longer period, such
longer period) shall be deemed reasonable.
(f} Modifications, No provision hereof shall be modified or limited except
by a written agreement expressly referring hereto and to the provision so
modified or limited and signed by all parties to this Security Agreement,
and without limiting the foregoing, no course of conduct, usage of trade or
law merchant shall modify or limit any provision hereof.
(g) Severability. Any provision of this Security Agreement which is
prohibited or unenforceable hi any jurisdiction shall, as to such
jurisdiction, 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.
(h) Financing Statement. Secured Party is authorized on behalf of Debtor as
Debtor's agent and attorney in fact, for such purpose, to complete and sign
one or more financing statements with respect to any Collateral covered by
this Security Agreement and to file the same in an appropriate office or
place, A carbon, photographic or other reproduction of this Security
Agreement or of any financing statement prepared in conjunction herewith is
sufficient as a financing statement.
(i) APPLICABLE LAW. THIS SECURITY AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT
THE VALIDITY AND PERFECTION OF THE SECURITY INTEREST, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS
OF A JURBDICTION OTHER THAN THE STATE OF TEXAS.
9. Limitation on Agreements. All agreements between Debtor and Secured
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Party, whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity of the Obligation or
otherwise, shall the amount paid, or agreed to be paid, to Secured ▇▇▇▇▇ for the
use, forbearance, or detention of the money to be loaned under the Note or
otherwise or for the payment or performance of any covenant or obligation
contained herein, or in any other document evidencing, securing or pertaining to
the Obligation or the Collateral, exceed the maximum amount, if any, permissible
under applicable law. If from any circumstances whatsoever interest would
otherwise be payable to Secured Party in excess of the maximum lawful amount,
the interest payable to Secured Party shall be reduced to the maximum amount
permitted under applicable law, and if from any such circumstance the Secured
Party shall ever receive as interest or otherwise an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal amount owing on account of the
Obligation or on account of any other principal indebtedness of the Debtor to
the Secured Party, and not to the payment of interest., or if such excessive
interest exceeds the unpaid balance of principal of the Obligation and such
other indebtedness, such excess shall be refunded to the Debtor. All sums paid
or agreed to be paid to the Secured Party for the use, forbearance or detention
of the indebtedness of the Debtor to the Secured Party shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the Ml term of such indebtedness until payment in full of the
principal (including the period of any renewal or extension thereof) so that the
interest on account of such indebtedness shall not exceed the maximum amount
permitted by applicable law. The term "applicable law" as used in this Section 9
shall mean the laws of the State of Texas or the laws of the United States,
whichever laws allow the greater rate of interest, as such laws now exist or may
be changed or amended or come into effect in the future. The terms and
provisions of this Section shall control and supersede every other provision of
all agreements between the Debtor and the Secured Party.
EXECUTED as of the date and year first above written.
"DEBTOR"
NIGHTHAWK SYSTEMS, INC.,
A Nevada Corporation
By: /s/ H. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
_________________________
H. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Chief Executive Officer
"SECURED PARTY"
STAR MARKETING SERVICE, INC.,
A Texas Corporation,
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
_________________________
▇▇▇▇▇ ▇▇▇▇▇▇, President
EXHIBIT "A"
(i) All presently owned and hereafter acquired inventory of Debtor (including,
without limitation, all raw materials and goods now or hereafter held for sale),
(ii) All rights of Debtor for payments of goods sold or leased, or to be leased
or sold, or for services rendered, or to be rendered, however evidenced or
incurred, including without limitation all accounts, instruments, chattel paper,
and general intangibles, including without limitation all trade names and
trademark, and all hooks, records, computer tapes, programs and ledger books
arising therefrom or relating thereto, whether now owned or hereafter acquired;
(iii) AH of Debtor's machinery, equipment, furniture and fixtures, (iv) All
insurance policies relating in whole or in part to any of the foregoing, (v) All
proceeds from any of the foregoing, (vi) All substitutions for and replacements
of and all additions and accessions to any of the Foregoing, (vii) All
guarantees and security for any of the foregoing, (viii) Accounts, accounts
receivable, reimbursements, notes, contracts, contract rights, chattel paper,
cash, checks, drafts, documents, instruments, all rights of Debtor to receive
payment in money or kind, and other evidence of indebtedness owed to Debtor;
(ix) Customer lists, all documents containing the names, addresses, telephone
numbers, and other information, regarding the Debtor's customers, subscribers,
tapes, programs, printouts, disks, and other material and documents relating to
the recording, ▇▇▇▇▇▇▇ or analyzing of any of the foregoing, and any other right
to payment; (x) Any and all contract and lease rights, and (xiii) All products
and proceeds (cash and non-cash) of all of the foregoing, and increases,
accessions, renewals, replacements and substitutions of all of the foregoing.