Exhibit 10.1
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of October 11, 2006 (the
"Agreement") is by and among Biophan Technologies, Inc., a company
duly
organized and validly existing under the laws of Nevada (the
"Company"), the
Purchasers identified on the signature pages hereto (each, a
"Purchaser" and
collectively, the "Purchasers") and Iroquois Master Fund Ltd., as
agent for the
Purchasers (in such capacity, together with its successors in such
capacity, the
"Agent").
The Company and each of the Purchasers are parties to a
Securities Purchase Agreement dated as of October 11, 2006 (as
modified and
supplemented and in effect from time to time, the "Purchase
Agreement"), that
provides, subject to the terms and conditions thereof, for the
issuance and sale
by the Company to each of the Purchasers, severally and not
jointly, Notes and
Warrants as more fully described in the Purchase Agreement.
To induce each of the Purchasers to enter into the Purchase
Agreement, and for other good and valuable consideration, the
receipt and
sufficiency of which are hereby acknowledged, the Company has
agreed to pledge
and grant a security interest in the Collateral (as hereinafter
defined) as
security for the Secured Obligations (as hereinafter defined).
Accordingly, the
parties hereto agree as follows:
Section 1. Definitions. Each capitalized term used herein and
not otherwise defined shall have the meaning assigned to such term
in the
Purchase Agreement. In addition, as used herein:
"Accounts" shall have the meaning ascribed thereto in Section
3(d) hereof.
"Business" shall mean the businesses from time to time, now or
hereafter, conducted by the Company and its Subsidiaries.
"Collateral" shall have the meaning ascribed thereto in
Section 3 hereof.
"Copyright Collateral" shall mean all Copyrights, whether now
owned or hereafter acquired by the Company, that are associated
with the
Business.
"Copyrights" shall mean all copyrights, copyright
registrations and applications for copyright registrations,
including those
shown on Annex 3 hereto, and, without limitation, all renewals and
extensions
thereof, the right to recover for all past, present and future
infringements
thereof, and all other rights of any kind whatsoever accruing
thereunder or
pertaining thereto.
"Documents" shall have the meaning ascribed thereto in Section
3(j) hereof.
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"Equipment" shall have the meaning ascribed thereto in Section
3(h) hereof.
"Event of Default" shall have the meaning ascribed thereto in
Section 8 of the Notes.
"Excluded Assets": the collective reference to (i) any asset
subject to a purchase money security interest ("PMSI Assets") in
each case to
the extent the grant by the Company of a security interest pursuant
to this
Agreement in the Company's right, title and interest in such PMSI
Asset (A) is
prohibited by legally enforceable provisions of any contract,
agreement,
instrument or indenture governing such Intangible Asset or PMSI
Asset, (B) would
give any other party to such contract, agreement, instrument or
indenture a
legally enforceable right to terminate its obligations thereunder
or accelerate
the indebtedness evidenced thereby or (C) is permitted only with
the consent of
another party, if the requirement to obtain such consent is legally
enforceable
and such consent has not been obtained; (ii) Motor Vehicles the
perfection of a
security interest in which is excluded from the Uniform Commercial
Code in the
relevant jurisdiction; and (iii) the Capital Stock in any Foreign
Subsidiary, to
the extent (but only to the extent) required to prevent the
Collateral from
including more than 65% of all capital stock of any Foreign
Subsidiary of the
Company.
"Excluded Collateral" shall mean the assets of the Company
which secure the Permitted Indebtedness and the assets listed on
Annex 2 hereto.
"Foreign Subsidiary": any subsidiary of the Company that is
organized under the laws of a jurisdiction outside the United
States.
"Instruments" shall have the meaning ascribed thereto in
Section 3(e) hereof.
"Intellectual Property" shall mean, collectively, all
Copyright Collateral, all Patent Collateral and all Trademark
Collateral,
together with (a) all inventions, processes, production methods,
proprietary
information, know-how and trade secrets used or useful in the
Business; (b) all
licenses or user or other agreements granted to the Company with
respect to any
of the foregoing, in each case whether now or hereafter owned or
used including,
without limitation, the licenses or other agreements with respect
to the
Copyright Collateral, the Patent Collateral or the Trademark
Collateral; (c) all
customer lists, identification of suppliers, data, plans,
blueprints,
specifications, designs, drawings, recorded knowledge, surveys,
manuals,
materials standards, processing standards, catalogs, computer and
automatic
machinery software and programs, and the like pertaining to the
operation by the
Company of the Business; (d) all sales data and other information
relating to
sales now or hereafter collected and/or maintained by the Company
that pertain
to the Business; (e) all accounting information which pertains to
the Business
and all media in which or on which any of the information or
knowledge or data
or records which pertain to the Business may be recorded or stored
and all
computer programs used for the compilation or printout of such
information,
knowledge, records or data; (f) all licenses, consents, permits,
variances,
certifications and approvals of governmental agencies now or
hereafter held by
the Company pertaining to the operation by the Company and its
Subsidiaries of
the Business; and (g) all causes of action, claims and warranties
now or
hereafter owned or acquired by the Company in respect of any of the
items listed
above.
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"Inventory" shall have the meaning ascribed thereto in Section
3(f) hereof.
"Issuers" shall mean, collectively, the respective entities
identified on Annex 1 hereto, and all other entities formed by the
Company or
entities in which the Company owns or acquires any capital stock or
similar
interest.
"Motor Vehicles" shall
mean motor vehicles, tractors, trailers
and other like property, whether or not the title thereto is
governed by a
certificate of title or ownership.
"Patent Collateral" shall mean all Patents, whether now owned
or hereafter acquired by the Company that are associated with the
Business.
"Patents" shall mean all patents and patent applications,
including those shown on Annex 3 hereto, and, without limitation,
the inventions
and improvements described and claimed therein together with the
reissues,
divisions, continuations, renewals, extensions and
continuations-in-part
thereof, all income, royalties, damages and payments now or
hereafter due and/or
payable under and with respect thereto, including, without
limitation, damages
and payments for past or future infringements thereof, the right to
sue for
past, present and future infringements thereof, and all rights
corresponding
thereto throughout the world.
"Permitted Indebtedness" shall mean the Company's existing
indebtedness, liabilities and obligations as disclosed on Annex 5
hereto and any
future capitalized leases, purchase money indebtedness and the
Notes.
"Permitted Liens" shall mean (i) the Company's existing Liens
as disclosed in Annex 6 hereto, (ii) the security interests created
by this
Agreement, (iii) Liens of local or state authorities for franchise,
real estate
or other like taxes, (iv) statutory Liens of landlords and liens of
carriers,
warehousemen, bailees, mechanics, materialmen and other like Liens
imposed by
law, created in the ordinary course of business and for amounts not
yet due, (v)
tax Liens not yet due and payable and (vi) existing Liens which do
not
materially affect the value of the Company's property and do not
materially
interfere with the use made and proposed to be made of such
property by the
Company and the Subsidiaries.
"Pledged Stock" shall have the meaning ascribed thereto in
Section 3(a) hereof.
"Real Estate" shall have the meaning ascribed thereto in
Section 3(l) hereof.
"Secured Obligations" shall mean, collectively, (a) the
principal of and interest on the Notes issued or issuable (as
applicable) by the
Company and held by the applicable Purchaser and all other amounts
from time to
time owing to such Purchasers by the Company under the Purchase
Agreement and
the Notes and (b) all obligations of the Company to such Purchasers
thereunder.
"Stock Collateral" shall mean, collectively, the Collateral
described in clauses (a) through (c) of Section 3 hereof and the
proceeds of and
to any such property and, to the extent related to any such
property or such
proceeds, all books, correspondence, credit files, records,
invoices and other
papers.
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"Trademark Collateral" shall mean all Trademarks, whether now
owned or hereafter acquired by the Company, that are associated
with the
Business. Notwithstanding the foregoing, the Trademark Collateral
does not and
shall not include any Trademark which would be rendered invalid,
abandoned, void
or unenforceable by reason of its being included as part of the
Trademark
Collateral.
"Trademarks" shall mean all trade names, trademarks and
service marks, logos, trademark and service mark registrations, and
applications
for trademark and service mark registrations, including those shown
on Annex 3
hereto, and, without limitation, all renewals of trademark and
service mark
registrations, all rights corresponding thereto throughout the
world, the right
to recover for all past, present and future infringements thereof,
all other
rights of any kind whatsoever accruing thereunder or pertaining
thereto,
together, in each case, with the product lines and goodwill of the
business
connected with the use of, and symbolized by, each such trade name,
trademark
and service mark.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in the State of Nevada from time to time.
Section 2. Representations and Warranties. The Company
represents and warrants to each of the Purchasers that:
a. the
Company is the sole beneficial owner of the
Collateral and no Lien exists or will exist upon any
Collateral at any time (and, with respect to the Stock
Collateral, no right or option to acquire the same
exists in
favor of any other Person), except for
Permitted Liens and the pledge and security interest in
favor of each of the Purchasers created or provided for
herein which pledge and security interest will
constitute a first priority perfected pledge and
security interest in and to all of the Collateral (other
than (i) Intellectual Property registered or otherwise
located outside of the United States of America, (ii)
Real Estate, and (iii) as otherwise set forth in this
Agreement) upon the filing of the applicable financing
statements or delivery of stock certificates required
hereunder or other action required by this Agreement
necessary to establish "control" as that term is defined
in the Uniform Commercial Code over the Collateral for
the benefit of the Agent.
b. the
Pledged Stock directly or indirectly owned by the
Company in the entities identified in Annex 1 hereto is,
and all other Pledged Stock, whether issued now or in
the future, will be, duly authorized, validly issued,
fully paid and nonassessable, free and clear of all
Liens other than Permitted Liens and none of such
Pledged Stock is or will be subject to any contractual
restriction, preemptive and similar rights, or any
restriction under the charter or by-laws of the
respective Issuers of such Pledged Stock, upon the
transfer of such Pledged Stock (except for any such
restriction contained herein);
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c. the
Pledged Stock directly or indirectly owned by the
Company in the entities identified in Annex 1 hereto
constitutes all of the issued and outstanding shares of
capital stock of any class of such Issuers beneficially
owned by the Company on the date hereof (whether or not
registered in the name of the Company) and said Annex 1
correctly
identifies, as at the date hereof, the
respective Issuers of such Pledged Stock;
d. the
Company owns and possesses the right to use, and has
done nothing to authorize or enable any other Person to
use, all of its Copyrights, Patents and Trademarks, and
all registrations of its material Copyrights, Patents
and Trademarks are valid and in full force and effect.
Except as may be set forth in said Annex 3, the Company
owns and possesses the right to use all material
Copyrights, Patents and Trademarks, necessary for the
operation of the Business;
e. to the
Company's knowledge, (i) except as set forth in
Annex 3 hereto, there is no violation by others of any
right of the Company with respect to any material
Copyrights, Patents or Trademarks, respectively, and
(ii) the Company is not, in connection with the
Business, infringing in any material respect upon any
Copyrights, Patents or Trademarks of any other Person;
and no proceedings have been instituted or are pending
against the Company or, to the Company's knowledge,
threatened, and no claim against the Company has been
received by the Company, alleging any such violation,
except as may be set forth in said Annex 3;
f. the
Company does not own any material Trademarks
registered in the United States of America to which the
last sentence of the definition of Trademark Collateral
applies; and
Section 3. Collateral. As collateral security for the prompt
payment in full when due (whether at stated maturity, by
acceleration or
otherwise) of the Secured Obligations, the Company hereby pledges,
grants,
collaterally assigns, hypothecates and transfers to the Agent on
behalf of the
Purchasers as hereinafter provided, a security interest in and Lien
upon all of
the Company's right, title and interest in, to and under all
personal property
and other assets of the Company, whether now owned or hereafter
acquired by or
arising in favor of the Company, whether now existing or hereafter
coming into
existence, whether owned or consigned by or to, or leased from or
to the Company
and regardless of where located, except for the Excluded Collateral
and the
Excluded Assets, (all being collectively referred to herein as
"Collateral")
including:
a. the
Company's direct or indirect ownership interest in
the respective shares of capital stock of the Issuers
and all other shares of capital stock of whatever class
of the Issuers, now or hereafter owned by the Company,
together with in each case the certificates evidencing
the same (collectively, the "Pledged Stock");
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b. all
shares, securities, moneys or property representing
a dividend on any of the Pledged Stock, or representing
a distribution or return of capital upon or in respect
of the Pledged Stock, or resulting from a split-up,
revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange
therefor, and any subscription warrants, rights or
options issued to the holders of, or otherwise in
respect of, the Pledged Stock;
c. without
affecting the obligations of the Company under
any provision prohibiting such action hereunder or under
the Purchase Agreement or the Notes, in the event of any
consolidation or merger in which any Issuer is not the
surviving corporation, all shares of each class of the
capital stock of the successor corporation (unless such
successor corporation is the Company itself) formed by
or resulting from such consolidation or merger (the
Pledged Stock, together with all other certificates,
shares, securities, properties or moneys as may from
time to time be pledged hereunder pursuant to clause (a)
or (b) above and this clause (c) being herein
collectively called the "Stock Collateral");
d. all
accounts and general intangibles (each as defined in
the Uniform Commercial Code) of the Company constituting
any right to the payment of money, including (but not
limited to) all moneys due and to become due to the
Company in respect of any loans or advances for the
purchase price of Inventory or Equipment or other goods
sold or leased or for services rendered, all moneys due
and to become due to the Company under any guarantee
(including a letter of credit) of the purchase price of
Inventory or Equipment sold by the Company and all tax
refunds (such accounts, general intangibles and moneys
due and to become due being herein called collectively
"Accounts");
e. all
instruments, chattel paper or letters of credit
(each as defined in the Uniform Commercial Code) of the
Company evidencing, representing, arising from or
existing in respect of, relating to, securing or
otherwise supporting the payment of, any of the
Accounts, including (but not limited to) promissory
notes, drafts, bills of exchange and trade acceptances
(herein collectively called "Instruments");
f. all
inventory (as defined in the Uniform Commercial
Code) of the Company and all goods obtained by the
Company in exchange for such inventory (herein
collectively called "Inventory");
g. all
Intellectual Property and all other accounts or
general intangibles of the Company not constituting
Intellectual Property or Accounts;
h. all
equipment (as defined in the Uniform Commercial
Code) of the Company (herein collectively called
"Equipment");
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i. each
contract and other agreement of the Company
relating to the sale or other disposition of Inventory
or Equipment;
j. all
deposit accounts (as defined in the Uniform
Commercial Code) of the Company (herein collectively
called "Deposit Accounts");
k. all
documents of title (as defined in the Uniform
Commercial
Code) or other receipts of the Company
covering, evidencing or representing Inventory or
Equipment (herein collectively called "Documents");
l. all
rights, claims and benefits of the Company against
any Person arising out of, relating to or in connection
with Inventory or Equipment purchased by the Company,
including, without limitation, any such rights, claims
or benefits against any Person storing or transporting
such Inventory or Equipment;
m. all
estates in land together with all improvements and
other structures now or hereafter situated thereon,
together with all rights, privileges, tenements,
hereditaments, appurtenances, easements, including, but
not limited to, rights and easements for access and
egress and utility connections, and other rights now or
hereafter appurtenant thereto ("Real Estate");
n. all
other tangible or intangible property of the
Company, including, without limitation, all proceeds,
products and accessions of and to any of the property of
the Company described in clauses (a) through (m) above
in this Section 3 (including, without limitation, any
proceeds of insurance thereon), and, to the extent
related to any property described in said clauses or
such proceeds, products and accessions, all books,
correspondence, credit files, records, invoic
