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Exhibit 10.4
SECURITY
AGREEMENT
THIS SECURITY
AGREEMENT (this “ Agreement ”) is made as of
the 9th day of October, 2007, by NIGHTHAWK SYSTEMS, INC. , a
Nevada corporation, having a mailing address at 10715 Gulfdale,
Suite. 200, San Antonio, Texas 78216, (the “
Company ”), (together with all subsidiaries and
divisions, individually and collectively, the “
Debtors ”), for the benefit and security of
DUTCHESS PRIVATE EQUITIES FUND, LTD. , having a mailing
address at 50 Commonwealth Avenue, Suite 2, Boston, Massachusetts
02116 (the “ Secured Party ”).
RECITALS
WHEREAS,
the Company has previously executed and delivered to Dutchess one
or more debentures, notes or other instruments in favor of the
Secured Party, including, without limitation, the following: (i)
that certain Debenture, with an issuance date of March 17, 2006 in
the principal balance, excluding accrued interest, of $145,070,
(ii) that certain Debenture with an issuance date of April 20, 2006
in the principal balance, excluding accrued interest, of $175,000,
(iii) that certain Debenture with an issuance date of June 16, 2006
in the principal amount, excluding accrued interest, of $205,000,
(iv) that certain Debenture with an issuance date of July 5, 2006
in the principal amount, excluding accrued interest, of $135,000,
(v) that certain Debenture with an issuance date of August 22, 2006
in the principal amount, excluding accrued interest, of $109,941,
(vi) that certain Debenture with an issuance date of September 22,
2006 in the principal amount, excluding accrued interest, of
$185,000, (vii) that certain Debenture with an issuance date of
October 9, 2006 in the principal amount, excluding accrued
interest, of $36,551, (viii) that certain Debenture with an
issuance date June 27, 2007 in the principal amount, excluding
accrued interest, of $500,000, (as amended or otherwise modified
from time-to-time, collectively, the “ Existing
Debentures ”);
WHEREAS,
concurrently with the execution of this Agreement the Company has
executed and delivered to Secured Party a Securities Purchase
Agreement for the Company’s Series B Preferred Stock or
instruments, including, without limitation, dated October 9th, 2007
from the Company in favor of the Secured Party (the “
Preferred ”) pursuant to which the Secured Party has
agreed to make certain loans and other financial accommodations to
the Company;
WHEREAS,
the obligations of the Company under the Preferred and the Existing
Debentures (“ Preferred and Debentures ”) and
the obligations under the Preferred are to be secured pursuant to
this Agreement;
NOW,
THEREFORE, for and in consideration of any loan, advance or other
financial accommodation heretofore or hereafter made to or for the
benefit of the Company under or in connection with the Preferred,
Debentures or any other Finance Documents (as defined herein), and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
intending to be legally bound hereby agree as follows:
ARTICLE
I
CONSTRUCTION AND DEFINED
TERMS
1.01
Article and
Section Headings . Article and
Section headings and captions in this Agreement are for
convenience only and shall not affect the construction or
interpretation of this Agreement. Unless otherwise expressly
stated in this Agreement, references in this Agreement to
Sections shall be read as Sections of this Agreement.
1.02
Schedules and Exhibits
. The references in this Agreement to specific
Schedules and Exhibits shall be read as references to such
specific Schedules or Exhibits attached, or intended to be
attached, to this Agreement and any counterpart of this Agreement
and regardless of whether they are in fact attached to this
Agreement, and including any
amendments, supplements and replacements to such Schedules and
Exhibits from time to time.
1.03
Defined
Terms . Unless otherwise expressly stated in
this Agreement, (a) capitalized terms which are not otherwise
defined herein shall have the respective meanings assigned thereto
in the UCC (as defined below); and (b) the following terms
used in this Agreement shall have the following meanings:
“ Collateral ” means, with
respect to any Debtor, all property and rights of such Debtor in
which a security interest is granted hereunder.
“ Computer Hardware and Software
” means, with respect to any Debtor, all of such
Debtor's rights (including rights as licensee and lessee) with
respect to (i) computer and other electronic data processing
hardware, including all integrated computer systems, central
processing units, memory units, display terminals, printers,
computer elements, card readers, tape drives, hard and soft disk
drives, cables, electrical supply hardware, generators, power
equalizers, accessories, peripheral devices and other related
computer hardware; (ii) all software programs designed for use
on the computers and electronic data processing hardware described
in clause (i) above, including all operating system
software, utilities and application programs in whatsoever form
(source code and object code in magnetic tape, disk or hard copy
format or any other listings whatsoever); (iii) any firmware
associated with any of the foregoing; and (iv) any
documentation for hardware, software and firmware described in
clauses (i) , (ii) and (iii) above,
including flow charts, logic diagrams, manuals, specifications,
training materials, charts and pseudo codes.
“ Equity Interest ” With
respect to any Person, any ownership interest in such Person,
including shares, partnership interests, joint venture interests,
membership interests, limited liability company interests, unit
interests and any other equity or ownership interests of any kind,
and any subscriptions, options, warrants, commitments, purchase
rights, preemptive rights or agreements of any kind (including any
stockholders’ or voting trust agreements) for the issuance,
sale, registration or voting of, or for securities convertible
into, any shares, partnership interests, joint venture interests,
membership interests, limited liability company interests, and any
other equity or ownership interests in such Person.
“ Finance Documents ” mean,
collectively, the Debentures, the Preferred, and any other
documents or agreements executed in connection therewith or
herewith and pertaining to the Secured Obligations.
“ Lien ” Any security
interest (including security interest within the definition of
“security interest” in the UCC), encumbrance, lien
(including any judgment lien, any contract lien, any lien arising
or resulting from nonpayment of any tax, assessment, charge or
other imposition, and any lien arising or resulting from nonpayment
for labor, materials, or supplies), security agreement (including
any agreement that creates or provides for a security interest),
deed of trust, mortgage, grant, pledge, assignment, hypothecation,
title retention contract, or other arrangement for security
purposes, and any agricultural lien (including any agricultural
lien within the definition of “agricultural lien” in
the UCC), and including any of the foregoing arising by operation
of statute or other law or the application of equitable principles,
whether perfected or unperfected, avoidable or unavoidable,
consensual or nonconsensual, and any financing statement or other
similar notice document, whether or not filed, and any agreement to
give a financing statement or other similar notice document.
“ Lien Proceeding ” Any
action taken (including self help) or proceeding (judicial or
otherwise) commenced by any Person other than Secured Party for the
purpose of enforcing or protecting any actual or alleged Lien upon
any of the Collateral, and including any foreclosure, repossession,
attachment, execution or other process regarding any of the
Collateral.
“ Permitted Lien ” means those
Liens described on Schedule 3.07 . The Permitted Liens
shall not exceed an aggregate amount of more than one twenty-five
thousand dollars ($125,000) by those combined creditors listed in
Schedule 3.07
“ Person ” Any natural
person, corporation, limited liability company, partnership, joint
venture, entity, association, joint-stock company, trust or
unincorporated organization and any Governmental Authority,
including any receiver, debtor-in-possession, trustee, custodian,
conservator, or liquidator.
“Secured Obligations” All
indebtedness, liabilities and obligations which are now or may at
any time hereafter be due, owing or incurred in any manner
whatsoever to Secured Party by any Debtor, whether under this
Agreement, any Debenture, Preferred or any other Finance Document,
in each case howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, whether at stated
maturity, by acceleration or otherwise (including, without
limitation, the payment of interest and other amounts which would
accrue and become due but for the filing of a petition in
bankruptcy or the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)), including,
without limitation, all charges, fees, expenses, commissions,
reimbursements, premiums, indemnities and other payments related to
or in respect of such obligations.
“ UCC ” means the Uniform
Commercial Code as in effect in the Commonwealth of
Massachusetts on the date of this Agreement, as may be amended or
modified from time to time after the date hereof; provided
that, " UCC " shall also mean the Uniform Commercial Code as
in effect from time to time in any applicable jurisdiction.
ARTICLE
II
SECURITY INTEREST;
PERFECTION
2.01
Security
Interest . To secure the full and timely
payment, performance and satisfaction of the Secured Obligations,
each Debtor hereby collaterally assigns to Secured Party, and
grants Secured Party a security interest in, all of such
Debtor’s property, whether now owned or hereafter existing or
acquired, regardless of where located including, without
limitation, all of such Debtor’s:
(a)
Accounts;
(b)
Chattel Paper,
including Electronic Chattel Paper;
(c)
Computer Hardware
and Software and all rights with respect thereto, including, any
and all licenses, options, warranties, service contracts,
program services, test rights, maintenance rights, support
rights, improvement rights, renewal rights and indemnifications,
and any substitutions, replacements, additions or model
conversions of any of the foregoing
(d)
Commercial Tort
Claims now or hereafter identified on
Schedule 2.01(d) to this Agreement;
(e)
Deposit
Accounts;
(f)
Documents;
(g)
Financial
Assets;
(h)
General
Intangibles;
(i)
Goods (including
all of its Equipment, Fixtures and Inventory), and all
embedded software, accessions, additions, attachments,
improvements, substitutions and replacements thereto and
therefor);
(j)
Instruments;
(k)
Intellectual
Property;
(l)
Investment
Property;
(m)
Letter of Credit
Rights;
(n)
money (of every
jurisdiction whatsoever);
(o)
Security
Entitlements;
(p)
Supporting
Obligations
(q)
with respect to
each Person (as hereinafter defined) listed in
Schedule 2.01(q) hereto and each other corporation
hereafter acquired or formed by such Debtor, the Equity
Interests from time to time issued and outstanding, including
the certificates, if any, representing the Equity Interests and
any interest of such Debtor in the entries on the books of the
issuer thereof or any financial intermediary pertaining to the
Equity Interests, together with all dividends, cash, options,
warrants, rights, instruments, distributions, returns of capital
or principal, income, interest, profits and other property,
interests (debt or equity) or proceeds as a result of a split,
revision, reclassification, consolidation, merger or other like
change of the Equity Interests or any issuer thereof, from time
to time received, receivable or otherwise distributed to such
Debtor in respect of or in exchange for any or all of the Equity
Interests;
(r)
all promissory
notes or intercompany notes and and all certificates or
instruments evidencing such promissory notes or intercompany
notes; and to the extent not included in the foregoing, other
personal property of any kind or description, together with all
books, records, writings, data bases, information and other
property relating to, used or useful in connection with, or
evidencing, embodying, incorporating or referring to any of the
foregoing, and all Proceeds, products, rents, issues, profits
and returns of and from any of the foregoing;
provided that to the extent that the provisions of any
lease or license of Computer Hardware and Software or
Intellectual Property expressly prohibit (which prohibition is
enforceable under applicable law) the assignment thereof, and
the grant of a security interest therein, the Secured Party will
not enforce its security interest (other than in respect of the
Proceeds thereof) for so long as such prohibition continues,
it being understood that upon request of the Secured
Party, such Debtor will in good faith use reasonable efforts to
obtain consent for the creation of a security interest in favor
of the Secured Party (and to Secured Party’s enforcement
of such security interest) in such Debtor's rights under such
lease or license.
2.02
Intentionally
Omitted.
2.03
Perfection by
Filing .
(a)
Each Debtor
authorizes Secured Party to file any financing statement and
agrees to execute, in recordable form, and deliver to Secured
Party any other document or instrument, and to cause any third
party to execute and deliver to Secured Party any other document
(including financing statement termination statements),
requested by Secured Party to perfect the security interests
created under this Agreement and to establish, maintain, and
continue the first priority of the security interests created
under this Agreement.
(b)
Each Debtor hereby
appoints Secured Party as such Debtor’s attorney-in-fact,
with power of substitution, which appointment is irrevocable and
coupled with an interest, to execute in the name of Debtor, and
to transmit to, or file, record, or register with, any Person,
and at any time, any document or instrument that Secured Party
may deem necessary or advisable for the purpose of creating,
enforcing, defending, protecting, perfecting, continuing, or
maintaining any security interest, or the perfection or priority
of any security interest, created under this Agreement.
(c)
Secured Party shall
not be required to obtain Debtor’s consent or
authorization for Secured Party to file, and Secured Party shall
be entitled to file, with or without execution by Debtor (or by
Secured Party as Debtor’s attorney-in-fact), any financing
statement, amendment, or other record that
Secured Party may be authorized to file in accordance
with the terms of the UCC with respect to the security interests
created under this Agreement.
(d)
Any financing
statement or other document filed to perfect the security
interests evidenced by this Agreement may, at Secured
Party’s option, describe or indicate the Collateral in the
manner that the Collateral is described in this Agreement, or as
all assets of Debtor, or as all personal property of Debtor, or
by any other description or indication of the Collateral that
may be sufficient for a financing statement under the
UCC.
(e)
If prior to
Debtor’s execution of this Agreement, Secured Party shall
have filed in any jurisdiction, or with any governmental
authority, any financing statement, amendment, or other document
describing or indicating the Collateral, or containing a
description or indication of all assets of Debtor or all
personal property of Debtor comprising the Collateral, or
containing any other description or indication of the
Collateral, Debtor, by executing this Agreement, irrevocably
(i) authorizes, ratifies, confirms, and adopts
(A) each such previously filed financing statement,
amendment or other document, and (B) the filing of each
such previously filed financing statement, amendment, or other
document, and (ii) agrees that each such previously filed
financing statement, amendment, or other document is valid and
effective as though it had been authorized by Debtor and filed
with Debtor’s authorization.
2.04
Perfection by
Possession . If Collateral is of a type as to
which it is necessary, desirable, or advisable, as determined by
Secured Party, for Secured Party to take possession of such
Collateral in order to protect, perfect, or maintain the first
priority of Secured Party’s security interest or other Lien
(subject only to Permitted Security) in such (or any other)
Collateral, then, promptly upon Secured Party’s request,
Debtor shall deliver such Collateral to Secured Party.
ARTICLE
III
REPRESENTATIONS AND
WARRANTIES
Debtor makes the
following representations and warranties to Secured Party, which
shall each be continuing and in effect at all times, and Secured
Party shall be entitled to rely upon the truth, accuracy, and
completeness of the following representations and warranties
without regard to any other information that may be now or
hereafter known by or disclosed to Secured Party or any of Secured
Party’s directors, officers, employees, agents, attorneys or
other advisors:
3.01
Debtor’s
Name and Identification Number . The name of
each Debtor set forth on the first page and the signature page of
this Agreement is Debtor’s correct and complete legal name.
The street address for Debtor in this Agreement is
Debtor’s mailing address. Such Debtor's chief executive
office and principal place of business are as set forth on
Schedule 3.01 hereto (and such Debtor has not maintained its
chief executive office and principal place of business at any other
location during the five (5) years preceding the date hereof, and
each other location where such Debtor maintains a place of business
is also set forth on Schedule 3.01 hereto
3.02
Permitted Liens;
Collateral . (a) No financing statement (other than Permitted
Liens) covering any of such Debtor’s rights in the Collateral
is on file in any public office; (b) Secured Party’s security
interest in the Collateral is a first priority perfected security
interest, subject to no Liens other than Permitted Liens; (c) such
Debtor is and will be the lawful owner of all Collateral, free of
all liens, claims, security interests and encumbrances whatsoever,
other than the security interest hereunder and Permitted Liens,
with full power and authority to execute this Agreement and perform
such Debtor's obligations hereunder, and to subject the Collateral
to the security interest hereunder and (d) all information with
respect to the Collateral set forth in any schedule, certificate or
other writing at any time heretofore or hereafter furnished by such
Debtor to the Secured Party is and will be true and correct in all
material respects as of the date furnished.
3.03
Authorization
and No Conflicts . (a) Each Debtor is a
corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation as listed on the first
page of this Agreement; (b) the execution and delivery of this
Agreement and the performance by such Debtor of its obligations
hereunder are within such Debtor's corporate powers, have been duly
authorized by all necessary corporate action, have received all
necessary governmental approval (if any shall be required),
and do not and will not contravene or conflict with any provision
of law or of the articles of incorporation or by-laws of such
Debtor or of any material agreement, indenture, instrument or other
document, or any material judgment, order or decree, which is
binding upon such Debtor; and (c) this Agreement is a legal,
valid and binding obligation of such Debtor, enforceable in
accordance with its terms, except that the enforceability of this
Agreement may be limited by bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium or
other similar laws now or hereafter in effect relating to
creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law).
3.04
Tangible
Collateral . Schedule 3.04 hereto contains a
complete listing of such Debtor’s tangible Collateral located
with any bailee, warehousemen or other third parties and all of
such Debtor’s Collateral which is subject to certificate of
title statutes.
3.05
Deposit
Accounts . Except as listed on
Schedule 2.02 , Debtor has no Deposit Accounts and is
not a party to or otherwise bound by any Deposit Account Agreement.
3.06
Leases . Except as
listed on Schedule 3.06 (which schedule contains a
true, accurate and complete list and description of all leases to
which Debtor is a lessor, lessee, or other party or otherwise
bound), Debtor is not a lessor or lessee under, or a party to, or
otherwise bound by the terms of, any lease.
3.07
Commercial Tort
Claims . Except as listed on
Schedule 2.01(d) , Debtor has no Commercial Tort
Claims.
3.08
Subsidiaries .
Schedule 3.08 lists all of the subsidiaries of
Debtors.
ARTICLE
IV
AFFIRMATIVE COVENANTS
Debtor covenants and
agrees to the following:
4.01
Account
Debtors . The Secured Party may, at any time
that an Event of Default exists, whether before or after any
revocation of such power and authority or the maturity of any of
the Secured Obligations, notify an Account Debtor or other Person
obligated on Collateral to make payment or otherwise render
performance to or for the benefit of the Secured Party and enforce,
by suit or otherwise the obligations of an Account Debtor or other
Person obligated on Collateral and exercise the rights of such
Debtor with respect to the obligation of the Account Debtor or
other Person obligated on Collateral to make payment or otherwise
render performance to such Debtor, and with respect to any property
that secures the obligations of the Account Debtor or other Person
obligated on the Collateral. In connection with exercise of
such rights and remedies, the Secured Party may surrender, release
or exchange all or any part thereof, or compromise or extend or
renew for any period (whether or not longer than the original
period) any indebtedness thereunder or evidenced thereby.
Upon the request of the Secured Party during the existence of
an Event of Default, each Debtor will, at its own expense, notify
any or all parties obligated on any of the Collateral to make
payment to the Secured Party of any amounts due or to become due
thereunder. Upon request by the Secured Party during the
existence of an Event of Default, each Debtor will forthwith, upon
receipt, transmit and deliver to the Secured Party, in the form
received, all cash, checks, drafts and other instruments or
writings for the payment of money (properly endorsed, where
required, so that such items may be collected by the Secured Party)
which may be received by such Debtor at any time in full or partial
payment or otherwise as proceeds of any of the Collateral.
Except as the Secured Party may otherwise consent in writing,
any such items which may be so received by any Debtor will not be
commingled with any other of its funds or property, but will be
held separate and apart from its own funds or property and upon
express trust for the Secured Party until delivery is
made to the Secured Party. Each Debtor will comply with the
terms and conditions of any consent given by the Secured Party
pursuant to the foregoing sentence.
4.02
Additional
Covenants . Each Debtor:
(a) will, at the Secured Party’s request,
at any time and from time to time, execute and deliver to the
Secured Party such financing statements, amendments and other
documents and do such acts as the Secured Party deems necessary
in order to establish and maintain valid, attached and perfected
first priority security interests in the Collateral in favor of
the Secured Party, free and clear of all Liens and claims and
rights of third parties whatsoever except Permitted Liens; each
Debtor hereby irrevocably authorizes the Secured Party at any
time, and from time to time, to file in any jurisdiction any
initial financing statements and amendments thereto that (i)
indicate the Collateral (x) as all assets of such Debtor or
words of similar effect, regardless of whether any particular
asset comprised in the Collateral falls within the scope of
Article 9 of the UCC of the jurisdiction wherein such financing
statement or amendment is filed, or (y) as being of an equal or
lesser scope or with greater detail;
(b) will keep all its Inventory at, and will not
maintain any place of business at any location other than, its
address(es) shown on Schedule 3.01 hereto or at such
other addresses of which such Debtor shall have given the
Secured Party not less than 30 days' prior written notice;
(c) will keep its records concerning the
Collateral in such a manner as will enable the Secured Party or
its designees to determine at any time the status of the
Collateral;
(d) will furnish the Secured Party such
information concerning such Debtor, the Collateral and the
Account Debtors as the Secured
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