SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the
“
Agreement ”),
is
entered into and made effective as of October ___, 2007, by and
between
INNOVA ROBOTICS AND AUTOMATIONS, INC., a
Delaware corporation with its principal place of business located
at 15870 Pine Ridge Road, Fort Myers, FL 33908 (the “
Parent ”),
and each subsidiary of the Parent listed on Schedule I attached
hereto (each a “
Subsidiary ,”
and collectively and together with the Parent, the “
Company ”),
in favor of the
BUYER(S) (the
“
Secured Party ”)
listed on Schedule I attached to the Securities Purchase Agreement
(the “
Securities Purchase Agreement ”)
dated the date hereof between the Company and the Secured
Party.
WHEREAS, The
Parent shall issue and sell to the Secured Party, as provided in
the Securities Purchase Agreement, and the Secured Party shall
purchase Six Hundred Thousand Dollars ($600,000) of secured
convertible debentures (the “
Convertible Debentures ”),
which shall be convertible into shares of the Parent’s common
stock, par value $0.001, in the respective amounts set forth
opposite each Buyer(s) name on Schedule I attached to the
Securities Purchase Agreement;
WHEREAS, to
induce the Secured Party to enter into the transaction contemplated
by the Securities Purchase Agreement, the Convertible Debentures,
the Investor Registration Rights Agreement of even date herewith
between the Parent and the Secured Party (the “
Investor Registration Rights Agreement ”),
and the Irrevocable Transfer Agent Instructions among the Parent,
the Secured Party, the Parent’s transfer agent, and David
Gonzalez, Esq. (the “
Transfer Agent Instructions ”)
(collectively referred to as the “
Transaction Documents ”),
each Company hereby grants to the Secured Party a security interest
in and to the pledged property of each Company identified on
Exhibit A hereto
(collectively referred to as the “
Pledged Property ”)
to secure all of the Obligations (as defined below).
NOW, THEREFORE, in
consideration of the promises and the mutual covenants herein
contained, and for other good and valuable consideration, the
adequacy and receipt of which are hereby acknowledged, the parties
hereto hereby agree as follows:
ARTICLE
1.
DEFINITIONS AND INTERPRETATIONS
Section
1.1.
Recitals .
The
above recitals are true and correct and are incorporated
herein, in their entirety, by this reference.
Section
1.2.
Interpretations .
Nothing
herein expressed or implied is intended or shall be construed
to confer upon any person other than the Secured Party any
right, remedy or claim under or by reason hereof.
Section
1.3.
Obligations Secured .
The
security interest created hereby in the Pledged Property
constitutes continuing collateral security for all of the
obligations of the Parent now existing or hereinafter incurred
to the Buyers, whether oral or written and whether arising
before, on or after the date hereof including, without
limitation following obligations (collectively, the
“
Obligations ”):
(a)
for so long as the Convertible Debentures are outstanding, the
payment by the Parent, as and when due and payable (by
scheduled maturity, acceleration, demand or otherwise), of all
amounts from time to time owing by it in respect of the
Securities Purchase Agreement, the Convertible Debentures and
the other Transaction Documents; and
(b)
for so long as the Convertible Debentures are outstanding, the
due performance and observance by the Parent of all of its
other obligations from time to time existing in respect of any
of the Transaction Documents, including without limitation,
the Parent’s obligations with respect to any conversion
or redemption rights of the Secured Party under the
Convertible Debentures.
ARTICLE
2.
PLEDGED PROPERTY; EVENT OF DEFAULT
Section
2.1.
Pledged Property .
(a)
As
collateral security for all of the Obligations, the Company
hereby pledges to the Secured Party, and creates in the
Secured Party for its benefit, a continuing security interest
in and to all of the Pledged Property whether now owned or
hereafter acquired.
(b)
Simultaneously
with the execution and delivery of this Agreement, the Company
shall make, execute, acknowledge, file, record and deliver to
the Secured Party any documents reasonably requested by the
Secured Party to perfect its security interest in the Pledged
Property. Simultaneously with the execution and delivery of
this Agreement, the Company shall make, execute, acknowledge
and deliver to the Secured Party such documents and
instruments, including, without limitation, financing
statements, certificates, affidavits and forms as may, in the
Secured Party’s reasonable judgment, be necessary to
effectuate, complete or perfect, or to continue and preserve,
the security interest of the Secured Party in the Pledged
Property, and the Secured Party shall hold such documents and
instruments as secured party, subject to the terms and
conditions contained herein.
(c)
Establishment of a Lockbox Account, Dominion Account
.
As of the date hereof the Parent, each Subsidiary and the Secured
Party shall have established or designated all of the
Company’s and each Subsidiaries bank accounts as (i) a
depository account, dominion account or such other “blocked
account” established at a bank or banks (each such bank, a
“
Blocked Account Bank ”)
pursuant to an arrangement with such Blocked Account Bank as well
as a (ii) lock box account (collectively the depository account,
dominion account and the lock box account shall be referred to as
“
Blocked Accounts ”)
or such other account as may be selected by the parties hereto for
the deposit of all cash and all collections and proceeds from the
Accounts to be deposited into the deposit account and/or lock box,
as applicable, together with the proceeds thereof, all goods
represented by such Accounts and all such goods that may be
returned by the Company’s and each Subsidiaries customers,
and all proceeds of any insurance thereon, and all guarantees,
securities and liens which the Company and each Subsidiary may hold
for the payment of any such Accounts including, without limitation,
all rights of stoppage in transit, replevin and reclamation and as
an unpaid vendor and/or lienor, all of which the Company and each
Subsidiary represents and warrants will be bona fide and existing
obligations of its respective customers, arising out of the sale of
goods by the Company in the ordinary course of business into any
accounts other than the Deposit and/or the Lockbox Accounts, as
applicable The parties hereto and each Blocked Account Bank shall
enter into a deposit account control agreement in form and
substance satisfactory to Secured Party directing such Blocked
Account Bank, upon notification by the Secured Party of an Event of
Default as defined herein, to transfer such funds so deposited into
the Blocked Accounts, either to any account maintained by the
Secured Party at said Blocked Account Bank or by wire transfer to
appropriate account(s) the Secured Party directs and providing the
Secured Party such control over the Blocked Accounts until the
earlier of the Event of Default being cured or repayment of the
Obligations. Upon an Event of Default all funds deposited in such
Blocked Accounts shall immediately become the property of the
Secured Party and the parties hereto shall obtain the agreement by
such Blocked Account Bank to waive any offset rights against the
funds so deposited.
Section
2.2.
Event of Default
An
“
Event of Default ”
shall be deemed to have occurred under this Agreement upon an Event
of Default under and as defined in the Convertible
Debentures.
ARTICLE
3.
ATTORNEY-IN-FACT; PERFORMANCE
Section
3.1.
Secured Party Appointed Attorney-In-Fact .
Upon
the occurrence and during the continuance of an Event of
Default: (a) the Company hereby appoints the Secured Party as
its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or
otherwise, from time to time in the Secured Party’s
discretion to take any action and to execute any instrument
which the Secured Party may reasonably deem necessary to
accomplish the purposes of this Agreement, including, without
limitation, to receive and collect all instruments made
payable to the Company representing any payments in respect of
the Pledged Property or any part thereof and to give full
discharge for the same; (b) the Secured Party may demand,
collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Pledged Property as and when the
Secured Party may determine, and (c) to facilitate collection,
the Secured Party may notify account debtors and obligors on
any Pledged Property to make payments directly to the Secured
Party.
Section
3.2.
Secured Party May Perform .
If
the Company fails to perform any agreement contained herein,
the Secured Party, at its option, may itself perform, or cause
performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be
included in the Obligations secured hereby and payable by the
Company under Section 8.3.
ARTICLE
4.
REPRESENTATIONS AND WARRANTIES
Section
4.1.
Authorization; Enforceability .
Each
of the parties hereto represents and warrants that it has
taken all action necessary to authorize the execution,
delivery and performance of this Agreement and the
transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding
obligation of the respective party, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors’ rights or by the principles
governing the availability of equitable remedies.
Section
4.2.
Ownership of Pledged Property .
The
Company represents and warrants that it is the legal and
beneficial owner of the Pledged Property free and clear of any
lien, security interest, option or other charge or encumbrance
(each, a “Lien”) except for the security interest
created by this Agreement and other Permitted Liens disclosed
in Schedule II attached hereto. For purposes of this
Agreement, “Permitted Liens” means: (1) the
security interest created by this Agreement, (2) existing
Liens disclosed by the Company to the Secured Party; (3)
inchoate Liens for taxes, assessments or governmental charges
or levies not yet due, as to which the grace period, if any,
related thereto has not yet expired, or being contested in
good faith and by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP; (4)
Liens of carriers, materialmen, warehousemen, mechanics and
landlords and other similar Liens which secure amounts which
are not yet overdue by more than 60 days or which are being
contested in good faith by appropriate proceedings; (5)
licenses, sublicenses, leases or subleases granted to other
Persons not materially interfering with the conduct of the
business of the Company; (6) Liens securing capitalized lease
obligations and purchase money indebtedness incurred solely
for the purpose of financing an acquisition or lease; (7)
easements, rights-of-way, restrictions, encroachments,
municipal zoning ordinances and other similar charges or
encumbrances, and minor title deficiencies, in each case not
securing debt and not materially interfering with the conduct
of the business of the Company and not materially detracting
from the value of the property subject thereto; (8) Liens
arising out of the existence of judgments or awards which
judgments or awards do not constitute an Event of Default; (9)
Liens incurred in the ordinary course of business in
connection with workers compensation claims, unemployment
insurance, pension liabilities and social security benefits
and Liens securing the performance of bids, tenders, leases
and contracts in the ordinary course of business, statutory
obligations, surety bonds, performance bonds and other
obligations of a like nature (other than appeal bonds)
incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money);
(10) Liens in favor of a banking institution arising by
operation of law encumbering deposits (including the right of
set-off) and contractual set-off rights held by such banking
institution and which are within the general parameters
customary in the banking industry and only burdening deposit
accounts or other funds maintained with a creditor depository
institution; (11) usual and customary set-off rights in leases
and other contracts; and (12) escrows in connection with
acquisitions and dispositions.
Section
4.3.
Name Change .
The Company and each Subsidiary have only effectuated changes to
their respective corporate names as designated in Schedule 4.3
herein.
ARTICLE
5.
DEFAULT; REMEDIES; SUBSTITUTE
COLLATERAL
Section
5.1
Method of Realizing Upon the Pledged Property: Other
Remedies .
If
any Event of Default shall have occurred and be
continuing:
(a)
The
Secured Party may exercise in respect of the Pledged Property,
in addition to any other rights and remedies provided for
herein or otherwise available to it, all of the rights and
remedies of a secured party upon default under the Uniform
Commercial Code (whether or not the Uniform Commercial Code
applies to the affected Pledged Property), and also may (i)
take absolute control of the Pledged Property, including,
without limitation, transfer into the Secured Party's name or
into the name of its nominee or nominees (to the extent the
Secured Party has not theretofore done so) and thereafter
receive, for the benefit of the Secured Party, all payments
made thereon, give all consents, waivers and ratifications in
respect thereof and otherwise act with respect thereto as
though it were the outright owner thereof, (ii) require
the Company to assemble all or part of the Pledged Property as
directed by the Secured Party and make it available to the
Secured Party at a place or places to be designated by the
Secured Party that is reasonably convenient to both parties,
and the Secured Party may enter into and occupy any premises
owned or leased by the Company where the Pledged Property or
any part thereof is located or assembled for a reasonable
period in order to effectuate the Secured Party's rights and
remedies hereunder or under law, without obligation to the
Company in respect of such occupation, and (iii) without
notice except as specified below and without any obligation to
prepare or process the Pledged Property for sale,
(A) sell the Pledged Property or any part thereof in one
or more parcels at public or private sale, at any of the
Secured Party's offices or elsewhere, for cash, on credit or
for future delivery, and at such price or prices and upon such
other terms as the Secured Party may deem commercially
reasonable and/or (B) lease, license or dispose of the
Pledged Property or any part thereof upon such terms as the
Secured Party may deem commercially reasonable. The Company
agrees that, to the extent notice of sale or any other
disposition of the Pledged Property shall be required by law,
at least ten (10) days' notice to the Company of the time and
place of any public sale or the time after which any private
sale or other disposition of the Pledged Property is to be
made shall constitute reasonable notification. The Secured
Party shall not be obligated to make any sale or other
disposition of any Pledged Property regardless of notice of
sale having been given. The Secured Party may adjourn any
public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was
so adjourned. The Company hereby waives any claims against the
Secured Party arising by reason of the fact that the price at
which the Pledged Property may have been sold at a private
sale was less than the price which might have been obtained at
a public sale or was less than the aggregate amount of the
Obligations, even if the Secured Party accepts the first offer
received and does not offer such Pledged Property to more than
one offeree, and waives all rights that the Company may have
to require that all or any part of such Pledged Property be
marshaled upon any sale (public or private) thereof. The
Company hereby acknowledges that (i) any such sale of the
Pledged Property by the Secured Party may be made without
warranty, (ii) the Secured Party may specifically
disclaim any warranties of title, possession, quiet enjoyment
or the like, and (iii) such actions set forth in
clauses (i) and (ii) above shall not adversely affect the
commercial reasonableness of any such sale of Pledged
Property.
(b)
Upon
an Event of Default all funds deposited in such Blocked
Accounts shall immediately become the property of the Buyer.
The Secured Party shall direct such Blocked Account Bank, to
transfer such funds so deposited into the Blocked Accounts,
either to any account maintained by the Secured Party at said
Blocked Account Bank or by wire transfer to appropriate
account(s) the Secured Party directs and providing the Secured
Party such control over the Blocked Accounts until the earlier
of the Event of Default being cured or repayment of the
Obligations.
(c)
Any
cash held by the Secured Party as Pledged Property and all
cash proceeds received by the Secured Party in respect of any
sale of or collection from, or other realization upon, all or
any part of the Pledged Property shall be applied (after
payment of any amounts payable to the Secured Party pursuant
to Section 8.3 hereof) by the Secured Party against, all or
any part of the Obligations in such order as the Secured Party
shall elect, consistent with the provisions of the Securities
Purchase Agreement. Any surplus of such cash or cash proceeds
held by the Secured Party and remaining after the indefeasible
payment in full in cash of all of the Obligations shall be
paid over to whomsoever shall be lawfully entitled to receive
the same or as a court of competent jurisdiction shall
direct.
(d)
In
the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the
Secured Party is legally entitled, the Company shall be liable
for the deficiency, together with interest thereon at the rate
specified in the Convertible Debentures for interest on
overdue principal thereof or such other rate as shall be fixed
by applicable law, together with the costs of collection and
the reasonable fees, costs, expenses and other client charges
of any attorneys employed by the Secured Party to collect such
deficiency.
(e)
The
Company hereby acknowledges that if the Secured Party complies
with any applicable state, provincial, or federal law
requirements in connection with a disposition of the Pledged
Property, such compliance will not adversely affect the
commercial reasonableness of any sale or other disposition of
the Pledged Property.
(f)
The
Secured Party shall not be required to marshal any present or
future collateral security (including, but not limited to,
this Agreement and the Pledged Property) for, or other
assurances of payment of, the Obligations or any of them or to
resort to such collateral security or other assurances of
payment in any particular order, and all of the Secured
Party's rights hereunder and in respect of such collateral
security and other assurances of payment shall be cumulative
and in addition to all other rights, however existing or
arising. To the extent that the Company lawfully may, the
Compan
