Exhibit 10.05
SECURITY
AGREEMENT
THIS SECURITY AGREEMENT
(this “ Agreement ”) dated as of
February 15, 2005 is made by HEALTH ENHANCEMENT PRODUCTS,
INC., a Nevada corporation with a chief executive office at 2530
South Rural Road, Tempe, AZ and a principal place of business at
2006 E. 5th, Suite 101 Tempe, AZ 85281 (the “
Company ”), in favor of HOWARD R. BAER, an individual
with an address at 6451 East El Maro Circle, Paradise Valley,
Arizona 85253 (the “ Secured Party
”).
W
I T
N E S S E T
H
WHEREAS, the Secured
Party is the Chief Executive Officer and majority shareholder of
the Company;
WHEREAS, the Secured
Party has from time to time made loans to the Company, and the
Company is, as of the date hereof, indebted to the Secured Party in
the aggregate amount of FOUR HUNDRED EIGHTY THREE THOUSAND THREE
HUNDRED FIFTY EIGHT AND 56/100 ($483,358.56) on account of such
loans, and the Secured Party has agreed as of the date hereof to
make a further advance to the Company in the amount of THREE
HUNDRED SIXTY FOUR THOUSAND AND 00/100 ($364,000.00) (collectively,
the “Execution Date Indebtedness”), provided that the
Company enters into the Note (defined below) and this Security
Agreement;
WHEREAS, the Secured
Party, in its sole and absolute discretion, may make additional
loans to the Company (collectively, the “Post Execution Date
Indebtedness”);
WHEREAS, the
Company’s obligation to repay the Execution Date Indebtedness
and the Post Execution Date Indebtedness is evidenced by a
promissory note made by Company in favor of Secured Party as of the
date hereof (“Note”);
WHEREAS, in connection
with such loans heretofore or hereafter extended by Secured Party
to Company, Secured Party has requested that Company execute this
Security Agreement, together with the Patent Security Agreement and
the other Loan Documents, and otherwise confirm and agree that all
loans, credit or other financial accommodations previously or
heretofore or hereafter extended by Secured Party to the Company,
including, without limitation, the Execution Date Indebtedness and
Post Execution Date Indebtedness and any other indebtedness or
obligations evidenced by the Note, are and shall be secured by the
Collateral (defined below), subject in all respects to the terms
and conditions hereof;
NOW, THEREFORE, in
consideration of the premises set forth above, the terms and
conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and each intending to be bound hereby, the Secured
Party and the Company hereby agree as follows:
1.
Definitions;
Amendments And Acknowledgement Of Secured
Obligations.
1.1.
Definitions.
As used in
this Agreement, the following terms shall have the following
definitions:
“
Agreement ” means this Security Agreement and any
extensions, riders, supplements, notes, amendments, or
modifications to or in connection with this Security
Agreement.
“ Bankruptcy
Code ” means the United States Bankruptcy Code (11 U.S.C.
§ 101 et seq .), as the same may be amended,
supplemented and otherwise modified, and any successor
statute.
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“
Collateral ” means all tangible and intangible
personal property of the Company related to the ProAlgaZyme
Product, now existing or hereafter acquired, wherever located,
including, without limitation: the Company’s Books; the
Equipment; the General Intangibles; the Inventory; any Farm
Products (as defined under the UCC), Goods (as defined under the
UCC), plants, enzymes, proteins, naturally-generated proteolytic
enzymatic proteins derived from natural plant cultures grown by the
Company under laboratory conditions in purified aqueous environment
solutions with proprietary feeding, money, and other assets of the
Company relating to the ProAlgaZyme Product (including, without
limitation, any and all assets or property of the Company set forth
on Exhibit 1 attached hereto and incorporated herein); and
the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or
all of the Collateral, and any and all of Company’s Books,
Equipment, General Intangibles, Inventory, plants, enzymes,
proteins, naturally-generated proteolytic enzymatic proteins
derived from natural plant cultures grown by the Company under
laboratory conditions in purified aqueous environment solutions
with proprietary feeding, money, deposit accounts, supporting
obligations, or other tangible or intangible property resulting
from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
“ Company
” has the meaning set forth in the preamble to this
Agreement.
“
Company’s Books ” means the Company’s now
owned or hereafter acquired books and records (including all of its
records indicating, summarizing, or evidencing the Collateral) or
liabilities, in each case relating to the ProAlgaZyme
Product.
“
Equipment ” means all of a Company’s now owned
or hereafter acquired right, title, and interest with respect to
equipment, machinery, machine tools, motors, furniture,
furnishings, fixtures, vehicles, tools, parts, goods (other than
consumer goods, farm products, or Inventory), plants, enzymes,
proteins and naturally-generated proteolytic enzymatic proteins
derived from natural plant cultures grown by the Company under
laboratory conditions in purified aqueous environment solutions
with proprietary feeding, relating to the ProAlgaZyme
Product, wherever located, including all attachments, accessories,
accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, including, without
limitation, the equipment, assets and property set forth on
Exhibit 1 attached hereto and incorporated
herein.
“ Event of
Default ” means the occurrence of any of the following:
(i) the Company’s default hereunder or failure to make any
payment when due hereunder or to timely pay or perform any other
obligation when due to the Secured Party under the Note or any
other Loan Document, whether now existing or hereafter arising
(including, without limitation, the Execution Date Indebtedness and
the Post Execution Date Indebtedness; (ii) if any covenant,
representation, warranty, statement or certificate made to the
Secured Party by the Company is breached or proves to have been or
becomes untrue, except to the extent any of the foregoing items
relate solely to an earlier date; (iii) the death or dissolution of
the Company; (iv) with respect to the Company, the commencement of
an action seeking reorganization, liquidation, dissolution or other
relief under federal or state bankruptcy or insolvency statutes or
similar laws, or seeking the appointment of a receiver, trustee or
custodian for the Company or all or part of its assets, or the
commencement of an involuntary proceeding against the Company under
federal or state bankruptcy or insolvency statues or similar laws,
which involuntary proceeding is not dismissed or stayed within
thirty (30) days; or (v) if the Company makes an assignment for the
benefit of creditors, or is unable to pay its debts as they
mature.
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“ General
Intangibles ” means all of the Company’s now owned
or hereafter acquired right, title, and interest with respect to
general intangibles relating to the ProAlgaZyme Product (including
payment intangibles, commercial tort claims, contract rights,
rights to payment, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill, intellectual
property, patents, patent applications, servicemarks, servicemark
applications, copyrights, copyright applications, all extensions,
renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to sue
for past, present and future infringement of any of the foregoing,
inventions, trade secrets, formulae, processes, know-how, data,
compounds, designs, surveys, reports, manuals, operating standards,
technology, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, rights
to payment and other rights under any royalty or licensing
agreements, infringement claims, computer programs, information
contained on computer disks or tapes, software, literature,
reports, catalogs, money, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), and any and all
supporting obligations in respect thereof, and any other personal
property relating to the ProAlgaZyme Product, including, without
limitation, plants, enzymes, proteins, naturally-generated
proteolytic enzymatic proteins derived from natural plant cultures
grown under laboratory conditions in purified aqueous environment
solutions with proprietary feeding of the Company, and the general
intangibles, assets and property set forth on Exhibit 1
attached hereto and incorporated herein..
“
Inventory ” means all of the Company’s now owned
or hereafter acquired right, title, and interest with respect to
inventory relating to the ProAlgaZyme Product, including goods held
for sale or lease or to be furnished under a contract of service,
goods that are leased by the Company as lessor, goods that are
furnished by the Company under a contract of service, and plants,
enzymes, proteins, naturally-generated proteolytic enzymatic
proteins derived from natural plant cultures grown by the Company
under laboratory conditions in purified aqueous environment
solutions with proprietary, raw materials, work in process, or
materials used or consumed in the Company’s business, and
including, without limitation, the inventory, assets and property
set forth on Exhibit 1 attached hereto and incorporated
herein.
“ Loan
Documents ” means this Agreement, the Patent Security
Agreement, the Note, any other note or notes executed by Company in
favor of Secured Party, and all other documents, instruments,
agreements, amendments, restatements, supplements and modifications
executed in connection with any of the foregoing.
“ Note
” has the meaning set forth in the preambles to this
Agreement.
“ Patent
Security Agreement ” means that certain Patent Security
Agreement dated the date hereof made by Company in favor of Secured
Party (as the same may be amended, supplemented or modified from
time to time).
“ ProAlgaZyme
Product ” means that certain naturally-generated
proteolytic enzymatic protein derived from a natural plant culture
grown by the Company under laboratory conditions in a purified
aqueous environment solution with proprietary feeding, and which is
commonly referred to as ProAlgaZyme and/or AlphaSystem
Replenisher.
“ Secured
Obligations ” means all indebtedness, liabilities,
obligations, or undertakings owing by the Company to Secured Party
of any kind or description arising out of or outstanding under,
advanced or issued pursuant to, or evidenced by this Agreement, the
Note (including, without limitation, the Execution Date
Indebtedness and the Post Execution Date Indebtedness) or the other
Loan Documents, irrespective of whether for the payment of money,
whether direct or indirect, absolute or contingent, due or to
become due, voluntary or involuntary, whether now existing or
hereafter arising, and including all interest (including interest
that accrues after the filing of a case under the Bankruptcy Code)
and any and all costs, fees (including attorneys’ fees), and
expenses which the Company is required to pay pursuant to any of
the foregoing, by law, or otherwise.
“ Secured
Party ” has the meaning set forth in the preamble to this
Agreement.
“ Secured
Party’s Liens ” means the liens granted by the
Company to the Secured Party under this Agreement and the other
Loan Documents.
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“ UCC
” means the Uniform Commercial Code as in effect from time to
time in the State of Arizona or any other applicable
jurisdiction.
1.2.
RESERVED.
1.3.
Acknowledgment of Secured
Obligations . The
Company hereby acknowledges that it is unconditionally liable to
the Secured Party for the full payment and performance of each of
the obligations set forth in the Note (including, without
limitation, the Execution Date Indebtedness and the Post Execution
Date Indebtedness) and incorporated herein by reference, plus any
amounts that may be hereafter borrowed from the Secured Party, plus
all interest, fees, charges and other amounts that may arise under
the terms of the various documents executed or delivered by the
Company evidencing or relating to such obligations, including,
without limitation, the Note, plus all reasonable attorneys’
fees and costs of collection incurred in connection with such
obligations by the Secured Party, and that the Company has no
defenses, counterclaims or set-offs with respect to the full
payment and performance of any or all of the foregoing.
2.
CREATION OF SECURITY
INTEREST .
2.1.
Grant of Security
Interest .
The Company hereby
grants to the Secured Party a continuing security interest in all
of its right, title, and interest in all currently existing and
hereafter acquired or arising Collateral in order to secure prompt
repayment of any and all of the Secured Obligations in accordance
with the terms and conditions of the Note, this Agreement, the Loan
Documents or any other agreement executed between the Company and
the Secured Party, and in order to secure prompt performance by the
Company of the Company’s covenants and duties under the Note.
The Secured Party’s Liens in and to the Collateral
shall attach to all Collateral without further act on the part of
the Secured Party or the Company. Anything contained in the
Note, this Agreement, the Loan Documents or any other agreement
executed between the Company and the Secured Party to the
contrary notwithstanding, the Company does not have any authority,
express or implied, to dispose of any item or portion of the
Collateral other than in the ordinary course of
business.
2.2.
Collection of General
Intangibles .
At any time after the occurrence and
during the continuation of an Event of Default, the Secured Party
or the Secured Party’s designee may collect and otherwise
realize upon the General Intangibles. Any collection costs
and expenses incurred by the Secured Party pursuant to this
Section 2.2 shall be payable upon demand for the same and
until paid in full in cash shall be added to the principal amount
of the Secured Obligations and shall bear interest (calculated on
the basis of a 365-day year) from the date incurred until paid in
full in cash at the highest rate applicable under the
Note.
2.3.
Delivery of Additional
Documentation Required .
At any time upon the request of the Secured Party, the
Company shall execute and deliver to the Secured Party, any and all
financing statements, original financing statements in lieu of
continuation statements, fixture filings, security agreements,
pledges, assignments, endorsements of certificates of title, and
all other documents (the “ Additional Documents
”) that the Secured Party may reasonably request, in form and
substance satisfactory to the Secured Party, to perfect and
continue perfected or better perfect the Secured Party’s
Liens in the Collateral (whether now owned or hereafter arising or
acquired), and in order to fully consummate all of the transactions
contemplated hereby and under the Note. In addition, on such
periodic basis as the Secured Party shall reasonably require, the
Company shall (a) provide the Secured Party with a report of all
new patentable or copyrightable materials, or intellectual property
acquired or generated by the Company during the prior period to the
extent that any of such items are related to the ProAlgaZyme
Product, (b) cause all patents, copyrights, and intellectual
property acquired or generated by the Company that are necessary in
the conduct of the Company’s business as it relates to the
ProAlgaZyme Product and that are not already the subject of a
registration with the appropriate filing office (or an application
therefor diligently prosecuted) to be registered with such
appropriate filing office in a manner sufficient to impart
constructive notice of the Company’s ownership thereof,
unless the Company, with respect to patents and intellectual
property, but not copyrights, in its commercially reasonable
discretion, determined otherwise, and (c) cause to be prepared,
executed, and delivered to the Secured Party supplemental schedules
hereto to identify, among other things, such patents, copyrights,
and intellectual property as being subject to the security
interests created thereunder.
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2.4.
Power of Attorney
.
The Company hereby
irrevocably makes, constitutes, and appoints the Secured Party (and
any agent designated by the Secured Party) as the Company’s
true and lawful attorney, with power to: (a) if the Company
refuses to, or fails timely to execute and deliver any of the
documents described in Section 2.3 , sign the name of the
Company on any of the documents described in Section 2.3 ;
(b) send requests for verification of part or all of the
Collateral; (c) at any time that an
