Exhibit 10.8
SECURITY AGREEMENT
This Security Agreement (this “Agreement”) is made and entered into effective as of December 1, 2011, byHEALTH ENHANCEMENT PRODUCTS, INC., a Nevada corporation (“Borrower”) in favor ofHEP INVESTMENTS LLC, aMichigan limited liability company (“Secured Party”).
Recitals:
A.
Borrower has delivered toSecured Party a certain Senior Secured Convertible Promissory Note, dated as of the date of thisAgreement, in the original principal amount ofTwo Million Dollars ($2,000,000.00) (as amended, restated or otherwise modified from time to time, the “Note”).
B.
As security for the payment and performance of the indebtedness, and all other obligations ofBorrower, under the Note (collectively, the “Obligations”), theSecured Party has required thatBorrower execute and deliver thisAgreement.
C.
Borrower has agreed to secure theObligations by grantingSecured Party a security interest in theCollateral (as defined below).
Agreements:
NOW, THEREFORE,in consideration of the Recitals and the covenants and agreements contained in this Agreement, Borrower hereby agree as follows:
1.
Security Interest. To secure payment of theObligations,Borrower hereby grants toSecured Party a continuing security interest in and to all ofBorrower’s rights, title and interest in and to all of its property of any kind or description, tangible and intangible personal property, assets and rights, wherever located, whether now existing or owned or hereafter arising or acquired and the proceeds and products therefrom, including, without limitation, the following (collectively, the “Collateral”):
(a)
AllAccounts, including, without limitation, accounts receivable, insurance receivables and prepaid premiums, if any, and allGoods whose sale, lease or other disposition has given rise to Accounts and have been returned to, or repossessed or stopped in transit by,Borrower, or rejected or refused by anAccount Debtor;
(b)
AllChattel Paper, including, without limitation,Electronic Chattel Paper and liens and lien rights on customer property;Documents; Instruments, including, without limitation,Promissory Notes;Letter of Credit Rights and proceeds of letters of credit;SupportingObligations;Liabilities secured by real estate;Commercial Tort Claims andGeneral Intangibles, including, without limitation,Payment Intangibles andSoftware;
(c)
AllInventory, including, without limitation, raw materials, work in process, materials and finished goods leased byBorrower as lessor or held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in a business;
(d)
All Goods and allEquipment;
(e)
AllSecurities,Investment Property andDeposit Accounts;
(f)
All products of, additions and accessions to, and substitutions, betterments and replacements for the foregoing property;
(g)
All sums at any time credited by or due fromSecured Party toBorrower;
(h)
All property in whichBorrower has an interest now or at any time hereafter coming into the possession or under the control ofSecured Party or in transit by mail or carrier to or fromSecured Party or in possession of or under the control of any third party acting onSecured Party’s behalf without regard to whetherSecured Party received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise or whetherSecured Party has conditionally released the same (excluding, nevertheless, any of the foregoing property ofBorrower which now or any time hereafter is in possession or control ofSecured Party under any written trustagreement whereinSecured Party is trustee andBorrower is trustor); and
(i)
AllProceeds (whetherCash Proceeds orNoncash Proceeds) of the foregoing property, including, without limitation, proceeds of insurance payable by reason of loss or damage to the foregoing property and of eminent domain or condemnation awards.
Terms used and not otherwise defined in thisAgreement shall have the meaning given such terms in theMichigan Uniform Commercial Code (the “UCC”). In the event the meaning of any term defined in theUCC is amended after the date of thisAgreement, the meaning of such term as used in thisAgreement shall be that of the more encompassing of:(i) the definition contained in theUCC prior to the amendment, and(ii) the definition contained in theUCC after the amendment.
2.
Perfection of Security Interest. Borrower hereby irrevocably authorizesSecured Party to file financing statement(s) and notices describing theCollateral in all public offices deemed necessary bySecured Party (including the United States Patent and Trademark Office), and to take any and all actions, including, without limitation, filing all financing statements, continuation financing statements and all other documents thatSecured Party may reasonably determine to be necessary to perfect and maintain Secured Party’s security interests in theCollateral.Borrower shall have possession of theCollateral, except where expressly otherwise provided in this Agreement or where Secured Party chooses to perfect its security interest by possession, whether or not in addition to the filing of a financing statement. WhereCollateral is in the possession of a third party,Borrower will join withSecured Party in notifying the third party of the Secured Party’s security interest and obtaining an acknowledgement from the third party that it is holding theCollateral for the benefit ofSecured Party. Borrower shall pay the cost of filing or recording all financing statement(s) and other documents. Borrower agrees to promptly execute and deliver toSecured Party all financing statements, continuation financing statements, assignments and all other documents thatSecured Party may reasonably request in form satisfactory toSecured Party to perfect and maintainSecured Party’s security interests in theCollateral. In order to fully consummate all of the transactions contemplated under thisAgreement,Borrower shall make appropriate entries on its books and records disclosingSecured Party’s security interests in theCollateral.
3.
Warranties and Representations. Borrower represents and warrants that:(a) Borrower has rights in or the power to transfer theCollateral and its title to the Collateral is free and clear of all liens, claims or security interests;(b) theCollateral, wherever located, is covered by thisAgreement;(c) there are no actions or proceedings which are threatened or pending againstBorrower which could reasonably be expected to result in any material adverse change inBorrower’s financial condition or which could reasonably be expected to materially affect any of theCollateral;(d) the Borrower’s exact legal name is as set forth in the first paragraph of this Agreement; (e) Borrower has duly filed all federal, state, and other governmental tax returns whichBorrower is required by law to file, and will continue to file same during such time as any of theObligations remain owing toSecured Party, and all such taxes required to be paid have been paid, in full;(f) the execution and delivery of this Agreement and any instruments evidencing Obligations will neither violate nor constitute a breach of any agreement or restriction of any type to which Borrower is a party or is subject; and (g)Borrower is or will become the owner of theCollateral free from any liens, encumbrances or security interests, except for this security interest and existing liens disclosed to and accepted by theSecured Party in writing, and will defend theCollateral against all claims and demands of all persons at any time claiming any interest in it.
4.
Covenants. Borrower covenants and agrees that while any of theObligations remain unperformed and unpaid it will:(a) preserve its legal existence and not, in one transaction or a series of related transactions, merge into or consolidate with any other entity, or sell all or substantially all of its assets;(b) not change the state in which it is organized;(c) neither change its name, form of business entity nor address of its chief executive office without giving written notice toSecured Party at least thirty (30) days prior to the effective date of such change, andBorrower agrees that all documents, instruments, and agreements demanded bySecured Party in response to such change shall be prepared, filed, and recorded atBorrower’s expense prior to the effective date of such change;(d) not use theCollateral, nor permit theCollateral to be used, for any unlawful purpose;(e) maintain theCollateral in working condition and repair; and(f) indemnify and holdSecured Party harmless against claims of any persons or entities not a party to thisAgreement concerning disputes arising over theCollateral.
5.
Insurance, Taxes, Etc. Borrower has the risk of loss of theCollateral.Borrower shall:(a) pay promptly all taxes, levies, assessments, judgments, and charges of any kind upon or relating to theCollateral, toBorrower’s business, and toBorrower’s ownership or use of any of its assets, income, or gross receipts, except to the extent contested in good faith; and(b) at its own expense, keep and maintain all of theCollateral fully insured against loss or damage by fire, theft, explosion and other risks, and shall furnishSecured Party with such policies and evidence of payment of premiums upon request. IfBorrower fails to obtain or maintain any of the policies required above or pay any premium in whole or in part, or shall fail to pay any such tax, assessment, levy, or charge or to discharge any such lien, claim, or encumbrance, thenSecured Party, without waiving or releasing any obligation or default ofBorrower hereunder, may at any time thereafter (but shall be under no obligation to do so) make such payment or obtain such discharge or obtain and maintain such policies of insurance and pay such premiums, and take such action asSecured Party deems reasonably advisable. All sums so disbursed bySecured Party,including reasonable attorney fees, court costs, expenses, and other charges, shall be part of theObligations, covered by thisAgreement, and payable upon demand together with interest at the highest rate payable in connection with any of theObligations from the date when advanced until paid.
6.
Care, Custody, and Dealings with Collateral. Secured Party shall have no liability to Borrower with respect to Secured Party’s care and custody of any Collateral in Secured Party’s possession and shall have no duty to sell, surrender, collect or protect the same or to preserve rights against prior parties or to take any action with respect to them beyond the custody of them, exercising that reasonable custodial care which it would exercise in holding similar interests for its own account. Secured Party shall only be liable for its acts of gross negligence. Secured Party is hereby authorized and empowered to take the following steps, subsequent to a default: (a) to deal directly with issuers, entities, owners, transfer agents and custodians to effect changes in the registered name of any such Collateral, to effect substitutions and replacements necessitated by any reason (including by reason of recapitalization, merger, acquisition, debt restructuring or otherwise), to execute and deliver receipts and to take possession of them; (b) to communicate and deal directly with payors of instruments (including securities, promissory notes, letters of credit, certificates of deposits and other instruments), which may be payable to or for the benefit of Borrower at any time, with respect to the terms of payment of them; (c) in the Borrower’s name, to agree to any extension of payment, any substitution of Collateral or any other action or event with respect to the Collateral; (d) to notify parties who have an obligation to pay or deliver anything of value (including money or securities) with respect to the Collateral to pay or deliver the same directly to Secured Party on behalf of Borrower and to receive and receipt for any such payment or delivery in Borrower’s name as an addition to the Collateral; (e) to surrender renewable certificates or any other instruments or securities forming a portion of the Collateral which may permit or require reissuance, renewal or substitution at any time and to immediately take possession of and receive directly from the issuer, maker or other obligor, the substituted instrument or securities; (f) to exercise any right which Borrower may have with respect to any portion of the Collateral, including rights to seek and receive information with respect thereto; and (g) to do or perform any other act and to enjoy all other benefits with respect to the Collateral as Borrower could in its own name.
2
7.
Information. Borrower shall permitSecured Party or its agents, upon reasonable request, to have access to, and to inspect, all theCollateral.
8.
Events of Default. TheBorrower, without notice or demand of any kind, shall be in default under thisAgreement upon the occurrence and during the continuance of any “Event of Default” as defined in the Note (an “Event of Default”).
9.
Remedies Upon Default.
(a)
Upon the occurrence of anyEvent of Default,Secured Party may exercise from time to time any rights and remedies including the right to immediate possession of theCollateral available to it under applicable law.Secured Party may directly contact third parties and enforce against them all rights which arise with respect to theCollateral and to whichBorrower orSecured Party would be entitled.
(b)
Borrower waives any right it may have to requireSecured Party to pursue any third person for any of theObligations.Borrower agrees, upon the occurrence of anEvent of Default, to assemble at its expense all theCollateral and make it available toSecured Party at a convenient place acceptable toSecured Party.Borrower agrees to pay all costs ofSecured Party of collection of theObligations, and enforcement of rights under thisAgreement,including reasonable attorney fees and legal expenses, including participation inSecured bankruptcy proceedings, and expense of locating theCollateral and expenses of any repairs to any realty or other property to which any of theCollateral may be affixed or be a part. If any notification of intended disposition of any of theCollateral is required by law, such notification, if mailed, shall be deemed reasonably and properly given if sent at least ten (10) days before such disposition, postage pre-paid, addressed to theBorrower at the address of theBorrower appearing on the Note or records ofSecured Party.
(c)
Any sale shall conform to commercially reasonable standards as provided in the UCC. Borrower acknowledges thatSecured Party may be unable to effect a public sale of all or any portion of theCollateral because of certain legal and/or practical restrictions and provisions which may be applicable to theCollateral and, therefore, may be compelled to resort to one or more private sales to a restricted group of offerees and purchasers. Secured Party shall have no obligation to clean up or otherwise prepare theCollateral for sale.Secured Party may comply with any applicable state or federal law requirements in connection with a disposition of theCollateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of theCollateral.Secured Party may specifically disclaim any warranties as to theCollateral. If the Secured Party resorts to one or more private sales, Secured Party shall give Borrower notice and the right to match bids. IfSecured Party sells any of theCollateral upon credit,Borrower will be credited only with payments actually made by the purchaser, received bySecured Party and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for theCollateral,Secured Party may resell theCollateral and theBorrower shall be credited with the proceeds of sale.Secured Party shall have no obligation to marshal any assets in favor of theBorrower.BORROWER WAIVES THE RIGHT TO JURY TRIAL IN ANY PROCEEDING INSTITUTED WITH RESPECT TO THE COLLATERAL. Out of the net proceeds from sale or disposition of theCollateral,Secured Party shall retain all theObligations then owing to it and the actual cost of collection (including reasonable attorney fees) and shall tender any excess toBorrower or its successors or assigns. If theCollateral shall be insufficient to pay the entireObligations,Borrower shall pay toSecured Party the resulting deficiency upon demand.
(d)
Except as otherwise provided in this Agreement, Borrower expressly waives any and all claims of any nature, kind or description which it has or may have againstSecured Party or its representatives, by reason of taking, selling or collecting any portion of theCollateral.Borrower consents to releases of theCollateral and to sales of theCollateral in groups, parcels or portions, or as an entirety, asSecured Party shall deem appropriate.Borrower expressly absolvesSecured Party from any loss or decline in market value of anyCollateral by reason of delay in the enforcement or assertion or nonenforcement of any rights or remedies under thisAgreement.Borrower agrees thatSecured Party shall, upon the occurrence of anEvent of Default, have the right to peacefully retake any of theCollateral.Borrower waives any right it may have in such instance to a judicial hearing prior to such retaking.
(e)
Secured Party may exercise all rights and remedies provided by theUCC as it exists on the date of thisAgreement or as it may be amended.
10.
General.
(a)
Time shall be deemed of the very essence of thisAgreement.
(b)
Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of anyCollateral in its possession if it takes such action for that purpose asBorrower requests in writing, but failure ofSecured Party to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and failure ofSecured Party to preserve or protect any rights with respect to suchCollateral against any prior parties or to do any act with respect to the preservation of suchCollateral not so requested byBorrower shall not be deemed a failure to exercise reasonable care in the custody and preservation of suchCollateral.
(c)
ThisAgreement has been delivered in Michigan and shall be construed in accordance with the laws of theState of Michigan.
3
(d)
Whenever possible, each provision of thisAgreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of thisAgreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of thisAgreement.
(e)
The rights and privileges ofSecured Party under thisAgreement shall inure to the benefit of its successors and assigns, and thisAgreement shall be binding on all assigns and successors ofBorrower and all persons who become bound as a debtor to thisAgreement.
(f)
Borrower hereby expressly authorizes and appointsSecured Party to act as its attorney-in-fact for the sole purpose of executing any and all financing statements or other documents deemed necessary to perfect the security interest herein contemplated.
(g)
Any delay on the part ofSecured Party in exercising anypower, privilege or right under thisAgreement, or under any other instrument executed by Borrower to Secured Party in connection with this Agreement, shall not operate as a waiver, and no single or partial exercise, or the exercise of any otherpower, privilege or right shall preclude other or further exercise, or the exercise of any otherpower, privilege or right. The waiver ofSecured Party of any default byBorrower shall not constitute a waiver of any subsequent defaults, but shall be restricted to the specific default waived. All rights, remedies and powers ofSecured Party under thisAgreement are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all rights, remedies, and powers given under thisAgreement or in or by any other instruments, or by theUCC or any laws now existing or enacted after the date of this Agreement.
(h)
This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Facsimile or photostatic copies of signatures to this Agreement shall be deemed to be originals and may be relied on to the same extent as the originals.
[Signatures on the following page]
4
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement to be fully executed as of the day and year first written above.
BORROWER:
HEALTH ENHANCEMENT PRODUCTS, INC.
/s/ Philip M. Rice
By: Philip M. Rice, II, CFO
[Signature Page to Security Agreement]
