EXHIBIT 10.4
SECURITY AGREEMENT
This SECURITY AGREEMENT ("SECURITY AGREEMENT") is made this 18th day of August,
1998, by, between and among, ADVANCED KNOWLEDGE, INC, a Delaware corporation
("DEBTOR"), on the one hand, and BUDDY YOUNG, an individual, ("SECURED PARTY"),
on the other hand, with respect to the following:
RECITALS
A. DEBTOR has borrowed the sum of up to Three Hundred Thousand ($300,000) from
Secured Party (the "DEBT");
B. DEBTOR and SECURED PARTY now mutually desire for DEBTOR to secure the Loan in
the principal sum of up to Three Hundred Thousand ($300,000) as evidenced by a
SECURED PROMISSORY NOTE, dated of even date herewith and signed by DEBTOR in
favor of SECURED PARTY (the "NOTE") in said amount (the "DEBT") and for DEBTOR
to pledge the personal property listed on attached Exhibit "A" as
security\collateral for the repayment of the DEBT (the "COLLATERAL") on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of and reliance on the mutual covenants,
conditions, promises, and representations contained herein, the parties hereto
agree as follows:
1. Recitals. The recitals stated above are incorporated herein by this reference
as if set forth in full at this point.
2. Definitions. As used in this SECURITY AGREEMENT, the following terms shall
have the following meanings:
a. "COLLATERAL" and "SECURITY" mean the personal property set forth and fully
described in attached Exhibit "A".
b. "DEBTOR" means ADVANCED KNOWLEDGE, INC., a Delaware corporation.
c. "DEBT", "INDEBTEDNESS" and "LOAN" mean DEBTOR'S obligations represented by
the NOTE executed by DEBTOR and payable to the SECURED PARTY as Holder.
d. "LIEN" means any security interest, mortgage, pledge, lien, attachment,
claim, charge, encumbrance, agreement retaining title, or other interests in, to
or covering the COLLATERAL.
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e. "OBLIGATIONS" mean any and all existing and future duties, obligations,
indebtedness and liabilities of DEBTOR to SECURED PARTY, including attorneys'
fees incurred in enforcing this SECURITY AGREEMENT or collecting payment due
under the NOTE.
f. "BREACH" and "DEFAULT" mean an event or omission that is or would be a breach
or default under this SECURITY AGREEMENT or any other document evidencing,
creating or relating to the security for and performance of the OBLIGATIONS.
g. "NOTE" means the SECURED PROMISSORY NOTE, of even date herewith executed by
DEBTOR for the benefit of SECURED PARTY, a true and correct copy of which is
attached hereto and marked as Exhibit "B".
h. Terms defined in the California Uniform Commercial Code not otherwise defined
in this Security Agreement are used in this Security Agreement as defined in
that Code on the date of this agreement.
i. "SECURED PARTY" and "HOLDER" mean BUDDY YOUNG, or his nominee or order.
3. Grant of Security Interest. For the purpose of providing SECURED PARTY with
security for the DEBTOR's payment of the NOTE, DEBTOR hereby grants SECURED
PARTY a security interest in and to the COLLATERAL, which is more specifically
described and set forth in attached Exhibit "A" and which is incorporated herein
by this reference. Further, DEBTOR shall execute any and all other documents
necessary to grant, perfect and otherwise effect notice that SECURED PARTY has a
first priority secured interest in the COLLATERAL. In this regard, DEBTOR grants
SECURED PARTY the limited power of attorney to sign such documents on behalf of
DEBTOR in the event DEBTOR is unable to or refuses to sign such documents. Said
documents include, without limitation, a UCC-1 Financing Statement to be filed
with the California Secretary of State.
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4. DEBTOR'S Covenants.
DEBTOR shall:
a. make all payments to the SECURED PARTY as set forth in the NOTE;
b. pay all expenses, including attorneys' fees, incurred by SECURED PARTY in the
perfection, preservation, realization, enforcement, and exercise of its rights
under this SECURITY AGREEMENT;
c. indemnify SECURED PARTY against loss of any kind, including reasonable
attorneys' fees, caused to SECURED PARTY by reason of its interest in the
COLLATERAL;
d. not sell, lease, transfer, or otherwise dispose of or hypothecate the
COLLATERAL, without the express prior written consent of the SECURED PARTY;
e. not permit liens on the COLLATERAL, except the lien created by this SECURITY
AGREEMENT;
f. not use the COLLATERAL for any unlawful purpose or in any way that would void
any effective insurance;
g. perform all acts necessary to maintain, preserve, and protect the COLLATERAL;
h. notify SECURED PARTY promptly in writing of any default, potential default,
or any development that might have a material adverse effect on the COLLATERAL;
5. Debtor's Representations and Warranties. DEBTOR covenants, warrants, and
represents as follows:
a. DEBTOR, has the full corporate capacity to understand and enter into this
SECURITY AGREEMENT and possesses all the necessary corporate authority to
conduct its businesses in the fashion now conducted and as contemplated herein,
wherever conducted;
b. The SECURITY AGREEMENT is a valid and binding obligation of DEBTOR. This
SECURITY AGREEMENT creates a perfected, first priority security interest
enforceable against the COLLATERAL in which DEBTOR'S rights will be effected as
this SECURITY AGREEMENT creates a perfected, first priority security interest
for the benefit of SECURED PARTY, which is enforceable against the COLLATERAL;
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c. Neither the execution and delivery of this SECURITY AGREEMENT, nor the taking
of any action in compliance with it, will (1) violate or breach any law,
regulation, rule, order, or judicial action binding on DEBTOR, any agreement to
which DEBTOR is a party, if such exist; or (2) result in the creation of a lien
against the COLLATERAL except that created by this SECURITY AGREEMENT;
d. No default or potential default exists; and,
e. DEBTOR owns the COLLATERAL, subject only to those liens and adverse claims
created by this SECURITY AGREEMENT.
6. Termination. This SECURITY AGREEMENT shall continue in effect even though
from time to time there may be no outstanding obligations or commitments under
this SECURITY AGREEMENT and/or the NOTE. This SECURITY AGREEMENT shall terminate
when (a) DEBTOR'S complete performance of all obligations to SECURED PARTY,
including without limitation the payment of all INDEBTEDNESS by DEBTOR to
SECURED PARTY; (b) SECURED PARTY has no commitment that could give rise to an
obligation; and (c) DEBTOR has notified SECURED PARTY in writing of the
termination.
7. Default. DEBTOR shall be in default under this SECURITY AGREEMENT if:
a. DEBTOR fails to make the payment, or any payment when due, or the entire
indebtedness to SECURED PARTY when due;
b. DEBTOR fails to make any remittances required by this SECURITY AGREEMENT;
c. DEBTOR commits any breach of this SECURITY AGREEMENT, or any present or
future rider or supplement to this SECURITY AGREEMENT, or any other agreement
between DEBTOR and SECURED PARTY evidencing the obligation or securing it;
d. Any warranty, representation, or statement, made by or on behalf of DEBTOR in
or with respect to the SECURITY AGREEMENT, is false;
e. The COLLATERAL is lost, stolen, or damaged; or,
f. There is a seizure or attachment of, or a levy on, the COLLATERAL.
8. Remedies.
8.1 Upon an event of default, SECURED PARTY may, at its option, to:
a. Declare the obligations immediately due and payable without demand,
presentment, protest, or notice to DEBTOR, all of which DEBTOR expressly waives;
b. Terminate any obligations or to make future advances, if any;
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c. Exercise all rights and remedies available to a secured creditor after
default, including but not limited to the rights and remedies of secured
creditors under the California Uniform Commercial Code;
d. Perform any of DEBTOR's obligations under this SECURITY AGREEMENT for
DEBTOR's account; and,
e. SECURED PARTY's notice of the time and place of public sale of the
COLLATERAL, or the time on or after which a private sale or other disposition of
the COLLATERAL will be made, is reasonable if sent to DEBTOR in the manner for
giving notice at least five days before the public or private sale.
Any money expended or obligations incurred in doing so, including reasonable
attorneys' fees and interest at the highest rate permitted by law, will be
charged to DEBTOR and added to the obligation secured by this SECURITY
AGREEMENT.
8.2 Upon an event of a notice of default by the SECURED PARTY, DEBTOR shall:
a. Assemble the COLLATERAL and make it and all records relating to it available
to SECURED PARTY as SECURED PARTY directs; and,
b. Allow SECURED PARTY, its representatives, and its agents to enter the
premises where all or any part of the COLLATERAL, the records, or both may be,
and remove any or all of it.
9. Attorney's Fees. In the event that SECURED PARTY is forced to engage
attorneys to enforce its rights under the SECURITY AGREEMENT and the NOTE,
including to collect payments due under the NOTE, DEBTOR shall be responsible
for the payment of his, her or its costs and expenses of collection, including
reasonable attorneys' fees.
10. Survival of DEBTOR's Representations and Warranties. DEBTOR's
representations and warranties made in this SECURITY AGREEMENT shall survive its
execution, delivery, and termination.
11. Assignment. This SECURITY AGREEMENT shall bind and enure to the benefit of
the parties successors, heirs and assigns. However, DEBTOR may not assign its
rights, duties and obligations under this SECURITY AGREEMENT or the NOTE without
SECURED PARTY's prior written consent.
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12. Notices. Any communication to be given to any party to this SECURITY
AGREEMENT shall be in writing and deemed delivered when delivered in person,
sent by fax, or five (5) days after such is deposited in the United States Mail,
postage prepaid, certified, return receipt requested and addressed to the party
at its address set forth below:
If to DEBTOR:
Advanced Knowledge
17337 Ventura Blvd. Suite 224
Encino, CA 91316
If to SECURED PARTY:
Buddy Young
17614 McCormick Street
Encino, CA 91316
13. Binding Effect. The parties hereto hereby represent and warrant, each for
themselves, that they have the capacity to and are authorized to enter into this
SECURITY AGREEMENT on behalf of their respective party and that this SECURITY
AGREEMENT, when duly executed, will constitute a legal, valid, and binding
agreement, enforceable against each of the parties in accordance with the terms
hereof.
14. Severability. In the event that any covenant, condition or other provision
herein contained is held to be invalid, void, or illegal by any court of
competent jurisdiction, the same shall be deemed severable from the remainder of
this SECURITY AGREEMENT and shall in no way affect, impair or invalidate any
other covenant, condition or other provision herein contained. If such
condition, covenant or other provision shall be deemed invalid due to its scope
or breadth, such covenant, condition, or other provision shall be deemed valid
to the extent of the scope or breadth permitted by law.
15. Waiver, Amendment and Modification. No breach of any provision hereof can be
waived unless in writing. Waiver of any one breach of any provision hereof shall
not be deemed to be a waiver of any other breach of the same or any other
provision hereof. This SECURITY AGREEMENT may only be amended or modified by an
instrument in writing executed by each of the parties hereto.
16. Construction. This SECURITY AGREEMENT shall not be construed against the
party preparing it, and shall be construed without regard to the identity of the
person who drafted it or the party who caused it to be drafted and shall be
construed as if all parties had jointly prepared this SECURITY AGREEMENT and it
shall be deemed their joint work product, and each and every provision of this
SECURITY AGREEMENT shall be construed as though all of the parties hereto
participated equally in the drafting hereof; and any uncertainty or ambiguity
shall not be interpreted against any one party. As a result of the foregoing,
any rule of construction that a document is to be construed against the drafting
party shall not be applicable.
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17. Governing Law. This SECURITY AGREEMENT shall be governed in all respects,
including validity, interpretation, effect and enforcement, by the laws of the
State of California.
18. Counterparts. This SECURITY AGREEMENT may be executed in counterparts, each
of which, when so executed and delivered, shall be an original; however, such
counterparts together shall constitute but one and the same SECURITY AGREEMENT.
19. Headings The headings used herein are for convenience of reference only and
do not constitute a part of this SECURITY AGREEMENT and shall not be deemed to
limit or effect any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this SECURITY AGREEMENT
effective as of the day and year above first written.
DEBTOR:
ADVANCED KNOWLEDGE, INC., a Delaware corporation
By: /S/ L. STEPHEN ALBRIGHT
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L. STEPHEN ALBRIGHT, Secretary and Director
SECURED PARTY:
/S/ BUDDY YOUNG
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BUDDY YOUNG
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