EXHIBIT 10.4

 

FORM OF SECURITY AGREEMENT

 

 

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this "Agreement"), dated as of May 31, 2005, by and
among River Capital Group, Inc., a Delaware corporation (the "Company"), and the
secured parties identified on the signature pages hereto (each a “Secured
Party,” and collectively, the “Secured Parties”).

WHEREAS, the Secured Parties are lending to the Company an aggregate of $200,000
and in connection with such loans the Company is (a) executing and delivering to
the Secured Parties two convertible notes payable to the Secured Parties in the
aggregate principal amount of $200,000 (the “Notes”), (b) executing and
delivering to the Secured Parties two share purchase warrants entitling the
Secured Parties to purchase an aggregate number of shares of the common stock of
the Company as specified therein (the “Warrants”) and (c) executing and
delivering with the Secured Parties a Subscription Agreement providing certain
rights and benefits to the Secured Parties in connection with the Notes and the
Warrants (the “Subscription Agreement”).

WHEREAS, the Company and the Secured Parties wish to secure the Company’s
payment of the Notes and performance of its obligations thereunder and under the
Security Agreement and the Warrants by the Company granting to the Secured
Parties a first lien and security interest in substantially all of the assets of
the Company, in accordance with the terms and provisions set forth in this
Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement, the Company and the Secured Parties hereby agree as
follows:

1.  Grant of Security Interest. The Company hereby assigns, transfers, sets over
and grants to the Secured Parties a continuing first lien and security interest
in the Collateral defined and described in Section 2 hereof, as security for the
full, prompt and unconditional payment and performance of all of the Obligations
(as hereinafter defined). The term “Obligations” shall mean all of the
following: (i) the full, due and punctual payment all of the sums due under the
Notes, including interest and charges according to the terms of the Notes and
any extensions, renewals, modifications or replacements thereof, and the full,
due and punctual performance of all of the Company’s other covenants,
obligations and agreements under or pursuant to the Notes, (ii) the full, due
and punctual performance of all of the covenants, obligations and agreements of
the Company under or pursuant to the Warrants, (iii) the full, due and punctual
performance of all of the covenants, obligations and agreements of the Company
under or pursuant to the Subscription Agreement, (iv) the full, due and punctual
performance of all of the covenants, obligations and agreements of the Company
under or pursuant to this Security Agreement, and (v) to the extent permitted by
law, all of the costs and expenses, including reasonable attorneys’ fees and
expenses, that any of the Secured Parties may incur in the collection or
enforcement of any of the foregoing obligations.

 

 

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2.    Collateral. The collateral covered by this Agreement (hereinafter
collectively referred to as the “Collateral”) consists of all of the Company’
rights, title and interest in the following, whether now existing or hereafter
acquired: accounts receivable; inventory; goods; chattel paper; instruments;
documents; contract rights; rights to payment of money; leasehold improvements;
machinery; equipment; vehicles; furniture and fixtures; supplies; general
intangibles, including, without limitation, all names, trade names, trademarks,
patents, copyrights, service marks, service names, any applications related
thereto, licenses, inventions, software, source code, computer programs,
know-how, trade secrets, customer lists, partnership interests and customer
accounts; all books and records, including, without limitation, all computer
programs, tapes and related data processing software, pertaining to of the
foregoing; all goodwill related to any of the foregoing; and all proceeds of any
of the foregoing. The term “Collateral” shall include all products,
improvements, replacements, accessions and additions to the foregoing, and all
proceeds upon the disposition thereof, whether voluntary or involuntary,
including, without limitation, insurance proceeds.

3.    Events of Default. An “Event of Default’ shall be deemed to have occurred
hereunder upon the occurrence of either of the following: (a) an Event of
Default as such term is described under any of the Notes, or (b) any failure by
the Company to fully, duly and punctually perform any of the covenants,
obligations or agreements of the Company under or pursuant to the Notes (without
duplication of the foregoing Section 3(a) hereof), the Subscription Agreement,
any of the Warrants or this Agreement and the failure to cure such default with
thirty (30) days of notice of such default from any of the Secured Parties or
such longer period if such default cannot be cured within such thirty (30) day
period and the Company is diligently taking all reasonable action to cure same.

4.

Covenants.

(a)  The Company hereby covenants and agrees that from and after the date hereof
and until the payment and performance in full of the Obligations:

(i)      The Company shall defend its title to the Collateral against all
persons and against all claims or demands of any kind whatsoever.

(ii)     The Company shall pay, when due, all charges, taxes, assessments and
fees that may now or hereafter be imposed upon the ownership, sale, purchase or
possession of its Collateral.

(iii)    The Company shall at all times keep the Collateral, at the Company’s
own cost and expense, in good condition and shall not misuse, abuse, waste or
allow same to deteriorate, and shall not use the Collateral in violation of any
statute, ordinance or policy of insurance relating thereto.

(b)  All certificates, instruments and other items constituting Collateral that
must be pledged and/or physically delivered to the Secured Parties in order for
the

 

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security interest hereunder to be perfected therein shall be delivered to
Longview Fund LP (one of the Secured Parties), as agent for the Secured Parties
(in such capacity, the “Collateral Agent”) simultaneously with the execution and
delivery of this Agreement, and any such additional items obtained or acquired
by the Company hereafter from time to time (the "Additional Collateral") shall
be delivered to the Collateral Agent promptly upon receipt thereof by or on
behalf of the Company. All such certificates, instruments and other items shall
be held by or on behalf of the Collateral Agent pursuant hereto and shall be
delivered in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment or undated stock powers
executed in blank, all in form and substance satisfactory to the Collateral
Agent. If any Collateral consists of uncertificated securities, unless the
immediately following sentence is applicable thereto, the Company shall cause
the Collateral Agent (or its custodian, nominee or other designee) to become the
registered holder thereof, or cause each issuer of such securities to agree that
it will comply with instructions originated by the Collateral Agent with respect
to such securities without further consent by the Company. If any Collateral
consists of security entitlements, the Company shall transfer such security
entitlements to the Collateral Agent (or its custodian, nominee or other
designee) or cause the applicable securities intermediary to agree that it will
comply with entitlement orders by the Collateral Agent without further consent
by the Company.

(c)  If the Company shall receive, by virtue of the Company being or having been
an owner of any Collateral, any (i) stock certificate (including, without
limitation, any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off), promissory note or other instrument, (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Collateral, or
otherwise, (iii) dividends payable in cash (except such dividends permitted to
be retained by the Company pursuant to Section 5(b) hereof) or in securities or
other property or (iv) dividends or other distributions in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, the Company shall receive such
stock certificate, promissory note, instrument, option, right, payment or
distribution in trust for the benefit of the Collateral Agent, shall segregate
it from the Company’s other property and shall deliver it forthwith to the
Collateral Agent, in the exact form received, with any necessary endorsement
and/or appropriate stock powers duly executed in blank, to be held by the
Collateral Agent as Collateral and as further collateral security for the
Obligations.

(d)  The Company shall, at all reasonable times and upon reasonable notice,
allow the Collateral Agent or its representatives free and complete access to
the Collateral and all of the Company’s records which in any way relate to the
Collateral, for such inspection and examination as the Collateral Agent
reasonably deems necessary.

(e)  The Company shall promptly notify the Collateral Agent of any levy,
distraint or other seizure by legal process or otherwise of any part of the
Collateral, and of any threatened or filed claims or proceedings that are
reasonably likely to affect or

 

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impair any of the rights of the Collateral Agent under this Agreement in any
material respect.

(f)   The Company, at its own expense, shall obtain and maintain in force
insurance policies covering losses or damage to those items of Collateral that
constitute physical personal property. The insurance policies to be obtained by
the Company shall be in form and amounts reasonably acceptable to Collateral
Agent. The Company shall make the Collateral Agent a loss payee thereon to the
extent of its interest in the Collateral. The Collateral Agent is hereby
irrevocably (until the Obligations are paid in full) appointed the Company’s
attorney-in-fact to endorse any check or draft that may be payable to the
Company so that the Collateral Agent may collect the proceeds payable for any
loss under such insurance. The proceeds of such insurance (subject to the rights
of senior secured parties), less any costs and expenses incurred or paid by the
Collateral Agent in the collection thereof, shall be applied either toward the
cost of the repair or replacement of the items damaged or destroyed, or on
account of any sums secured hereby, whether or not then due or payable.

(g)  The Collateral Agent may, at its option, and without any obligation to do
so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by the Company. Upon the
Company’s failure to do so, all amounts expended by the Collateral Agent in so
doing shall become part of the Obligations secured hereby, and shall be
immediately due and payable by the Company to the Collateral Agent upon demand
and shall bear interest at the lesser of 15% per annum or the highest legal
amount from the dates of such expenditures until paid.

(h)  The Company represents and warrants that it is the true and lawful
exclusive owner of the Collateral, free and clear of any liens and encumbrances.

5.

Distribution on Liquidation.

(a)  If any sum is paid as a liquidating distribution on or with respect to the
Collateral, the Company shall deliver same to the Collateral Agent to be applied
to the Obligations, then due, in accordance with the terms of the Notes.

(b)  So long as no Event of Default exists, The Company shall be entitled (i) to
exercise all voting power pertaining to any of the Collateral, provided such
exercise is not contrary to the interests of the Secured Parties and does not
impair the Collateral and (ii) may receive and retain any and all dividends,
interest payments or other distributions paid in respect of the Collateral.

(c)  Upon the occurrence and during the continuation of an Event of Default, all
rights of the Company, upon notice given by the Collateral Agent, to exercise
the voting power and receive payments, which it would otherwise be entitled to
pursuant to Section 5(b), shall cease and all such rights shall thereupon become
vested in the Collateral Agent, which shall thereupon have the sole right to
exercise such voting power and receive such payments.

 

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(d)  All dividends, distributions, interest and other payments which are
received by the Company contrary to the provisions of Section 5(c) shall be
received in trust for the benefit of the Collateral Agent, shall be segregated
from other funds of the Company, and shall be forthwith paid over to Collateral
Agent as Collateral in the exact form received with any necessary endorsement
and/or appropriate stock powers duly executed in blank, to be held by the
Collateral Agent as Collateral and as further collateral security for the
Obligations.

6.    Rights and Remedies on Default. (a) Upon the occurrence of any Event of
Default:

(i)   The Secured Parties shall have the right to declare the Obligations
immediately due and payable.

(ii)  The Secured Parties shall be entitled to exercise all of the rights,
powers, privileges and remedies of a secured party under the New York Uniform
Commercial Code (the “UCC”) then in force.

(b)  If any notice to the Company of the sale or other disposition of Collateral
is required by then applicable law, five business (5) days prior written notice
(which the Company agrees is reasonable notice within the meaning of Section
9.612(a) of the Uniform Commercial Code) shall be given to the Company of the
time and place of any sale of Collateral; and the Company hereby agrees any such
sale may be by private sale. The rights granted in this Section are in addition
to any and all rights available to the Collateral Agent under the Uniform
Commercial Code.

(c)  The Collateral Agent is authorized, at any such sale, if the Collateral
Agent deems it advisable to do so, in order to comply with any applicable
securities laws, to restrict the prospective bidders or purchasers to persons
who will represent and agree, among other things, that they are purchasing the
Collateral for their own account for investment, and not with a view to the
distribution or resale thereof, or otherwise to restrict such sale in such other
manner as the Collateral Agent deems advisable to ensure such compliance. Sales
made subject to such restrictions shall be deemed to have been made in a
commercially reasonable manner.

(d)  All proceeds received by the Collateral Agent for the benefit of the
Secured Parties in respect of any sale, collection or other enforcement or
disposition of Collateral, shall be applied (after deduction of any amounts
incurred by the Collateral Agent in enforcing the rights of the Secured Parties
hereunder or any other amounts that are payable to the Collateral Agent or the
Secured parties pursuant to this Agreement) against the Obligations pro rata
among the Secured Parties in proportion to their interests in the Obligations.
Upon payment in full of all Obligations, the Company shall be entitled to the
return of all Collateral, including cash, that has not been used or applied
toward the payment of Obligations or used or applied to any and all costs or
expenses of the Collateral Agent incurred in connection with the liquidation of
the Collateral (unless another person is legally entitled thereto). Any
assignment of Collateral by the Collateral

 

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Agent to the Company shall be without representation or warranty of any nature
whatsoever and wholly without recourse. To the extent allowed by law, each
Secured Party may purchase the Collateral and pay for such purchase by
offsetting up to such Secured Party’s pro rata portion of the purchase price
with sums owed to such Secured Party by the Company arising under the
Obligations or any other source.

7.    Financing Statements. The Company authorizes the Secured Parties to sign
and file financing statements pursuant to the UCC at any time with respect to
any or all of the Collateral, without the Company’s signature. At the request of
the Secured Parties, the Company will join with the Secured Parties in executing
one or more such financing statements in form satisfactory to the Secured
Parties. The Company will pay all costs and fees for filing any such financing
statements.

8.    Termination of Security Interest. Upon full payment and performance of the
Obligations: (i) this Agreement and the security interest herein created shall
terminate and be of no further force or effect, and (ii) the Secured Parties
shall execute and deliver to the Company for filing any and all necessary
termination statements pursuant to the UCC.

9.    The Company Remains Liable Under Contracts. Anything herein to the
contrary notwithstanding, the Company shall remain liable under each contract to
which it is a party to observe and perform all the conditions and obligations to
be observed and performed by it thereunder, all in accordance with the terms and
provisions of each such contract. The Secured Parties shall not have any
obligation or liability under any contract by reason of or arising out of this
Agreement or the receipt by the Secured Parties of any payment relating to any
contract pursuant hereto, nor shall the Secured Parties be obligated in any
manner to perform any of the Obligations of the Company under or pursuant to any
contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any contract, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts that may have been assigned to it or to which it may be entitled at any
time or times.

10.  Waiver of Automatic Stay. (a) The Company acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Company, or if any of the Collateral should become the subject of
any bankruptcy or insolvency proceeding, then the Collateral Agent should be
entitled to, among other relief to which the Collateral Agent or any of the
Secured Parties may be entitled under the Note, Subscription Agreement and any
other agreement to which the Debtor, Secured Parties or Collateral Agent are
parties, (collectively "Loan Documents") and/or applicable law, an order from
the court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Collateral Agent to exercise all of its rights
and remedies pursuant to the Loan Documents and/or applicable law. THE COMPANY
EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
362. FURTHERMORE, THE COMPANY EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11
U.S.C.

 

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SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR
RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL
AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. The Company hereby consents to any motion for relief from stay
which may be filed by the Collateral Agent in any bankruptcy or insolvency
proceeding initiated by or against Debtor, and further agrees not to file any
opposition to any motion for relief from stay filed by the Collateral Agent.

(b)  The Company represents, acknowledges and agrees that this provision is a
specific and material aspect of this Agreement, and that the Collateral Agent
would not agree to the terms of this Agreement if this waiver were not a part of
this Agreement. The Company further represents, acknowledges and agrees that
this waiver is knowingly, intelligently and voluntarily made, that neither the
Collateral Agent nor any person acting on behalf of the Collateral Agent has
made any representations to induce this waiver, that The Company has been
represented (or has had the opportunity to be represented) in the signing of
this Agreement and in the making of this waiver by independent legal counsel
selected by The Company and that The Company has had the opportunity to discuss
this waiver with counsel. The Company further agrees that any bankruptcy or
insolvency proceeding initiated by The Company will only be brought in the
Federal Court within the Southern District of New York.

11.  Modification. The terms of this Agreement may not be changed, varied,
modified, or altered except by a writing signed by the Company and the Secured
Parties.

12.  Non-Waiver of Rights; Cumulative Remedies; Further Assurances. No delay or
omission on the part of the Secured Parties in exercising any of their rights
hereunder, nor the acquiescence in or waiver by the Secured Parties of a breach
of any term, covenant or condition of this Agreement shall be deemed or
construed to operate as a waiver of such rights or acquiescence thereto except
in the specific instance for which given. Any single or partial exercise of any
right hereunder shall not thereafter preclude any other or further exercise of
any other rights. The rights and remedies of the Secured Parties hereunder are
cumulative and not exclusive of any rights or remedies provided by law or
hereunder and all such rights and remedies may be exercised singularly or
concurrently. Each party will duly execute and deliver, or cause to be duly
executed and delivered, such further instruments and documents and do or use its
best efforts to cause to be done all such further acts as may be necessary to
effectuate the provisions or purposes of this Agreement.

 

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13.  Miscellaneous.

(a)  Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: River Capital Group, Inc.,
100 Adelaide Street West #1302, Toronto Canada M5H 1S3, telecopier number (416)
366-8179, and (ii) if to the Secured Parties, to: the address and telecopier
number indicated on the signature page hereto, with a copy to: Troutman Sanders
LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York 10174,
Attention: Martin Eric Weisberg, Telephone number: 212-704-6050, Telecopier:
212-704-6288.

(b)  Entire Agreement; Assignment; Third Party Beneficiary. This Agreement and
other documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Secured Parties have relied on any representations not contained or referred to
in this Agreement and the documents delivered herewith. No right or obligation
of either party shall be assigned by that party without prior notice to and the
written consent of the other party.

(c)  Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

(d)  Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. The

 

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parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorneys’ fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.

(e)  Specific Enforcement, Consent to Jurisdiction. The Company and the Secured
Parties acknowledge and agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity. Subject to Section
12(d) hereof, each of the Company and the Secured parties hereby waive, and
agree not to assert in any such suit, action or proceeding, any claim that any
or all of them are not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

RIVER CAPITAL GROUP, INC.

A Delaware Corporation

 

By:________________________________

Name: Howard J. Taylor

 

Title: Chief Executive Officer

 

 

 

By:________________________________

Name: William P. Dickie

 

Title: Chief Financial Officer

 

 

LONGVIEW FUND LLP

 

By:________________________________

Name:

Title:

 

 

Address of Secured Party:

 

1325 Howard Avenue

Apt. #422

Burlingame, CA 94010

Attn: S. Michael Rudolph

Fax: (650) 343-2506

 

LONGVIEW EQUITY FUND LLP

 

By:________________________________

Name:

Title:

 

 

Address of Secured Party:

 

1325 Howard Avenue

Apt. #422

 

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Burlingame, CA 94010

Attn: S. Michael Rudolph

Fax: (650) 343-2506

 

LONGVIEW INTERNATIONAL EQUITY FUND LLP

 

By:________________________________

Name:

Title:

 

 

Address of Secured Party:

 

1325 Howard Avenue

Apt. #422

Burlingame, CA 94010

Attn: S. Michael Rudolph

Fax: (650) 343-2506

 

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