EX-10.4






Exhibit 10.4



SECURITY AGREEMENT




This Security Agreement, dated as of November 4, 2010, is made by and between Cardo Medical,
Inc., a Delaware corporation (the “Debtor”), and Earl Brien, M.D., an individual (the “Secured
Party”), with respect to the following facts:



FACTS




A. Debtor has executed and delivered to Secured Party that certain Secured Promissory Note,
dated concurrently herewith, in favor of Secured Party (the “Note”).



B. Secured Party has requested that Debtor grant to Secured Party a Security Interest (as
defined below) in certain Collateral (as defined below) to secure the Obligations (as defined
below).



C. Debtor will receive substantial benefit from the performance by Secured Party of its
obligations under the Note, and Debtor desires to enter into this Agreement in order to induce
Secured Party to perform the same.



AGREEMENT




NOW THEREFORE, in consideration of the representations, warranties, conditions and covenants
contained herein, and for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:



ARTICLE 1




DEFINED TERMS




1.1 Definitions. Capitalized terms used herein but not defined shall have the meaning
ascribed to such term in the Note. The following terms when used in this Agreement shall have the
meanings assigned to them below:



“Agreement” means this Security Agreement, as amended, restated, supplemented or
otherwise modified from time to time.



“Collateral” has the meaning assigned thereto in Section 2.1.



“Control” means the manner in which “control” is achieved under the UCC with respect
to any Collateral for which the UCC specifies a method of perfecting a Security Interest by
“control.”



“Event of Default” has the meaning assigned thereto in Section 5.1.



“Obligations” means all liabilities and obligations of the Debtor hereunder and
Debtor’s payment obligations under the Note.



“Related Agreements” means (i) that certain Secured Promissory Note, dated
concurrently herewith, executed by Debtor in favor of Jon Brooks, and (ii) that certain Security
Agreement, dated concurrently herewith, by and between Debtor and Jon Brooks.



“Security Interest” means the security interest granted pursuant to Article 2.



“UCC” means the Uniform Commercial Code, as in effect in the State of California, and
as amended or modified from time to time.



1.2 Other Definitional Provisions. Terms defined in the UCC and not otherwise defined
herein or in the Note shall have the meaning assigned in the UCC. The words “hereof,” “herein,”
“hereto” and “hereunder” and words of similar import when used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision of this Agreement, and Section
references are to this Agreement unless otherwise specified. The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of such terms.



ARTICLE 2




SECURITY INTEREST




2.1 Grant of Security Interest. The Debtor hereby grants, pledges and collaterally
assigns to the Secured Party a security interest (the “Security Interest”), but only to the extent
of the amount of principal and interest owing to the Secured Party from time to time under the Note
(the “Security Limit”), in all of the Debtor’s right, title and interest in the following property,
now owned or at any time hereafter acquired by the Debtor or in which the Debtor now has or at any
time in the future may acquire any right, title or interest, and wherever located or deemed located
(collectively, the “Collateral”), as collateral security for the prompt and complete payment and
performance when due of the Obligations:



2.1.1 All contract rights, chattel paper, instruments and documents, whether now owned or
hereafter created or acquired by Debtor or in which Debtor now has or hereafter acquires any
interest (specifically excluding accounts receivable);



2.1.2 All of Debtor’s inventory, machinery, equipment, furniture, fixtures, motor vehicles and
other tangible personal property of every kind and description used in Debtor’s operations or owned
by Debtor or in which Debtor has an interest;



2.1.3 All general intangibles of Debtor, whether now owned or hereafter created or acquired by
Debtor including, without limitation, all intellectual property, such as all patents and patent
rights, trademarks and trade secrets, all choses in action, causes of action, all claims under
guaranties, security interests or other security held by or granted to Debtor to secure payment of
any accounts by an account debtor;



2.1.4 All monies and other property of any kind, now or at any time or times hereafter, in the
possession or under the control of Debtor or a bailee of Debtor; and



2.1.5 All books and records of Debtor pertaining to any of 2.1.1, 2.1.2, 2.1.3, and/or 2.1.4
above.



2.1.6 Any substitution, replacements, insurance proceeds or other proceeds or derivatives of
2.1.1, 2.1.2, 2.1.3, and/or 2.1.4 above.



Notwithstanding anything to the contrary contained in this Section 2.1, if the documents or
contracts governing or relating to any of the foregoing Collateral (or the terms of, or applicable
to, any such Collateral) contain enforceable restrictions on the assignment or transfer of the
Debtor’s rights thereunder, then the liens granted under this Agreement shall be limited only to
the extent necessary to comply with such enforceable restrictions (with such limitation
automatically ceasing upon removal of, or receipt of any consent with respect to, such
restrictions).



2.2 Debtor Remains Liable. Anything herein to the contrary notwithstanding: (a) the
Debtor shall remain liable under the contracts and agreements included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder to the same extent
as if this Agreement had not been executed, (b) the exercise by Secured Party of any of the rights
hereunder shall not release the Debtor from any of its duties or obligations under the contracts
and agreements included in the Collateral, (c) the Secured Party shall not have any obligation or
liability under the contracts and agreements included in the Collateral by reason of this
Agreement, nor shall the Secured Party be obligated to perform any of the obligations or duties of
the Debtor thereunder or to take any action to collect or enforce any claim for payment assigned
hereunder and (d) the Secured Party shall not have any liability in contract or tort for any act or
omission by the Debtor.



2.3 Consent to Pledge Assets. Except in connection with the Related Agreements, any
bank debt, asset based debt or with regard to any financing related to accounts receivable or
inventory that is incurred in the ordinary course of business to fund the Company’s day to day
operations that will be senior to the Note and related Security Interest, the Debtor agrees that it
will not pledge any of its assets without the Secured Party’s approval or in the alternative, the
Debtor will include the Secured Party on a pari passu basis with any other financing of any kind
that requires the Debtor to pledge assets.



ARTICLE 3




REPRESENTATIONS AND WARRANTIES




The Debtor hereby represents and warrants to the Secured Party that:



3.1 Existence. The Debtor is a duly organized corporation, validly existing and in
good standing under the laws of the state of Delaware.



3.2 Authorization of Agreement; No Conflict. The Debtor has the right, power and
authority and has taken all necessary corporate action to authorize the execution, delivery and
performance of this Agreement. This Agreement has been duly executed and delivered by a duly
authorized representative of the Debtor, and this Agreement constitutes the legal, valid and
binding obligation of the Debtor, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state
or federal debtor relief laws from time to time in effect which affect the enforcement of
creditors’ rights in general and the availability of equitable remedies.



3.3 Consents. No approval, consent, exemption, authorization or other action by, or
notice to, or filing with, any governmental authority or any other person is necessary or required
in connection with the execution, delivery or performance by the Debtor of this Agreement.



3.4 State of Organization; Other Information.



3.4.1 The exact legal name of the Debtor is Cardo Medical, Inc. Cardo Medical, Inc. is
organized under the laws of the State of Delaware.



3.4.2 The mailing address, chief place of business, chief executive office and office where
the Debtor keeps its books and records relating to the Collateral is located at 7625 Hayvenhurst
Ave., Unit 49, Van Nuys, CA 91406.



ARTICLE 4




COVENANTS




	 	 	 	 	 
	The Debtor covenants and agrees that:
	 	4.1	 	 	Changes in Location; Changes in Name or Structure. The Debtor will not:

	 	 	 	 	 







4.1.1 Change its jurisdiction of organization or the location of its chief executive office
from that identified in Section 3.4.2 except upon ten (10) days’ prior written notice to the
Secured Party; or



4.1.2 Change its name, identity or corporate or organizational structure to such an extent
that any financing statement filed by the Secured Party in connection with this Agreement would
become misleading except upon ten (10) days’ prior written notice to the Secured Party.



4.2 Filing Covenants. Pursuant to Section 9509 of the UCC and any other applicable
law, the Debtor authorizes the Secured Party to file or record financing statements and other
filing or recording documents or instruments with respect to the Collateral without the signature
of the Debtor in such form and in such offices as the Secured Party determines appropriate to
perfect the Security Interest of the Secured Party under this Agreement. Such financing statements
may describe the Collateral in the same manner as described herein or may contain an indication or
description of Collateral that describes such property in any other manner as the Secured Party may
determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of
the Security Interest in the Collateral granted herein. Further, in the event that filing a
financing statement in the appropriate state office is not the required means of perfecting the
Security Interest, a photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for filing or recording in
any jurisdiction.



4.3 Location, Taxes, Loss, Abandonment, Compliance with Laws.



4.3.1 All Collateral presently owned or hereafter acquired by Debtor is and will be kept in
its current location, and will not be moved without prior approval of the Secured Party.



4.3.2 Debtor will promptly pay all taxes levied or assessed against the Collateral, except
when Debtor has a bona fide dispute with any taxing authority; provided that, Debtor promptly gives
written notice of such dispute to the Secured Party and diligently pursues resolution of such
dispute; will promptly notify Secured Party in writing of any material loss to the Collateral; will
not abandon the Collateral; will not use or permit the Collateral to be used for any unlawful
purpose or in violation of any federal, state or municipal law, statute or ordinance.



ARTICLE 5




REMEDIAL PROVISIONS




5.1 General Remedies. Failure of the Debtor to observe or perform any material
covenant or agreement herein, which failure is not cured within thirty (30) days following Debtor’s
receipt of written notice from the Secured Party requesting that Debtor cure such failure, or any
“Event of Default” under the Note, shall constitute an event of default of Debtor hereunder (“Event
of Default”). If an Event of Default shall occur, the Secured Party may exercise, in addition to
all other rights and remedies granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured
party under the UCC or any other applicable law, subject to the prior rights of any other secured
creditors of Debtor. Without limiting the generality of the foregoing, and subject to the prior
rights of any other secured creditors of Debtor, the Secured Party, without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Debtor or any other person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such circumstances,
subject to the Security Limit, forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to
do any of the foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Secured Party or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Secured Party may disclaim any
warranties of title, possession and quiet enjoyment. The Secured Party shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Debtor, which right or equity is hereby waived and released. The Debtor further
agrees, at the Secured Party’s request, to assemble the Collateral and make it available to the
Secured Party at places which the Secured Party shall reasonably select, whether at the Debtor’s
premises or elsewhere. To the extent permitted by applicable law, the Debtor waives all claims,
damages and demands it may acquire against the Secured Party arising out of the exercise by it of
any rights hereunder except to the extent any such claims, damages, or demands result solely from
the gross negligence or willful misconduct of the Secured Party. If any notice of a proposed sale
or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least ten (10) days before such sale or other disposition.



5.2 Application of Proceeds. If an Event of Default shall have occurred and be
continuing, the Secured Party may apply all or any part of the Collateral or any proceeds of the
Collateral in payment in whole or in part of the Obligations (after deducting all reasonable costs
and expenses of every kind incurred by the Secured Party as a result thereof or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the rights of the Secured
Party hereunder, including, without limitation, reasonable attorneys’ fees and disbursements). Any
balance of such proceeds remaining after payment in full of such amounts shall be paid over to the
Debtor, or to whomsoever (if such person is not the Debtor) may be lawfully entitled to receive the
same. Only after (i) the payment by the Secured Party of any other amount required by any
provision of law, including, without limitation, Section 9610 and Section 9615 of the UCC and (ii)
the payment in full of the Obligations, shall the Secured Party account for the surplus, if any, to
the Debtor, or to whomever may be lawfully entitled to receive the same (if such person is not the
Debtor).



5.3 Waiver, Deficiency. The Debtor hereby waives, to the extent permitted by
applicable law, all rights of redemption, appraisement, valuation, stay, extension or moratorium
now or hereafter in force under any applicable law in order to prevent or delay the enforcement of
this Agreement or the absolute sale of the Collateral or any portion thereof. The Debtor shall
remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by
the Secured Party to collect such deficiency.



ARTICLE 6




THE SECURED PARTY




6.1 Secured Party’s Appointment as Attorney-In-Fact.



6.1.1 Upon an Event of Default, and only to the extent that such Event of Default is
continuing, the Debtor will irrevocably constitute and appoint the Secured Party and any officer or
agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Debtor and in the name of the Debtor
or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Agreement after and during such Event of Default.



6.1.2 Upon an Event of Default, and only to the extent that such Event of Default is
continuing, if the Debtor fails to perform or comply with any of its agreements contained herein,
the Secured Party, at its option, but without any obligation to do so, may perform or comply, or
otherwise cause performance or compliance, with such agreement in accordance with the provisions of
Section 6.1.



6.1.3 The reasonable expenses of the Secured Party incurred as a result of the actions taken
pursuant to the terms of this Agreement following and during the continuance of an Event of Default
shall be payable by the Debtor to the Secured Party within ten (10) days after the Secured Party
provides Debtor written notice thereof.



6.1.4 The Debtor hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof in accordance with Section 6.1. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable until this Agreement
is terminated and the Security Interest created hereby is released.



6.2 Duty of Secured Party. The Secured Party’s sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under Section 9207 of
the UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with
similar property for its own account. Neither the Secured Party nor any of its officers,
directors, employees or agents shall be liable for failure to demand, collect or realize upon any
of the Collateral or for any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Collateral upon the request of the Debtor or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Secured Party hereunder are solely to protect the Secured Party’s interests in the
Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The
Secured Party shall be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors, employees or agents
shall be responsible to the Debtor for any act or failure to act hereunder, except for its own
negligence or willful misconduct.



ARTICLE 7




MISCELLANEOUS




7.1 Amendments in Writing. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except by a writing signed by each of the
parties hereto.



7.2 Notices. All notices, requests and demands to or upon the Secured Party or the
Debtor hereunder shall be effected in the manner provided for in Section 10 of the Note.



7.3 No Waiver by Course of Conduct, Cumulative Remedies. The Secured Party shall not
by any act (except by a written instrument pursuant to Section 7.1), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any
default by the Debtor. No failure to exercise, nor any delay in exercising on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege. A waiver by the
Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar
to any right or remedy which the Secured Party would otherwise have on any future occasion. The
rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law or equity.



7.4 Enforcement Expenses. The Debtor agrees to pay or reimburse the Secured Party for
all its reasonable costs and expenses incurred in connection with enforcing or preserving any
rights under this Agreement during the existence of any uncured Event of Default, including,
without limitation, the reasonable fees and disbursements of counsel.



7.5 Successors and Assigns. This Agreement shall be binding upon the successors and
assigns of the Debtor and shall inure to the benefit of the Debtor, the Secured Party and their
respective successors and assigns.



7.6 Counterparts; Facsimile. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which counterparts taken together shall
constitute one and the same instrument. This Agreement may also be executed by the parties hereto
exchanging facsimile signed counterparts of this Agreement.



7.7 Severability. Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.



7.8 Section Heading. The Section headings used in this Agreement are for convenience of
reference only and are not to affect the construction hereof or be taken into consideration in the
interpretation hereof.



7.9 Integration. This Agreement and the Note represent the agreement of the Debtor and the
Secured Party with respect to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Secured Party relative to subject matter hereof
and thereof not expressly set forth or referred to herein therein.



7.10 Governing Law. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of California and the parties hereby submit to the
non-exclusive jurisdiction of any court of competent jurisdiction in Los Angeles County of
California in connection with any dispute which may arise under this Agreement or its
implementation or enforcement.



7.11 Acknowledgements. The Debtor hereby acknowledges that (a) it has been advised by
counsel in the negotiation, execution and delivery of this Agreement and the Note, (b) the Secured
Party does not have any fiduciary relationship with or duty to the Debtor arising out of or in
connection with this Agreement, and the relationship between the Debtor and the Secured Party in
connection herewith or therewith is solely that of debtor and creditor, and (c) no joint venture,
agency or partnership is created hereby or by the Note or otherwise exists by virtue of the
transactions contemplated hereby or thereby.



7.12 Release of Collateral. At such time as the Obligations shall have been paid in
full, the Collateral shall be released from the liens created hereby, and this Agreement and all
obligations (other than those expressly stated to survive such termination) of the Secured Party
and the Debtor hereunder shall terminate, all without delivery of any instrument or performance of
any act by any party, and all rights to the Collateral shall revert to the Debtor. At the request
and sole expense of the Debtor following any such termination, the Secured Party shall deliver to
the Debtor any Collateral held by the Secured Party hereunder, and execute and deliver to the
Debtor such documents and make such filings as the Debtor shall reasonably request to evidence such
termination.



7.13 Time of Essence. Time is of the essence.



[Signature Page Follows.]




IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.




DEBTOR:




CARDO MEDICAL, INC.,


a Delaware corporation




By: /s/ Andrew Brooks

Name: Andrew Brooks

Title: Chief Executive Officer





SECURED PARTY:




/s/ Earl Brien




	 	 	Earl Brien, M.D.