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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), dated October 27, 1997, is by
and between ADVANCED REFRACTORY TECHNOLOGIES, INC., a New York corporation with
its principal place of business at 000 Xxxxxx Xxxxxx, Xxxxxxx, Xxx Xxxx ("ART"
or "Debtor"), and ELECTRONIC DESIGNS, INC., a Delaware corporation with its
principal place of business at Xxx Xxxxxxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxxxxxx
("EDI" or "Secured Party").
PRELIMINARY STATEMENT:
A. ART and EDI entered into that certain Asset Purchase Agreement, dated
as of October 1, 1997 (the "Asset Purchase Agreement"), pursuant to which ART
purchased from EDI the Purchased Assets (the "Purchased Assets") in exchange
for: (a) FIVE HUNDRED THOUSAND AND 00/100 DOLLARS (500,000.00); and (b) payment
of a royalty as provided in that certain Royalty Agreement, dated October 27,
1997, by and between ART and EDI (the "Royalty Agreement").
B. Pursuant to the Royalty Agreement, to secure all payments due
thereunder to EDI, ART has agreed to grant to EDI a security interest in all of
the Intellectual Property (as defined herein), upon the terms and conditions
herein.
NOW, THEREFORE, in order to induce EDI to enter into the Asset Purchase
Agreement and the Royalty Agreement, the covenants contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto (individually, a "Party;" collectively,
the "Parties") hereby agree as follows:
1. DEFINITIONS. All terms used herein which are defined in the New York
Uniform Commercial Code (the "Code") shall have the same meaning herein as in
the Code unless the context in which such terms are used herein indicates
otherwise. Unless otherwise expressly defined herein, all capitalized terms used
but not elsewhere defined in this Agreement shall have the respective meanings
ascribed to such terms in the Royalty Agreement or the Asset Purchase Agreement,
as the case may be.
2. SECURITY INTEREST. In order to secure the performance and payment of
all liabilities and obligations of Debtor under or related to the Royalty
Agreement (the "Debtor's Obligation" or "Obligation"), Debtor hereby grants to
Secured Party a security interest in certain intangible property and assets
described below (the "Collateral" or the "Intellectual Property"):
2.1 GENERAL INTANGIBLES/INTELLECTUAL PROPERTY. With respect to the
Purchased Assets, all intellectual property, including, without
limitation, (i) all patents and patent applications (including any and all
divisions, continuations, renewals,
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reissues, extensions, continuations-in-part, reexaminations or foreign
counterparts), trademarks, service marks, trade names, copyrights,
software, technologies, formulas, compositions, processes, inventions,
trade secrets, know-how, mask works, ideas, improvements, concepts,
information, methods, studies, data, confidential and/or proprietary
information (including, without limitation, registrations, licenses and
applications pertaining thereto) and other intellectual property rights,
which were purchased by Debtor from EDI pursuant to the Asset Purchase
Agreement, and (ii) all rights to practice and use the patents and patent
applications (including any and all divisions, continuations, renewals,
reissues, extensions, continuations-in-part, reexaminations or foreign
counterparts), licenses, trademarks, service marks, trade names,
copyrights, software, technologies, formulas, compositions, processes,
inventions, trade secrets, know-how, mask works, ideas, improvements,
concepts, information, methods, studies, data, confidential information
(including, without limitation, registrations, licenses and applications
pertaining thereto) and other intellectual property rights and other
proprietary information or intangible property of any kind licensed by EDI
and assigned to ART pursuant to the Asset Purchase Agreement.
2.2 PROCEEDS. All proceeds (including proceeds of insurance, eminent
domain and other governmental taking and tort claims) of the Intellectual
Property; and
2.3 BOOKS AND RECORDS. All of the books and records pertaining to
the Intellectual Property described in Sections 2.1 and 2.2 above (the
"Books and Records").
The security interest of Secured Party in the Collateral is intended to be a
first priority security interest superior and prior to all other liens and
encumbrances of any kind on the Collateral of the Debtor; provided, however, EDI
acknowledges that as of the date hereof the Collateral is subject to liens and
encumbrances created by or arising under EDI and it is EDI's responsibility to
satisfy and release all such liens and encumbrances.
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants
to Secured Party as follows:
3.1 OWNERSHIP OF COLLATERAL. Upon consummation of the transactions
contemplated in the Asset Purchase Agreement, Debtor shall be the owner of
all of the Collateral, free from any liens and encumbrances of any kind
created by Debtor; provided, however, EDI acknowledges that as of the date
hereof the Collateral is subject to liens and encumbrances created by or
arising under EDI and it is EDI's responsibility to satisfy and release
all such liens and encumbrances.
3.2 PLACES OF BUSINESS. The location of the chief executive
office(s) of Debtor, all of the other places of business of Debtor, all
locations where the Books and
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Records are kept, and the location of the Intellectual Property are listed
on EXHIBIT A attached hereto and made a part hereof. Debtor shall not
without providing written notice to Secured Party change the location of
(i) its chief executive office(s), (ii) its Books and Records, or (iii)
any Intellectual Property.
3.3 TRADE OR ASSUMED NAMES. All trade or assumed names under which
Debtor has done business are listed in EXHIBIT B attached hereto and made
a part hereof.
3.4 FINANCING STATEMENTS AND COLLATERAL ASSIGNMENTS. Except for the
financing statements and collateral assignments of Secured Party
pertaining to the Debtor's Obligation, Debtor has not permitted there to
be filed a financing statement or any collateral assignment covering any
Collateral or any proceeds thereof in any public office.
4. AFFIRMATIVE COVENANTS. Until the Debtor's Obligation is paid and
performed in full, Debtor agrees that it will:
4.1 TAXES. Pay promptly when due all taxes, levies, assessments and
governmental charges upon and relating to any of the Collateral, income or
receipts of Debtor or otherwise for which Debtor is or may be liable;
provided, however, Debtor shall have the right to contest any such taxes,
levies, assessments and charges, in good faith.
4.2 INSURANCE. At its sole expense, keep the Collateral insured
against loss or damage by insurance policies, as Debtor, in its reasonable
business judgment, deems appropriate.
4.3 INTELLECTUAL PROPERTY.
4.3.1 PAYMENTS. Make all payments and perform all acts
reasonably necessary as Debtor, in its reasonable business judgment
shall determine, to maintain and preserve the Intellectual Property,
including, without limitation, filing of documents, renewals or
other information with any regulatory agency or any other Person.
4.3.2 NOTICE OF LICENSES. Promptly notify Secured Party, upon
execution of reasonably required confidentiality agreements, of new
licenses relating to the Intellectual Property and provide copies of
such licenses to Secured Party.
4.3.3 ACCURATE RECORDS. At all times keep accurate and
complete records of payment and performance by Debtor and other
Persons of their
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respective obligations with respect to the Intellectual Property and
permit Secured Party or any of its agents, upon execution of
reasonably requested confidentiality agreements and, during normal
business hours and upon prior reasonable notice for reasonable
purposes, to call at Debtor's place of business to inspect, audit,
check or make extracts from the books, records, correspondence or
other data relating to the Intellectual Property.
4.3.4 DEFAULTS, OTHER CLAIMS. Promptly inform Secured Party of
any default in payment or performance by Debtor or any other Person
of any obligation with respect to the Intellectual Property or of
claims made by others in regard to the Intellectual Property, if
either of which would have a material adverse effect on the Debtor.
4.4 COLLECTION OF PROCEEDS. Collect the proceeds of indebtedness
owing to Debtor by any Person with respect to any Intellectual Property.
4.5 FINANCING STATEMENTS, FURTHER ASSURANCES, DELIVERY OF
INSTRUMENTS. Concurrently with the execution of this Agreement, and from
time to time hereafter as requested by Secured Party, execute and deliver
to Secured Party such financing statements, continuation statements,
collateral assignments of patents and trademarks, termination statements,
amendments to any of the foregoing and other documents, in form reasonably
satisfactory to Secured Party, as Secured Party may reasonably require to
perfect and continue in effect the security interest of Secured Party
granted pursuant to this Agreement, to carry out the purposes of this
Agreement and to protect Secured Party's rights hereunder. Debtor, upon
demand, shall pay the cost of filing all such financing statements,
continuation statements, termination statements, amendments to any of the
foregoing and other documents. A carbon, photographic or other
reproduction of this Agreement may be filed as a financing statement.
5. NEGATIVE COVENANTS. Until the Debtor's Obligation is paid and performed
in full, Debtor agrees that it will not:
5.1 SALES AND TRANSFER OF COLLATERAL. Sell, lease, assign or
otherwise dispose of any of the Collateral; provided, however, the
foregoing shall not in any way restrict Debtor's right to grant business
of any kind to third parties with respect to the Intellectual Property or
to grant security interests or other liens and encumbrances subordinate to
the security interests granted to EDI hereunder (the "Subordinated
Liens").
5.2 MODIFICATION. Except in the ordinary course of business, change
in any material respect the terms of payment or performance of any
obligation with respect to the Intellectual Property without the prior
written consent of Secured Party, which consent shall not be unreasonably
withheld or delayed.
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6. PROTECTION OF COLLATERAL. In the event of any failure of Debtor to (i)
maintain in force and pay for any insurance which Debtor is required to provide
pursuant to this Agreement, (ii) keep the Collateral free from all liens and
encumbrances of any kind except for licenses related thereto, any liens or
encumbrances arising under this Agreement, and any liens or encumbrances
existing on the date hereof and any Subordinated Liens, (iii) pay when due all
taxes, levies and assessments on or in respect of the Collateral; provided
however, Debtor shall have the right to contest any such taxes, levies, and
assessments, in good faith, (iv) make in Debtor's reasonable business judgment
all payments and perform all acts on the part of Debtor required to be paid or
performed with respect to any of the Collateral, including, without limitation,
all expenses of protecting, storing, warehousing, insuring, handling and
maintaining the Collateral, and (v) keep fully and perform promptly any other of
the obligations of Debtor under this Agreement; the Secured Party, at its
option, upon prior written notice to Debtor, may (but shall not be required to)
procure and pay for such insurance, pay or contest or settle such liens or taxes
or any judgments based thereon or otherwise make good any other aforesaid
failure of Debtor. Debtor shall reimburse Secured Party promptly upon demand for
all sums paid or advanced on behalf of Debtor for any such purpose, together
with all reasonable costs, expenses and attorneys' fees paid or incurred by
Secured Party in connection therewith and interest at the rate of fifteen
percent (15%) per annum on all sums so paid or advanced from the date of such
payment or advancement until repaid to Secured Party. All such sums paid or
advanced by Secured Party, with interest thereon, immediately upon payment or
advancement thereof, shall be deemed to be part of the Debtor's Obligation
secured hereby.
7. EVENT OF DEFAULT. Debtor shall be in default under this Agreement upon
the non-payment of the Royalty for more than five (5) business days following
the date when due (an "Event of Default").
8. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default:
8.1 RIGHTS OF SECURED PARTY. Secured Party shall have all of the
rights and remedies of a secured party under the Code and all other rights
and remedies accorded to Secured Party, at equity or law, including,
without limitation, the right to apply for and have a receiver appointed
by a court of competent jurisdiction to manage, protect and preserve the
Collateral and to collect all revenues and profits thereof. Any notice of
sale or other disposition of Collateral given not less than ten (10)
business days prior to such proposed action shall constitute reasonable
and fair notice of such action. To the extent permitted by Applicable Law,
Secured Party may postpone or adjourn any such sale from time to time by
announcement at the time and place of sale stated in the notice of sale or
by announcement of any adjourned sale, without being required to give a
further notice of sale. Any such sale may be for cash or, unless
prohibited by Applicable Law, upon such credit or installment terms as
Secured Party shall determine. To the extent permitted by Applicable Law,
Debtor shall be credited with the net proceeds of such sale only when such
proceeds actually are received by Secured
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Party. Despite the consummation of any such sale, Debtor shall remain
liable for any deficiency on the Debtor's Obligation which remains
outstanding following any such sale. All net proceeds received pursuant to
a sale shall be applied to the amounts outstanding under the Royalty
Agreement, in such order as Secured Party, in its reasonable discretion
shall determine.
8.2 ASSEMBLY OF COLLATERAL. Upon the request of Secured Party,
Debtor shall assemble and make the Collateral available to Secured Party
at a place designated by Secured Party.
8.3 PROCEEDS. At the request of Secured Party, Debtor shall hold all
proceeds of the Collateral collected by Debtor in trust for Secured Party,
and promptly upon receipt thereof, turn over such proceeds to Secured
Party in substantially the form in which they were received.
8.4 OTHER RIGHTS. Secured Party, at its election, and without notice
to Debtor, may:
8.4.1 TERMINATE RIGHT OF COLLECTION. Terminate the right of
Debtor to collect the proceeds described in Section 8.3.
8.4.2 NOTIFICATION. Notify obligors to make all payments
directly to Secured Party.
8.4.3 COLLECTION OF PAYMENTS. Demand, xxx for, collect or
receive, in the name of Debtor or Secured Party, any money or
property payable or receivable on any item of Collateral.
8.4.4 SETTLEMENT. Settle, release, compromise, adjust, xxx
upon or otherwise enforce any item of Collateral as Secured Party
may reasonably determine.
8.4.5 MAIL OF DEBTOR; ENDORSEMENT OF CHECKS. For the purpose
of enforcing Secured Party's rights under this Agreement, endorse
notes, checks, drafts, money orders, documents of title or other
forms of payment on behalf and in the name of Debtor.
9. POWER OF ATTORNEY. To effectuate the rights and remedies of Secured
Party under this Agreement, Debtor hereby irrevocably appoints Secured Party its
attorney-in-fact, in the name of Debtor or in the name of Secured Party, to
execute and file from time to time financing statements, continuation
statements, termination statements and amendments thereto, covering the
Collateral, in form satisfactory to Secured Party. The power of attorney granted
pursuant to this Section 9 is coupled with an interest and shall be irrevocable
until the Debtor's
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Obligation has been paid and performed in full. Secured Party shall, prior to
the occurrence of an Event of Default, notify Debtor of any action Secured Party
takes pursuant to this Section 9.
10. CERTAIN AGREEMENTS OF DEBTOR.
10.1 WAIVER OF NOTICE. Debtor hereby waives notice of the acceptance
of this Agreement.
10.2 RIGHTS OF SECURED PARTY. Debtor agrees that Secured Party (i)
shall have no duty as to the collection or protection of the Collateral or
any income thereon, (ii) may exercise the rights and remedies of Secured
Party with respect to the Collateral without resort or regard to other
security or sources for payment and (iii) shall not be deemed to have
waived any of the rights or remedies granted to Secured Party hereunder
unless such waiver shall be in writing and shall be signed by Secured
Party. Debtor and Secured Party acknowledge their intent that, upon the
occurrence of an Event of Default, Secured Party shall receive, to the
fullest extent permitted by law and governmental policy, all rights
necessary or desirable to obtain, use or sell the Collateral, and to
exercise all remedies available to Secured Party under this Agreement, the
Code or other Applicable Law. Debtor and Secured Party further acknowledge
and agree that, in the event of changes in law or governmental policy
occurring subsequent to the date hereof that affect in any manner Secured
Party's rights of access to, or use or sale of the Collateral, or the
procedures necessary to enable Secured Party to obtain such rights of
access, use or sale, Secured Party and Debtor shall amend this Agreement,
in such manner as Secured Party reasonably shall request, in order to
provide Secured Party such rights to the greatest extent possible
consistent with then Applicable Law and governmental policy.
10.3 NO DELAY, SINGLE OR PARTIAL EXERCISE PERMITTED. No delay or
omission on the part of Secured Party in exercising any rights or remedies
contained herein shall operate as a waiver of such right or remedy or of
any other right or remedy, and no single or partial exercise of any right
or remedy shall preclude any other or further exercise thereof, or the
exercise of any other right or remedy. A waiver of any right or remedy on
any one occasion shall not be construed as a bar or waiver of any right or
remedy on future occasions, and no delay, omission, waiver or single or
partial exercise of any right or remedy shall be deemed to establish a
custom or course of dealing or performance between the parties hereto.
11. RIGHTS CUMULATIVE. All rights and remedies of Secured Party pursuant
to this Agreement, the Royalty Agreement, the Asset Purchase Agreement (except
as otherwise provided therein) or otherwise, shall be cumulative and
non-exclusive, and may be exercised singularly or concurrently.
12. SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be illegal or unenforceable, such provision
shall be automatically
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reformed and construed so as to be valid, operative and enforceable to the
maximum extent permitted by law or equity while preserving its original intent.
The invalidity of any part of this Agreement shall not render invalid the
remainder of this Agreement.
13. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be: (a) sent by telex or facsimile transmission (to be
effective when receipt is acknowledged unless sent after 5:00 p.m. on any
business day, in which event notice shall be deemed received on the next
business day); (b) personally delivered; (c) sent by certified mail, return
receipt requested; or (d) sent by a nationally recognized, commercial overnight
delivery service with provisions for a receipt, postage or delivery charges
prepaid, and, except as otherwise provided in Section 13(a), shall be deemed
given when personally delivered or when placed in the possession of such mail or
delivery service, and addressed to the Parties, as follows:
To EDI: Electronic Designs, Inc.
Xxx Xxxxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000
Attn.: Xxxxx X. Xxxxxxx, Senior Vice President
Facsimile no.: (000) 000-0000
with a copy to: Xxxxxxx, Procter & Xxxx XXX
Xxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attn.: Xxxxxx X. Xxxxxx, P.C.
Facsimile no.: (000) 000-0000
To ART: Advanced Refractory Technologies, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxx 00000
Attn.: Xxxxx X. Xxxxxxx, President
Facsimile no.: (000) 000-0000
with a copy to: Damon & Xxxxx LLP
0000 Xxxxxxxxx Xxxxx
000 Xxxx Xxxxxx
Xxxxxxx, Xxx Xxxx 00000-0000
Attn.: Xxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Notice of change of address shall be given in accordance with the terms of this
Section 13 and shall be effective only upon receipt.
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14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
Secured Party and Debtor.
15. HEADINGS. The headings used herein are inserted for convenience only
and are in no way intended to describe, interpret, define or limit the scope,
extent or intent of this Agreement.
16. COUNTERPARTS. This Agreement may be executed simultaneously in Two (2)
or more counterparts, any of which shall be deemed an original, and all of which
together shall constitute one and the same instrument, notwithstanding that both
Parties are not a signatory to the original or the same counterpart.
17. SURVIVABILITY. Notwithstanding anything contained herein to the
contrary, all representations, warranties and agreements contained herein shall
survive and continue to bind the Parties after the execution and delivery of
this Agreement, until the Obligation is paid and performed in full.
18. DEFEASANCE. Upon payment in full of the Obligation, Secured Party
shall, at Debtor's expense, release the security interest in the Intellectual
Property granted under this Agreement and execute and deliver such instruments
and other documents and take such further actions as may be reasonably requested
to carry out such release, including cancellation of this Agreement by written
notice, executed on behalf of Secured Party, to the U.S. Patent and Trademark
Office.
19. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York without giving effect to the
principles of conflicts of laws.
20. DISPUTES. Each Party agrees that any dispute or controversy arising
between the Parties hereunder shall be settled in an action commenced and
maintained in the United States District Court for the Southern District of New
York, or if said Court lacks subject matter jurisdiction, then in the New York
Supreme Court, County of New York, and each Party consents to personal
jurisdiction in such courts. EDI hereby designates Xxxxxxx, Procter & Xxxx LLP,
000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 as its authorized agent for
service of process within the State of New York.
21. WAIVER OF RIGHT TO JURY TRIAL. SECURED PARTY AND DEBTOR ACKNOWLEDGE
AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT WOULD BE
BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, SECURED PARTY AND DEBTOR
AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
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22. SECURED PARTY'S RIGHT TO SPECIFIC PERFORMANCE. Debtor acknowledges and
agrees that in the event of a breach or threatened breach of any covenant by it
herein, irreparable harm will result to Secured Party and its business for which
there is no adequate remedy at law, and Debtor agrees that in the event of any
such breach or threatened breach, Secured Party shall be entitled, in addition
to all other applicable remedies, to specific performance of the terms of this
Agreement and immediate injunctive relief restraining Debtor from activity
constituting such breach or threatened breach. Nothing herein shall be construed
as prohibiting Secured Party from pursuing any other remedies available to it
for breach or threatened breach of this Agreement, including, without
limitation, the recovery of damages from Debtor.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement by
and between the Parties regarding the subject matter contained herein and
supersedes all prior and contemporaneous undertakings and agreements by and
between the Parties, whether written or oral, with respect to such subject
matter.
24. AMENDMENT. This Agreement shall not be amended except by a writing
executed by both Parties.
[remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized officers on the day and year first above written.
ELECTRONIC DESIGNS, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President
ADVANCED REFRACTORY TECHNOLOGIES,
INC.
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President
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EXHIBIT A
Location of Chief Executive Office(s),
Location of Other Places of Business,
Location of Books and Records, and
Location of Intellectual Property
Chief Executive Xxxxxx 000 Xxxxxx Xxxxxx
Xxxxxxx, XX
Other Places of Business 0000 Xxxxxxx Xxxxxx
Xxxxx Xxxxx, XX 00000
Books and Records 0000 Xxxxxxx Xxxxxx
Xxxxx Xxxxx, XX 00000
000 Xxxxxx Xxxxxx
Xxxxxxx, XX
Location of Intellectual Property 0000 Xxxxxxx Xxxxxx
Xxxxx Xxxxx, XX 00000
000 Xxxxxx Xxxxxx
Xxxxxxx, XX
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EXHIBIT B
List of Trade Names
1. ART.
