SECURITY AGREEMENT
EXHIBIT
10.6
This
Security Agreement (this
“Agreement”)
is
entered into as of August 28, 2006, between XXX.xxx., Inc., a Delaware
corporation (“Borrower”),
and
MDS Acquisition, Inc., a Delaware corporation (“Lender”).
RECITALS
WHEREAS,
Borrower has issued to Lender (i) four (4) subordinated secured convertible
promissory notes in the original aggregate principal amount of Two Million
Dollars ($2,000,000)(the “Convertible
Notes”),
and
(ii) a subordinated secured promissory note in the principal amount of Thirteen
Million Two Thousand Dollars ($13,002,000)(the “Nonconvertible
Note”,
and
together with the Convertible Notes the “Notes”),
pursuant to the Purchase Agreement, dated as of August 22, 2006, between
Borrower, Lender and Lender’s parent company, MegaPath Inc. (the “Purchase
Agreement”).
The
parties wish to enter into this Agreement to secure Borrower’s obligations under
the Notes.
NOW,
THEREFORE, IT IS AGREED THAT:
1. Definitions.
Where
applicable and except as otherwise defined herein, terms used in this Agreement
shall have the meanings assigned to them in the UCC. For purposes of this
Agreement, the following terms shall have the following meanings:
(a) “Affiliate”
means,
with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is
under
common control with such Person, and each of such Person’s senior executive
officers, directors, and partners.
(b) “Borrower’s
Books”
means
all of Borrower’s books and records including: ledgers; records concerning
Borrower’s assets or liabilities, the Collateral, business operations or
financial condition; and all computer programs, or tape files, and the
equipment, containing such information.
(c) “Collateral”
means
the personal property described in Exhibit A.
(d) “Change
of Control”
means
(a)
any
merger or consolidation of Borrower with or into any other corporation or other
entity, or any other reorganization of Borrower, in which the holders of
Borrower’s outstanding capital stock immediately prior to such transaction do
not, immediately after such transaction, retain a majority of the voting power
of the surviving entity or its parent, other than a transaction which results
in
Lender or an Affiliate of Lender holding such majority voting power, (b) any
Person or any Persons (other than Lender and/or Affiliate(s) of Lender) acting
together that would constitute a “group” for purposes of Section 13(d) under the
Securities Exchange Act of 1934, or any successor provision thereto, shall
acquire beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act, or any successor provision thereto) in a single
transaction or a series of related transactions, of more than 50% of
the
aggregate voting power of Borrower’s equity securities; or (c) any sale of all
or substantially all of Borrower’s assets, other than a sale to Lender or an
Affiliate of Lender.
(e) “Contingent
Obligation”
means,
as applied to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another, including any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or
sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect
to undrawn letters of credit, corporate credit cards, or merchant services
issued or provided for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other
agreement or arrangement designed to protect such Person against fluctuation
in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term “Contingent Obligation” shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
(f) “Copyrights”
means
any and all copyright rights, copyright applications, copyright registrations
and like protections in each work or authorship and derivative work thereof,
whether published or unpublished and whether or not the same also constitutes
a
trade secret, now or hereafter existing, created, acquired or held.
(g) “Equipment”
means
all present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which Borrower has any
interest.
(h) “ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder.
(i) “GAAP”
means
generally accepted accounting principles as from time to time set forth in
the
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements by the Financial Accounting
Standards Board or in such opinions and statements of such other entities as
shall be approved by a significant segment of the accounting profession in
the
United States.
(j) “Indebtedness”
means
(a) all indebtedness for borrowed money or the deferred purchase price of
property or services, including reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all capital lease
obligations and (d) all Contingent Obligations.
(k) “Intellectual
Property Collateral”
means
all of Borrower’s right, title, and interest in and to the
following:
2
| i. |
Copyrights,
Trademarks and Patents;
|
| ii. |
All
trade secrets, and all intellectual property rights in computer software
and computer software products now or hereafter existing, created,
acquired or held;
|
| iii. |
All
design rights which may be available to Borrower now or hereafter
existing, created, acquired or
held;
|
| iv. |
All
claims for damages by way of past, present and future infringement
of any
of the rights included above, with the right, but not the obligation,
to
xxx for and collect such damages for said use or infringement of
the
intellectual property rights identified
above;
|
| v. |
All
licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such
use to
the extent permitted by such license or rights;
|
| vi. |
All
amendments, renewals and extensions of any of the Copyrights, Trademarks
or Patents; and
|
| vii. |
All
proceeds and products of the foregoing, including all payments under
insurance or any indemnity or warranty payable in respect of any
of the
foregoing.
|
(l) “Inventory”
means
all present and future inventory in which Borrower has any interest, including
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now or
at
any time hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily out of
its
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing
any
of the above, and Borrower’s Books relating to any of the
foregoing.
(m) “Investment”
means
any beneficial ownership of (including stock, partnership interest or other
securities) any Person, or any loan, advance or capital contribution to any
Person.
(n) “Lien”
means
any lien, pledge, mortgage, or security interest.
(o) “Material
Adverse Effect”
means
a
material adverse effect on (i) the business operations or condition (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole or (ii)
the
ability of the Borrower to repay the Obligations or otherwise perform its
obligations under the Notes or (iii) the priority of Lender’s security interests
in the Collateral.
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(p) “Patents”
means
all patents, patent applications and like protections including improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
(q) “Permitted
Investments”
means:
| i. |
Investments
existing on the date stated above;
and
|
| ii. |
(i)
marketable direct obligations issued or unconditionally guaranteed
by the
United States of America or any agency or any State thereof maturing
within one (1) year from the date of acquisition thereof and (ii)
commercial paper maturing no more than one (1) year from the date
of
creation thereof and currently having rating of at least A-2 or P-2
from
either Standard & Poor’s Corporation or Xxxxx’x Investors Service.
|
(r) “Permitted
Liens”
means:
(i) Liens in favor of Lender, (ii) Liens in favor of prior secured creditors
described in Exhibit B; (iii) Liens for taxes, assessments or other governmental
charges which are not yet due and payable or which are being contested in good
faith with a reserve or other appropriate provision having been made therefore;
(iv) Liens of landlords (including security deposits under leases), carriers,
warehousemen, mechanics, materialmen and other similar liens imposed by law,
which are incurred in the ordinary course of business for sums not more than
ninety (90) days delinquent or which are being contested in good faith;
provided
that a
reserve or other appropriate provision shall have been made therefor; (v) Liens
incurred or deposits made in the ordinary course of business in connection
with
workers’ compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations,
surety, stay, customs and appeal bonds, regulatory bonds, bids, leases,
government contracts, trade contracts, performance and return of money bonds
and
other similar obligations (exclusive of obligations for the payment of borrowed
money); (vi) Liens securing contingent reimbursement obligations under letters
of credit; (vii) Liens on equipment and related software to secure (1) the
purchase price and related soft costs of such equipment and related software,
as
applicable, or (2) lease obligations or indebtedness incurred solely for
the purpose of financing the acquisition of such equipment and related software;
provided that
such
Liens are confined solely to the equipment and related software so acquired,
and
the proceeds thereof, and the amount secured does not exceed the acquisition
price thereof; (viii) liens on equipment and related software when acquired;
(ix) licenses or sublicenses and any interest or title of a licensor or licensee
under any license or sublicense; (x) Liens on xxxxxxx money deposits required
under a letter of intent or purchase agreement; (xi) Liens on escrowed cash,
representing a portion of the proceeds of sales or other transactions,
established to satisfy contingent post closing obligations (including earn-outs,
indemnities and working capital adjustments); (xii) leases or subleases granted
in the ordinary course of business; (xiii) Liens in favor of customs and revenue
authorities which secure payment of customs duties in connection with the
importation of goods; (xiv) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of real property or minor imperfections in title thereto
which, in the aggregate, are not material in amount, and which do not, in the
aggregate, materially detract from the value of the real property of Borrower;
(xv) Liens consisting of bankers’ liens and rights of setoff, in each case,
arising by
4
operation
of law, and Liens on documents presented in letter of credit drawings; (xvi)
assignments of uncollectible accounts receivable to collection agencies in
the
ordinary course of business; and (xvii) any zoning or similar law or right
reserved to or vested in any governmental authority to control or regulate
the
use of any real property.
(s) “Permitted
Indebtedness”
means:
(i) Indebtedness
existing on the date hereof and disclosed in the Schedule hereto;
(ii) Indebtedness
secured by a Lien described in clause (vii) of the defined term “Permitted
Liens”;
(iii) Subordinated
Debt; and
(iv) Indebtedness
incurred to refinance any Indebtedness permitted under the foregoing clauses,
provided that (1) the principal amount of such Indebtedness does not exceed
the principal amount of the Indebtedness being refinanced, (2) such
Indebtedness has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the Indebtedness being refinanced,
and
(3) the interest rate with respect to such Indebtedness is less than or
equal to that of the Indebtedness being refinanced. “Weighted Average Life to
Maturity” means, when applied to any Indebtedness at any date, the number of
years obtained by dividing (a) the sum of the products obtained by
multiplying (x) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal, including payment
at final maturity, in respect thereof, by (y) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date
and
the making of such payment, by (b) the then outstanding principal amount of
such Indebtedness.
(t) “Person”
means
any individual, sole proprietorship, partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or governmental agency.
(u) “Regulated
Entity”
means
DSLnet Communications, LLC and DSLnet Communications VA, Inc.
(v) “Subordinated
Debt”
means
any indebtedness incurred by Borrower that is subordinated to the debt owing
by
Borrower to Lender on terms acceptable to Lender (and identified as being such
by Borrower and Lender).
(w) “Subsidiary”
means
any corporation, company or partnership in which (i) any general partnership
interest or (ii) more than 50% of the stock or other units of ownership which
by
the terms thereof has the ordinary voting power to elect the board of directors,
managers or trustees of the entity, at the time as of which any determination
is
being made, is owned by Borrower, either directly or through an Affiliate of
Borrower.
5
(x) “Trademarks”
means
any trademark and servicemark rights, whether registered or not, applications
to
register and registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and symbolized by such
trademarks.
(y) “UCC”
means
the Uniform Commercial Code as in effect in the State of Delaware from time
to
time.
Capitalized
terms used in this Agreement and not otherwise defined herein shall have the
meanings set forth in the Purchase Agreement.
2. Grant
of Security Interest.
(a) Security
Interest.
As
security for the payment and performance of the Obligations (as defined below),
Borrower hereby grants to Lender a continuing security interest in all of
Borrower’s right, title and interest in and to in the Collateral.
(b) Obligations
Secured.
The
security interest granted hereunder secures payment and performance of all
obligations of Borrower to Lender under this Agreement and all obligations
of
Borrower to Lender under the Notes, including all unpaid principal of the Notes,
all interest accrued thereon, and all other amounts payable by Borrower to
Lender under the Notes, whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, including any interest
that accrues after the commencement of an Insolvency Proceeding (collectively,
the “Obligations”).
(c) Authorization
to File Financing Statement.
Borrower authorizes Lender to file one or more financing statements describing
the Collateral with the Secretary of State of the State of Delaware. Lender
shall promptly provide Borrower with copies of all such financing statements
filed.
3. Affirmative
Covenants.
So long
as the Obligations remain outstanding (other than contingent indemnification
obligations), Borrower covenants to Lender that it will do all of the
following:
(a) Good
Standing.
Borrower
shall maintain its and each of its Subsidiaries’ corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification as
a
foreign corporation in each jurisdiction in which it is required under
applicable law, except for those jurisdictions where Borrower determines to
relinquish its CLEC permit or to otherwise cease providing services. Borrower
shall maintain, and shall cause each of its Subsidiaries to maintain, in force
all licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
(b) Government
Compliance.
Borrower shall meet, and shall cause each Subsidiary to meet, the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply,
with
all statutes, laws, ordinances and government rules and regulations to which
it
is subject, noncompliance with which could have a Material Adverse
Effect.
6
(c) Protection
of Collateral.
Borrower shall keep the Collateral in good condition and repair, maintain,
preserve, defend and protect the Collateral from loss, damage or deterioration
(ordinary wear and tear excepted), except to the extent Borrower has determined,
in its reasonable business judgment, that such Collateral is no longer useful
in
the operation of its business.
(d) Notice
of Certain Actions; Location of Collateral.
Borrower shall give prompt written notice to Lender of: (i) any change in the
location of its chief executive office; (ii) any change in its corporate name;
(iii) any change its jurisdiction of organization; and (iv) any change in its
executive officers.
(e) Inspection.
Upon
reasonable prior written notice, Borrower shall provide a representative of
Lender with access to the Collateral and all books and records relating thereto
for the purpose of conducting an inspection and audit of the Collateral, at
Lender’ sole cost and expense, at reasonable times during regular business
hours.
(f) Insurance.
Borrower shall carry and maintain in full force and effect, at its own expense
and with financially sound and reputable insurance companies, insurance with
respect to the Collateral in such amounts, with such deductibles and covering
such risks as is customarily carried by companies engaged in the same or similar
businesses of similar size and owning similar properties in the localities
where
it operates or as reasonably determined by its Board of Directors or executive
officers.
(g) Taxes.
Borrower shall make, and shall cause each of its Subsidiaries to make, due
and
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Lender, on demand, appropriate certificates attesting to the payment
or deposit thereof; and Borrower will make, and will cause each of its
Subsidiaries to make, timely payment or deposit of all material tax payments
and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower or such Subsidiary has
made such payments or deposits; provided that Borrower or a Subsidiary need
not
make any payment if the amount or validity of such payment is being contested
in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower or such Subsidiary.
(h) Intellectual
Property Rights.
i. Within
forty-five (45) days after the end of each fiscal quarter, Borrower shall give
Lender written notice of any applications or registrations of intellectual
property rights filed with the United States Patent and Trademark Office during
such fiscal quarter, including the date of such filing and the registration
or
application numbers, if any. Borrower (i)shall give Lender not less than 30
days
prior written notice of the filing of any applications or registrations with
the
United States Copyright Office, including the title of such intellectual
property rights to be registered, as such title will appear on such applications
or registrations, and the date such applications or registrations will be filed,
and (ii) prior to the filing of any such applications or registrations, shall
execute such documents as Lender may reasonably request for Lender to maintain
its perfection in such intellectual property rights to be registered by
Borrower, and upon the request
7
of
Lender, shall file such documents simultaneously with the filing of any such
applications or registrations. Upon filing any such applications or
registrations with the United States Copyright Office, Borrower shall promptly
provide Lender with (i) a copy of such applications or registrations, without
the exhibits, if any, thereto, (ii) evidence of the filing of any documents
requested by Lender to be filed for Lender to maintain the perfection and
priority of its security interest in such intellectual property rights, and
(iii) the date of such filing.
ii. Borrower
shall execute and deliver such additional instruments and documents from time
to
time as Lender shall reasonably request to perfect and maintain the priority
of
Lender’s
security interest in the Intellectual Property Collateral. Borrower shall (i)
protect, defend and maintain the validity and enforceability of the trade
secrets, Trademarks, Patents and Copyrights to the extent that the failure
to do
so could be reasonably expected to have a Material Adverse Effect, (ii) use
commercially reasonable efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Lender in writing of material
infringements detected and (iii) not allow any material Trademarks, Patents
or
Copyrights to be abandoned, forfeited or dedicated to the public without the
written consent of Lender, which shall not be unreasonably
withheld.
iii. Lender
shall have the right, but not the obligation, to take, at Borrower’s sole
expense, any actions that Borrower is required under this section to take but
which Borrower fails to take, after 15 days’ notice to Borrower. Borrower agrees
to reimburse and indemnify Lender for all reasonable and documented costs and
reasonable expenses incurred in the reasonable exercise of its rights under
this
section.
(i) Further
Assurances.
From
time to time, Borrower shall execute, deliver, file and record such further
instruments, endorsements and other documents, and take such further action
as
Lender may reasonably request to perfect and continue the perfection, maintain
the priority of, or provide notice of, Lenders’ security interest in the
Collateral.
4. Negative
Covenants.
So long
as the Obligations remain outstanding (other than contingent indemnification
obligations), Borrower covenants to Lender that it will not do any of the
following:
(a) Clear
Title.
Grant
or suffer to exist any Lien against any of the Collateral, other than Permitted
Liens.
(b) Dispositions.
Convey,
sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”),
or
permit any of its Subsidiaries to Transfer, all or any part of its material
business properties or assets, other than: (i) Transfers of Inventory in the
ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; or (iii) Transfers of worn-out, obsolete,
excess or retired (i.e.,
no
longer actively deployed) Equipment.
(c) Indebtedness.
Create,
incur, assume or be or remain liable with respect to any indebtedness, or permit
any Subsidiary so to do, other than Permitted Indebtedness.
8
(d) Distributions;
Splits; Reclassifications; Etc.
Declare, set aside, make or pay any dividends or other distribution, payable
in
cash, stock, property or otherwise, with respect to any of its capital stock,
or
split, combine, subdivide, redeem or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock, or permit
any
Subsidiary to take any of the foregoing described actions.
(e) Investments.
Directly or indirectly acquire or own, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, other than Permitted
Investments; or maintain or invest any of its property with a Person other
than
Lender or permit any of its Subsidiaries to do so unless such Person has entered
into an account control agreement with Lender in form and substance satisfactory
to Lender; or suffer or permit any Subsidiary to be a party to, or be bound
by,
an agreement that restricts such Subsidiary from paying dividends or otherwise
distributing property to Borrower.
(f) Transactions
with Affiliates.
Directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction with
a non-affiliated Person.
(g) Subordinated
Debt.
Make
any payment in respect of any Subordinated Debt, or permit any of its
Subsidiaries to make any such payment, except in compliance with the terms
of
such Subordinated Debt, or amend any provision contained in any documentation
relating to the Subordinated Debt without Lender’s prior written
consent.
(h) [Intentionally
Omitted].
(i) Compliance.
Become
an “investment company” or be controlled by an “investment company,” within the
meaning of the Investment Company Act of 1940, or become principally engaged
in,
or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of any loan secured hereby for such purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal
Fair
Labor Standards Act or violate any law or regulation, which violation could
reasonably be expected to have a Material Adverse Effect, or a material adverse
effect on the Collateral or the priority of Lender’s Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing.
(j) Negative
Pledge Agreements.
Permit
the inclusion in any contract to which Borrower becomes a party (other than
the
documents evidencing and relating to the loans extended by Laurus Master Fund,
Ltd.) of any provisions that could restrict or invalidate the creation or
enforcement of a security interest in any of Borrower’s property.
(k) Capital
Stock.
Issue,
sell, pledge, dispose of, grant, encumber, authorize or propose the issuance,
sale, pledge, disposition, grant or encumbrance of any shares of its capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to
9
acquire
any shares of such capital stock or any other ownership interest (including,
without limitation, any phantom interest, but excluding any shares of common
stock issued upon conversion of the Convertible Notes), of Borrower or any
of
the Subsidiaries, other than issuances of shares of common stock pursuant to
the
Plans or upon exercise of options, warrants or other convertible securities
outstanding as of the date hereof.
(l) Corporate
Governance Matters.
Amend
or waive any provisions of its Certificate of Incorporation or Bylaws, or change
the number of directors on Borrower’s Board of Directors, other than as
contemplated by the Purchase Agreement.
(m) Mergers
or Acquisitions.
Merge
or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with
or into any other non-Affiliate business organization, other than Lender or
its
Affiliates, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another
Person.
5. Events
of Default; Remedies.
(a) The
occurrence of any one or more of the following events shall constitute an
“Event
of Default”
hereunder:
(i) Borrower’s
failure to pay any amount payable under either of the Notes in accordance with
the terms thereof; provided,
however,
that
Borrower shall have three (3) business days in which to cure any failure to
pay
interest due under any of the Notes;
(ii) Borrower’s
failure to issue any Common Stock issuable under any of the Convertible Notes
in
accordance with the terms thereof upon Lender’s exercise of the Conversion
Right, as defined in such Convertible Note;
(iii) Borrower’s
breach of any representation and warranty made to Lender in any of the
Transaction Documents or Borrower’s breach of any covenant under any of the
Transaction Documents which is not cured within ten (10) business days of the
earlier of Borrower learning of such breach or of notice thereof from Lender;
provided,
however,
that if
the cure will take more than ten (10) business days and Borrower is diligently
pursuing such cure during such ten (10) business day period, then an Event
of
Default shall not occur with respect to such breach if it is cured within twenty
(20) business days of the earlier of an officer of Borrower learning of such
breach or receipt by Borrower of notice thereof from Lender;
(iv) Borrower
(A) has an order for relief entered against it under the federal Bankruptcy
Code, (B) makes an assignment for the benefit of creditors, (C) applies for
or
seeks the appointment of a receiver, liquidator, assignee, trustee or other
similar official for it or of any substantial part of its property or any such
official is appointed, other than upon Borrower’s request, and such unrequested
appointment continues for sixty (60) days, (D) institutes proceedings seeking
an
order for relief under the federal Bankruptcy Code or seeking to adjudicate
it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or any of its
debts
under other applicable federal or state law relating to creditor rights and
remedies, or any such proceeding is filed against it, other than upon Borrower’s
request,
10
and
such
unrequested proceeding continues undismissed or unstayed for thirty (30) days,
or (E) takes corporate action in furtherance of any of the foregoing
actions;
(v) the
occurrence and continuance of any default under any lease or agreement for
borrowed money having an outstanding principal amount in excess of $100,000
that
gives the lessor or the creditor of such indebtedness, as applicable, the right
to accelerate the lease payments or the indebtedness, as applicable, or the
right to exercise any rights or remedies with respect to any of the Collateral;
(vi) the
entry
of any judgment or order against Borrower which remains unsatisfied or
undischarged and in effect for forty-five (45) days after such entry without
a
stay of enforcement or execution;
(vii) the
occurrence of a Change of Control; or
(viii) any
material portion of Borrower’s assets is attached, seized, subjected to a writ
or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged
or
rescinded within ten (10) business days, or Borrower is enjoined, restrained,
or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs.
(b) Upon
the
occurrence and during the continuance of any Event of Default, Lender, may
at
any time, do any of the following:
(i) accelerate
the payment of the amounts owing under the Notes;
(ii) enforce
the Notes by exercise of the rights and remedies under this Agreement or granted
to Lender by applicable law; and
(iii) exercise,
in addition to all other rights and remedies granted in this Agreement, all
rights and remedies of a secured party under the UCC and other applicable
laws.
(c) Without
limiting the generality of the foregoing provisions in Section 5(b), Lender
shall have the right to sell or otherwise dispose of all or any part of the
Collateral, either at public or private sale, in lots or in bulk, for cash
or
for credit, with or without warranties or representations, and upon such terms
and conditions, all as Lender, in its sole discretion, may deem advisable,
and
it shall have the right to purchase at any such sale. Borrower agrees that
a
notice sent at least fifteen (15) days before the time of any intended public
sale or of the time after which any private sale or other disposition of the
Collateral is to be made shall be reasonable notice of such sale or other
disposition. The proceeds of any such sale or other Collateral disposition
shall
be applied, first to the expenses of retaking, holding, storing, processing
and
preparing for sale, selling, and the like, and to Lender’s reasonable and
documented attorneys’ fees and legal expenses, and then to the Obligations and
to the payment of any other amounts required by applicable law, after which
Lender shall account to Borrower for any surplus proceeds. If, upon the sale
or
other disposition of the Collateral, the proceeds thereof are insufficient
to
pay all amounts to which Lender is legally
11
entitled,
Borrower shall be liable for the deficiency, together with interest thereon
at
the default rate specified in the Notes, and the reasonable and documented
fees
of any attorneys Lender employs to collect such deficiency; provided,
however,
that
the foregoing shall not be deemed to require Lender to resort to or initiate
proceedings against the Collateral prior to the collection of any such
deficiency from Borrower. To the extent permitted by applicable law, Borrower
waives all claims, damages and demands against Lender arising out of the
retention or sale or lease of the Collateral or other exercise of Lender’s
rights and remedies with respect thereto.
(d) To
the
extent permitted by law, Borrower covenants that it will not at any time insist
upon or plead, or in any manner whatever claim or take any benefit or advantage
of, any stay or extension law now or at any time hereafter in force, nor claim,
take or insist upon any benefit or advantage of or from any law now or hereafter
in force providing for the valuation or appraisal of the Collateral or any
part
thereof, prior to any sale or sales thereof to be made pursuant to any provision
herein contained, or the decree, judgment or order of any court of competent
jurisdiction; or, after such sale or sales, claim or exercise any right under
any statute now or hereafter made or enacted by any state or otherwise to redeem
the property so sold or any part thereof, and, to the full extent legally
permitted, hereby expressly waives all benefit and advantage of any such law
or
laws, and covenants that it will not invoke or utilize any such law or laws
or
otherwise hinder, delay or impede the execution of any power herein granted
and
delegated to Lender, but will suffer and permit the execution of every such
power as though no such power, law or laws had been made or
enacted.
(e) Any
sale,
whether under any power of sale hereby given or by virtue of judicial
proceedings, shall operate to divest all Borrower’s right, title, interest,
claim and demand whatsoever, either at law or in equity, in and to the
Collateral sold, and shall be a perpetual bar, both at law and in equity,
against Borrower, its successors and assigns, and against all persons and
entities claiming the Collateral sold or any part thereof under, by or through
Borrower, its successors or assigns.
(f) Borrower
appoints Lender, and any officer, employee or agent of Lender, with full power
of substitution, as Borrower’s true and lawful attorney-in-fact, effective as of
the date hereof, with power, in its own name or in the name of Borrower, during
the continuance of an Event of Default, to endorse any notes, checks, drafts,
money orders, or other instruments of payment in respect of the Collateral
that
may come into Lender’s possession, to sign and endorse any drafts against
debtors, assignments, verifications and notices in connection with accounts,
and
other documents relating to Collateral; to pay or discharge taxes or Liens
at
any time levied or placed on or threatened against the Collateral; to demand,
collect, issue receipt for, compromise, settle and xxx for monies due in respect
of the Collateral; to notify parties obligated with respect to the Collateral
to
make payments directly to Lender; and, generally, to do, at Lender’s option and
at Borrower’s expense, at any time, or from time to time, all acts and things
which Lender deems necessary to protect, preserve and realize upon the
Collateral and Lender’s security interest therein to effect the intent of this
Agreement, all as fully and effectually as Borrower might or could do; provided
that Lender provides Borrower with prompt notice of such actions having been
taken and Borrower hereby ratifies all that said attorney shall lawfully do
or
cause to be done by virtue hereof. This power of attorney shall be irrevocable
as long as any of the Obligations are outstanding.
12
(g) All
of
Lender’s rights and remedies with respect to the Collateral, whether established
hereby or by any other agreements, instruments or documents or by law shall
be
cumulative and may be exercised singly or concurrently.
6. Term.
The
term of this Agreement shall begin on the date stated above and shall continue
and be binding upon Borrower until all Obligations have been fully paid (other
than contingent indemnification obligations).
7. Miscellaneous.
(a) Indemnity.
Borrower shall defend, indemnify and hold harmless Lender and its stockholders,
directors, officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement and the Notes;
and (b) all losses and expenses in any way suffered, incurred, or paid by
Lender as a result of or in any way arising out of, following, or consequential
to transactions between Lender and Borrower whether under this Agreement or
the
Notes, or otherwise (including reasonable and documented attorneys’ fees and
expenses), except for losses caused by Lender’s gross negligence or willful
misconduct. The
indemnity under this Section 7(a) shall survive payment, performance and
discharge of the Obligations and the
termination of this Agreement until applicable statutes of limitations for
actions that may be brought against Lender have run.
(b) Limitation
on Lender’ Duty in Respect of Collateral.
Lender
shall not have any obligation or liability under any contract or license by
reason of or arising out of this Agreement or the granting of a security
interest therein or the receipt of any payment relating to any contract or
license pursuant hereto, nor shall Lender be required or obligated in any manner
to perform or fulfill any of Borrower’s obligations under or pursuant to any
contract or license, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency
of
any performance by any party under any contract or license, or to present or
file any claim, or to take any action to collect or enforce any performance
or
the payment of any amounts which may have been assigned to it or to which it
may
be entitled at any time or times. Lender shall be deemed to have acted
reasonably in the custody, preservation and disposition of any of the Collateral
if it takes such action as Borrower requests in writing, but Lender’s failure to
comply with any such request shall not in itself be deemed a failure to act
reasonably, and no failure of Lender to do any act not so requested shall be
deemed a failure to act reasonably.
(c) Governing
Law.
This
Agreement is governed by and shall be construed in accordance with the laws
of
the State of Delaware, without reference to the conflicts of law provisions
thereof
except
as required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder,
in
respect of any Collateral are governed by the law of a jurisdiction other than
Delaware.
(d) Severability
of Provisions. If
any
one or more of the provisions contained in this Agreement shall for any reason
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision hereof,
and
this
13
Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(e) Time
of the Essence.
Time is
of the very essence of this Agreement.
(f) Notices.
All
notices required or permitted hereunder shall be in writing and shall be given,
and be deemed effective, in accordance with Section 8(f) of the Purchase
Agreement.
(g) Waiver;
Amendment.
No
failure or delay on Lender’s part in the exercise of any right or remedy, power
or privilege shall operate as a waiver thereof. No single or partial exercise
of
a right or remedy, power or privilege shall preclude other or further exercise
thereof. No waiver of any right hereunder shall be effective unless in a writing
executed by Lender and Borrower. Any
such
waiver shall be effective only for the specific purpose for which it is given.
The rights and remedies under this Agreement are cumulative and not exclusive
of
any other rights, remedies, powers or privileges that may otherwise the
available to Lender. No
provision of this Agreement may be amended, waived or modified or rights
modified or released, other than by a document signed by Borrower and Lender.
This Agreement may be amended, waived or modified upon the written consent
of
Borrower and Lender.
(h) Binding
Effect.
This
Agreement shall be binding upon, and shall inure to the benefit of, Borrower
and
Lender and their respective successors and assigns; provided,
however,
that
(i) Borrower’s rights and obligations shall not be assigned or delegated without
Lender’s prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void ab initio,
and
(ii) Lender may not assign any of the Obligations, or its rights and obligations
hereunder, to any Person that is not an Affiliate of Lender.
(i) Counterparts.
This
Agreement may be executed by facsimile and in any number of counterparts and
by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall
constitute but one and the same agreement.
[Signature
Page Follows]
14
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
|
XXX.XXX,
INC.
By: /s/
Xxxxx X.
Xxxxxxx
Name:
Xxxxx
X.
Xxxxxxx
Title:
President
& Chief Executive
Officer
|
MDS
ACQUISITION, INC.
By:
/s/
D. Xxxxx
Xxxxx
Name:
D.
Xxxxx
Xxxxx
Title:
Chief
Executive
Officer
|
EXHIBIT
A
COLLATERAL
DESCRIPTION
All
personal property of XXX.xxx, Inc. (herein referred to as “Borrower”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a)
all
accounts (including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), deposit accounts, documents (including
negotiable documents), equipment (including all accessions and additions
thereto), general intangibles (including payment intangibles and software),
goods (including fixtures), instruments (including promissory notes), inventory
(including all goods held for sale or lease or to be furnished under a contract
of service, and including returns and repossessions), investment property
(including securities and securities entitlements), letter of credit rights,
money, and all of Borrower’s books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;
(b)
all
common law and statutory copyrights and copyright registrations, applications
for registration, now existing or hereafter arising, in the United States of
America or in any foreign jurisdiction, obtained or to be obtained on or in
connection with any of the forgoing, or any parts thereof or any underlying
or
component elements of any of the forgoing, together with the right to copyright
and all rights to renew or extend such copyrights and the right (but not the
obligation) of Lender to xxx in its own name and/or in the name of Borrower
for
past, present and future infringements of copyright;
(c)
all
trademarks, service marks, trade names and service names and the goodwill
associated therewith, together with the right to trademark and all rights to
renew or extend such trademarks and the right (but not the obligation) of Lender
to xxx in its own name and/or in the name of Borrower for past, present and
future infringements of trademark provided that the Collateral shall not include
any intent to use filings;
(d)
all
(i)
patents and patent applications filed in the United States Patent and Trademark
Office or any similar office of any foreign jurisdiction, and interests under
patent license agreements, including the inventions and improvements described
and claimed therein, (ii) licenses pertaining to any patent whether Borrower
is
licensor or licensee, (iii) income, royalties, damages, payments, accounts
and
accounts receivable now or hereafter due and/or payable under and with respect
thereto, including damages and payments for past, present or future
infringements thereof, (iv) right (but not the obligation) to xxx in the name
of
Borrower and/or in the name of Lender for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all
jurisdictions in which such patents have been issued or applied for, and
(vi) reissues, divisions, continuations, renewals, extensions and
continuations-in-part with respect to any of the foregoing; and
(e)
any
and
all cash proceeds and/or noncash proceeds of any of the foregoing, including
insurance proceeds, and all supporting obligations and the security therefor
or
for any right to payment.
All
terms
above have the meanings given to them in the Delaware Uniform Commercial Code,
as amended or supplemented from time to time.
The
Collateral shall not include (i) any equity interests in Regulated Entities,
or
(ii) any lease, license, contract, property right or agreement to which Borrower
is a party or any of its rights or interests thereunder if and only for so
long
as the grant of a security interest hereunder shall constitute or result in
a
breach, termination or default under any such lease, license, contract, property
right or agreement (other than to the extent that any such term would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the
Uniform Commercial Code of any relevant jurisdiction or any other applicable
law
or principles of equity); provided,
however,
that
such security interest shall attach immediately to any portion of such lease,
license, contract, property rights or agreement that does not result in any
of
the consequences specified above.
2
EXHIBIT
B
EXISTING
SECURED CREDITORS
| 1. |
Liens
securing that certain Amended and Restated Secured Convertible Minimum
Borrowing Note, dated June 2, 2006, in the principal amount of $4,250,000,
payable to Laurus Master Fund, Ltd. and all amounts owing in respect
of
the agreements related thereto.
|
| 2. |
Liens
securing that certain Amended and Restated Secured Revolving Note,
dated
June 2, 2006, in the principal amount of $750,000, payable to Laurus
Master Fund, Ltd. and all amounts owing in respect of the agreements
related thereto.
|
SCHEDULE
Existing
Indebtedness
The
Indebtedness secured by the Liens described in Exhibit B.
