EXHIBIT 10.2
EXECUTION COPY
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT is entered into as of May 22, 2002 (as
from time to time amended, modified, restated, supplemented and in effect, this
"Security Agreement"), by and between ImageWare Systems, Inc., a California
corporation ("Grantor"), in favor of Perseus 2000, L.L.C., a Delaware limited
liability company (the "Secured Party"), as agent for itself and the other
holders from time to time of the Notes (as defined below) (collectively, the
"Note Holders").
RECITALS
A. Grantor and the Secured Party have entered into a Note and Warrant
Purchase Agreement dated as of May 22, 2002 (the "Purchase Agreement") pursuant
to which Grantor has issued to the Secured Party Senior Secured Convertible
Promissory Notes dated of even date herewith in the aggregate principal amount
of Two Million Dollars ($2,000,000) (together with any Senior Secured
Convertible Promissory Notes issued in payment of interest on any Note and any
Additional Notes issued at the Additional Closing, each, a "Note" and
collectively, the "Notes"). The purchase and sale of the Notes is governed by
the Purchase Agreement.
B. In order to induce the Secured Party to make the loan evidenced by the
Notes, and in consideration therefor, Grantor has agreed to pledge, collaterally
assign and grant to the Secured Party, as agent for itself and any other future
Note Holders, a perfected lien on and security interest in all of Grantor's
assets and properties (including, but not limited to, all outstanding shares of
capital stock of each subsidiary of Grantor, except as otherwise provided
herein), whether now or hereafter existing, owned or acquired, all pursuant to
the terms of this Security Agreement in order to secure (i) the due and punctual
payment of (A) any current or future principal and interest (including, without
limitation, interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Notes, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, and (B) all other monetary obligations, including but not limited to,
fees, costs, expenses and indemnities, whether primary, secondary, direct,
contingent, fixed or otherwise (including monetary obligations incurred during
the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding regardless of whether allowed or allowable in such proceeding), of
Grantor now or hereafter due under the Notes or this Security Agreement, and
(ii) the due and punctual performance of all covenants, agreements, obligations
and liabilities of Grantor now or hereafter due under or pursuant to the Notes,
the Purchase Agreement or this Security Agreement (collectively, the
"Obligations").
C. It is a condition precedent to the making of the loan evidenced by the
Notes that Grantor execute and deliver this Security Agreement.
NOW, THEREFORE, for and in consideration of the covenants and provisions
set forth herein, and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor agrees as follows:
ARTICLE 1
SECURITY INTEREST
1.1 GRANT OF SECURITY INTEREST. As security for the Obligations, Grantor
hereby collaterally assigns, pledges and grants a continuing and unconditional
security interest to the Secured Party, its successors and assigns, in and to
all of the following:
(a) all equipment (including all "Equipment" as defined in Section
9102(a)(33) of the Uniform Commercial Code as in effect from time to time in the
State of California (such code, together with any other successor or applicable
adoption of the Uniform Commercial Code in any applicable jurisdiction, the
"Code")) machinery, vehicles, fixtures, improvements, supplies, office
furniture, fixed assets, all as now owned or hereafter acquired by Grantor or in
which Grantor has or hereafter acquires any interest, and any items substituted
therefor as replacements and any additions or accessions thereto;
(b) all goods (including all "Goods" as defined in Section
9102(a)(44) of the Code) and all inventory (including all "Inventory" as defined
in Section 9102(a)(48) of the Code) of Grantor, now owned or hereafter acquired
by Grantor or in which Grantor has or hereafter acquires any interest, including
but not limited to, raw materials, scrap inventory, work in process, products,
packaging materials, finished goods, all documents of title, chattel paper and
other instruments covering the same and all substitutions therefor and additions
thereto (all of the property described in this clause (b) being hereinafter
collectively referred to as "Inventory");
(c) all present and future accounts in which Grantor has or hereafter
acquires any interest (including all "Accounts" as defined in Section 9102(a)(2)
of the Code), contract rights (including all rights to receive payments and
other rights under all equipment and other leasing contracts) and rights to
payment and rights or accounts receivable evidencing or representing
indebtedness due or to become due Grantor on account of goods sold or leased or
services rendered, claims, instruments and other general intangibles (including
tax refunds, royalties and all other rights to the payment of money of every
nature and description), including but not limited to, any such right evidenced
by chattel paper, and all liens, securities, guaranties, remedies, security
interests and privileges pertaining thereto (all of the property described in
this clause (c) being hereinafter collectively referred to as "Accounts");
(d) all investment property now owned or hereafter acquired by
Grantor (including all "Investment Property" as defined in Section 9102(a)(49)
of the Code), including, without limitation, all securities (certificated and
uncertificated), securities accounts, securities entitlements, commodity
contracts and commodity accounts, excluding any of the foregoing also excluded
by the immediately following paragraph (e);
(e) (i) all of the shares of capital stock of whatever class of
the Issuers, now owned or hereafter acquired by Grantor, together with in each
case the
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certificates representing the same and 66 2/3% of the shares of capital
stock of whatever class of the Foreign Issuers, now owned or hereafter acquired
by Grantor, together with in each case the certificates representing the same
(collectively, the "PLEDGED STOCK");
(ii) all shares, securities, moneys or property representing
a dividend on, or a distribution or return of capital in respect of any of the
Pledged Stock, resulting from a split-up, revision, reclassification or other
like change of any of the Pledged Stock or otherwise received in exchange for
any of the Pledged Stock and all Equity Rights issued to the holders of, or
otherwise in respect of, any of the Pledged Stock; and
(iii) without affecting the obligations of Grantor under any
provision prohibiting such action under any loan document, in the event of any
consolidation or merger in which any Issuer is not the surviving corporation,
all shares of each class of the capital stock of the successor corporation
(unless such successor corporation is Grantor itself) formed by or resulting
from such consolidation or merger (collectively, and together with the property
described in clauses (i) and (ii) above, the "STOCK COLLATERAL");
(f) all general intangibles now owned or hereafter acquired by
Grantor or in which Grantor has or hereafter acquires any interest (including
all "General Intangibles" as defined in Section 9102(a)(42) of the Code),
including but not limited to, payment intangibles (including all "Payment
Intangibles" as defined in Section 9102(a)(61) of the Code), choses in action
and causes of action and all licenses and permits (to the extent the collateral
assignment of such licenses and permits is not prohibited by applicable law),
contract rights (including but not limited to all rights under all Material
Contracts (as defined in the Purchase Agreement) and all rights to receive
payments and other rights under all equipment and other leasing contracts,
instruments and documents owned or used by Grantor, and any goodwill relating
thereto);
(g) all other property owned by Grantor or in which Grantor has or
hereafter acquires any interest, wherever located, and of whatever kind or
nature, tangible or intangible, including all Intellectual Property;
(h) all insurance policies of any kind maintained in effect by
Grantor, now existing or hereafter acquired, under which any of the property
referred to in clauses (a) through (f) above is insured, including but not
limited to, any proceeds payable to Grantor pursuant to such policies;
(i) all moneys, cash collateral, chattel paper (including all
"Chattel Paper" as defined in Section 9102(a)(11) of the Code), checks, notes,
bills of exchange, documents of title, money orders, negotiable instruments,
commercial paper, and other securities, letters of credit (including all
"Letter-of-Credit Rights" as defined in Section 9102(a)(51) of the Code),
supporting obligations (including all "Supporting Obligations" as defined in
Section 9102(a)(77) of the Code), instruments (including all "Instruments" as
define in Section 9102(a)(47) of the Code), documents (including all "Documents"
as defined in Section 9102(a)(30) of the Code), deposit accounts (including
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all "Deposit Accounts" as defined in Section 9102(a)(29) of the Code), deposits
and credits from time to time whether or not in the possession of or under the
control of the Secured Party; and
(j) any consideration received when all or any part of the property
referred to in clauses (a) through (i) above is sold, transferred, exchanged,
leased, collected or otherwise disposed of, or any value received as a
consequence of possession thereof, including but not limited to, all products,
proceeds (including all "Proceeds" as defined in Section 9102(a)(64) of the
Code), cash, negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements or other documents, insurance proceeds
or proceeds of other proceeds now or hereafter owned by Grantor or in which
Grantor has an interest.
The property set forth in clauses (a) through (j) of the preceding
sentence, together with property of a similar nature which Grantor hereafter
owns or in which Grantor hereafter acquires any interest, is referred to herein
as the "Collateral."
As used in this Security Agreement, the following terms shall have the
following meanings:
"COPYRIGHT COLLATERAL" shall mean all Copyrights, whether now owned or
hereafter acquired by Grantor.
"COPYRIGHTS" shall mean, collectively, (a) all copyrights, copyright
registrations and applications for copyright registrations, (b) all renewals and
extensions of all copyrights, copyright registrations and applications for
copyright registration and (c) all rights, now existing or hereafter coming into
existence, (i) to all income, royalties, damages and other payments (including
in respect of all past, present or future infringements) now or hereafter due or
payable under or with respect to any of the foregoing, (ii) to xxx for all past,
present and future infringements with respect to any of the foregoing and (iii)
otherwise accruing under or pertaining to any of the foregoing throughout the
world.
"EQUITY RIGHTS" shall mean, with respect to any person, any outstanding
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including any stockholders' or voting trust arrangements) for the
issuance, sale, registration or voting of, or outstanding securities convertible
into, any additional shares of capital stock of any class, or partnership or
other ownership interests of any type in, such person.
"FOREIGN ISSUERS" shall mean, collectively, each subsidiary of Grantor
organized under the laws of any jurisdiction outside of the United States of
America, directly or indirectly, that is the issuer of any shares of capital
stock now owned or hereafter acquired by Grantor.
"ISSUERS" shall mean, collectively, each subsidiary of Grantor organized
under the laws of any jurisdiction within the United States of America, directly
or indirectly, that is the issuer of any shares of capital stock now owned or
hereafter acquired by Grantor.
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"INTELLECTUAL PROPERTY" shall mean all Copyright Collateral, all Patent
Collateral and all Trademark Collateral, together with (a) all inventions,
processes, production methods, proprietary information, know-how and trade
secrets; (b) all licenses or user or other agreements granted to Grantor with
respect to any of the foregoing, in each case whether now or hereafter owned or
used, including all licenses or other agreements with respect to the Copyright
Collateral, the Patent Collateral or the Trademark Collateral listed; (c) all
information, customer lists, identification of suppliers, data, plans,
blueprints, specifications, designs, drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals, materials standards, processing
standards, performance standards, catalogs, computer and automatic machinery
software and programs; (d) all field repair data, sales data and other
information relating to sales or service of products now or hereafter
manufactured; (e) all accounting information and all media in which or on which
any information or knowledge or data or records may be recorded or stored and
all computer programs used for the compilation or printout of such information,
knowledge, records or data; (f) all governmental approvals now held or hereafter
obtained by Grantor in respect of any of the foregoing; and (g) all causes of
action, claims and warranties now owned or hereafter acquired by Grantor in
respect of any of the foregoing. It is understood that Intellectual Property
shall include all of the foregoing owned or acquired by Grantor on a worldwide
basis.
"PATENT COLLATERAL" shall mean all Patents, whether now owned or hereafter
acquired by Grantor.
"PATENTS" shall mean, collectively, (a) all patents and patent
applications, (b) all reissues, divisions, continuations, renewals, extensions
and continuations-in-part of all patents or patent applications and (c) all
rights, now existing or hereafter coming into existence, (i) to all income,
royalties, damages, and other payments (including in respect of all past,
present and future infringements) now or hereafter due or payable under or with
respect to any of the foregoing, (ii) to xxx for all past, present and future
infringements with respect to any of the foregoing and (iii) otherwise accruing
under or pertaining to any of the foregoing throughout the world, including all
inventions and improvements described or discussed in all such patents and
patent applications.
"PERMITTED LIENS" shall mean (a) any and all liens or security interests
granted by Grantor or its subsidiaries existing on the date hereof and described
in SCHEDULE C attached hereto; (b) liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings if adequate reserves with respect to such liens
are maintained on the books of Grantor in accordance with GAAP; (c) liens (i)
upon or in any equipment acquired or held by Grantor to secure the purchase
price or lease of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, or (ii) existing on
such equipment at the time of its acquisition; provided that in each of (i) and
(ii) above, (A) the lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment and (B) the principal
amount of such indebtedness secured by any such lien shall at no time exceed the
fair market value of such equipment at the time it was acquired; (d) liens
arising from judgments, decrees or attachments to the extent and only so long as
such judgment, decree or
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attachment has not caused or resulted in an Event of Default; (e) leases,
subleases, licenses and sublicenses granted to others in the ordinary course of
Grantor's business not interfering in any material respect with the conduct of
the business of Grantor and not materially detracting from the value of the
Collateral; (f) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar liens affecting real
property not interfering in any material respect with the ordinary conduct of
business of Grantor and not materially detracting from the value of the property
subject to such lien; (g) liens incurred or deposits made in the ordinary course
of Grantor's business in connection with worker's compensation, unemployment
insurance, social security and other like laws; (h) liens in favor of customs
and revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (i) carriers',
warehousemen's, materialmen's, mechanics', landlords', repairmen's, employees'
or other like liens arising in the ordinary course of business which are not
delinquent or which are being contested in good faith by appropriate
proceedings; and (j) liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a creditor
depository institution.
"TRADEMARK COLLATERAL" shall mean all Trademarks, whether now owned or
hereafter acquired by Grantor. Notwithstanding the foregoing, the Trademark
Collateral shall not include any Trademark which would be rendered invalid,
abandoned, void or unenforceable by reason of its being included as part of the
Trademark Collateral.
"TRADEMARKS" shall mean, collectively, (a) all trade names, trademarks and
service marks, logos, trademark and service xxxx registrations and applications
for trademark and service xxxx registrations, (b) all renewals and extensions of
any of the foregoing and (c) all rights, now existing or hereafter coming into
existence, (i) to all income, royalties, damages and other payments (including
in respect of all past, present and future infringements) now or hereafter due
or payable under or with respect to any of the foregoing, (ii) to xxx for all
past, present and future infringements with respect to any of the foregoing and
(iii) otherwise accruing under or pertaining to any of the foregoing throughout
the world, together, in each case, with the product lines and goodwill of the
business connected with the use of, or otherwise symbolized by, each such trade
name, trademark and service xxxx.
1.2 PERFECTION OF SECURITY INTERESTS.
(a) Grantor hereby authorizes the Secured Party to file a financing
statement or financing statements (the "Financing Statement") describing the
Collateral in any and all jurisdictions where, and with any and all governmental
authorities with whom, the Secured Party reasonably deems such filing to be
necessary or appropriate including, without limitation, the jurisdiction of the
debtor's location for purposes of the Code, the United States Patent and
Trademark Office and the United States Copyright Office. Grantor will reimburse
the Secured Party for any and all reasonable costs, charges and expenses
(including reasonable fees of counsel) incurred in connection with such filings.
For purposes of this Section 1.2(a), the Financing Statements shall be deemed to
include any amendment, modification, assignment, continuation statement or
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other similar instrument consistent with the rights granted to the Secured Party
under this Security Agreement and the Purchase Agreement.
(b) Grantor shall have possession of the Collateral, except where as
expressly otherwise provided in this Security Agreement or where the Secured
Party chooses to perfect its security interest by possession in addition to the
filing of a Financing Statement. Where Collateral is in the possession of a
third party, Grantor will join with the Secured Party in notifying the third
party of the Secured Party's security interest therein and obtaining an
acknowledgement from the third party that it is holding the Collateral for the
benefit of the Secured Party.
(c) Grantor will cooperate with the Secured Party in obtaining
control (including "Control" as contemplated by Section 9312(b) of the Code)
with respect to Collateral consisting of deposit accounts, investment property,
letter of credit rights and electronic chattel paper.
(d) Grantor will not create any chattel paper without a legend on
such chattel paper reasonably acceptable to the Secured Party indicating that
the Secured Party has a secured interest in such Chattel Paper.
(e) Grantor shall, upon the Grantor's acquiring, or otherwise
becoming entitled to the benefits of, any Copyright (or copyrightable material),
Patent (or patentable invention), Trademark (or associated goodwill) or other
Intellectual Property or upon or prior to Grantor's filing, either directly or
through any agent, licensee or other designee, of any application with any
governmental authority for any Copyright, Patent, Trademark, or other
Intellectual Property, in each case after the date hereof, execute and deliver
such contracts, agreements and other instruments as the Secured Party may
reasonably request to evidence, validate, perfect and establish the priority of
the security interest granted by this Security Agreement in such and any related
Intellectual Property.
(f) Grantor shall deliver and pledge to the Secured Party any and all
certificates representing the Pledged Stock, accompanied by undated stock powers
duly executed in blank.
(g) Grantor shall upon the acquisition after the date hereof by
Grantor of any Stock Collateral, promptly either (x) transfer and deliver to the
Secured Party all such Stock Collateral (together with the certificates
representing such Stock Collateral securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank) or (y) take such
other action as the Secured Party shall deem reasonably necessary or appropriate
to perfect, and establish the priority of, the security interest granted by this
Security Agreement in such Stock Collateral.
1.3 INTELLECTUAL PROPERTY. For the purpose of enabling and to the extent
necessary to enable the Secured Party to exercise its rights, remedies, powers
and privileges under Article 4 at such time or times as the Secured Party shall
be lawfully entitled to exercise such rights, remedies, powers and privileges,
and for no other purpose, Grantor hereby grants to the Secured Party, to the
extent assignable, an
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irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to Grantor) to use, assign, license or sublicense any of the
Intellectual Property of Grantor, together with reasonable access to all media
in which any of the licensed items may be recorded or stored and to all computer
programs used for the compilation or printout of such items. Such license shall
terminate upon full and final payment, performance or other satisfaction of the
Obligations.
1.4 SPECIAL PROVISIONS RELATING TO STOCK COLLATERAL.
(a) So long as no Event of Default shall have occurred and be
continuing, Grantor shall have the right to exercise all voting, consensual and
other powers of ownership pertaining to the Stock Collateral for all purposes
not inconsistent with the terms of any loan document; PROVIDED, that Grantor
agrees that it will not vote the Stock Collateral in any manner that is
inconsistent with the terms of any loan document.
(b) So long as no Event of Default shall have occurred and be
continuing, Grantor shall be entitled to receive and retain any dividends on the
Stock Collateral paid in cash out of earned surplus.
(c) If any Event of Default shall have occurred and be continuing,
and whether or not the Secured Party exercises any available right to declare
any Obligation due and payable or seeks or pursues any other right, remedy,
power or privilege available to it under applicable law, this Security Agreement
or any other loan document, all dividends and other distributions on the Stock
Collateral shall be paid directly to the Secured Party, subject to the terms of
this Security Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants as of
the date hereof that:
(a) Grantor has absolute, good and marketable title to all the
Collateral, wherever and whenever acquired, free and clear of any lien, except
for Permitted Liens, and Grantor has not filed, nor is there on record, a
financing statement under the Code (or similar statement or instrument of
registration under the law of any jurisdiction) covering any Collateral except
as permitted by the Purchase Agreement and except for Permitted Liens;
(b) SCHEDULE A hereto lists, as to Grantor, (i) Grantor's chief
executive office and other place(s) of business, (ii) Grantor's legal
organizational structure and its jurisdiction of incorporation, (iii) the
address where records relating to the Collateral are maintained, (iv) any other
location of any other equipment and goods (other than mobile goods) included in
the Collateral, (v) location of leased facilities and name of lessor/sublessor
and (vi) any fictitious names used by Grantor.
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(c) Grantor has paid or will pay when due all taxes, fees,
assessments and other charges now or hereafter imposed upon the Collateral
except for any tax, fee, assessment or other charge the validity of which is
being contested in good faith by appropriate proceedings and so long as Grantor
has set aside on its books adequate reserves with respect thereto;
(d) as a result of the execution and delivery of this Security
Agreement and upon the filing of any financing statements or other documents
necessary to assure, preserve and perfect the security interest created hereby
and to the extent a lien may be perfected by filing a financing statement, the
Secured Party shall have a valid, perfected, enforceable lien on, and a
continuing security interest in, the Collateral, enforceable and superior as
such as against creditors and purchasers (other than purchasers of Inventory in
the ordinary course of business) and as against any owner of real property where
any of the equipment or Inventory is located and as against any purchaser of
such real property and any present or future creditor obtaining a mortgage or
other lien on such real property, and such lien shall be superior and prior to
all other liens, subject, in each case, only to Permitted Liens to the extent
such Permitted Liens by statute have priority equal to or greater than such
security interest;
(e) the amount that has been represented by Grantor to the Secured
Party as owing by all obligors (such obligors being hereinafter referred to as
the "Account Debtors") in the aggregate with respect to Accounts has not
materially deviated from the correct amount actually and unconditionally owing
at such time by such Account Debtors subject to set off, return and similar
rights arising in the ordinary course of business; all Accounts represent bona
fide transactions completed in accordance with the terms and provisions
contained in the invoices and other documents evidencing the same; as of the
date hereof, there are no material setoffs, counterclaims or disputes existing
or asserted with respect to Accounts subject to set off, return and similar
rights arising in the ordinary course of business, and Grantor has not made any
agreement with any Account Debtor for any material deduction therefrom except
set-off and claims arising in the ordinary course of business; to Grantor's
knowledge, all Account Debtors have the capacity to contract and are solvent; to
Grantor's knowledge the goods giving rise to Accounts are not subject to any
lien, claim or encumbrance except set-off and claims arising in the ordinary
course of business, except in favor of the Secured Party and except for
Permitted Liens and as permitted by the Purchase Agreement; and, except as set
forth herein, Grantor does not have knowledge of any fact or circumstances which
would impair the validity or collectability of Accounts;
(f) except as disclosed on Schedule 2.1(f), none of the Collateral is
held by a third party in any location as assignee, trustee, bailee, consignee or
in any similar capacity; and
(g) The Pledged Stock evidenced by the certificates described in
Section 1.1(e) hereof (i) is duly authorized, validly existing, fully paid and
nonassessable, and none of such Pledged Stock is subject to any contractual
restriction, or any restriction under the charter or by-laws of the respective
Issuer or Foreign Issuer of such Pledged Stock, upon the transfer of such
Pledged Stock (except for any such restriction contained
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in any loan document); and (ii) constitutes all of the issued and outstanding
shares of capital stock of any class of the Issuers, and approximately 66 2/3%
of the issued and outstanding shares of capital stock of any class of the
Foreign Issuers, beneficially owned by Grantor on the date hereof (whether or
not registered in the name of Grantor), and SCHEDULE B correctly identifies, as
of the date hereof, the respective Issuers or Foreign Issuers of such Pledged
Stock and the respective class of the shares comprising such Pledged Stock and
the respective number (and registered owners of) of the shares evidenced by each
such certificate.
2.2 SURVIVAL. All representations, warranties and agreements of Grantor
contained in this Security Agreement shall survive the execution, delivery and
performance of this Security Agreement until the termination of this Security
Agreement pursuant to Section 6.5 hereof.
ARTICLE 3
COVENANTS
3.1 COVENANTS. Grantor hereby covenants and agrees with the Secured Party
that so long as this Security Agreement shall remain in effect or any
Obligations shall remain unpaid or unperformed:
(a) Grantor shall promptly give written notice to the Secured Party
of any levy or attachment, execution or other process against any of the
Collateral;
(b) at Grantor's own cost and expense, Grantor shall take any and all
actions reasonably necessary or desirable to defend the Collateral against the
claims and demands of all persons other than the Secured Party, and to defend
the security interest of the Secured Party in the Collateral and the priority
thereof against any lien of any nature, except in each case for Permitted Liens;
(c) Grantor shall keep all tangible Collateral properly insured and
in good order and repair (normal wear and tear excepted) and immediately notify
the Secured Party of any event causing any material loss, damage or depreciation
in value of the Collateral in the aggregate and of the extent of such loss,
damage or depreciation;
(d) Grantor shall xxxx any Collateral that is chattel paper with a
legend showing the Secured Party's lien and security interest therein;
(e) Grantor shall:
(i) furnish to the Secured Party from time to time (but, unless
an Event of Default shall have occurred and be continuing, no more frequently
than quarterly) statements and schedules further identifying and describing the
Copyright Collateral, the Patent Collateral and the Trademark Collateral and
such other reports in connection with the Copyright Collateral, the Patent
Collateral and the Trademark Collateral, as the Secured Party may reasonably
request, all in reasonable detail;
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(ii) prior to filing, either directly or through an agent,
licensee or other designee, any application for any Copyright, Patent or
Trademark, furnish to the Secured Party prompt notice of such proposed filing;
and
(iii) promptly give written notice to the Secured Party of any
other change in the intellectual property rights material to its businesses.
(f) Grantor shall:
(i) (either itself or through licensees) for each Trademark,
(A) to the extent consistent with past practice and good business judgment,
continue to use such Trademark on each and every trademark class of goods
applicable to its current line as reflected in its current catalogs, brochures
and price lists in order to maintain such Trademark in full force and effect
free from any claim of abandonment for nonuse, (B) maintain as in the past the
quality of products and services offered under such Trademark, (C) employ such
Trademark with the appropriate notice of registration and (D) not (and not
permit any licensee or sublicensee to) do any act or knowingly omit to do any
act whereby any Trademark material to the conduct of its business may become
invalidated, except in each case as Grantor's business or products may change
over time as may be consistent with good business judgment;
(ii) (either itself or through licensees) not do any act or
knowingly omit to do any act whereby any Patent material to the conduct of its
business may become abandoned or dedicated;
(iii) notify the Secured Party immediately if it knows or has
reason to know that any Intellectual Property material to the conduct of its
business may become abandoned or dedicated, or of any adverse determination or
development (including the institution of, or any such determination or
development in, any proceeding before any governmental authority) regarding
Grantor's ownership of any Intellectual Property material to its business, its
right to copyright, patent or register the same (as the case may be), or its
right to keep, use and maintain the same;
(iv) take all necessary steps that are consistent with good
business practices in any proceeding before any appropriate governmental
authority to maintain and pursue each application relating to any Intellectual
Property (and to obtain the relevant registrations) and to maintain each
registration material to the conduct of its business, including payment of
maintenance fees, filing of applications for renewal, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings;
(v) in the event that any Intellectual Property material to
the conduct of its business is infringed, misappropriated or diluted by a third
party, Grantor shall notify the Secured Party within (10) days after it learns
of such event and shall, if consistent with good business practice, promptly xxx
for infringement, misappropriation or dilution, seek temporary restraints and
preliminary injunctive relief to the extent practicable, seek to recover any and
all damages for such infringement, misappropriation
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or dilution and take such other actions as are appropriate under the
circumstances and in Grantor's good faith business judgment to protect such
Collateral;
(vi) shall, through counsel selected by Grantor and reasonably
acceptable to the Secured Party, prosecute diligently any application for any
Intellectual Property pending as of the date of this Security Agreement or
thereafter made until the termination of this Security Agreement, make
application on uncopyrighted but copyrightable material, unpatented but
patentable inventions and unregistered but registrable Trademarks and preserve
and maintain all rights in applications for any Intellectual Property; provided,
however, that Grantor shall have no obligation to make any such application if
making such application would be unnecessary or imprudent in the good faith
business judgment of Grantor. Any expenses incurred in connection with such an
application shall be borne by Grantor. Grantor shall not abandon any right to
file a application for any Intellectual Property or any pending application in
the United States without the consent of the Secured Party, which consent shall
not be unreasonably withheld; and
(vii) after the occurrence and through the continuance of an
Event of Default, the Secured Party shall have the right but shall in no way be
obligated to bring suit in its own name to enforce the Copyrights, Patents and
Trademarks and any license under such Intellectual Property, in which event
Grantor shall, at the request of the Secured Party, do any and all lawful acts
and execute and deliver any and all proper documents required by the Secured
party in aid of such enforcement action.
(g) Grantor shall cause the Stock Collateral to constitute at all
times 100% of the total number of shares of each class of capital stock of each
Issuer and 66 2/3% of the total number of shares of each class of capital stock
of each Foreign Issuer then outstanding and shall not permit any such Issuer or
Foreign Issuer to issue any shares of capital stock other than to Grantor.
Grantor shall cause all such shares to be duly authorized, validly issued, fully
paid and nonassessable and to be free of any contractual restriction or any
restriction under the charter or bylaws of the respective Issuer of such Stock
Collateral, upon the transfer of such Stock Collateral (except for any such
restriction contained in any loan document).
(h) Grantor shall not:
(i) amend or terminate any material contract or other
document or instrument constituting part of the Collateral, except for
transactions in the ordinary course of business;
(ii) voluntarily or involuntarily exchange, lease, sell,
transfer or otherwise dispose of any Collateral other than for fair value in the
ordinary course of business;
(iii) make any compromise, settlement, discharge or adjustment
or grant any extension of time for payment with respect to any Account or any
lien,
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guaranty or remedy pertaining thereto, except for transactions in the ordinary
course of business;
(iv) change its name or use any fictitious or trade name,
other than in accordance with Section 6.1 hereof;
(v) change the location of its chief executive office, other
than in accordance with Section 6.1 hereof;
(vi) permit any of the Collateral (other than Collateral that
constitutes goods that are mobile and that are of a type normally used in more
than one jurisdiction or otherwise in the ordinary course of business
(including, without limitation, sales and shipments of inventory in the ordinary
course of business)) to be removed from or located in any place not identified
as the location of such Collateral to the Secured Party, as the case may be,
except after written notice to and with written consent of the Secured Party and
compliance with such procedures as the Secured Party reasonably may impose to
prevent any interruptions or discontinuity in the security interest granted
pursuant to this Security Agreement; or
(vii) voluntarily grant, incur or allow to exist any lien or
security interest on or in any of the Collateral which lien or security interest
shall be equal or superior in priority to the security interests granted in this
Security Agreement, except for Permitted Liens to the extent such Permitted
Liens by their express terms or applicable law have priority equal or greater
than the security interests granted pursuant to this Security Agreement.
ARTICLE 4
REMEDIAL MATTERS
4.1 EVENT OF DEFAULT. An "Event of Default" shall exist hereunder (a) if
an event of default shall occur under any of the Notes, (b) upon the filing of a
voluntary or involuntary petition for bankruptcy, insolvency, receivership or
similar event involving Grantor and, in the case of an involuntary petition, an
order for relief is not entered or such petition or proceeding shall not be
dismissed, discharged or stayed within ninety (90) days of commencement, or (c)
if Grantor shall breach in any material respect any agreement contained herein
or otherwise default in any material respect in the observance or performance of
any of the covenants, terms, conditions or agreements on the part of Grantor
contained in this Security Agreement and, with respect to non-monetary
covenants, terms, conditions or agreements, such non observance or non
performance continues for a period of thirty (30) days after the earlier of (i)
written notice from the Secured Party of such default or (ii) actual knowledge
of Grantor of such default.
4.2 POWERS OF ATTORNEY.
(a) Grantor hereby irrevocably appoints the Secured Party (and any
officer or agent of the Secured Party) as its true and lawful attorney-in-fact,
with power of substitution for and in the name of the Secured Party or
otherwise, for the use and
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benefit of the Secured Party, effective upon the occurrence and during the
continuance of an Event of Default:
(i) to receive, endorse the name of Grantor upon and deliver
any notes, acceptances, checks, drafts, money orders or other evidences of
payment that may come into the possession of the Secured Party with respect to
the Collateral;
(ii) to cause Grantor's mail to be transferred to the Secured
Party's own offices and to receive and open all mail addressed to Grantor for
the purposes of removing any such notes, acceptances, checks, drafts, money
orders or other evidences of payment;
(iii) to demand, collect and receive payment in respect of the
Collateral and to apply any such payments directly to the payment of the
Obligations in accordance with Section 4.5 hereof;
(iv) to receive and give discharges and releases of all or any
of the Collateral;
(v) to commence and prosecute any and all suits, actions or
proceedings at law or in equity in any court of competent jurisdiction, to
collect or otherwise realize on all or any part of the Collateral or to enforce
any rights in respect thereof;
(vi) to sign the name of Grantor on any invoice or xxxx of
lading relating to any of the Collateral;
(vii) to send verification of any Accounts to any Account
Debtor or customer;
(viii) to notify any Account Debtor or other obligor of Grantor
with respect to any Collateral to make payment to the Secured Party;
(ix) to settle, compromise, compound, adjust or defend any
actions, suits or proceedings relating or pertaining to all or any of the
Collateral;
(x) to take any action for purposes of carrying out of the
terms of this Security Agreement;
(xi) to enforce all of Grantor's rights and powers under and
pursuant to any and all agreements with respect to the Collateral; and
(xii) generally, to sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of the Collateral,
and to do all other acts and things necessary to carry out this Security
Agreement, as fully and completely as though the Secured Party were the absolute
owner of the Collateral for all purposes; provided, however, nothing herein
contained shall be construed as requiring or obligating the Secured Party to
make any commitment or to make any inquiry as to the
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nature or sufficiency of any payment received by the Secured Party, or to
present or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby; and, provided further, that Secured
Party shall in all cases act in material compliance with all applicable laws.
It is understood and agreed that the power of attorney granted to the
Secured Party for the purposes set forth above in this Section 4.2 is coupled
with an interest and is irrevocable until the payment, performance or other
satisfaction of all of the Obligations, and each Grantor hereby ratifies all
actions taken by its attorney-in-fact by virtue hereof. The provisions of this
Section 4.2 shall in no event relieve Grantor of any of its obligations
hereunder or under any of the other Security Documents with respect to the
Collateral or any part thereof or impose any obligation on the Secured Party to
proceed in any particular manner with respect to the Collateral or any part
thereof, or in any way limit the exercise by the Secured Party of any other or
further right which it may have on the date of this Security Agreement or
hereafter, whether hereunder, under any of the other Security Documents, by law
or otherwise.
(b) Beyond the duty of the Secured Party to exercise reasonable care
in the custody of any Collateral in its possession and to comply with the Code,
the Secured Party shall not, under any circumstance or in any event whatsoever,
have any liability for any part of the Collateral, nor shall the Secured Party
have any liability for any error or omission or delivery of any kind incurred in
the good faith settlement, collection or payment of any of the Collateral or any
monies received in payment therefor or for any damages resulting therefrom, nor
shall this Security Agreement impose upon the Secured Party any obligation to
perform any obligation with respect to the Collateral. The costs of collection,
notification and enforcement, including but not limited to, reasonable
attorneys' fees and reasonable out-of-pocket expenses, shall be borne solely by
Grantor whether the same are incurred by Grantor or the Secured Party. Grantor
agrees to indemnify, defend and hold the Secured Party harmless from and against
any and all other claims, demands, losses, judgments and liabilities (including,
but not limited to, liabilities for penalties) of any nature, and to reimburse
the Secured Party for all reasonable costs and expenses, including but not
limited to reasonable attorneys' fees and expenses, arising from this Security
Agreement or the exercise of any right or remedy granted to the Secured Party
hereunder other than those incurred solely as a result of the gross negligence
and willful misconduct of the Secured Party. In no event shall the Secured Party
be liable for any matter or thing in connection with this Security Agreement
other than to account for moneys actually received by the Secured Party in
accordance with the terms hereof, and matters arising out of the gross
negligence or willful misconduct of the Secured Party.
4.3 COLLECTIONS. Upon the occurrence and during the continuance of an
Event of Default, the Secured Party may, in its sole discretion, in its name or
in the name of Grantor, or otherwise, (a) demand, xxx for, collect or receive
any money or property at any time payable or receivable on account of or in
exchange for, or make any compromise or settlement deemed desirable with respect
to any of the Collateral, but shall be under no obligation to do so, or (b)
extend the time of payment, arrange for
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payment in installments, or otherwise modify the term of, or release, any of the
Collateral, without thereby incurring responsibility to, or discharging or
otherwise affecting any liability of, Grantor, other than to discharge Grantor
in so doing with respect to liabilities of Grantor to the extent that the
liabilities are paid or repaid. After the occurrence and during the continuance
of an Event of Default, any money, checks, notes, bills, drafts, or commercial
paper received by Grantor shall be held in trust for the Secured Party and any
other secured party having rights thereto senior to the Secured Party and shall
be promptly turned over to the Secured Party or any other secured party having
rights thereto senior to the Secured Party as their interest shall appear. Upon
the occurrence and during the continuance of an Event of Default, the Secured
Party may make such payments and take such actions as the Secured Party, in its
sole discretion, deems necessary to protect its security interest in the
Collateral or the value thereof, and the Secured Party is hereby unconditionally
and irrevocably authorized (without limiting the general nature of the authority
hereinabove conferred) to pay, purchase, contest or compromise any liens which
in the judgment of the Secured Party appear to be equal to, prior to or superior
to its security interest in the Collateral and any liens not expressly permitted
by this Security Agreement.
4.4 POSSESSION; SALE OF COLLATERAL.
(a) Upon the occurrence and during the continuance of an Event of
Default, the Secured Party may, subject to the rights of any other secured party
having rights senior to those of the Secured Party: (i) require Grantor to
assemble the tangible assets that comprise part of the Collateral and make them
available to the Secured Party at any place or places reasonably designated by
the Secured Party; (ii) to the extent permitted by applicable law, with or
without notice or demand for performance and without liability for trespass,
enter any premises where the Collateral may be located and peaceably take
possession of the same, and may demand and receive such possession from any
person who has possession thereof, and may take such measures as it may deem
necessary or proper for the care or protection thereof (including, but not
limited to, the right to remove all or any portion of the Collateral); and (iii)
with or without taking such possession may sell or cause to be sold, in one or
more sales or parcels, for cash, on credit or for future delivery, without
assumption of any credit risk, all or any portion of the Collateral, at public
or private sale or at any broker's board or any securities exchange, without
demand of performance or notice of intention to sell or of time or place of
sale, except ten (10) business days' written notice to Grantor of the time and
place of such sale or sales (and such other notices as may be required by
applicable statute, if any, and which cannot be waived), which Grantor hereby
expressly acknowledges is commercially reasonable. In the event of any sale,
license or other disposition of any of the Trademark Collateral, the goodwill
connected with and symbolized by the Trademark Collateral subject to such
disposition shall be included, and Grantor shall supply to the Secured Party or
its designee, for inclusion in such sale, assignment or other disposition, all
Intellectual Property relating to such Trademark Collateral. The Secured Party
shall have no obligation to clean-up or otherwise prepare any Collateral for
sale. The Collateral may be sold or disposed of for cash, upon credit or for
future delivery as the Secured Party shall deem appropriate. Each such purchaser
at any such sale shall hold the property sold absolutely, free from any claim or
right on the
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part of Grantor, and Grantor hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal that Grantor now has or may at any time
in the future have under any rule of law or statute now existing or hereafter
enacted. At any such sale, the Collateral, or portion thereof, to be sold may be
sold in one lot as an entirety or in separate parcels, as the Secured Party may
(in its sole and absolute discretion) determine. The Secured Party shall not be
obligated to make any sale of any Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of such Collateral shall have been
given. The Secured Party may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. The Secured Party may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral and compliance
will not be considered adversely to affect the commercial reasonableness of any
disposition of the Collateral. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Secured Party until the sale price is paid by the purchaser
or purchasers thereof. The Secured Party shall not incur any liability for the
failure to collect or realize upon any or all of the Collateral or for any delay
in doing so and, in case of any such failure, shall not be under any obligation
to take any action with respect thereto; provided, such Collateral may be sold
again upon like notice. If any Collateral is sold upon credit, Grantor will be
credited only with payments actually made by the purchaser, received by the
Secured Party and applied to the Obligations in accordance with Section 4.5 In
the event the purchasers fail to pay for the Collateral, the Secured Party may
resell the Collateral. At any public sale made pursuant to this Section 4.4, the
Secured Party may bid for or purchase, free from any right of redemption, stay
or appraisal and all rights of marshalling, the Collateral and any other
security for the Obligations or otherwise on the part of Grantor (all said
rights being also hereby waived and released by Grantor to the fullest extent
permitted by law) or any part thereof offered for sale and may make payment on
account thereof by using any claim then due and payable to the Secured Party
from Grantor as a credit against the purchase price, and the Secured Party may,
upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to Grantor therefor. For purposes
hereof, a written agreement to purchase the Collateral or any portion thereof
shall be treated as a sale thereof; the Secured Party shall be free to carry out
such sale pursuant to such agreement, and Grantor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Secured Party shall have entered into such an agreement,
all Events of Default shall have been remedied and any obligations to the
Secured Party shall have been paid in full. As an alternative to exercising the
power of sale herein conferred upon it, the Secured Party may proceed by a suit
or suits at law or in equity to foreclose this Security Agreement and to sell
the Collateral or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver. In any such action, the Secured Party shall be
entitled to the appointment of a receiver without notice, to peaceably take
possession of all or any portion of the Collateral and to exercise such powers
as the court shall confer upon the receiver. Notwithstanding the foregoing, if
an Event of Default shall occur and be
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continuing, the Secured Party shall be entitled to apply, without notice to
Grantor, any cash or cash items constituting Collateral in their possession to
payment of the Obligations in accordance with the provisions of Section 4.5
hereof.
(b) If an Event of Default shall occur and be continuing, the Secured
Party shall, in addition to exercising any and all rights and remedies afforded
to it hereunder, have all the rights and remedies of a secured party under all
applicable provisions of law, including but not limited to, the Code.
(c) Grantor agrees that notwithstanding anything to the contrary
contained in this Security Agreement, Grantor shall remain liable under each
contract or other agreement giving rise to Accounts and General Intangibles and
all other contracts or agreements constituting part of the Collateral and the
Secured Party shall not have any obligation or liability in respect thereof.
(d) After the occurrence and during the continuance of an Event of
Default, upon the Secured Party's request, but subject to the rights of any
other secured party having rights senior to those of the Secured Party, Grantor
shall deliver to the Secured Party all original and other documents evidencing
and relating to the sale and delivery of Inventory or Accounts, including but
not limited to, all original orders, invoices and shipping receipts. After the
occurrence and during the continuance of an Event of Default, Grantor shall also
furnish to the Secured Party, promptly upon the request of the Secured Party,
such reports, reconciliations and aging balances regarding Accounts as the
Secured Party may request from time to time.
4.5 APPLICATION OF PROCEEDS. The proceeds of any sale of Collateral
pursuant to this Security Agreement or otherwise, as well as any Collateral
consisting of cash, shall be applied after receipt by the Secured Party as
follows, subject to the rights of any other secured party having rights senior
to those of the Secured Party:
First, to the payment of all reasonable costs,
fees and expenses of the Secured Party and its agents,
representatives and attorneys incurred in connection
with such sale or with the retaking, holding, handling,
preparing for sale (or other disposition) of the
Collateral or otherwise in connection with the Notes,
this Security Agreement or any of the Obligations,
including but not limited to, the reasonable fees and
expenses of the Secured Party's agents and attorneys'
and court costs (whether at trial, appellate or
administrative levels), if any, incurred by the Secured
Party in so doing;
Second, to the payment of the outstanding
principal balance and accrued interest and fees on the
Obligations in such order as the Secured Party may
determine;
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Third, to pay all other amounts payable by Grantor
under the Notes and any other Obligations; and
Fourth, to Grantor or to such other person as a
court may direct.
4.6 AUTHORITY OF SECURED PARTY. The Secured Party shall have and be
entitled to exercise all such powers hereunder as are specifically delegated to
the Secured Party by the terms hereof, together with such powers as are
reasonably incidental thereto. The Secured Party may execute any of its duties
hereunder by or through its agents or employees and shall be entitled to retain
counsel and to act in reliance upon the advice of such counsel concerning all
matters pertaining to its duties hereunder.
4.7 CERTAIN WAIVERS; GRANTOR NOT DISCHARGED. Grantor expressly and
irrevocably waives (to the extent permitted by applicable law) presentment,
demand of payment and protest of nonpayment in respect of its Obligations under
this Security Agreement. The obligations and duties of Grantor hereunder are
irrevocable, absolute, and unconditional and shall not be discharged, impaired
or otherwise affected by (a) the failure of the Secured Party to assert any
claim or demand or to enforce any right or remedy against Grantor or any grantee
under the provisions of this Security Agreement or any grantee or any waiver,
consent, extension, indulgence or other action or inaction in respect thereof,
(b) any extension or renewal of any part of the Obligations, (c) any rescission,
waiver, amendment or modification of any of the terms or provisions of any
agreement related to this Security Agreement, (d) the release of any liens on or
security interests in any part of the Collateral or the release, sale or
exchange of or failure to foreclose against any security held by or for the
benefit of the Secured Party for payment or performance of the Obligations, (e)
the bankruptcy, insolvency or reorganization of Grantor or any grantee or any
other persons, (f) any change, restructuring or termination of the corporate
structure or existence of Grantor or any grantee or any restructuring or
refinancing of all or any portion of the Obligations, or (g) any other event
which under law would discharge the obligations of a surety.
4.8 TRANSFER OF SECURITY INTEREST. The Secured Party may transfer to any
other person all or any part of the liens and security interests granted hereby,
and all or any part of the Collateral which may be in the Secured Party's
possession after the occurrence and during the continuance of an Event of
Default or to a successor Secured Party at any time. Upon such transfer, the
transferee shall be vested with all the rights and powers of the Secured Party
hereunder with respect to such of the Collateral as is so transferred, but, with
respect to any of the Collateral not so transferred, the Secured Party shall
retain all of their rights and powers (whether given to it in this Security
Agreement, or otherwise). The Secured Party or any of them may, at any time,
assign their rights as the secured party hereunder to any person, in the Secured
Party's discretion, and upon notice to Grantor, but without any requirement for
consent or approval by or from Grantor, and any such assignment shall be valid
and binding upon Grantor, as fully as it had expressly approved the same.
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ARTICLE 5
SECURED PARTY'S INTERESTS
5.1 PRO RATA INTERESTS. The security interests and other rights granted or
reserved to the Secured Party and its successors and assigns under this Security
Agreement (the "Contractual Rights") and the other rights available to the
Secured Party under applicable law by reason of the existence of this Security
Agreement and the attachment and perfection of the security interests created
under this Security Agreement (the "Statutory Rights") are for the pro rata
benefit of the Note Holders according to the interest in the outstanding
principal amount of the Notes held by each Note Holder, respectively, expressed
as a percentage of the aggregate outstanding principal amount of all Notes, and
shall be held by the Note Holders in such percentages, regardless of the time or
order of the attachment or perfection of their respective security interests or
the time and manner of filing of their respective deeds of trust, financing
statements or assignments thereof and regardless of which, if any, Note Holder
may hold possession of the Collateral. All recoveries attributable to
enforcement of Contractual Rights or Statutory Rights, or both, shall be shared
ratably by the Note Holders according to their respective pro rata interests as
provided in this Security Agreement.
5.2 GRANTOR OBLIGATIONS. The provisions of this Article 5 are for the
purpose of defining the relative rights of the Note Holders with respect to the
Collateral and the exercise of Contractual Rights and Statutory Rights. Nothing
herein shall impair the obligations of Grantor, which are absolute and
unconditional, to pay and perform the Obligations as and when due. No provision
of this Security Agreement shall be construed to prevent any Note Holder from
exercising remedies that may otherwise be available to it.
ARTICLE 6
MISCELLANEOUS
6.1 FURTHER ASSURANCES. Grantor agrees, at its expense, to do such further
things, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Secured Party
may from time to time reasonably request for the better assuming and preserving
of the security interests and the rights and remedies created hereby, including
but not limited to, the execution and delivery of such additional conveyances,
assignments, agreements and instruments, the payment of any fees and taxes
required in connection with the execution and delivery of this Security
Agreement, the granting of the security interests created hereby and the
execution, filing and recordation of any financing statements (including fixture
filings) or other documents as the Secured Party may deem reasonably necessary
for the perfection of the security interests granted hereunder. If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any promissory note or other instrument, such note or instrument
shall be immediately pledged and delivered to the Secured Party, duly endorsed
in a manner reasonably satisfactory to the Secured Party, subject to the rights
of any other secured party having rights senior to the Secured Party. If at any
time Grantor shall take and perfect a security interest in any property to
secure payment and performance of an Account, Grantor, upon the request of the
Secured Party,
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shall promptly assign such security interest to the Secured Party, subject to
the rights of any other secured party having rights senior to the Secured Party.
Grantor agrees to notify the Secured Party thirty (30) days prior to any change
(a) in its corporate name, (b) in its jurisdiction of incorporation or
organization, (c) in the location of its chief executive office, (d) in its
chief place of business, or (e) in the office or offices where it keeps its
records relating to the Collateral. Grantor agrees that, after the occurrence
and during the continuance of an Event of Default, it shall upon request of the
Secured Party, take any and all actions, to the extent permitted by applicable
law, at its own expense, to obtain the approval of any governmental authority
for any action or transaction contemplated by this Security Agreement which is
then required by law, and specifically, without limitation, upon request of the
Secured Party, to prepare, sign and file with any governmental authority
Grantor's portion of any application or applications for consent to the
assignment of licenses held by Grantor, or for consent to the possession and
sale of any of the Collateral by or on behalf of the Secured Party. Grantor
further agrees that it shall at all times, at its own expense and cost, keep
accurate and complete records with respect to the Collateral, including but not
limited to, a record of all payments and proceeds received in connection
therewith or as a result of the sale thereof and of all credits granted, and
agrees that the Secured Party or its representatives shall have the right at any
reasonable time and from time to time to call at Grantor's place or places of
business to inspect the Collateral and to examine or cause to be examined all of
the books, records, journals and other data relating to the Collateral and to
make extracts therefrom or copies thereof as are reasonably requested; provided
that such inspections shall occur no more often than quarterly unless an Event
of Default has occurred and is continuing.
6.2 EFFECTIVENESS. This Security Agreement shall take effect immediately
upon execution by Grantor.
6.3 INDEMNITY; REIMBURSEMENT OF THE SECURED PARTY; DEFICIENCY. In
connection with the Collateral, this Security Agreement and the administration
and enforcement or exercise of any right or remedy granted to the Secured Party
hereunder, Grantor agrees, subject to the limitations set forth hereafter (a) to
indemnify, defend and hold harmless the Secured Party from and against any and
all claims, demands, losses, judgments and liabilities (including but not
limited to, liabilities for penalties) of whatever nature, relating thereto or
resulting therefrom, and (b) to reimburse the Secured Party for all reasonable
costs and expenses, including but not limited to, the reasonable fees and
disbursements of attorneys, relating thereto or resulting therefrom. The
foregoing indemnity agreement includes all reasonable costs incurred by the
Secured Party in connection with any litigation relating to the Collateral
whether or not the Secured Party shall be a party to such litigation, including
but not limited to, the reasonable fees and disbursements of attorneys for the
Secured Party, and any out-of-pocket costs incurred by the Secured Party in
appearing as a witness or in otherwise complying with legal process served upon
it. The obligations in this Section 6.3 do not apply to any claims for
indemnity, defense, or reimbursement that arise from the gross negligence or
willful misconduct of the Secured Party. In no event shall the Secured Party be
liable, in the absence of gross negligence or willful misconduct on its part,
for any matter or thing in connection with this Security Agreement other than
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to account for moneys actually received by it in accordance with the terms
hereof. All indemnities contained in this Section 6.3 and elsewhere in this
Security Agreement shall survive the expiration or earlier termination of this
Security Agreement. After application of the proceeds by the Secured Party
pursuant to Section 4.5 hereof, Grantor shall remain liable to the Secured Party
for any deficiency.
6.4 CONTINUING LIEN. It is the intent of the parties hereto that (a) this
Security Agreement shall constitute a continuing agreement as to any and all
future, as well as existing transactions, between Grantor and the Secured Party
under or in connection with the Note or otherwise relating to any other
Obligation, and (b) the security interest provided for herein shall attach to
after-acquired as well as existing Collateral.
6.5 TERMINATION. Upon payment, performance or other satisfaction in full
of the Notes and all other Obligations and all other amounts due in connection
therewith and termination of all commitments relating thereto, the Secured Party
shall reassign, redeliver and release (or cause to be so reassigned, redelivered
and released), without recourse upon or warranty by the Secured Party, and at
the sole expense of Grantor, to Grantor, against receipt therefor, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Secured Party pursuant to the terms hereof and not theretofore reassigned,
redelivered and released to Grantor, together with appropriate instruments of
reassignment and release.
6.6 NOTICES. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given at the time of
receipt if delivered by hand or by facsimile transmission (with receipt of
successful and full transmission) or three days after being mailed, registered
or certified mail, return receipt requested, with postage prepaid to the
applicable parties hereto at the address stated below or if any party shall have
designated a different address or facsimile number by notice to the other party
given as provided above, then to the last address or facsimile number so
designated.
If to Grantor:
Image Xxxx Systems, Inc.
00000 Xxxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxxxx 2127
Attention: S. Xxxxx Xxxxxx, Jr.,
Chairman, CEO and President
Facsimile: (000) 000-0000
with a copy to:
Cooley Godward LLP
0000 Xxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: X. Xxxxxxxxxx Xxxxxxxx, Jr., Esq.
Facsimile: (000) 000-0000
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If to Secured Party:
Perseus 2000, L.L.C.
0000 Xxxxxxxxxxxx Xxx., X.X.
Xxxxx 000
Xxxxxxxxxx, X.X. 00000-0000
Attention: Xxxx Xxxxxx, Managing Director
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxx
0000 Xxxxxx Xxxxxxxxx; Xxxxx 000
XxXxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxx, Esq.
Facsimile: (000) 000-0000
6.7 SUCCESSORS AND ASSIGNS. Whenever in this Security Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party, and all covenants, promises and agreements
by or on behalf of the Secured Party that are contained in this Security
Agreement shall bind and inure to the benefit of its respective successors and
assigns. Grantor may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of the Secured Party.
6.8 APPLICABLE LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE WITHOUT REFERENCE TO ITS
CONFLICTS OF LAW RULES THAT MIGHT REFER THE GOVERNANCE OR CONSTRUCTION OF THIS
SECURITY AGREEMENT TO THE LAW OF ANOTHER JURISDICTION (EXCEPT WHEN THE CODE OR
OTHER APPLICABLE LAW WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION). THE PARTIES HERETO AGREE THAT THE APPROPRIATE AND EXCLUSIVE FORUM
FOR ANY DISPUTES ARISING OUT OF THIS SECURITY AGREEMENT SOLELY BETWEEN THE
GRANTOR AND THE SECURED PARTY SHALL BE XXX XXXXXX XX XXX XXXXX XX XXX XXXX
LOCATED IN THE BOROUGH OF MANHATTAN OR IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND THE PARTIES HERETO IRREVOCABLY CONSENT TO
THE EXCLUSIVE JURISDICTION OF SUCH COURTS, AND AGREE TO COMPLY WITH ALL
REQUIREMENTS NECESSARY TO GIVE SUCH COURTS JURISDICTION. THE PARTIES HERETO
FURTHER AGREE THAT THE PARITIES WILL NOT BRING SUIT WITH RESPECT TO ANY DISPUTES
ARISING OF THIS SECURITY AGREEMENT EXCEPT AS EXPRESSLY SET FORTH BELOW FOR THE
EXECUTION OR ENFORCEMENT OF JUDGEMENT, IN ANY JURISDICTION OTHER THAN THE ABOVE
SPECIFIED COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS IN ANY ACTION OR PROCEEDING HEREUNDER
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BY THE MAILING OF COPIES THEREOF BY REGISTERED MAIL OR CERTIFIED AIRMAIL,
POSTAGE PREPAID, TO THE ADDRESS SPECIFIED IN SECTION 6.6 HEREOF. THE FOREGOING
SHALL NOT LIMIT THE RIGHTS OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO OBTAIN EXECUTION OF JUDGMENT IN ANY OTHER
JURISDICTION. THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY LAW, THAT
FINAL AND UNAPPEALABLE JUDGMENT AGAINST ANY OF THEM IN ANY ACTION OR PROCEEDING
CONTEMPLATED ABOVE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION WITHIN OR OUTSIDE OF THE UNITED STATES BY SUIT ON THE JUDGMENT, A
CERTIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT
OF INDEBTEDNESS.
6.9 WAIVERS. No failure or delay of the Secured Party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
future exercise thereof or the exercise of any other right or power. The rights
and remedies of the Secured Party hereunder are cumulative and not exclusive of
any rights or remedies which it would otherwise have. No waiver of any provision
of this Security Agreement or consent to any departure by Grantor therefrom
shall in any event be effective unless the same shall be authorized as provided
in Section 6.10, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
Grantor in any case shall entitle Grantor to any other or further notice or
demand in similar or other circumstances.
6.10 AMENDMENTS. Neither this Security Agreement nor any provision hereof
may be amended or modified except pursuant to an agreement or agreements in
writing entered into by Grantor and the Secured Party.
6.11 SEVERABILITY. In the event any one or more of the provisions contained
in this Security Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein or therein shall not in any way be affected or
impaired thereby.
6.12 COUNTERPARTS. This Security Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one contract, and shall become effective
when copies hereof which, when taken together, bear the signatures of each of
the parties hereto shall be delivered or mailed to the Secured Party.
6.13 HEADINGS. Article and Section headings used herein are for convenience
of reference only and are not to affect the construction of, or to be taken into
consideration in interpreting, this Security Agreement.
6.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
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PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, OR REMEDY UNDER OR IN
CONNECTION WITH THIS SECURITY AGREEMENT AND AGREE THAT ANY SUCH ACTION SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE TERMS AND PROVISIONS OF THIS
SECTION CONSTITUTE A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS
SECURITY AGREEMENT.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
-25-
IN WITNESS WHEREOF, Grantor has executed this Security Agreement as of the
date first above written.
IMAGEWARE SYSTEMS, INC.
By: /s/ S. Xxxxx Xxxxxx, Jr.
---------------------------------------
Name: S. Xxxxx Xxxxxx, Jr.
Title: Chairman, CEO and President
ACKNOWLEDGED:
PERSEUS 2000, L.L.C.
By: /s/ Xxx X. Xxxxxx III
---------------------------------------
Name: Xxx X. Xxxxxx III
Title: Managing Director
[Signature Page to Security Agreement]
SCHEDULE A
Pursuant to Section 2.1(b), the following information is disclosed:
CHIEF EXECUTIVE OTHER PLACE(S) OF JURISDICTION OF COLLATERAL EQUIPMENT AND LOCATION OF
GRANTOR OFFICE BUSINESS INCORPORATION LOCATION GOODS LOCATION LEASED FACILITIES
-------------- ----------------- ------------------- ---------------- -------------- --------------- -----------------
IMAGEWARE 00000 Xxxxxxxxx Xx Xxxxxxxxxx 00000 10883 Thornmint 10883
SYSTEMS, INC. San Diego, CA 00000 Xxxxxxxxx Xx., Xx., Xxx Xxxxx, XX Xxxxxxxxx Xx.,
Xxx Xxxxx, XX 00000 Xxx Xxxxx, XX
00000 92127
SCHEDULE B
PLEDGED STOCK
1,629,665 shares of no par Common Stock of XImage Corporation, a
California
corporation, certificate #57
1,000 shares of Common Stock, $0.0001 par value per share, o fImageWare Systems
ID Group, Inc., a Delaware corporation, certificate #C-11
66 shares of I.W. Systems Canada Company - ULC, an entity formed under the laws
of Nova Scotia, Canada, Common Stock
5 shares of Digital Imaging International GmbH, an entity formed under the laws
of Germany, Common Stock
66,666 shares of Digital Imaging Asia Pacific Pte. Ltd., an entity formed under
the laws of Singapore, Common Stock
1 share of no par Common Stock of G&A Imaging, Inc., a Nevada corporation,
certificate #C-
90,000 Series A Common Shares, $0.01 par value per share, of ImageWare Digital
Photography Systems, LLC, a Nevada limited liability company, certificate
of membership interest #8
100,000 Series A Common Shares, $0.01 par value per share, of E-Focus West LLC,
a Nevada limited liability company, certificate of membership interest #2
SCHEDULE C
Security interests granted by German subsidiary Digital Imaging International
GmbH in favor of Deutsche Bank AG on accounts receivable from goods delivered
and services rendered
Security interest granted by Grantor in favor of American Contractors
Indemnity Company on certificate of deposit #0000-000-000 originally issued by
Imperial Bank for which the underlying obligations have been satisfied but the
UCC financing statement has not yet been terminated.
SCHEDULE 2.1(f)
(i) immaterial amount of boxed products kept off-site for packaging and shipping
at:
ICON
000 Xxxxx Xxxx
Xxxxxx, XX 00000
(ii) copies of software (i.e., originals located at chief executive office and
other locations listed on Schedule A) located with the following software
escrow services:
(A) Xxxxxxx-Xxxxx SoftEscrow
000 Xxxxxxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
(B) DSI Technology Escrow Services, Inc.
0000 Xxx Xxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
(iii) server for web hosting of EPIWEB services located at:
Magma Communications
000 Xxxxxxxx Xxxx Xxxxx, Xxxx 0
Xxxxxx, Xxxxxxx, XXXXXX X0X-0X0
