SECOND LIEN PLEDGE AND SECURITY AGREEMENT
Execution
Version
This
SECOND
LIEN PLEDGE AND SECURITY AGREEMENT (the
"Security
Agreement"),
dated
as of August 17, 2007, between ENCOMPASS
GROUP AFFILIATES, INC.,
a
Delaware corporation, (“Encompass”),
ADVANCED
COMMUNICATIONS TECHNOLOGIES, INC.,
a
Florida corporation (“ACT”),
SPECTRUCELL,
INC.,
a
Delaware corporation (“SpectruCell”),
XXXXXX
STREET INVESTMENTS, INC.,
a
Delaware corporation (“Xxxxxx
Street”),
Cyber-Test, Inc. a Delaware corporation (“Cyber-Test”)
and
XXXXX
XXXXXXX, INC., a
Florida
corporation (“Xxxxx
Xxxxxxx”
and,
together with Encompass, ACT, SpectruCell, Xxxxxx Street and Cyber-Test, each
a
“Grantor”)
and
SANKATY
ADVISORS, LLC,
in its
capacity as second lien collateral agent (the “Second
Lien Agent”)
for
the Subordinated Note Purchasers.
WITNESSETH:
WHEREAS,
pursuant to that certain Note Purchase Agreement, dated as of the date hereof,
by and among Encompass, ACT, SpectruCell, Xxxxxx Street, Cyber-Test, Xxxxx
Xxxxxxx, Persons designated as “Guarantors” on the signature pages thereof,
First Lien Collateral Agent, Second Lien Agent and the persons signatory thereto
as Note Purchasers (including all annexes, exhibits and schedules thereto,
as
from time to time amended, restated, supplemented or otherwise modified, the
“Note
Purchase Agreement”),
the
Senior Note Purchasers have agreed to purchase Senior Notes due 2012 and the
Subordinated Note Purchasers have agreed to purchase Subordinated Notes due
2013
(the “Notes”);
WHEREAS,
in
order to induce the Subordinated Note Purchasers to enter into the Note Purchase
Agreement and other Note Documents and to induce the Subordinated Note
Purchasers to purchase the Subordinated Notes as provided for in the Note
Purchase Agreement, each Grantor has agreed to grant a continuing Lien on the
Collateral (each as hereinafter defined) to secure the Subordinated Note
Obligations as provided herein;
NOW,
THEREFORE,
in
consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINED
TERMS.
(a) All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Note Purchase Agreement or in Appendix
I
thereto.
All other terms contained in this Security Agreement, unless the context
indicates otherwise, have the meanings provided for by the Code to the extent
the same are used or defined therein.
(b) “Account
Debtor”
means
any Person who may become obligated to any Note Party under, with respect to,
or
on account of, an Account, Chattel Paper or General Intangibles (including
a
payment intangible).
(c) “Accounts”
means
collectively all “accounts,” as such term is defined in the Code, now owned or
hereafter acquired by any Note Party, including (a) all accounts receivable,
other receivables, book debts and other forms of obligations (including any
such
obligations that may be characterized as an account or contract right under
the
Code),
(b)
all of each Note Party’s rights in, to and under all purchase orders or receipts
for goods or services, (c) all of each Note Party’s rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all rights to payment due to
any
Note Party for property sold, leased, licensed, assigned or otherwise disposed
of, for a policy of insurance issued or to be issued, for a secondary obligation
incurred or to be incurred, or for services rendered or to be rendered by such
Note Party or in connection with any other transaction (whether or not yet
earned by performance on the part of such Note Party) and (e) all collateral
security of any kind, given by any Account Debtor or any other Person with
respect to any of the foregoing.
(d) “Code”
means
the Uniform Commercial Code as the same may, from time to time, be enacted
and
in effect in the State of New York; provided,
that to
the extent that the Code is used to define any term herein or in any other
Note
Document and such term is defined differently in different Articles of the
Code,
the definition of such term contained in Article 9 shall govern; provided further,
that in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of, or remedies with respect to, Second
Lien
Agent’s or any Note Purchaser’s Lien on any Collateral is governed by the
Uniform Commercial Code as enacted and in effect in a jurisdiction other than
the State of New York, the term “Code”
shall
mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions
related to such provisions.
(e) “Contracts”
means
all “contracts,” as such term is defined in the Code, now owned or hereafter
acquired by any Note Party, in any event, including all contracts, undertakings,
or agreements (other than rights evidenced by Chattel Paper), Documents or
Instruments in or under which any Note Party may now or hereafter have any
right, title or interest, including any agreement relating to the terms of
payment or the terms of performance of any Account.
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(f) “Control
Letter”
means
a
letter agreement between Second Lien Agent and (i) the issuer of uncertificated
securities with respect to uncertificated securities in the name of any Note
Party, (ii) a securities intermediary with respect to securities, whether
certificated or uncertificated, securities entitlements and other financial
assets held in a securities account in the name of any Note Party, (iii) a
futures commission merchant or clearing house, as applicable, with respect
to
commodity accounts and commodity contracts held by any Note Party, whereby,
among other things, the issuer, securities intermediary or futures commission
merchant, as applicable, disclaims, subordinates or limits its security interest
in the applicable financial assets, acknowledges the Lien of Second Lien Agent,
for the benefit of Subordinated Note Purchasers, on such financial assets,
and
agrees to follow the instructions or entitlement orders of Second Lien Agent
without further consent by the affected Note Party.
(g) “Copyrights”
means
all of the following now owned or hereafter adopted or acquired by any Note
Party: (a) all copyrights and General Intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and
all
applications in connection therewith, including all registrations, recordings
and applications in the United States Copyright Office or in any similar office
or agency of the United States, any state or territory thereof, or any other
country or any political subdivision thereof, and (b) all reissues, extensions
or renewals thereof.
(h) “License”
means
any Copyright License, Patent License, Trademark License or other license of
rights or interests now held or hereafter acquired by any Note
Party.
(i) “Patents”
means
all of the following in which any Note Party now holds or hereafter acquires
any
interest: (a) all letters patent of the United States or of any other country,
all registrations and recordings thereof, and all applications for letters
patent of the United States or of any other country, including registrations,
recordings and applications in the United States Patent and Trademark Office
or
in any similar office or agency of the United States, any state, or any other
country, and (b) all reissues, continuations, continuations-in-part or
extensions thereof.
(j) “Software”
shall
mean all source and object code now owned or hereafter acquired by any Note
Party.
(k) “Trademarks”
means
all of the following now owned or hereafter existing or adopted or acquired
by
any Note Party: (a) all trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature (whether registered or unregistered
and
any derivatives thereof), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by
any
of the foregoing.
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(l) "Uniform
Commercial Code jurisdiction"
means
any jurisdiction that has adopted all or substantially all of Article 9 as
contained in the 2004 Official Text of the Uniform Commercial Code, as
recommended by the National Conference of Commissioners on Uniform State Laws
and the American Law Institute, together with any subsequent amendments or
modifications to the Official Text.
2. GRANT
OF LIEN.
(a) To
secure
the prompt and complete payment, performance and observance of all of the
Subordinated Note Obligations (specifically including, without limitation,
each
Grantor’s Note Obligations arising under the cross-guaranty provisions of
Section 10 of the Note Purchase Agreement), the Grantor hereby grants, assigns,
conveys, mortgages, pledges, hypothecates and transfers to Second Lien Agent,
for the benefit of Subordinated Note Purchasers, a second priority Lien upon
all
of its right, title and interest in, to and under all personal property and
other assets, whether now owned by or owing to, or hereafter acquired by or
arising in favor of the Grantor (including under any trade names, styles or
derivations thereof), and whether owned or consigned by or to, or leased from
or
to, the Grantor, and regardless of where located (all of which being hereinafter
collectively referred to as the “Collateral”),
including:
(i) all
Accounts;
(ii) all
Chattel Paper;
(iii) all
Documents;
(iv) all
General Intangibles (including payment intangibles and Software);
(v) all
Goods
(including Inventory, Equipment and Fixtures);
(vi) all
Instruments;
(vii) all
Investments;
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(viii) all
Deposit Accounts of the Grantor;
(ix) all
money, cash or cash equivalents of the Grantor;
(x) all
supporting obligations and letter-of-credit rights of the Grantor;
(xi) all
commercial tort claims, including, without limitation, those set forth on
Schedule I;
(xii) all
Securities and Investment Property, including without limitation the shares
of
stock or other equity interests listed on Schedule VI;
(xiii) all
Intellectual Property; and
(xiv) to
the
extent not otherwise included, all Proceeds, insurance claims and other rights
to payments not otherwise included in the foregoing and products of the
foregoing and all accessions to, substitutions and replacements for, and rents
and profits of, each of the foregoing.
(b) In
addition, to secure the prompt and complete payment, performance and observance
of the Subordinated Note Obligations and in order to induce Second Lien Agent
and Subordinated Note Purchasers as aforesaid, the Grantor hereby grants to
Second Lien Agent, for the benefit of Subordinated Note Purchasers, a right
of
setoff against the property of the Grantor held by Second Lien Agent or any
Subordinated Note Purchaser, consisting of property described above in
Section
2(a)
now or
hereafter in the possession or custody of or in transit to Second Lien Agent
or
any Subordinated Note Purchaser, for any purpose, including safekeeping,
collection or pledge, for the account of the Grantor, or as to which the Grantor
may have any right or power.
(c) Grantor
hereby acknowledges and agrees that upon the payment in full of the Senior
Notes, the First Lien Collateral Agent shall deliver (or cause to be delivered)
to the
Second Lien Agent such
Collateral that has been pledged to the Senior Note Purchasers under the Note
Purchase Agreement and is in the possession of the First Lien Collateral Agent
at the time of such payment in full of the Senior Notes, provided,
that,
in the
event any such Collateral comes into the possession of Grantor upon, or at
any
time following, the payment in full of the Senior Notes, it shall promptly
deliver the same to the Second Lien Agent pursuant
hereto.
(d) Grantor
and the Second Lien Agent acknowledge their mutual intent that all security
interests contemplated herein are given as a contemporaneous exchange for new
value to Grantor, regardless of when advances to Grantor are actually made
or
when the Collateral is created or acquired.
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3. SECOND
LIEN AGENT’S AND SUBORDINATED NOTE PURCHASERS’ RIGHTS: LIMITATIONS ON SECOND
LIEN AGENT’S AND SENIOR NOTE PURCHASERS’ OBLIGATIONS.
(a) It
is
expressly agreed by Grantor that, anything herein to the contrary
notwithstanding, the Grantor shall remain liable under each of its Contracts
and
each of its Licenses to observe and perform all the conditions and obligations
to be observed and performed by it thereunder. Neither Second Lien Agent nor
any
Subordinated Note Purchaser shall have any obligation or liability under any
Contract or License by reason of or arising out of this Security Agreement
or
the granting herein of a Lien thereon or the receipt by Second Lien Agent or
any
Subordinated Note Purchaser of any payment relating to any Contract or License
pursuant hereto. Neither Second Lien Agent nor any Subordinated Note Purchaser
shall be required or obligated in any manner to perform or fulfill any of the
obligations of the Grantor 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 claims, 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.
(b) Second
Lien Agent may at any time after an Event of Default has occurred and be
continuing (or, if an Event of Default shall have occurred and be continuing,
if
any rights of set-off or contra accounts may be asserted with respect to the
following), without prior notice to the Grantor, notify Account Debtors and
other Persons obligated on the Collateral that Second Lien Agent has a security
interest therein, and that payments shall be made directly to Second Lien Agent.
Upon the request of Second Lien Agent during the continuance of an Event of
Default, the Grantor shall so notify Account Debtors and other Persons obligated
on Collateral. Once any such notice has been given to any Account Debtor or
other Person obligated on the Collateral, the Grantor shall not give any
contrary instructions to such Account Debtor or other Person without Second
Lien
Agent’s prior written consent.
(c) Second
Lien Agent may at any time in Second Lien Agent’s own name, in the name of a
nominee of Second Lien Agent or in the name of the Grantor communicate (by
mail,
telephone, facsimile or otherwise) with Account Debtors, parties to Contracts
and obligors in respect of Instruments to verify with such Persons, to Second
Lien Agent’s satisfaction, the existence, amount, terms of, and any other matter
relating to, Accounts, payment intangibles, Instruments or Chattel Paper. If
a
Default or Event of Default shall have occurred and be continuing, the Grantor,
at its own expense, shall prepare and deliver to Second Lien Agent and each
Subordinated Note Purchaser at any time and from time to time promptly upon
Second Lien Agent’s request the following reports with respect to the Grantor:
(i) a reconciliation of all Accounts; (ii) an aging of all such Accounts; (iii)
trial balances; and (iv) a test verification of Accounts as Second Lien Agent
may request. Upon request by Second Lien Agent, the Grantor, at its own expense,
shall deliver to Second Lien Agent the results of each physical verification,
if
any, which the Grantor may in its discretion have made, or caused any other
Person to have made on its behalf, of all or any portion of its
Inventory.
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4. REPRESENTATIONS
AND WARRANTIES.
The
Grantor represents and warrants that:
(a) (i)
The
Grantor has rights in and the power to transfer each item of the Collateral
upon
which it purports to xxxxx x Xxxx hereunder free and clear of any and all Liens,
other than Permitted Encumbrances.
(b) No
effective security agreement, financing statement, equivalent security or Lien
instrument or continuation statement covering all or any part of the Collateral
is on file or of record in any public office, except such as may have been
filed
(i) by the Grantor in favor of Second Lien Agent pursuant to this Security
Agreement or the other Note Documents, (ii) by the Grantor in favor of the
First
Lien Collateral Agent pursuant to the First Lien Security Agreement or the
other
Note Documents, and (iii) in connection with any other Permitted Encumbrances.
(c) This
Security Agreement is effective to create a valid and continuing Lien on and
upon the filing of the appropriate financing statements in the correct filing
office of the respective jurisdictions listed on Schedule
II
hereto,
a perfected Lien in favor of Second Lien Agent, for the benefit of Subordinated
Note Purchasers, on the Collateral with respect to which a Lien may be perfected
by filing pursuant to the Code. Subject to Permitted Encumbrances, such Lien
is
superior and prior to the rights of all other Persons and is enforceable as
such
as against any and all creditors of and purchasers from the Grantor (other
than
purchasers and lessees of Inventory in the ordinary course of business or to
the
extent permitted under the Note Purchase Agreement). All action by the Grantor
necessary or desirable to protect and perfect such Lien on each item of the
Collateral has been duly authorized by the Grantor to be taken by Second Lien
Agent.
(d) Schedule
III
hereto
lists, as of the date of this Security Agreement, all Instruments and letter
of
credit rights of the Grantor evidencing obligations of more than $25,000
individually or in the aggregate. All action by the Grantor necessary or
desirable to protect and perfect the Lien of Second Lien Agent on each item
set
forth on Schedule
III
has been
duly taken by the Grantor. The Lien of Second Lien Agent, for the benefit of
the
Subordinated Note Purchasers, on the Collateral listed on Schedule
III
hereto
is prior to all other Liens, except Permitted Encumbrances, and is enforceable
as such against any and all creditors of and purchasers from the
Grantor.
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(e) The
Grantor’s name as it appears in official filings in the state of its
incorporation or other organization, the type of entity of the Grantor
(including corporation, partnership, limited partnership or limited liability
company), organizational identification number issued by the Grantor’s state of
incorporation or organization or a statement that no such number has been
issued, the Grantor’s state of organization or incorporation, the location of
the Grantor’s chief executive office, principal place of business, and as of the
date of this Security Agreement, all offices, warehouses and premises where
Collateral is located other than (i) Collateral in transit between Grantor’s
locations as indicated on Schedule 5.2.1 of the Note Purchase Agreement, and
(ii) Equipment with third parties for repair so long as such Equipment does
not
exceed $50,000 in the aggregate and at no time will such Equipment remain at
a
location other than listed in Schedule 5.2.1 of the Note Purchase Agreement
for
more than 120 days, and the locations of its books and records concerning the
Collateral as of the date of this Security Agreement are set forth on
Schedule IV
hereto.
The Grantor has only one state of incorporation or organization.
(f) With
respect to the Accounts, except as specifically disclosed in the most recent
collateral report delivered to the Subordinated Note Purchasers (i) they
represent bona fide sales of Inventory or rendering of services to Account
Debtors in the ordinary course of the Grantor’s business and are not evidenced
by a judgment or instrument; (ii) to the Grantor’s knowledge, there are no
material setoffs, claims or disputes existing or asserted with respect thereto
and the Grantor has not made any agreement with any Account Debtor for any
extension of time for the payment thereof, any compromise or settlement for
less
than the full amount thereof, any release of any Account Debtor from liability
therefor, or any deduction therefrom except a discount or allowance allowed
by
the Grantor in the ordinary course of its business and consistent with past
practices; (iii) to the Grantor’s knowledge, there are no facts, events or
occurrences which impairs the validity or enforceability thereof in any material
respect or could reasonably be expected to reduce the amount payable thereunder
as shown on the Grantor’s books and records and any invoices, statements and
collateral reports delivered to Second Lien Agent and Subordinated Note
Purchasers with respect thereto in any material respect; (iv) the Grantor has
not received any notice of proceedings or actions which are threatened or
pending against any Account Debtor which might result in any adverse change
in
such Account Debtor’s financial condition; and (v) the Grantor does not have
knowledge that any Account Debtor is unable generally to pay its debts as they
become due. Further with respect to the Accounts (x) the amounts shown on all
invoices, statements and collateral reports which may be delivered to the Second
Lien Agent with respect thereto are actually owing to the Grantor as indicated
thereon and are not contingent in any material respect; (y) no payments have
been or shall be made thereon except payments promptly delivered to the
applicable Deposit Accounts in the ordinary course of its business and
consistent with past practices; and (z) to the Grantor’s knowledge, all Account
Debtors have the capacity to contract.
-8-
(g) With
respect to any Inventory scheduled or listed on the most recent collateral
report delivered to Second Lien Agent pursuant to the terms of this Security
Agreement or the Note Purchase Agreement, (i) as of the date of this Security
Agreement, such Inventory is located at one of the Grantor’s locations set forth
on Schedule
IV
hereto,
(iii) subject to Permitted Encumbrances, the Grantor has good, indefeasible
and
merchantable title to such Inventory and such Inventory is not subject to any
Lien or security interest or document whatsoever except for the Lien granted
to
Second Lien Agent, for the benefit of the Subordinated Note Purchasers, and
(iv)
except as specifically disclosed in the most recent collateral report delivered
to Second Lien Agent, such Inventory is of good and merchantable quality in
all
material respects, free from any material defects.
(h) The
Grantor does not have any interest in, or title to, any Patent, Trademark or
Copyright as of the date of this Security Agreement except as set forth in
Schedule V
hereto.
This Security Agreement is effective to create a valid and continuing Lien
on
and, upon filing of the Copyright Security Agreements with the United States
Copyright Office and filing of the Patent Security Agreements and the Trademark
Security Agreements with the United States Patent and Trademark Office,
perfected Liens in favor of Second Lien Agent on the Grantor’s Patents,
Trademarks and Copyrights and such perfected Liens are enforceable as such
as
against any and all creditors of and purchasers from the Grantor except holders
of Permitted Encumbrances on any Patent, Trademark or Copyright securing
Indebtedness that is permitted under the Note Purchase Agreement. Upon filing
of
the Copyright Security Agreements with the United States Copyright Office and
filing of the Patent Security Agreements and the Trademark Security Agreements
with the United States Patent and Trademark Office and the filing of appropriate
financing statements listed on Schedule II
hereto,
all action necessary or desirable to protect and perfect Second Lien Agent’s
Lien on the Grantor’s Patents, Trademarks or Copyrights has been duly authorized
by the Grantor to be taken by Second Lien Agent.
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(i) The
Securities are not subject to any purchase agreement, voting trust or other
agreement affecting, restricting, or limiting the sale, transfer, disposition
or
voting rights concerning said Securities
5. COVENANTS.
The
Grantor covenants and agrees with Second Lien Agent, for the benefit of
Subordinated Note Purchasers, that from and after the date of this Security
Agreement and so long as any Subordinated Note remains outstanding:
(a) Further
Assurances: Pledge of Instruments.
(i) At
any
time and from time to time, upon the request of Second Lien Agent and at the
sole expense of Grantor, the Grantor shall promptly and duly execute and deliver
any and all such further instruments and documents and take such further actions
as Second Lien Agent may reasonably deem desirable to obtain the full benefits
of this Security Agreement and of the rights and powers herein granted,
including (A) using its commercially reasonable efforts to secure all consents
and approvals necessary or appropriate for the collateral assignment to or
for
the benefit of Second Lien Agent of any License or Contract held by the Grantor
and to enforce the security interests granted hereunder; and (B) filing any
financing or continuation statements under the Code with respect to the Liens
granted hereunder or under any other Note Document as to those jurisdictions
that are not Uniform Commercial Code jurisdictions.
(ii) Unless
Second Lien Agent shall otherwise consent in writing (which consent may be
revoked), the Grantor shall deliver to Second Lien Agent all Collateral
consisting of negotiable documents, certificated securities, and Instruments
(in
each case, accompanied by stock powers, allonges or other instruments of
transfer executed in blank) which are not subject to Permitted Encumbrances,
evidencing obligations in excess of $25,000 individually, promptly after such
Note Party receives the same.
(iii) The
Grantor shall obtain or use its commercially reasonable efforts to obtain
waivers or subordinations of Liens from landlords of property on which material
Collateral is located when and to the extent required by the Note Purchase
Agreement.
(iv) If
required by the terms of the Note Purchase Agreement and not waived by Second
Lien Agent in writing (which waiver may be revoked) or if requested by the
Second Lien Agent or any Subordinated Note Purchaser, the Grantor shall use
commercially reasonable efforts to obtain authenticated Control Letters from
each issuer of uncertificated securities, securities intermediary, or
commodities intermediary issuing or holding any financial assets or commodities
to or for the Grantor.
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(v) The
Grantor shall obtain a deposit account control agreement with each bank or
financial institution holding a Deposit Account (other than payroll accounts)
for the Grantor to the extent required by the Note Purchase Agreement.
(vi) The
Grantor that is or becomes the beneficiary of a letter of credit having face
amounts of $25,000 individually, or in the aggregate, or more shall promptly,
and in any event within ten (10) Business Days after becoming a beneficiary,
notify Second Lien Agent thereof and use commercially reasonable efforts to
enter into a tri-party agreement with Second Lien Agent and the issuer and/or
confirmation bank with respect to letter-of-credit rights assigning such
letter-of-credit rights to Second Lien Agent and directing all payments
thereunder to the collection account, all in form and substance reasonably
satisfactory to Second Lien Agent.
(vii) The
Grantor shall take all steps reasonably necessary to grant the Second Lien
Agent
control of all electronic chattel paper in accordance with the Code and all
“transferable records” as defined in each of the Uniform Electronic Transactions
Act and the Electronic Signatures in Global and National Commerce
Act.
(viii) The
Grantor hereby irrevocably authorizes the Second Lien Agent at any time and
from
time to time to file in any filing office in any Uniform Commercial Code
jurisdiction any initial financing statements and amendments thereto that (a)
indicate the Collateral is described as set forth in Section 2, hereof,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the Code or such jurisdiction, or as being
of
an equal or lesser scope or with greater detail and (b) contain any other
information required by part 5 of Article 9 of the Code for the sufficiency
or
filing office acceptance of any financing statement or amendment, including
(i)
whether the Grantor is an organization, the type of organization and any
organization identification number issued to the Grantor, and (ii) in the case
of a financing statement filed as a fixture filing or indicating Collateral
as
as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. The Grantor agrees to furnish any
such
information to the Second Lien Agent promptly upon request. The Grantor also
ratifies its authorization for the Second Lien Agent to have filed in any
Uniform Commercial Code jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof.
(ix) The
Grantor shall promptly, and in any event within ten (10) Business Days after
the
same is acquired by it in which the claim exceeds $100,000, notify Second Lien
Agent of any commercial tort claim (as defined in the Code) acquired by it
and
unless otherwise consented by Second Lien Agent, the Grantor shall enter into
a
supplement to this Security Agreement, granting to Second Lien Agent a Lien
in
such commercial tort claim.
(x) Upon
any
Subsidiary becoming a Note Party pursuant to Section
7.9
of the
Note Purchase Agreement, such Subsidiary shall concurrently become a party
to
this Security Agreement and grant to Second Lien Agent, for the benefit of
the
Subordinated Note Purchasers, a Lien upon all of such Subsidiary’s right, title
and interest in, to and under all Collateral, then owned by or owing to, or
thereafter acquired by or arising in favor of such Subsidiary.
-11-
(b) Maintenance
of Records.
The
Grantor shall keep and maintain, at its own cost and expense, satisfactory
and
complete records of the Collateral, including without limitation a record of
all
related customer contracts and accounts receivable, furniture, fixtures,
information technology, vehicles, licensing arrangements and applicable proceeds
of the foregoing, Liens related thereto.
(c) Covenants
Regarding Patent, Trademark and Copyright Collateral.
(i) Unless
Grantor shall reasonably determine that the applicable Patent, Trademark or
Copyright is not material to the conduct of its business or operations, the
Grantor shall notify Second Lien Agent immediately if it knows or has reason
to
know that any application or registration relating to any material Patent,
Trademark or Copyright (now or hereafter existing) 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
in
the United States Patent and Trademark Office, the United States Copyright
Office or any court) regarding the Grantor’s ownership of any material Patent,
Trademark or Copyright, its right to register the same, or to keep and maintain
the same.
(ii) In
no
event shall the Grantor, either itself or through any agent, employee, licensee
or designee, file an application for the registration of any Patent, Trademark
or Copyright with the United States Patent and Trademark Office, the United
States Copyright Office or any similar office or agency without giving Second
Lien Agent prior written notice thereof, and, upon request of Second Lien Agent,
Grantor shall execute and deliver any and all Patent Security Agreements,
Copyright Security Agreements or Trademark Security Agreements as Second Lien
Agent may request to evidence Second Lien Agent’s Lien on such Patent, Trademark
or Copyright, and the General Intangibles of the Grantor relating thereto or
represented thereby.
(iii) Unless
Grantor shall reasonably determine that the applicable Patent, Trademark or
Copyright is not material to the conduct of its business or operations, the
Grantor shall take all actions necessary or reasonably requested by Second
Lien
Agent to maintain and pursue (in each case, in a manner consistent with
reasonable responsible business and legal practices) each application, to obtain
the relevant registration and to maintain the registration of each of the
Patents, Trademarks and Copyrights (now or hereafter existing), including the
filing of applications for renewal, affidavits of use, affidavits of
noncontestability and opposition and interference and cancellation proceedings.
(iv) In
the
event that any material Patent, Trademark or Copyright Collateral is infringed
upon, or misappropriated or diluted by a third party, the Grantor shall, unless
Grantor shall reasonably determine that such Patent, Trademark or Copyright
Collateral is not material to the conduct of its business or operations,
promptly xxx for infringement, misappropriation or dilution and to recover
any
and all damages for such infringement, misappropriation or dilution, and shall
take such other actions as are commercially reasonable under the circumstances
to protect such Patent, Trademark or Copyright Collateral.
-12-
(d) Indemnification.
In
consideration of the execution and delivery of the Note Purchase Agreement,
each
Note Party agrees to indemnify and hold each Subordinated Note Purchaser and
each Subordinated Note Purchaser’s directors, Affiliates, and agents (for the
purposes of this section each is an “Indemnified
Party”)
harmless from and against any and all claims, losses, Subordinated Note
Obligations and liabilities arising out of or resulting from any or all of
(i)
this Security Agreement and (ii) the transactions contemplated by this Security
Agreement (including enforcement of this Security Agreement) in all cases,
except for claims, losses or liabilities to the extent resulting from an
Indemnified Party’s gross negligence or willful misconduct. The indemnification
provided for in this section is in addition to, and not in limitation of, any
other indemnification or insurance provided by any Note Party to any
Subordinated Note Purchaser.
(e) Compliance
with Terms of Accounts, etc.
In all
material respects, Grantor will perform and comply with all obligations in
respect of the Collateral and all other agreements to which it is a party or
by
which it is bound relating to the Collateral.
(f) Limitation
on Liens on Collateral.
Grantor
will not create, permit or suffer to exist, and Grantor will defend the
Collateral against, and take such other action as is necessary to remove, any
Lien on the Collateral except Permitted Encumbrances, and will defend the right,
title and interest of Second Lien Agent and Subordinated Note Purchasers in
and
to any of the Grantor’s rights under the Collateral against the claims and
demands of all Persons whomsoever, other than holders of Permitted
Encumbrances.
(g) Limitations
on Disposition.
Grantor
will not sell, license, lease, transfer or otherwise dispose of any of the
Collateral, or attempt or contract to do so except as permitted by the Note
Purchase Agreement.
(h) Further
Identification of Collateral.
Grantor
will, if so reasonably requested by Second Lien Agent, furnish to Second Lien
Agent, as often as Second Lien Agent requests, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Second Lien Agent may reasonably request, all in such
detail as Second Lien Agent may specify.
-13-
(i) Notices.
Grantor
will advise Second Lien Agent promptly, in reasonable detail, (i) of any Lien
(other than Permitted Encumbrances) or material claim made or asserted against
any of the Collateral, and (ii) of the occurrence of any other event which
would
have a material adverse effect on the aggregate value of the Collateral or
on
the Liens created hereunder or under any other Note Document, other than the
creation or occurrence of a Permitted Encumbrance.
(j) No
Reincorporation.
Without
limiting the prohibitions on mergers involving the Grantor contained in the
Note
Purchase Agreement, Grantor shall not reincorporate or reorganize itself under
the laws of any jurisdiction other than the jurisdiction in which it is
incorporated or organized as of the date hereof without ten (10) Business Days
prior written notice to Second Lien Agent.
(k) Terminations;
Amendments Not Authorized.
Grantor
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
without the prior written consent of Second Lien Agent and agrees that it will
not do so without the prior written consent of Second Lien Agent, subject to
the
Grantor's rights under Section 9-509(d)(2) of the Code.
(l) Authorized
Terminations.
Second
Lien Agent will promptly deliver to the Grantor for filing or authorize Grantor
to prepare and file termination statements and releases in accordance with
the
Note Purchase Agreement.
(m) New
Locations.
Upon
storing Inventory at any location other than those listed in Section
5.2.1
to the
Note Purchase Agreement, the Grantor shall make commercially reasonable efforts
to obtain, within ninety (90) days of storing Inventory at such location, a
duly
executed landlord consent permitting the Second Lien Agent to remove the
personal property of the Note Parties from such location.
6. COLLECTION
OF DIVIDENDS.
During
the term of this Security Agreement, Grantor is authorized to collect all
dividends, distributions, payments and other amounts that may be or become
payable on any of the Collateral so long as no Event of Default has occurred.
Upon the occurrence of an Event of Default and during the continuance of an
Event of Default, the Second Lien Agent is authorized to collect all dividends,
distributions, payments or other amounts that may be or become payable on any
of
the Securities. Such amounts collected may, at the option of the Second Lien
Agent, be applied to the indebtedness secured hereby. The Second Lien Agent
shall be under no obligation to collect any such amounts.
7. VOTING
RIGHTS.
Subject
to the immediately following sentence, Grantor shall have the right, where
applicable, to vote the Collateral on all corporate questions, or otherwise
exercise such similar rights as may arise from the Collateral. Upon the
occurrence of an Event of Default and during the continuance of an Event of
Default, such right shall, at the option of the Second Lien Agent, terminate
whereupon the Second Lien Agent may exercise all such rights. Grantor agrees
to
appoint the Second Lien Agent as its proxy for such purpose, and to execute
such
additional documents as are necessary to effect the same.
-14-
8. EXERCISE
OF OPTIONS.
In the
event that during the term of this Security Agreement subscription warrants
or
any other rights or options shall be issued in connection with the Collateral,
such warrants, rights and options shall constitute part of the Collateral.
If
such subscription warrants or other rights or options shall expire during the
term of this Security Agreement and Grantor has not elected to exercise such
warrants or options, the Second Lien Agent may elect (without any duty to do
so)
to exercise such warrants, rights and options at its own expense and to the
extent assignable, Grantor will assign his rights thereunder. All new equity
interests so acquired shall be subject to and held under the terms hereof as
Collateral.
9. SECOND
LIEN AGENT’S APPOINTMENT AS ATTORNEY-IN-FACT.
On
the
Closing Date, Grantor shall execute and deliver to Second Lien Agent a power
of
attorney (the “Power
of Attorney”)
substantially in the form attached hereto as Exhibit
A.
The
power of attorney granted pursuant to the Power of Attorney is a power coupled
with an interest and shall be irrevocable until the Subordinated Note
Obligations have been paid in full. The powers conferred on Second Lien Agent,
for the benefit of the Subordinated Note Purchasers, under the Power of Attorney
are solely to protect Second Lien Agent’s interests (for the benefit of the
Subordinated Note Purchasers) in the Collateral and shall not impose any duty
upon Second Lien Agent or any Subordinated Note Purchaser to exercise any such
powers. Second Lien Agent agrees that (a) except for the powers granted in
clause (h) of the Power of Attorney, it shall not exercise any power or
authority granted under the Power of Attorney unless an Event of Default has
occurred and is continuing, and (b) Second Lien Agent shall account to the
Grantors for any moneys received by Second Lien Agent in respect of any
foreclosure on or disposition of Collateral pursuant to the Power of Attorney
provided that except as set forth in Section
15
hereof,
none of Second Lien Agent or any Subordinated Note Purchaser shall have any
duty
as to any Collateral, and Second Lien Agent and Subordinated Note Purchasers
shall be accountable only for amounts that they actually receive as a result
of
the exercise of such powers. NONE OF SECOND LIEN AGENT, SUBORDINATED NOTE
PURCHASERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR FOR ANY ACT OR FAILURE
TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
-15-
10. REMEDIES:
RIGHTS UPON DEFAULT.
(a) In
addition to all other rights and remedies granted to it under this Security
Agreement, the Note Purchase Agreement, the other Note Documents and under
any
other instrument or agreement securing, evidencing or relating to any of the
Subordinated Note Obligations, if any Event of Default shall have occurred
and
be continuing, Second Lien Agent may exercise all rights and remedies of a
secured party under the Code. Without limiting the generality of the foregoing,
the Grantor expressly agrees that in any such event Second Lien Agent, without
demand of performance or other demand, advertisement or notice of any kind
(except the notices specified in the Note Purchase Agreement or the notices
below of time and place of public or private sale) to or upon Grantor or any
other Person (all and each of which demands, advertisements and other notices
are hereby expressly waived to the maximum extent permitted by the Code and
other applicable law), may forthwith enter upon the premises of the Grantor
where any Collateral is located through self-help, without judicial process,
without first obtaining a final judgment or giving the Grantor or any other
Person notice and opportunity for a hearing on Second Lien Agent’s claim or
action and may collect, receive, assemble, process, appropriate and realize
upon
the Collateral, or any part thereof, and may forthwith sell, lease, license,
assign, give an option or options to purchase, or sell or otherwise dispose
of
and deliver said Collateral (or contract to do so), or any part thereof, in
one
or more parcels at a public or private sale or sales, at any exchange at such
prices as it may deem acceptable, for cash or on credit or for future delivery
without assumption of any credit risk. Second Lien Agent or any Subordinated
Note Purchaser shall have the right upon any such public sale or sales and,
to
the extent permitted by law, upon any such private sale or sales, to purchase
for the benefit of the Subordinated Note Purchasers, the whole or any part
of
said Collateral so sold, free of any right or equity of redemption, which equity
of redemption the Grantor hereby releases. Such sales may be adjourned and
continued from time to time with or without notice. Second Lien Agent shall
have
the right to conduct such sales on the Grantor’s premises or elsewhere and shall
have the right to use the Grantor’s premises without charge for such time or
times as Second Lien Agent deems necessary or advisable.
If
any
Event of Default shall have occurred and be continuing, the Grantor further
agrees, at Second Lien Agent’s request, to assemble the Collateral and make it
available to Second Lien Agent at a place or places designated by Second Lien
Agent which are reasonably convenient to Second Lien Agent and the Grantor,
whether at the Grantor’s premises or elsewhere. Until Second Lien Agent is able
to effect a sale, lease, or other disposition of Collateral, Second Lien Agent
shall have the right to hold or use Collateral, or any part thereof, to the
extent that it deems appropriate for the purpose of preserving Collateral or
its
value or for any other purpose deemed appropriate by Second Lien Agent. Second
Lien Agent shall have no obligation to the Grantor to maintain or preserve
the
rights of the Grantor as against third parties with respect to Collateral while
Collateral is in the possession of Second Lien Agent. Second Lien Agent may,
if
it so elects, seek the appointment of a receiver or keeper to take possession
of
Collateral and to enforce any of Second Lien Agent’s remedies (for the benefit
of Subordinated Note Purchasers), with respect to such appointment without
prior
notice or hearing as to such appointment. Second Lien Agent shall apply the
net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale to the Subordinated Note Obligations as provided in the Note Purchase
Agreement, and only after so paying over such net proceeds, and after the
payment by Second Lien Agent of any other amount required by any provision
of
law, need Second Lien Agent account for the surplus, if any, to the Grantor.
To
the maximum extent permitted by applicable law, the Grantor waives all claims,
damages, and demands against Second Lien Agent or any Subordinated Note
Purchaser arising out of the repossession, retention or sale of the Collateral
except such as arise solely out of the gross negligence or willful misconduct
of
Second Lien Agent or such Subordinated Note Purchaser as finally determined
by a
court of competent jurisdiction. The Grantor agrees that ten (10) days’ prior
notice by Second Lien Agent of the time and place of any public sale or of
the
time after which a private sale may take place is reasonable notification of
such matters. Grantor shall remain liable for any deficiency if the proceeds
of
any sale or disposition of the Collateral are insufficient to pay all
Subordinated Note Obligations, including any attorneys’ fees and other expenses
incurred by Second Lien Agent or any Subordinated Note Purchaser to collect
such
deficiency.
-16-
(b) Except
as
otherwise specifically provided herein, Grantor hereby waives presentment,
demand, protest or any notice (to the maximum extent permitted by applicable
law) of any kind in connection with this Security Agreement or any Collateral.
(c) To
the
extent that applicable law imposes duties on the Second Lien Agent to exercise
remedies in a commercially reasonable manner, Grantor acknowledges and agrees
that it is not commercially unreasonable for the Second Lien Agent in its
exercise of remedies pursuant to this Section
10
(i) to
fail to incur expenses reasonably deemed significant by the Second Lien Agent
to
prepare Collateral for disposition or otherwise to complete raw material or
work
in process into finished goods or other finished products for disposition,
(ii)
to fail to obtain third party consents for access to Collateral to be disposed
of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against Account Debtors or other Persons obligated on Collateral or
to
remove Liens on or any adverse claims against Collateral, (iv) to exercise
collection remedies against Account Debtors and other Persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists, (v) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral
is
of a specialized nature, (vi) to contact other Persons, whether or not in the
same business as the Grantor, for expressions of interest in acquiring all
or
any portion of such Collateral, (vii) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the
Collateral is of a specialized nature, (viii) to dispose of Collateral by
utilizing internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capacity of doing so,
or
that match buyers and sellers of assets, (ix) to dispose of assets in wholesale
rather than retail markets, (x) to disclaim disposition warranties, such as
title, possession or quiet enjoyment, (xi) to purchase insurance or credit
enhancements to insure the Second Lien Agent against risks of loss, collection
or disposition of Collateral or to provide to the Second Lien Agent a guaranteed
return from the collection or disposition of Collateral, or (xii) to the extent
deemed appropriate by the Second Lien Agent, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist
the
Second Lien Agent in the collection or disposition of any of the Collateral.
The
Grantor acknowledges that the purpose of this Section
10(c)
is to
provide non-exhaustive indications of what actions or omissions by the Second
Lien Agent would not be commercially unreasonable in the Second Lien Agent's
exercise of remedies against the Collateral and that other actions or omissions
by the Second Lien Agent shall not be deemed commercially unreasonable solely
on
account of not being indicated in this Section
10(c).
Without
limitation upon the foregoing, nothing contained in this Section
10(c)
shall be
construed to grant any rights to the Grantor or to impose any duties on Second
Lien Agent that would not have been granted or imposed by this Security
Agreement or by applicable law in the absence of this Section
10(c).
-17-
(d) In
the
exercise of remedies pursuant to this Section 10, neither the Second Lien Agent
nor the Subordinated Note Purchasers shall be required to make any demand upon,
or pursue or exhaust any of their rights or remedies against, the Grantor,
any
other obligor, guarantor, pledgor or any other Person with respect to the
payment of the Subordinated Note Obligations or to pursue or exhaust any of
their rights or remedies with respect to any Collateral therefor or any direct
or indirect guarantee thereof. Neither the Second Lien Agent nor the
Subordinated Note Purchasers shall be required to marshal the Collateral or
any
guarantee of the Subordinated Note Obligations or to resort to the Collateral
or
any such guarantee in any particular order, and all of its and their rights
hereunder or under any other Note Document shall be cumulative. To the extent
it
may lawfully do so, the Grantor absolutely and irrevocably waives and
relinquishes the benefit and advantage of, and covenants not to assert against
the Second Lien Agent or any Subordinated Note Purchaser, any valuation, stay,
appraisement, extension, redemption or similar laws and any and all rights
or
defenses it may have as a surety now or hereafter existing which, but for this
provision, might be applicable to the sale of any Collateral made under the
judgment, order or decree of any court, or privately under the power of sale
conferred by this Security Agreement, or otherwise.
-18-
11. GRANT
OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL.
For the
purpose of enabling Second Lien Agent to exercise rights and remedies under
Section
10
hereof
(including, without limiting the terms of Section
10
hereof,
in order to take possession of, hold, preserve, process, assemble, prepare
for
sale, market for sale, sell or otherwise dispose of Collateral) at such time
as
Second Lien Agent shall be lawfully entitled to exercise such rights and
remedies, the Grantor hereby grants to Second Lien Agent, for the benefit of
Subordinated Note Purchasers, an irrevocable, nonexclusive license (exercisable
without payment of royalty or other compensation to the Grantor) to use or
license Intellectual Property now owned or hereafter acquired by the Grantor
and
use commercially reasonable efforts to sublicense any hereafter acquired
Intellectual Property and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof.
12. LIMITATION
ON SECOND LIEN AGENT’S AND SUBORDINATED NOTE PURCHASERS’ DUTY IN RESPECT OF
COLLATERAL.
Second
Lien Agent and each Subordinated Note Purchaser shall use reasonable care with
respect to the Collateral in its possession or under its control. Neither Second
Lien Agent nor any Subordinated Note Purchaser shall have any other duty as
to
any Collateral in its possession or control or in the possession or control
of
any agent or nominee of Second Lien Agent or such Subordinated Note Purchaser,
or any income thereon or as to the preservation of rights against prior parties
or any other rights pertaining thereto.
13. REINSTATEMENT.
This
Security Agreement shall remain in full force and effect and continue to be
effective should any petition be filed by or against the Grantor for liquidation
or reorganization, should the Grantor become insolvent or make an assignment
for
the benefit of any creditor or creditors or should a receiver or trustee be
appointed for all or any significant part of the Grantor’s assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Subordinated Note Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must
otherwise be restored or returned by any obligee of the Subordinated Note
Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or
otherwise, all as though such payment or performance had not been made. In
the
event that any payment, or any part thereof, is rescinded, reduced, restored
or
returned, the Subordinated Note Obligations shall be reinstated and deemed
reduced only by such amount paid and not so rescinded, reduced, restored or
returned.
14. NOTICES.
Except
as otherwise provided herein, whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall
or
may be given to or served upon any of the parties by any other party, or
whenever any of the parties desires to give and serve upon any other party
any
communication with respect to this Security Agreement, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and shall be given in the manner, and deemed received, as provided
for
in the Note Purchase Agreement.
-19-
15. SEVERABILITY.
Whenever possible, each provision of this Security Agreement shall be
interpreted in a manner as to be effective and valid under applicable law,
but
if any provision of this Security Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of
such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Security Agreement. This Security Agreement
is to be read, construed and applied together with the Note Purchase Agreement
and the other Note Documents which, taken together, set forth the complete
understanding and agreement of Second Lien Agent, Subordinated Note Purchasers
and Grantor with respect to the matters referred to herein and
therein.
16. NO
WAIVER; CUMULATIVE REMEDIES.
Neither
Second Lien Agent nor any Subordinated Note Purchaser shall by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing, signed by Second
Lien
Agent and then only to the extent therein set forth. A waiver by Second Lien
Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Second Lien Agent would
otherwise have had on any future occasion. No failure to exercise nor any delay
in exercising on the part of Second Lien Agent or any Subordinated Note
Purchaser, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Second Lien
Agent and Grantor.
17. LIMITATION
BY LAW.
All
rights, remedies and powers provided in this Security Agreement may be exercised
only to the extent that the exercise thereof does not violate any applicable
provision of law, and all the provisions of this Security Agreement are intended
to be subject to all applicable mandatory provisions of law that may be
controlling and to be limited to the extent necessary so that they shall not
render this Security Agreement invalid, unenforceable, in whole or in part,
or
not entitled to be recorded, registered or filed under the provisions of any
applicable law
18. TERMINATION
OF THIS SECURITY AGREEMENT.
Subject
to Section
10
hereof,
this Security Agreement shall terminate when the Subordinated Note Obligations
are paid in full.
19. SUCCESSORS
AND ASSIGNS.
This
Security Agreement and all obligations of Grantor hereunder shall be binding
upon the successors and assigns of the Grantor (including any
debtor-in-possession on behalf of the Grantor) and shall, together with the
rights and remedies of Second Lien Agent, for the benefit of Subordinated Note
Purchasers, hereunder, inure to the benefit of Second Lien Agent and
Subordinated Note Purchasers, all future holders of any instrument evidencing
any of the Subordinated Note Obligations and their respective successors and
assigns permitted under the Note Purchase Agreement. No sales of participations,
other sales, assignments, transfers or other dispositions of any agreement
governing or instrument evidencing the Subordinated Note Obligations or any
portion thereof or interest therein shall in any manner impair the Lien granted
to Second Lien Agent, for the benefit of Subordinated Note Purchasers,
hereunder. Grantor may not assign, sell, hypothecate or otherwise transfer
any
interest in or obligation under this Security Agreement.
-20-
20. COUNTERPARTS.
This
Security Agreement may be authenticated in any number of separate counterparts,
each of which shall collectively and separately constitute one agreement. This
Security Agreement may be authenticated by manual signature, facsimile or,
if
approved in writing by Second Lien Agent, electronic means, all of which shall
be equally valid.
21. GOVERNING
LAW.
EXCEPT
AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE OTHER NOTE DOCUMENTS, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
THIS
SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED
BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. THE GRANTOR HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK,
NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR
DISPUTES BETWEEN GRANTOR, SECOND LIEN AGENT AND SUBORDINATED NOTE PURCHASERS
PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER NOTE DOCUMENTS OR
TO
ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF
THE
OTHER NOTE DOCUMENTS, PROVIDED,
THAT
SECOND LIEN AGENT, SUBORDINATED NOTE PURCHASERS AND GRANTOR ACKNOWLEDGE THAT
ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
NEW
YORK COUNTY, AND, PROVIDED, FURTHER,
NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE SECOND LIEN AGENT
FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE
A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SECOND LIEN AGENT. GRANTOR EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH
IT
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS
AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE
BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET FORTH
ON
ANNEX
I
TO THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
-21-
22. WAIVER
OF JURY TRIAL.
BECAUSE
DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO
BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, AMONG SECOND LIEN AGENT, SUBORDINATED NOTE PURCHASERS, AND GRANTOR
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER
NOTE
DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.
23. SECTION
TITLES.
The
Section titles contained in this Security Agreement are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of
the
agreement between the parties hereto.
24. NO
STRICT CONSTRUCTION.
The
parties hereto have participated jointly in the negotiation and drafting of
this
Security Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Security Agreement shall be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Security Agreement.
25. ADVICE
OF COUNSEL.
Each of
the parties represents to each other party hereto that it has discussed this
Security Agreement and, specifically, the provisions of Section
21
and
Section
22,
with
its counsel.
26. BENEFIT
OF SUBORDINATED NOTE PURCHASERS.
All
Liens granted or contemplated hereby shall be for the benefit of Subordinated
Note Purchasers, and all proceeds or payments realized from Collateral in
accordance herewith shall be applied to the Subordinated Note Obligations in
accordance with the terms of the Note Purchase Agreement.
-22-
IN
WITNESS WHEREOF,
each of
the parties hereto has caused this Security Agreement to be executed and
delivered by its duly authorized officer as of the date first set forth
above.
|
ENCOMPASS
GROUP AFFILIATES, INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial Officer
|
||
|
ADVANCED
COMMUNICATIONS TECHNOLOGIES, INC.,
a
Florida corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial Officer
|
||
|
SPECTRUCELL,
INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial
Officer
|
||
|
XXXXXX
STREET INVESTMENTS, INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial
Officer
|
||
|
CYBER-TEST,
INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial
Officer
|
||
|
XXXXX
XXXXXXX, INC.,
a
Florida corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial
Officer
|
||
|
SANKATY
ADVISORS, LLC, as Second Lien
Agent
|
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxxx | |
|
Name:
Xxxxxx Xxxxxx
Title:
Managing
Director
|
||
[SIGNATURE
PAGE TO ACT SECURITY AGREEMENT]
SCHEDULE
I
to
SECURITY
AGREEMENT
COMMERCIAL
TORT CLAIMS
SCHEDULE
II
to
SECURITY
AGREEMENT
FILING
JURISDICTIONS
SCHEDULE
III
to
SECURITY
AGREEMENT
INSTRUMENTS
AND
LETTER
OF CREDIT RIGHTS
SCHEDULE
IV
to
SECURITY
AGREEMENT
SCHEDULE
OF OFFICES, LOCATIONS OF COLLATERAL
AND
RECORDS CONCERNING EACH GRANTOR’S COLLATERAL
SCHEDULE
V
to
SECURITY
AGREEMENT
PATENTS,
TRADEMARKS, DOMAIN NAMES AND COPYRIGHTS
PATENTS
AND PATENT APPLICATIONS
TRADEMARK
REGISTRATIONS
COPYRIGHTS
SCHEDULE
VI
to
SECURITY
AGREEMENT
INVESTMENT
PROPERTY
ANNEX
I
to
SECURITY
AGREEMENT
ENCOMPASS
GROUP AFFILIATES, INC.
c/o
HIG
Capital
000
Xxxxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
ADVANCED
COMMUNICATIONS TECHNOLOGIES, INC.
c/o
HIG
Capital
000
Xxxxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
SPECTRUCELL,
INC.
c/o
HIG
Capital
000
Xxxxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(617) 262-1505
XXXXXX
STREET INVESTMENTS, INC.
c/o
HIG
Capital
000
Xxxxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
CYBER-TEST,
INC.
c/o
HIG
Capital
000
Xxxxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
XXXXX
XXXXXXX, INC.
c/o
HIG
Capital
000
Xxxxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
EXHIBIT
A
POWER
OF ATTORNEY
This
Power of Attorney is executed and delivered by Encompass
Group Affiliates, Inc., a Delaware corporation, Advanced Communications
Technologies, Inc., a Florida corporation, SpectruCell, Inc., a Delaware
corporation, Xxxxxx Street Investments, Inc., a Delaware corporation,
Cyber-Test, Inc. a Delaware corporation and Xxxxx Xxxxxxx, Inc., a
Florida
corporation
(each a
“Grantor”)
to
Sankaty Advisors, LLC (hereinafter referred to as “Attorney”),
as
Second Lien Agent for the benefit of Subordinated Note Purchasers, under a
Note
Purchase Agreement and a Security Agreement, both dated as of August 17, 2007,
and other related documents (the “Note
Documents”).
No
person to whom this Power of Attorney is presented, as authority for Attorney
to
take any action or actions contemplated hereby, shall be required to inquire
into or seek confirmation from Grantor as to the authority of Attorney to take
any action described below, or as to the existence of or fulfillment of any
condition to this Power of Attorney, which is intended to grant to Attorney
unconditionally the authority to take and perform the actions contemplated
herein, and Grantor irrevocably waives any right to commence any suit or action,
in law or equity, against any person or entity which acts in reliance upon
or
acknowledges the authority granted under this Power of Attorney. The power
of
attorney granted hereby is coupled with an interest, and may not be revoked
or
canceled by Grantor without Attorney’ s written consent until the Grantor’s
obligations under the Note Documents are paid in full. Attorney shall exercise
this Power of Attorney subject to and consistent with the terms of the Note
Documents and this Power of Attorney; provided that the foregoing statement
shall bind Attorney only and no person or entity acting in reliance upon or
acknowledging the authority granted under this Power of Attorney shall be
responsible for ascertaining whether Attorney’s actions are consistent with such
terms.
Grantor
hereby irrevocably constitutes and appoints Attorney (and all officers,
employees or agents designated by Attorney), with full power of substitution,
as
Grantor’s true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Grantor and in the name of Grantor or in
its
own name, from time to time in Attorney’s discretion, until the Grantor’s
obligations under the Note Documents are paid in full, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes
of
the Note Documents and, without limiting the generality of the foregoing,
Grantor hereby grants to Attorney the power and right, on behalf of Grantor,
without notice to or assent by Grantor, and at any time, to do the following:
(a) change the mailing address of Grantor, open a post office box on behalf
of
Grantor, open mail for Grantor, and ask, demand, collect, give acquittances
and
receipts for, take possession of, endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, and notices in connection with any property of
Grantor; (b) effect any repairs to any asset of Grantor, or continue or obtain
any insurance and pay all or any part of the premiums therefor and costs
thereof, and make, settle and adjust all claims under such policies of
insurance, and make all determinations and decisions with respect to such
policies; (c) pay or discharge any taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against Grantor or its property;
(d) defend any suit, action or proceeding brought against Grantor if Grantor
does not defend such suit, action or proceeding or if Attorney believes that
Grantor is not pursuing such defense in a manner that will maximize the recovery
to Attorney, and settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or releases
as Attorney may deem appropriate; (e) file or prosecute any claim, litigation,
suit or proceeding in any court of competent jurisdiction or before any
arbitrator, or take any other action otherwise deemed appropriate by Attorney
for the purpose of collecting any and all such moneys due to Grantor whenever
payable and to enforce any other right in respect of Grantor’s property; (f)
cause the certified public accountants then engaged by Grantor to prepare and
deliver to Attorney at any time and from time to time, promptly upon Attorney’s
request, the following reports: (1) a reconciliation of all accounts, (2) an
aging of all accounts, (3) trial balances, (4) test verifications of such
accounts as Attorney may request, and (5) the results of each physical
verification of inventory; (g) communicate in its own name with any party to
any
Contract with regard to the assignment of the right, title and interest of
the
Grantor in and under the Contracts and other matters relating thereto; (h)
to
file such financing statements with respect to the Security Agreement, with
or
without Grantor's signature, or to file a photocopy of the Security Agreement
in
substitution for a financing statement, as the Second Lien Agent may deem
appropriate and to execute in Grantor's name such financing statements and
amendments thereto and continuation statements which may require the Grantor's
signature; and (i) execute, in connection with any sale provided for in any
Note
Document, any endorsements, assignments or other instruments of conveyance
or
transfer with respect to the Collateral and to otherwise direct such sale or
resale, all as though Attorney were the absolute owner of the property of
Grantor for all purposes, and to do, at Attorney’s option and Grantor’s expense,
at any time or from time to time, all acts and other things that Attorney
reasonably deems necessary to perfect, preserve, or realize upon Grantor’s
property or assets and Attorney’s Liens thereon, all as fully and effectively as
Grantor might do. Grantor hereby ratifies, to the extent permitted by law,
all
that said Attorney shall lawfully do or cause to be done by virtue
hereof.
IN
WITNESS WHEREOF, this Power of Attorney is executed by Grantor pursuant to
the
authority of its board of directors this 17th day of August, 2007.
|
ENCOMPASS
GROUP AFFILIATES, INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial Officer
|
||
|
ADVANCED
COMMUNICATIONS TECHNOLOGIES, INC.,
a
Florida corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial Officer
|
||
|
SPECTRUCELL,
INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial Officer
|
||
|
XXXXXX
STREET INVESTMENTS, INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial
Officer
|
||
|
CYBER-TEST,
INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial
Officer
|
||
|
XXXXX
XXXXXXX, INC.,
a
Florida corporation
|
||
| |
|
|
| By: | /s/ Xxxx X. Xxxxxxx | |
|
Name:
Xxxx X. Xxxxxxx
Title:
Chief Financial
Officer
|
||
