SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "AGREEMENT") is made as of June 14, 2006
by and among ZBB ENERGY CORPORATION, a Wisconsin corporation (the "COMPANY"),
and the secured parties signatory hereto and their respective endorsees,
transferees and assigns (collectively, the "SECURED PARTIES") and CRUCIAN
TRANSITION INC. DBA CTI CAPITAL MANAGEMENT, a Delaware corporation (the
"COLLATERAL AGENT"), as agent for the Secured Parties.
WITNESSETH:
WHEREAS, pursuant to a Note Purchase Agreement, dated June 14, 2006,
(the "NOTE PURCHASE AGREEMENT") the Company issued to the Secured Parties
certain 8% Senior Secured Notes (collectively, the "NOTES").
NOW, THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "general intangibles" and "proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.
a. "COLLATERAL" means the collateral in which the Secured Parties
is granted a security interest by this Agreement and which shall include the
following, whether presently owned or existing or hereafter acquired or coming
into existence, and all additions and accessions thereto and all substitutions
and replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in
connection therewith:
i. All goods, including, without limitation, all machinery,
equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances,
furniture, special and general tools, fixtures, test and quality control devices
and other equipment of every kind and nature and wherever situated, together
with all documents of title and documents representing the same, all additions
and accessions thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items, owned by the Company
and used in connection with the Company's businesses and all improvements
thereto; and
ii. All inventory of the Company; and
iii. All of the Company's contract rights and general
intangibles, including, without limitation, all partnership interests, stock or
other securities, licenses, distribution and other agreements, computer software
development rights, employee non-compete, non-disclosure and assignment of
rights agreements, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, deposit accounts, and income tax
refunds; and
iv. All receivables of the Company including all insurance
proceeds, and rights to refunds or indemnification whatsoever owing, together
with all instruments, all documents of title representing any of the foregoing,
all rights in any merchandising, goods, equipment, motor vehicles and trucks
which any of the same may represent, and all right, title, security and
guaranties with respect to each receivable, including any right of stoppage in
transit;
v. All of the Company's Intellectual Property; and
vi. All of the Company's documents, instruments and chattel
paper, files, records, books of account, business papers, computer programs and
the products and proceeds of all of the foregoing Collateral set forth in
clauses (i)-(v) above.
b. "COPYRIGHTS" shall mean all of the following in which the
Company now holds or hereafter acquires any interest (i) all copyrights, whether
registered or unregistered, held pursuant to the laws of the United States, any
State thereof or any other country; (ii) registrations, applications and
recordings in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof or any other country; (iii) any
continuations, renewals or extensions thereof; (iv) any registrations to be
issued in any pending applications; (v) prior versions of works covered by
copyright and all works based upon, derived from or incorporating such works;
(vi) income, royalties, damages, claims and payments now and hereafter due
and/or payable with respect to copyrights, including, without limitation,
damages, claims and recoveries for past, present or future infringement; (vii)
rights to xxx for past, present and future infringements of any copyright;
(viii) any rights in any material which is copyrightable or which is protected
by common law, United States copyright laws or similar laws, or any law of any
State, and (ix) any other rights corresponding to any of the foregoing rights
throughout the world; including, without limitation, any referred to in SCHEDULE
B hereto.
c. "COPYRIGHT LICENSE" shall mean any agreement, written or oral,
in which the Company now holds or hereafter acquires any interest, granting any
right in or to any Copyright or Copyright registration (whether the Company is
the licensee or the licensor thereunder) including, without limitation, licenses
pursuant to which the Company has obtained the exclusive right to use a
copyright owned by a third party, and including, without limitation, any thereof
referred to in SCHEDULE B hereto.
d. "INTELLECTUAL PROPERTY" shall mean, collectively, the Software
Intellectual Property, Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks, Trademark Licenses and Trade Secrets.
e. "OBLIGATIONS" means all of the Company's obligations under
this Agreement, the Note Purchase Agreement and the Notes, but excluding the
Warrants, in each case, whether now or hereafter existing, voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later decreased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from the Secured Parties as a preference,
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fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time.
f. "PATENTS" shall mean all of the following in which the Company
now holds or hereafter acquires any interest: (i) all letters patent of the
United States or any other country, all registrations and recordings thereof and
all applications for letters patent of the United States or any other country,
including, without limitation, 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 thereof or any other country; (ii) all reissues,
divisions, continuations, renewals, continuations in part or extensions thereof;
(iii) all xxxxx patents, divisionals and patents of addition; (iv) all patents
to issue in any such applications; (v) income, royalties, damages, claims and
payments now and hereafter due and/or payable with respect to patents,
including, without limitation, damages, claims and recoveries for past, present
or future infringement; and (vi) rights to xxx for past, present and future
infringements of any patent; including, without limitation, any referred to in
SCHEDULE B hereto.
g. "PATENT LICENSE" shall mean any agreement, whether written or
oral, in which the Company now holds or hereafter acquires any interest,
granting any right with respect to any Patent (whether the Company is the
licensee or the licensor thereunder), including, without limitation, any
referred to in SCHEDULE B hereto.
h. "SOFTWARE INTELLECTUAL PROPERTY" shall mean (i) all software
programs (including all source code, object code and all related applications
and data files), whether now owned, upgraded, enhanced, licensed or leased or
hereafter acquired by the Company; (ii) all computers and electronic data
processing hardware and firmware associated therewith; (iii) all documentation
(including flow charts, logic diagrams, manuals, guides and specifications) with
respect to such software, hardware and firmware described in the preceding
subclauses (i) and (ii); and (iv) all rights with respect to all of the
foregoing, including, without limitation, any and all upgrades, modifications,
copyrights, licenses, options, warranties, service contracts, program services,
test rights, maintenance rights, support rights, improvement rights, renewal
rights and indemnifications and substitutions, replacements, additions, or model
conversions of any of the foregoing.
i. "TRADEMARKS" shall mean any of the following in which the
Company now holds or hereafter acquires any interest: (i) any trademarks,
tradenames, corporate names, company 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, now existing or hereafter adopted or acquired, all
registrations and recordings thereof and any applications in connection
therewith, including, without limitation, 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 thereof or any other country
(collectively, the "MARKS"); (ii) any reissues, extensions or renewals thereof,
(iii) the goodwill of the business symbolized by or associated with the Marks,
(iv) income, royalties, damages, claims and payments now and hereafter due
and/or payable with respect to the Marks, including, without limitation,
damages, claims and recoveries for past, present or future infringement and (v)
rights to xxx for past, present and future infringements of the Marks,
including, without limitation, any referred to in SCHEDULE B hereto.
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j. "TRADEMARK LICENSE" shall mean any agreement, written or oral,
in which the Company now holds or hereafter acquires any interest, granting any
right in and to any Trademark or Trademark registration (whether the Company is
the licensee or the licensor thereunder) including, without limitation, any
thereof referred to in SCHEDULE B hereto.
k. "TRADE SECRETS" shall mean common law and statutory trade
secrets and all other confidential or proprietary or useful information and all
know-how obtained by or used in or contemplated at any time for use in the
business of the Company, and any agreement, written or oral, in which the
Company now holds or hereafter acquires any interest, granting any right in and
to any of the foregoing, whether or not any of the foregoing has been reduced to
a writing or other tangible form, including all documents and things embodying,
incorporating or referring in any way to any of the foregoing, and including the
right to xxx for and to enjoin and to collect damages for the actual or
threatened misappropriation of any of the foregoing and for the breach or
enforcement of any of the foregoing.
l. "UCC" means the Uniform Commercial Code, as the same may, from
time to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Secured Parties' security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection of priority and
for purposes of definitions related to such provisions.
2. GRANT OF SECURITY INTEREST. As an inducement for the Secured
Parties to purchase the Notes and to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the
Obligations, the Company hereby, unconditionally and irrevocably, pledges,
grants and hypothecates to the Secured Parties, a continuing senior security
interest in, a continuing first lien upon, an unqualified right to possession
and disposition of and a right of set-off against, in each case to the fullest
extent permitted by law, all of the Company's right, title and interest of
whatsoever kind and nature in and to the Collateral (the "SECURITY INTEREST").
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
COMPANY. Except as set forth on SCHEDULE A attached hereto, the Company
represents and warrants to, and covenants and agrees with, the Secured Parties
as follows:
a. The Company has the requisite corporate power and authority to
enter into this Agreement and otherwise carry out its obligations thereunder.
The execution, delivery and performance by the Company of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company.
This Agreement constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor's rights generally.
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b. The Company represents and warrants that it has no place of
business or offices where its respective books of account and records are kept
(other than temporarily at the offices of its attorneys or accountants) or
places where the Collateral is stored or located, except as set forth on
SCHEDULE A attached hereto;
c. The Company is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Company in the ordinary course of
business), free and clear of any liens, security interests, encumbrances, rights
or claims, except as set forth on SCHEDULE A, and is fully authorized to grant
the Security Interest in and to pledge the Collateral. There is not on file in
any governmental or regulatory authority, agency or recording office an
effective financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that have been filed in favor
of the Secured Parties pursuant to this Agreement) covering or affecting any of
the Collateral. So long as this Agreement shall be in effect, without the prior
consent of the Collateral Agent, which consent shall not be unreasonably
withheld, the Company shall not execute and shall not knowingly permit to be on
file in any such office or agency any such financing statement or other document
or instrument (except to the extent filed or recorded in favor of the Secured
Parties pursuant to the terms of this Agreement).
d. No part of the Collateral or rights in connection therewith
has been judged, by any governmental body with proper jurisdiction, to be
invalid or unenforceable. No written claim has been received alleging the
Company's use of any Collateral violates the rights of any third party. There
has been no adverse decision to the Company's claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to the Company's
right to keep and maintain such Collateral in full force and effect, and there
is no proceeding involving said rights pending or threatened before any court,
judicial body, administrative or regulatory agency, arbitrator or other
governmental authority.
e. The Company shall at all times maintain its books of account
and records relating to the Collateral at its principal place of business and
its Collateral at the locations set forth on SCHEDULE A attached hereto and may
not relocate such books of account and records or tangible Collateral unless it
delivers to the Secured Parties at least thirty (30) days prior to such
relocation (i) written notice of such relocation and the new location thereof
(which must be within the United States) and (ii) evidence that appropriate
financing statements and other necessary documents have been filed and recorded
and other steps have been taken to perfect the Security Interest to create in
favor of the Secured Parties valid, perfected and continuing first priority
liens in the Collateral.
f. This Agreement creates in favor of the Secured Parties a valid
security interest in the Collateral securing the payment and performance of the
Obligations and, upon making the filings described in the immediately following
sentence, a perfected first priority security interest in such Collateral and,
to the extent that it can be perfected through such filings, the Intellectual
Property. Except for the filing of financing statements on Form-1 under the UCC
with the jurisdictions indicated on SCHEDULE A, attached hereto, no
authorization or approval of or filing with or notice to any governmental
authority or regulatory body is required either (i) for the grant by the Company
of, or the effectiveness of, the Security Interest granted hereby or for the
execution, delivery and performance of this Agreement by the Company or (ii) for
the perfection of, or exercise by the Secured Parties of, their rights and
remedies hereunder.
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g. Prior to or after the closing of the Note Purchase Agreement,
the Secured Parties, through the Collateral Agent, may file or cause to be filed
one or more executed UCC financing statements on Form-1 with respect to the
Security Interest with the appropriate jurisdictions. Furthermore, upon request
of the Collateral Agent, the Company shall execute and deliver any and all
agreements, instruments, documents, and papers as the Collateral Agent may
reasonably request to evidence the Secured Parties' security interest in the
Intellectual Property and the goodwill and general intangibles of the Company
relating thereto or represented thereby.
h. The execution, delivery and performance of this Agreement does
not conflict with or cause a material breach or default, or an event that with
or without the passage of time or notice, shall constitute a material breach or
default, under any agreement to which the Company is a party or by which the
Company is bound. No consent (including, without limitation, from stockholders
or creditors of the Company) is required for the Company to enter into and
perform its obligations hereunder.
i. The Company shall at all times safeguard, protect and maintain
the Collateral for the account of the Secured Parties until this Agreement and
the Security Interest hereunder shall terminate pursuant to Section 12. Without
limiting the generality of the foregoing, the Company shall pay all governmental
fees and taxes necessary to maintain the Collateral and the Security Interest
hereunder, and the Company shall obtain and furnish to the Secured Parties from
time to time, upon demand, such releases and/or subordinations of claims and
liens which may be required to maintain the priority of the Security Interest
hereunder.
j. The Company will not transfer, pledge, hypothecate, encumber,
license, sell or otherwise dispose of any of the Collateral, other than in the
ordinary course of business, without the prior written consent of the Secured
Parties.
k. The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Parties promptly, in sufficient detail, of any
substantial change in the Collateral other than in the ordinary course of
business, and of the occurrence of any event which would have a material adverse
effect on the value of the Collateral or on the Secured Parties' security
interest therein.
l. The Company shall promptly execute and deliver to the Secured
Parties such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates and
assurances and take such further action as the Collateral Agent may from time to
time request and may in its sole discretion deem necessary to perfect, protect
or enforce the Security Interest.
m. Subject to a confidentiality agreement reasonably acceptable
to the Collateral Agent and the Company, the Company shall permit the Collateral
Agent and its representatives and agents to inspect the Collateral at any time
and to make copies of records pertaining to the Collateral as may be requested
by the Collateral Agent from time to time.
n. The Company will take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights, claims,
causes of action and accounts receivable in respect of the Collateral.
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o. The Company shall promptly notify the Collateral Agent in
sufficient detail upon becoming aware of any attachment, garnishment, execution
or other legal process levied against any Collateral and of any other
information received by the Company that may materially affect the value of the
Collateral, the Security Interest or the rights and remedies of the Secured
Parties hereunder.
p. All information supplied to the Secured Parties or the
Collateral Agent by or on behalf of the Company with respect to the Collateral
is accurate and complete in all material respects as of the date hereof, and all
information supplied after the date hereof to the Secured Parties shall be
accurate in all material respects.
q. SCHEDULE B attached hereto includes all Patents and Patent
Licenses, if any, owned by the Company in its own name as of the date hereof.
SCHEDULE B hereto includes all Trademarks and Trademark Licenses, if any, owned
by the Company in its own name as of the date hereof. SCHEDULE B hereto includes
all Copyrights and Copyright Licenses, if any, owned by the Company in its own
name as of the date hereof. All of the Intellectual Property is valid,
subsisting, unexpired, enforceable and has not been abandoned. Except as set
forth in SCHEDULE B, none of such Intellectual Property is the subject of any
licensing or franchise agreement as of the date of this Agreement. No holding,
decision or judgment has been rendered by any governmental authority which would
limit, cancel or question the validity of any Intellectual Property. No action
or proceeding is pending (i) seeking to limit, cancel or question the validity
of any of the Intellectual Property, or (ii) which, if adversely determined,
would have a material adverse effect on the value of any of the Intellectual
Property. The Company has used and will continue to use for the duration of this
Agreement, proper statutory notice in connection with its use of the
Intellectual Property and consistent standards of quality in products leased or
sold under the Intellectual Property.
r. With respect to any Intellectual Property:
i. such Intellectual Property is subsisting and the rights
in connection with such Intellectual Property have not been adjudged invalid or
unenforceable, in whole or in part;
ii. the rights in connection with such Intellectual Property
are valid and enforceable;
iii. the Company has made all necessary filings and
recordations necessary to protect its interest in such Intellectual Property,
including, without limitation, recordations of all of its interests in the
Patents, Patent Licenses, Trademarks and Trademark Licenses in the United States
Patent and Trademark Office and its claims to the Copyrights and Copyright
Licenses in the United States Copyright Office and similar government offices of
foreign countries;
iv. other than as set forth in SCHEDULE B, the Company is
the exclusive owner of the entire and unencumbered right, title and interest in
and to such Intellectual Property and no claim has been made that the use of
such Intellectual Property infringes on the asserted rights of any third party;
and
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v. the Company has performed and will continue to perform
all acts and has paid all required fees and taxes to maintain its rights with
respect to each and every item of Intellectual Property in full force and
effect.
s. The Company shall:
i. except with respect to any Trademark or Copyright that
the Company shall reasonably determine is of negligible economic value to the
Company, maintain each Trademark and Copyright in full force free from any claim
of abandonment for non-use, maintain as in the past the quality of products and
services offered under such Trademark or Copyright; employ such Trademark or
Copyright with the appropriate notice of registration; not adopt or use any xxxx
which is confusingly similar or a colorable imitation of such Trademark or
Copyright unless the Secured Parties shall obtain a perfected security interest
in such xxxx pursuant to this Agreement; and not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
Trademark or Copyright may become invalidated;
ii. not, except with respect to any Patent that it shall
reasonably determine is of negligible economic value to it, do any act, or omit
to do any act, whereby any Patent may become abandoned; and
iii. notify the Collateral Agent and the Secured Parties
immediately if it knows, or has reason to know, that any application or
registration relating to any Patent, Trademark or Copyright may become
abandoned, or of any material adverse determination or development (including,
without limitation, 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 or tribunal in the United States) regarding
its ownership of any Patent, Trademark or Copyright or its right to register the
same or to keep and maintain the same.
t. Whenever the Company, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Patent, Trademark or Copyright with the United States Patent and
Trademark Office or the United States Copyright Office or similar government
office of any foreign country, or acquire rights to any new Patent, Trademark or
Copyright whether or not registered, report such filing to the Collateral Agent
within five (5) business days after the last day of the fiscal quarter in which
such filing occurs.
u. The Company shall take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office or the United States Copyright Office, to maintain and
pursue each application (and to obtain the relevant registration) and to
maintain each registration of the Patents, Trademarks and Copyrights, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
v. In the event that any Patent, Trademark or Copyright included
in the Intellectual Property is infringed, misappropriated or diluted by a third
party, the Company
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shall promptly notify the Collateral Agent after it learns thereof and shall,
unless it shall reasonably determine that such Patent, Trademark or Copyright is
of negligible economic value to it, which determination it shall promptly report
to the Collateral Agent: promptly xxx for infringement, misappropriation or
dilution, to seek injunctive relief where appropriate and to recover any and all
damages for such infringement, misappropriation or dilution, or take such other
actions as it shall reasonably deem appropriate under the circumstances to
protect such Patent, Trademark or Copyright. If the Company lacks the financial
resources to comply with this Section 3(v), the Company shall so notify the
Collateral Agent and shall cooperate fully with any enforcement action
undertaken by the Collateral Agent on behalf of the Company.
4. DEFAULTS. The occurrence of an Event of Default as defined in the
Note Purchase Agreement shall be an "EVENTS OF DEFAULT."
5. DUTY TO HOLD IN TRUST. Upon the occurrence of an Event of Default,
and at any time thereafter, the Company shall, upon receipt by it of any
revenue, income or other sums subject to the Security Interest, whether payable
pursuant to the Notes or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Parties and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Parties for
application to the satisfaction of the Obligations.
6. THE COLLATERAL AGENT; RIGHTS AND REMEDIES UPON DEFAULT. Each of the
Secured Parties hereby irrevocably appoints the Collateral Agent to act on its
behalf hereunder and under any other document executed in connection herewith,
and authorizes the Collateral Agent to take such actions on its behalf to
exercise such powers as are delegated to the Collateral Agent by the terms
hereof or thereof, and the Company shall not have rights as a third party
beneficiary of any such provision in this Section 6. The Collateral Agent is
authorized to act, in its sole discretion, on behalf of the Secured Parties as
described herein. Upon occurrence and continuance of any Event of Default and at
any time thereafter, the Collateral Agent (on behalf of the Secured Parties)
shall have the right to exercise (on behalf of the Secured Parties) all of the
remedies conferred to the Secured Parties hereunder and under the Notes, and the
Collateral Agent (on behalf of the Secured Parties) shall have all the rights
and remedies of a secured party under the UCC and/or any other applicable law
(including the Uniform Commercial Code of any jurisdiction in which any
Collateral is then subject). Without limitation, the Collateral Agent (on behalf
of the Secured Parties) shall have the following rights and powers:
a. to have a third party custodian take possession of the
Collateral and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and the Company shall assemble the Collateral and
make it available to the Collateral Agent for the benefit of the Secured Parties
at places which the Collateral Agent shall reasonably select, whether at the
Company's premises or elsewhere, and make available to the Collateral Agent,
without rent, all of the Company's respective premises and facilities for the
purpose of the Collateral Agent taking possession of, removing or putting the
Collateral in saleable or disposable form; and
b. to operate the business of the Company using the Collateral
and shall have the right to assign, sell, lease or otherwise dispose of and
deliver all or any part of the
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Collateral, at public or private sale or otherwise, either with or without
special conditions or stipulations, for cash or on credit or for future
delivery, in such parcel or parcels and at such time or times and at such place
or places, and upon such terms and conditions as the Collateral Agent may deem
commercially reasonable, all without (except as shall be required by applicable
statute and cannot be waived) advertisement or demand upon or notice to the
Company or right of redemption of the Company, which are hereby expressly
waived. Upon each such sale, lease, assignment or other transfer of Collateral,
the Collateral Agent may, unless prohibited by applicable law which cannot be
waived, purchase all or any part of the Collateral being sold, free from and
discharged of all trusts, claims, right of redemption and equities of the
Company, which are hereby waived and released.
7. INDEMNIFICATION OF THE COLLATERAL AGENT. Neither the Collateral
Agent nor any of its affiliates or representatives will be liable for any action
taken or omitted to be taken by it or them under this Agreement in good faith
and believed by it or them to be within the discretion or power conferred upon
it or them by this Agreement or be responsible for the consequences of any error
of judgment (except for fraud, gross negligence, or willful misconduct). Unless
indemnified to its satisfaction against loss, cost, liability and expense, the
Collateral Agent may not be compelled to do any act under this Agreement or to
take any action toward the execution or enforcement of the powers created under
this Agreement or to prosecute or defend any suit in respect of this Agreement.
If the Collateral Agent requests instructions from Secured Parties with respect
to any act or action in connection with this Agreement, then the Collateral
Agent is entitled to refrain (without incurring any liability to anyone by so
refraining) from that act or action unless and until it has received
instructions. In no event, however, may the Collateral Agent or any of its
representatives be required to take any action that it or they determine could
incur for it or them criminal or onerous civil liability. Without limiting the
generality of the foregoing, no Secured Party has any right of action against
the Collateral Agent as a result of the Collateral Agent's acting or refraining
from acting under this Agreement in accordance with instructions of the Secured
Parties. EACH SECURED PARTY (IN PROPORTION TO THE THEN-OUSTANDING PRINCIPAL
AMOUNT OF NOTES) SHALL INDEMNIFY THE COLLATERAL AGENT AND ITS REPRESENTATIVES
AND HOLD THEM HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, REASONABLE
EXPENSES, AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER THAT MAY
BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THEM IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY THEM UNDER THIS
AGREEMENT.
8. APPLICATIONS OF PROCEEDS. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys' fees and expenses incurred by the Secured Parties in enforcing its
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations, and to the payment of
any other amounts required by applicable law, after which the Secured Parties
shall pay to the Company any surplus proceeds. If, upon the sale, license or
other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Parties are legally entitled, (i) then the
proceeds shall be allocated among the Secured Parties in proportion to the
amount outstanding under each Note, and (ii) the Company
10
will be liable for the deficiency, together with interest thereon, at the
Default Rate, as defined in the Note Purchase Agreement, and the reasonable fees
of any attorneys employed by the Secured Parties to collect such deficiency. To
the extent permitted by applicable law, the Company waives all claims, damages
and demands against the Secured Parties arising out of the repossession,
removal, retention or sale of the Collateral.
9. COSTS AND EXPENSES. The Company agrees to pay all out-of-pocket
fees, costs and expenses incurred in connection with any filing required
hereunder, including without limitation, any financing statements, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured Parties. The
Company shall also pay all other claims and charges which would reasonably be
expected to prejudice, imperil or otherwise affect the Collateral or the
Security Interest therein. Each party shall bear its own expenses with respect
to this Agreement, except that upon the occurrence and continuance of an Event
of Default, the Company shall upon demand, pay to the Collateral Agent the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Collateral
Agent incurs in connection with (a) the enforcement of this Agreement, (b) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or (c) the exercise or enforcement of
any of the rights of the Secured Parties under the Notes. Until so paid, any
fees payable hereunder shall be added to the principal amount of the Notes and
shall bear interest at the Default Rate.
10. RESPONSIBILITY FOR COLLATERAL. The Company assumes all liabilities
and responsibility in connection with all Collateral, and the obligations of the
Company hereunder or under the Notes shall in no way be affected or diminished
by reason of the loss, destruction, damage or theft of any of the Collateral or
its unavailability for any reason.
11. SECURITY INTEREST ABSOLUTE. All rights of the Secured Parties and
all Obligations of the Company hereunder, shall be absolute and unconditional,
regardless of: (a) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the Notes or
any other agreement entered into in connection with the foregoing; (b) any
exchange, release or nonperfection of any of the Collateral, or any release or
amendment or waiver of or consent to departure from any other collateral for, or
any guaranty, or any other security, for all or any of the Obligations; or (c)
any action by the Secured Parties to obtain, adjust, settle and cancel in its
sole discretion any insurance claims or matters made or arising in connection
with the Collateral. The Company expressly waives presentment, protest and
notice of protest. In the event that at any time any transfer of any Collateral
or any payment received by the Secured Parties hereunder shall be deemed by
final order of a court of competent jurisdiction to have been a voidable
preference or fraudulent conveyance under the bankruptcy or insolvency laws of
the United States, or shall be deemed to be otherwise due to any party other
than the Secured Parties, then, in any such event, the Company's obligations
hereunder shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this
Agreement, but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. The Company waives all right to
require the Secured Parties to proceed against any other person or to apply any
11
Collateral which the Secured Parties may hold at any time, or to marshal assets,
or to pursue any other remedy.
12. TERM OF AGREEMENT. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Notes have been
indefeasibly made in full and all other Obligations have been indefeasibly paid.
Upon such termination, the Secured Parties and the Collateral Agent, at the
request and at the expense of the Company, will join in executing any
termination statement with respect to any financing statement executed and filed
pursuant to this Agreement.
13. POWER OF ATTORNEY; FURTHER ASSURANCES.
a. The Company authorizes the Collateral Agent, as agent for the
Secured Parties, and does hereby make, constitute and appoint it, and its
respective officers, agents, successors or assigns with full power of
substitution, as the Company's true and lawful attorney-in-fact, with power, in
its own name or in the name of the Company, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any notes, checks, drafts,
money orders, or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Collateral Agent or any Secured Parties; (ii) to
sign and endorse any UCC financing statement or any invoice, freight or express
xxxx, xxxx of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts, and other
documents relating to the Collateral; (iii) to pay or discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on or
threatened against the Collateral; (iv) to demand, collect, receipt for,
compromise, settle and xxx for monies due in respect of the Collateral; and (v)
generally, to do, at the option of the Collateral Agent, and at the Company's
expense, at any time, or from time to time, all acts and things which the
Collateral Agent deems necessary to protect, preserve and realize upon the
Collateral and the Security Interest granted therein in order to effect the
intent of this Agreement and the Notes, all as fully and effectually as the
Company might or could do; and the Company hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof. This power of
attorney is coupled with an interest and shall be irrevocable for the term of
this Agreement and thereafter as long as any of the Obligations shall be
outstanding.
b. On a continuing basis, the Company will cooperate in good
faith with the Collateral Agent to make, execute, acknowledge, deliver, file and
record, as the case may be, in the proper filing and recording places in any
applicable jurisdiction, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by the
Collateral Agent, to perfect the Security Interest granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Collateral Agent the grant or perfection of a
security interest in all the Collateral.
c. The Company hereby irrevocably appoints the Collateral Agent
as the Company's attorney-in-fact, with full authority in the place and stead of
the Company and in the name of the Company, from time to time in the Collateral
Agent's discretion, to take any action and to execute any instrument which the
Collateral Agent may deem necessary or
12
advisable in order to perfect the Security Interest, including the filing, in
its sole discretion, of one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature of
the Company where permitted by law.
14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given (i) if delivered by hand, (ii) upon
receipt of proof of sending thereof if sent by facsimile, (iii) upon receipt if
sent by nationally recognized overnight delivery service (receipt requested),
the next business day, or (iv) if mailed by first-class registered or certified
mail, return receipt requested, postage prepaid, four days after posting in the
U.S. mails, in each case if delivered to the following addresses:
If to the Company: ZBB Energy Corporation
X00 X00000 Xxxxxxxxx Xxx
Xxxxxxxxx Xxxxx, XX 00000
Attn: Xxxxxx Xxxxx, Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with copies to: Xxxxxxx Xxxx LLP
00 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 - 0150
Attn: Xxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to the Collateral Agent: CTI Capital Management
0000 Xxxxxxxx-Xxxx Xxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
Attention: Kara Irish
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with copies to: Xxxxxx Xxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
15. OTHER SECURITY. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Collateral Agent shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.
13
16. MISCELLANEOUS.
a. No course of dealing between the Company, the Collateral Agent
and any Secured Parties, nor any failure to exercise, nor any delay in
exercising, on the part of the Collateral Agent or any Secured Parties, any
right, power or privilege hereunder or under the Notes shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
b. All of the rights and remedies of the Secured Parties with
respect to the Collateral, whether established hereby or by the Notes or by any
other agreements, instruments or documents or by law shall be cumulative and may
be exercised singly or concurrently.
c. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect thereto, including the
prior Agreement. Any term of this Agreement may be terminated or amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with written
consent of the Company and the holders of more than fifty percent (50%) of the
then-outstanding principal amount of the Notes. Any termination, amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of the Notes, each future holder of the Notes, their successors and
assigns, and the Company.
d. In the event that any provision of this Agreement is held to
be invalid, prohibited or unenforceable in any jurisdiction for any reason,
unless such provision is narrowed by judicial construction, this Agreement
shall, as to such jurisdiction, be construed as if such invalid, prohibited or
unenforceable provision had been more narrowly drawn so as not to be invalid,
prohibited or unenforceable. If, notwithstanding the foregoing, any provision of
this Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.
e. No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or similar nature or
otherwise.
f. This Agreement shall be binding upon and inure to the benefit
of each party hereto and its successors and assigns.
g. Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in order to
carry out the provisions and purposes of this Agreement.
14
h. The validity and interpretation of this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York. Each of the parties hereto hereby consents to the exclusive
jurisdiction and venue of the Courts of the State of New York, located in the
City and County of New York and the United States District Court, Southern
District, for the State of New York with respect to any matter relating to this
Agreement and performance of the parties' obligations hereunder, the documents
and instruments executed and delivered concurrently herewith or pursuant hereto
and performance of the parties' obligations thereunder and each of the parties
hereto hereby consents to the personal jurisdiction of such courts and shall
subject itself to such personal jurisdiction. Any action, suit or proceeding
relating to such matters shall be commenced, pursued, defended and resolved only
in such courts and any appropriate appellate court having jurisdiction to hear
an appeal from any judgment entered in such courts. The parties irrevocably
waive the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Service of process in any action, suit or proceeding relating to
such matters may be made and served within or outside the State of New York by
registered or certified mail to the parties and their representatives at their
respective addresses specified in Section 14 hereof, provided that a reasonable
time, not less than thirty (30) days, is allowed for response. Service of
process may also be made in such other manner as may be permissible under the
applicable court rules.
i. EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF
ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER
OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
j. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
[remainder of page intentionally left blank]
15
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.
COMPANY:
ZBB ENERGY CORPORATION
By:
------------------------------------
Xxxxxx Xxxxx
Chief Executive Officer
COLLATERAL AGENT:
CRUCIAN TRANSITION INC.
DBA CTI CAPITAL MANAGEMENT
By:
------------------------------------
Name:
Title:
[signatures continue on next page]
16
SECURED PARTIES:
ABS SOS-PLUS PARTNERS, LTD.
By:
------------------------------------
Name:
Title:
BUSHIDO CAPITAL MASTER FUND L.P.
By: Bushido Capital Partners, Ltd.
By:
------------------------------------
Name:
Title:
17
SCHEDULE A
Principal Place of Business of the Company:
Locations Where Collateral is Located or Stored:
Exceptions to Representations and Warranties Under Section 3:
18
SCHEDULE B
19
SCHEDULE A
Principal Place of Business of the Company:
N93 X00000 Xxxxxxxxx Xxx
Xxxxxxxxx Xxxxx Xxxxxxxxx 00000
Alt. Office and Place of Business is:
000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxx Xxxxxxx Xxxxxxxxx 6163
Locations Where Collateral is Located or Stored:
N93 X00000 Xxxxxxxxx Xxx
Xxxxxxxxx Xxxxx Xxxxxxxxx 00000
000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxx Xxxxxxx Xxxxxxxxx 6163
Exceptions to Representations and Warranties Under Section 3:
Liens exist on the building and property owned by the Company in Wisconsin.
In addition, the Company has various liens from Park Bank and Investors Bank.
SCHEDULE B
None.
2
