SECURITY AGREEMENT
EXHIBIT
10.2
SECURITY
AGREEMENT,
dated
as of February 15, 2007 (this "Agreement")
made
by
Nesco Industries, Inc.,
a
Nevada corporation (the "Company"),
and
the undersigned subsidiaries of the Company (each a "Grantor"
and
collectively and together with the Company the "Grantors"),
in
favor of
Gottbetter Capital Master, Ltd.,
a
company
organized under the laws of the Cayman Islands, in its capacity as collateral
agent (in such capacity, the "Collateral
Agent")
for
the "Buyers" (as defined below) party to the Securities Purchase Agreement,
dated as of even date herewith (as amended, restated or otherwise modified
from
time to time, the "Securities
Purchase Agreement").
WITNESSETH:
WHEREAS,
the Company and each party listed as a "Buyer" on the Schedule of Buyers
attached thereto (collectively, the "Buyers")
are
parties to the Securities Purchase Agreement, pursuant to which the Company
shall be required to sell, and the Buyers shall purchase or have the right
to
purchase, the "Notes" (as defined therein) issued pursuant thereto (as such
Notes may be amended, restated, replaced or otherwise modified from time to
time
in accordance with the terms thereof, collectively, the "Notes");
WHEREAS,
each of the Grantors (other than the Company) (collectively, the "Guarantors")
has
executed and delivered a Guaranty dated the date hereof (the “Guaranty”)
in
favor of the Collateral Agent for the benefit of itself and the Buyers, with
respect to the Company’s obligations under the Securities Purchase Agreement,
the Notes and the Transaction Documents (as defined below); and
WHEREAS,
it is a condition precedent to the Buyers purchasing the Notes pursuant to
the
Securities Purchase Agreement that the Grantors shall have executed and
delivered to the Collateral Agent this Agreement providing for the grant to
the
Collateral Agent for the benefit of the Buyers of a security interest in all
personal property of each Grantor to secure all of the Company's obligations
under the Securities Purchase Agreement, the Notes and the other Transaction
Documents as defined in the Securities Purchase Agreement (the “Transaction
Documents”)
and
the Guarantors’ obligations under the Guaranty.
NOW,
THEREFORE, in consideration of the premises and the agreements herein and in
order to induce the Buyers to perform under the Securities Purchase Agreement,
each Grantor agrees with the Collateral Agent, for the benefit of the Buyers,
as
follows:
SECTION
1. DEFINITIONS.
(a) Reference
is hereby made to the Securities Purchase Agreement and the Notes for a
statement of the terms thereof. All terms used in this Agreement and the
recitals hereto which are defined in the Securities Purchase Agreement, the
Notes or in Articles 8 or 9 of the Uniform Commercial Code as in effect from
time to time in the State of New York (the "Code"),
and which are not otherwise defined herein shall have the same meanings
herein as set forth therein;
provided
that
terms used herein which are defined in the Code as in effect in the State of
New
York on the date hereof shall continue to have the same meaning notwithstanding
any replacement or amendment of such statute except as the Collateral Agent
may
otherwise determine.
(b) The
following terms shall have the respective meanings provided for in the Code:
"Accounts", "Cash Proceeds", "Chattel Paper", "Commercial Tort Claim",
"Commodity Account", "Commodity Contracts", "Deposit Account", "Documents",
"Equipment", "Fixtures", "General Intangibles", "Goods", "Instruments",
"Inventory", "Investment Property", "Letter-of-Credit Rights", "Noncash
Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes", "Security",
"Record", "Security Account", "Software", and "Supporting
Obligations".
(c) As
used
in this Agreement, the following terms shall have the respective meanings
indicated below, such meanings to be applicable equally to both the singular
and
plural forms of such terms:
"Collateral"
shall
have the meaning set forth in Section 2 hereof.
"Copyright
Licenses"
means
all licenses, contracts or other agreements, whether written or oral, naming
any
Grantor as licensee or licensor and providing for the grant of any right to
use
or sell any works covered by any copyright (including, without limitation,
all
Copyright Licenses set forth in Schedule
II
hereto).
"Copyrights"
means
all domestic and foreign copyrights, whether registered or not, including,
without limitation, all copyright rights throughout the universe (whether now
or
hereafter arising) in any and all media (whether now or hereafter developed),
in
and to all original works of authorship fixed in any tangible medium of
expression, acquired or used by any Grantor (including, without limitation,
all
copyrights described in Schedule
II
hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or
any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.
"Event
of Default"
shall
have the meaning set forth in the Notes.
"GAAP"
shall
have the meaning set forth in Section 4(a) hereof.
"Insolvency
Proceeding"
means
any proceeding commenced by or against any Person under any provision of the
Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under
any other bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, or extensions generally
with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Intellectual
Property"
means
the Copyrights, Trademarks and Patents.
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"Licenses"
means
the Copyright Licenses, the Trademark Licenses and the Patent
Licenses.
"Lien"
means
any mortgage, deed of trust, pledge, lien (statutory or otherwise), security
interest, charge or other encumbrance or security or preferential arrangement
of
any nature, including, without limitation, any conditional sale or title
retention arrangement, any capitalized lease and any assignment, deposit
arrangement or financing lease intended as, or having the effect of,
security.
“Obligations”
shall
have the meaning set forth in Section 3 hereof.
"Patent
Licenses"
means
all licenses, contracts or other agreements, whether written or oral, naming
any
Grantor as licensee or licensor and providing for the grant of any right
to
manufacture, use or sell any invention covered by any Patent (including, without
limitation, all Patent Licenses set forth in Schedule
II
hereto).
"Patents"
means
all domestic and foreign letters patent, design patents, utility patents,
industrial designs, inventions, trade secrets, ideas, concepts, methods,
techniques, processes, proprietary information, technology, know-how, formulae,
rights of publicity and other general intangibles of like nature, now existing
or hereafter acquired (including, without limitation, all domestic and foreign
letters patent, design patents, utility patents, industrial designs, inventions,
trade secrets, ideas, concepts, methods, techniques, processes, proprietary
information, technology, know-how and formulae described in Schedule
II
hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office, or in any similar office or agency of the United
States or any other country or any political subdivision thereof), and all
reissues, divisions, continuations, continuations in part and extensions or
renewals thereof.
"Trademark
Licenses"
means
all licenses, contracts or other agreements, whether written or oral, naming
any
Grantor as licensor or licensee and providing for the grant of any right
concerning any Trademark, together with any goodwill connected with and
symbolized by any such trademark licenses, contracts or agreements and the
right
to prepare for sale or lease and sell or lease any and all Inventory now or
hereafter owned by any Grantor and now or hereafter covered by such licenses
(including, without limitation, all Trademark Licenses described in Schedule
II
hereto).
"Trademarks"
means
all domestic and foreign trademarks, service marks, collective marks,
certification marks, trade names, business names, d/b/a's, Internet domain
names, trade styles, designs, logos and other source or business identifiers
and
all general intangibles of like nature, now or hereafter owned, adopted,
acquired or used by any Grantor (including, without limitation, all domestic
and
foreign trademarks, service marks, collective marks, certification marks, trade
names, business names, d/b/a's, Internet domain names, trade styles, designs,
logos and other source or business identifiers described in Schedule
II
hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings 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 or any political subdivision
thereof), and all reissues, extensions or renewals thereof, together with all
goodwill of the business symbolized by such marks and all customer lists,
formulae and other Records of any Grantor relating to the distribution of
products and services in connection with which any of such marks are
used.
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(a) all
Accounts;
(b) all
Chattel Paper (whether tangible or electronic);
(c) the
Commercial Tort Claims;
(d) all
Deposit Accounts, all cash, and all other property from time to time deposited
therein and the monies and property in the possession or under the control
of
the Collateral Agent or any Buyer or any affiliate, representative, agent or
correspondent of the Collateral Agent or any Buyer;
(e) all
Documents;
(f) all
Equipment;
(g) all
Fixtures;
(h) all
General Intangibles (including, without limitation, all Payment
Intangibles);
(i) all
Goods;
(j) all
Instruments (including, without limitation, Promissory Notes and each
certificated Security);
(k) all
Inventory;
(l) all
Investment Property;
(m) all
Copyrights, Patents and Trademarks, and all Licenses;
(n) all
Letter-of-Credit Rights;
(o) all
Supporting Obligations;
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(p) all
other
tangible and intangible personal property of each Grantor (whether or not
subject to the Code), including, without limitation, all bank and other accounts
and all cash and all investments therein, all proceeds, products, offspring,
accessions, rents, profits, income, benefits, substitutions and replacements
of
and to any of the property of any Grantor described in the preceding clauses
of
this Section
2
(including, without limitation, any proceeds of insurance thereon and all causes
of action, claims and warranties now or hereafter held by each Grantor in
respect
of any of the items listed above), and all books, correspondence, files and
other Records, including, without limitation, all tapes, desks, cards, Software,
data and computer programs in the possession or under the control of any Grantor
or any other Person from time to time acting for any Grantor that at any time
evidence or contain information relating to any of the property described in
the
preceding clauses of this
Section 2
or are
otherwise necessary or helpful in the collection or realization thereof;
and
(q) all
Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of
any
and all of the foregoing Collateral;
in
each
case howsoever any Grantor's interest therein may arise or appear (whether
by
ownership, security interest, claim or otherwise).
SECTION
3. SECURITY
FOR OBLIGATIONS.
The security interest created hereby in the Collateral constitutes
continuing collateral security for all of the following obligations, whether
now
existing or hereafter incurred (collectively, the "Obligations"):
(a) the
payment by the Company, as and when due and payable (by scheduled maturity,
required prepayment, acceleration, demand or otherwise), of all amounts from
time to time owing by it in respect of the Securities Purchase Agreement, the
Notes and the other Transaction Documents, including, without limitation, (A)
all principal of and interest on the Notes (including, without limitation,
all
interest that accrues after the commencement of any Insolvency Proceeding of
any
Grantor, whether or not the payment of such interest is unenforceable or is
not
allowable due to the existence of such Insolvency Proceeding), and (B) all
fees,
commissions, expense reimbursements, indemnifications and all other amounts
due
or to become due under any of the Transaction Documents; and
(b) the
due
performance and observance by each Grantor of all of its other obligations
from
time to time existing in respect of any of the Transaction Documents, including
without limitation, with respect to any conversion or redemption rights of
the
Buyers under the Notes, for so long as the Notes are outstanding.
SECTION
4. REPRESENTATIONS
AND WARRANTIES.
Each Grantor represents and warrants as follows:
(a) Schedule
I hereto sets forth (i) the exact legal name of each Grantor, and (ii) the
organizational identification number of each Grantor or states that no such
organizational identification number exists.
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(b) There
is
no pending or written notice threatening any action, suit, proceeding or claim
affecting any Grantor before any governmental authority or any arbitrator,
or,
to the knowledge of the Company, any order, judgment or award by any
governmental authority or arbitrator, that may adversely affect the grant by
any
Grantor, or the perfection, of the security interest purported to be created
hereby in the Collateral, or the exercise by the Collateral Agent of any of
its
rights or remedies hereunder.
(c) Except
as
otherwise disclosed in the Securities Purchase Agreement, all Federal, state
and
local tax returns and other reports required by applicable law to be filed
by
any Grantor have been filed, or extensions have been obtained, and all
taxes,
assessments and other governmental charges imposed upon any Grantor or any
property of any Grantor (including, without limitation, all Federal income
and
social security taxes on employees' wages) and which have become due and payable
on or prior to the date hereof have been paid, except to the extent contested
in
good faith by proper proceedings which stay the imposition of any penalty,
fine
or Lien resulting from the non-payment thereof and with respect to which
adequate reserves have been set aside for the payment thereof in accordance
with
accounting principles generally accepted in the United States ("GAAP")
consistently applied.
(d) All
Equipment, Fixtures, Goods and Inventory of each Grantor now existing are,
and
all Equipment, Fixtures, Goods and Inventory of each Grantor hereafter existing
will be, located and/or based at the addresses specified therefor in
Schedule
III
hereto,
except that each Grantor will give the Collateral Agent written notice of any
change in the location of any such Collateral within 20 days of such change,
other than to locations set forth on Schedule
III
hereto
(or a new Schedule III delivered by Grantors to Collateral Agent from time
to
time) and with respect to which the Collateral Agent has filed financing
statements and otherwise fully perfected its Liens thereon. Each Grantor's
chief place of business and chief executive office, the place where each Grantor
keeps its Records concerning Accounts and all originals of all Chattel Paper
are
located at the addresses specified therefor in Schedule
III
hereto.
None of the Accounts is evidenced by Promissory Notes or other
Instruments. Set forth in Schedule
IV
hereto
is a complete and accurate list, as of the date of this Agreement, of (i) each
Promissory Note, Security and other Instrument owned by each Grantor and (ii)
each Deposit Account, Securities Account and Commodities Account of each
Grantor, together with the name and address of each institution at which each
such Account is maintained, the account number for each such Account and a
description of the purpose of each such Account. Set forth in Schedule
II
hereto
is a complete and correct list of each trade name used by each Grantor and
the
name of, and each trade name used by, each person from which each Grantor has
acquired any substantial part of the Collateral.
(e) Each
Grantor has delivered to the Collateral Agent complete and correct copies of
each License described in Schedule
II
hereto,
including all schedules and exhibits thereto, which represents all of the
Licenses existing on the date of this Agreement. Each such License sets
forth the entire agreement and understanding of the parties thereto relating
to
the subject matter thereof, and there are no other agreements, arrangements
or
understandings, written or oral, relating to the matters covered thereby or
the
rights of such Grantor or any of its affiliates in respect thereof. Each
material License now existing is, and any material License entered into in
the
future will be, the legal, valid and binding obligation of the parties thereto,
enforceable against such parties in accordance with its terms. No default
under any material License by any such party has occurred, nor does any defense,
offset, deduction or counterclaim exist thereunder in favor of any such
party.
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(f) Each
Grantor owns and controls, or otherwise possesses adequate rights to use, all
its Trademarks, Patents and Copyrights, which are the only trademarks, patents,
copyrights, inventions, trade secrets, proprietary information and technology,
know-how, formulae, rights of publicity necessary to conduct its business in
substantially the same manner as conducted as of the date hereof.
Schedule
II
hereto
sets forth a true and complete list of all registered copyrights, issued
Patents, Trademarks, and Licenses annually owned or used by each Grantor as
of
the date hereof. To the knowledge of the Grantors, all such Intellectual
Property of each Grantor is in full force and effect, has not been adjudged
invalid or unenforceable, is valid
and
enforceable and has not been abandoned in whole or in part. Except as set
forth in Schedule II, no such Intellectual Property is the subject of any
licensing or franchising agreement. No Grantor has any knowledge of any
conflict with the rights of others to any Intellectual Property and, to the
knowledge of the Grantors, each Grantor is not now infringing or in conflict
with any such rights of others in any material respect, and to the knowledge
of
the Grantors, no other Person is now infringing or in conflict in any material
respect with any such properties, assets and rights owned or used by each
Grantor. No Grantor has received any notice that it is violating or has
violated the trademarks, patents, copyrights, inventions, trade secrets,
proprietary information and technology, know-how, formulae, rights of publicity
or other intellectual property rights of any third party.
(g) Each
Grantor is and will be at all times the sole and exclusive owner of, or
otherwise has and will have adequate rights in, the Collateral pledged hereunder
by such Grantor free and clear of any Liens, except for Permitted Liens on
any
Collateral and except as otherwise provided for herein. No effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording or filing office except
such
(i) as may have been filed in favor of the Collateral Agent and/or the Buyers
relating to this Agreement, (ii) as shall be filed at the Closing and (iii)
as
are identified in Schedule 4(g) hereto.
(h) The
exercise by the Collateral Agent of any of its rights and remedies hereunder
will not contravene any law or any contractual restriction binding on or
otherwise affecting each Grantor or any of its properties.
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(i) No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or other regulatory body, or any other Person, is
required for (i) the grant by each Grantor, or the perfection, of the
security interest purported to be created hereby in the Collateral, or
(ii) the exercise by the Collateral Agent any of its rights and remedies
hereunder, except (A) for the filing under the Uniform Commercial Code as
in effect in the applicable jurisdiction of the financing statements
described
in Schedule
V
hereto
(or a new Schedule
V
delivered by Grantors to Collateral Agent from time to time), all of which
financing statements have been duly filed and are in full force and effect
or
will be duly filed and in full force and effect, (B) with respect to Deposit
Accounts, and all cash and other property from time to time deposited therein,
for the execution of a control agreement with the depository institution with
which such account is maintained, as provided in Section
5(i),
(C) with respect to Commodity Contracts,
for the execution of a control agreement with the commodity intermediary with
which such commodity contract is carried, as provided in Section
5(i),
(D)
with
respect to the perfection of the security interest created hereby in the
Intellectual Property, for the recording of the appropriate Assignment for
Security, substantially in the form of Exhibit
A
hereto,
as applicable, in the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, (E) with respect to the perfection
of the security interest created hereby in foreign Intellectual Property and
Licenses, for registrations and filings in jurisdictions located outside of
the
United States and covering rights in such jurisdictions relating to the
Intellectual Property and Licenses,
(F)
with
respect to the perfection of the security interest created hereby in Titled
Collateral, for the submission of an appropriate application requesting that
the
Lien of the Collateral Agent be noted on the Certificate of Title or certificate
of ownership, completed and authenticated by the applicable Grantor, together
with the Certificate of Title or certificate of ownership, with respect to
such
Titled Collateral, to the appropriate governmental authority, (G) with respect
to the perfection of the security interest created hereby in any
Letter-of-Credit Rights, for the consent of the issuer of the applicable letter
of credit to the assignment of proceeds as provided in the Uniform Commercial
Code as in effect in the applicable jurisdiction, (H) with respect to any action
that may be necessary to obtain control of Collateral constituting Deposit
Accounts, Commodity Contracts, Electronic Chattel Paper, Investment Property
or
Letter-of-Credit Rights, the taking of such actions, and (I) the Collateral
Agent having possession of all Documents, Chattel Paper, Instruments and cash
constituting Collateral (subclauses (A), (B), (C), (D), (E), (F), G), (H) and
(I), each a "Perfection
Requirement"
and
collectively, the "Perfection
Requirements").
(j) This
Agreement creates in favor of the Collateral Agent a legal, valid and
enforceable security interest in the Collateral, as security for the
Obligations. Collateral Agent’s satisfaction of the Perfection
Requirements will result in the perfection of such security interests.
Such security interests will be, perfected, first priority security
interests, subject only to Permitted Liens and the recording of such instruments
of assignment.
(k) As
of the
date hereof, no Grantor holds any Commercial Tort Claims nor is aware of any
such pending claims.
SECTION
5. COVENANTS
AS TO THE COLLATERAL.
So long as any of the Obligations shall remain outstanding, unless the
Collateral Agent shall otherwise consent in writing:
-8-
(a) Further
Assurances.
Each Grantor will at its expense, at any time and from time to time,
promptly execute and deliver all further instruments and documents and take
all
further action that the Collateral Agent may reasonably request in order to:
(i) perfect and protect the security interest purported to be created
hereby; (ii) enable the Collateral Agent to exercise and enforce its rights
and remedies hereunder in respect of the Collateral; or (iii) otherwise
effect the purposes of this Agreement, including, without limitation:
(A) marking conspicuously all Chattel Paper and each License and, at
the request of the Collateral Agent, each of its Records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Collateral
Agent, indicating that such Chattel Paper, License or Collateral is subject
to
the security interest created hereby, (B) delivering and pledging to the
Collateral Agent each Promissory Note, Security, Chattel Paper or other
Instrument, now or hereafter owned by any Grantor,
duly endorsed and accompanied by executed instruments of transfer or assignment,
all in form and substance satisfactory to the Collateral Agent,
(C) executing and filing (to the extent, if any, that any Grantor's
signature is required thereon) or authenticating the filing of, such financing
or continuation statements, or amendments thereto, as may be necessary or
desirable or that the Collateral Agent may request in order to perfect and
preserve the security interest purported to be created hereby,
(D) furnishing to the Collateral Agent from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral in each case as the Collateral Agent
may reasonably request, all in reasonable detail, (E) if any Collateral
shall be in the possession of a third party, notifying such Person of the
Collateral Agent's security interest created hereby and obtaining a written
acknowledgment from such Person that such Person holds possession of the
Collateral for the benefit of the Collateral Agent, which such written
acknowledgement shall be in form and substance satisfactory to the Collateral
Agent (F) if at any time after the date hereof, any Grantor acquires or
holds any Commercial Tort Claim, promptly notifying the Collateral Agent in
a
writing signed by such Grantor setting forth a brief description of such
Commercial Tort Claim and granting to the Collateral Agent a security interest
therein and in the proceeds thereof, which writing shall incorporate the
provisions hereof and shall be in form and substance satisfactory to the
Collateral Agent, (G) upon the acquisition after the date hereof by any
Grantor of any motor vehicle or other Equipment subject to a certificate of
title or ownership (other than a Motor Vehicle or Equipment that is subject
to a
purchase money security interest), causing the
Collateral Agent to be listed as the lienholder on such certificate of title
or
ownership and delivering evidence of the same to the Collateral Agent in
accordance with the Securities Purchase Agreement; and (H) taking all
actions required by any earlier versions of the Uniform Commercial Code or
by
other law, as applicable, in any relevant Uniform Commercial Code jurisdiction,
or by other law as applicable in any foreign jurisdiction.
(b) Location
of Equipment and Inventory.
Each Grantor will keep the Equipment and Inventory at the locations
specified therefor on Schedule II hereto, or, at such other locations in the
United States, provided that within 10 days following the relocation of
Equipment or Inventory to such other location, Grantor shall deliver to the
Collateral Agent a new Schedule II indicating such new location.
(c) Condition
of Equipment.
Each Grantor will maintain or cause the Equipment (necessary or useful to
its business) to be maintained and preserved in good condition, repair and
working order, ordinary wear and tear excepted, and will forthwith, or in the
case of any loss or damage to any Equipment of any Grantor within a commercially
reasonable time after the occurrence thereof, make or cause to be made all
repairs, replacements and other improvements in connection therewith which
are
necessary or desirable, consistent with past practice, or which the Collateral
Agent may request to such end. Any Grantor will promptly furnish to the
Collateral Agent a statement describing in reasonable detail any such loss
or
damage in excess of $250,000 per occurrence to any Equipment.
(d) Taxes,
Etc. Each
Grantor agrees to pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Equipment
and
Inventory, except to the extent the validity thereof is being contested in
good
faith by proper proceedings which stay the imposition of any penalty, fine
or
Lien resulting from the non-payment thereof and with respect to which adequate
reserves in accordance with GAAP have been set aside for the payment
thereof.
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(e) Insurance.
(i) Each
Grantor will, at its own expense, maintain insurance (including, without
limitation, commercial general liability and property insurance) with respect
to
the Equipment and Inventory in such amounts, against such risks, in such form
and with responsible and reputable insurance companies or associations as is
required by any governmental authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and in any event, in amount,
adequacy and scope reasonably satisfactory to the Collateral Agent.
To
the
extent requested by the Collateral Agent at any time and from time to time,
each
such policy for liability insurance shall provide for all losses to be paid
on
behalf of the Collateral Agent and any Grantor as their respective interests
may
appear, and each policy for property damage insurance shall provide for all
losses to be adjusted with, and paid directly to, the Collateral Agent. To
the
extent requested by the Collateral Agent at any time and from time to time,
each
such policy shall in addition (A) name the Collateral Agent as an additional
insured party thereunder (without any representation or warranty by or
obligation upon the Collateral Agent) as their interests may appear, (B) contain
an agreement by the insurer that any loss thereunder shall be payable to the
Collateral Agent on its own account notwithstanding any action, inaction or
breach of representation or warranty by any Grantor, (C) provide that there
shall be no recourse against the Collateral Agent for payment of premiums or
other amounts with respect thereto, and (D) provide that at least 30 days'
prior
written notice of cancellation, lapse, expiration or other adverse change shall
be given to the Collateral Agent by the insurer. Any
Grantor will, if so requested by the Collateral Agent, deliver to the Collateral
Agent original or duplicate policies of such insurance and, as often as the
Collateral Agent may reasonably request, a report of a reputable insurance
broker with respect to such insurance. Any Grantor will also, at the
reasonable request of the Collateral Agent, execute and deliver instruments
of
assignment of such insurance policies and cause the respective insurers to
acknowledge notice of such assignment.
(ii) Reimbursement
under any liability insurance maintained by any Grantor pursuant to this
Section
5(e)
may be
paid directly to the Person who shall have incurred liability covered by such
insurance. Following the occurrence of an Event of Default and until such
Event of Default has been cured and no amounts payable under the Notes are
due
but not paid, in the case of any loss involving damage to Equipment or
Inventory, any proceeds of insurance maintained by any Grantor pursuant to
this
Section
5(e)
shall be
paid to the Collateral Agent (except as to which paragraph (iii) of
this
Section 5(e)
is not
applicable), any Grantor will make or cause to be made the necessary repairs
to
or replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by any Grantor pursuant to this Section
5(e)
shall be
paid by the Collateral
Agent
to such
Grantor as reimbursement for the costs of such repairs or
replacements.
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(iii) All
insurance payments in respect of such Equipment or Inventory shall be paid
to
the Collateral Agent and applied as specified in Section
7(b)
hereof.
(f) Provisions
Concerning the Accounts and the Licenses.
(i) Each
Grantor will (A) give the Collateral Agent at least 30 days' prior written
notice of any change in such Grantor's name, identity or organizational
structure, (B) maintain its jurisdiction of incorporation as set forth in
Section
4(b)
hereto,
(C) immediately notify the Collateral Agent upon obtaining an organizational
identification number, if on the date hereof such Grantor did not have such
identification number, and (D) keep adequate records concerning the Accounts
and
Chattel Paper and permit representatives of the Collateral Agent during normal
business hours on reasonable notice to such Grantor, to inspect and make
abstracts from such Records and Chattel Paper.
(ii) Each
Grantor will, except as otherwise provided in this subsection (f), use
commercially reasonable efforts to continue to collect, at its own expense,
all
amounts due or to become due under the Accounts. In connection with such
collections, any Grantor may (and, at the Collateral Agent's direction, will)
take such action as any Grantor or the Collateral Agent may deem necessary
or
advisable to enforce collection or performance of the Accounts; provided,
however
, that
the Collateral Agent shall have the right at any time, upon the occurrence
and
during the continuance of an Event of Default, to notify the account debtors
or
obligors under any Accounts of the assignment of such Accounts to the Collateral
Agent and to direct such account debtors or obligors to make payment of all
amounts due or to become due to any Grantor thereunder directly to the
Collateral Agent or its designated agent and, upon such notification and at
the
expense of any Grantor and to the extent permitted by law, to enforce collection
of any such Accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner
and to
the same extent as may Grantor might have done. After receipt by any
Grantor of a notice from the Collateral Agent that the Collateral Agent has
notified, intends to notify, or has enforced or intends to enforce any Grantor's
rights against the account debtors or obligors under any Accounts as referred
to
in the proviso to the immediately preceding sentence, upon the occurrence of
an
Event of Default and for so long as an Event of Default shall be continuing,
(A) all amounts and proceeds (including Instruments) received by any
Grantor in respect of the Accounts shall be received in trust for the benefit
of
the Collateral Agent hereunder, shall be segregated from other funds of any
Grantor and shall be forthwith paid over to the Collateral Agent in the same
form as so received (with any necessary endorsement) to be held as cash
collateral and either (i) credited to the outstanding obligations so long
as no Event of Default shall have occurred and be continuing or (ii) if an
Event
of Default shall have occurred and be continuing, applied as specified in
Section
7(b)
hereof,
and (B) no Grantor will adjust, settle or compromise the amount or payment
of
any Account or release wholly or partly any account debtor or obligor thereof
or
allow any credit or discount thereon. In addition, upon the occurrence and
during the continuance of an Event of Default, the Collateral Agent may (in
its
sole and absolute discretion) direct any or all of the banks and financial
institutions with which any Grantor either maintains a Deposit Account or a
lockbox or deposits the proceeds of any Accounts to send immediately to the
Collateral Agent by wire transfer (to such account as the Collateral Agent
shall
specify, or in such other manner as the Collateral Agent shall direct) all
or a
portion of such securities, cash, investments and other items held by such
institution; provided, that if Collateral Agent shall give such a notice it
shall, upon notification and verification of the discontinuance of the
applicable Event of Default, promptly give a notice to each such bank and
financial institution that it should no longer send any such securities, cash,
investments or other items to the Collateral, and the Collateral Agent shall
return all such items theretofore received (except to the extent properly
applied against the Obligations) to the applicable Grantor. Subject to the
preceding sentence, any such securities, cash, investments and other items
so
received by the Collateral Agent shall be applied as specified in accordance
with Section
7
hereof.
-11-
(iii) Upon
the
occurrence and during the continuance of any breach or default under any
material License referred to in Schedule
II
hereto
by any party thereto other than any Grantor, each Grantor party thereto will,
promptly after obtaining knowledge thereof, give the Collateral Agent written
notice of the nature and duration thereof, specifying what action, if any,
it
has taken and proposes to take with respect thereto and thereafter will take
reasonable steps to protect and preserve its rights and remedies in respect
of
such breach or default, or will obtain or acquire an appropriate substitute
License if reasonably necessary in the continued conduct of such Grantor’s
business as theretofore conducted .
(iv) Each
Grantor will, at its expense, promptly deliver to the Collateral Agent a copy
of
each notice or other communication received by it by which any other party
to
any material License referred to in Schedule
II
hereto
purports to exercise any of its rights or affect any of its obligations
thereunder, together with a copy of any reply by such Grantor
thereto.
(v) Each
Grantor will exercise promptly and diligently each and every right which it
may
have under each material License (other than any right of termination) and
will
duly perform and observe in all respects all of its obligations under each
material License and will take all action reasonably necessary to maintain
such
Licenses in full force and effect. No Grantor will, without the prior
written consent of the Collateral Agent, cancel, terminate, amend or otherwise
modify in any respect, or waive any provision of, any material License referred
to in Schedule
II
hereto,
except to the extent that such material License is no longer necessary for
the
conduct of such Grantor’s business as theretofore conducted.
(g) Transfers
and Other Liens.
-12-
(ii) No
Grantor will create, suffer to exist or grant any Lien upon or with respect
to
any Collateral other than Permitted Liens.
(h) Intellectual
Property.
(i) If
applicable, any Grantor shall, upon the Collateral Agent's written request,
duly
execute and deliver the applicable Assignment for Security in the form attached
hereto as
Exhibit A.
Each Grantor (either itself or through licensees) will, and will cause
each licensee thereof to, take all commercially reasonable action necessary
to
maintain all of the Intellectual Property in full force and effect, including,
without limitation, using the proper statutory notices and markings and using
the Trademarks on each applicable trademark class of goods in order to so
maintain the Trademarks in full force and free from any claim of abandonment
for
non-use, and each Grantor will not (nor permit any licensee thereof to) do
any
act or knowingly omit to do any act whereby any Intellectual Property may become
invalidated; provided,
however,
that so
long as no Event of Default has occurred and is continuing, no Grantor shall
have an obligation to use or to maintain any Intellectual Property (A) that
relates solely to any product or work, that has been, or is in the process
of
being, discontinued, abandoned or terminated, (B) that is being replaced with
Intellectual Property substantially similar to the Intellectual Property that
may be abandoned or otherwise become invalid, so long as the failure to use
or
maintain such Intellectual Property does not materially adversely affect the
validity of such replacement Intellectual Property and so long as such
replacement Intellectual Property is subject to the Lien created by this
Agreement or (C) that is substantially the same as another Intellectual Property
that is in full force, so long the failure to use or maintain such Intellectual
Property does not materially adversely affect the validity of such replacement
Intellectual Property and so long as such other Intellectual Property is subject
to the Lien and security interest created by this Agreement. Each Grantor
will cause to be taken all necessary steps in any proceeding before the United
States Patent and Trademark Office and the United States Copyright Office or
any
similar office or agency in any other country or political subdivision thereof
to maintain each registration of the Intellectual Property (other than the
Intellectual Property described in the proviso to the immediately preceding
sentence), including, without limitation, filing of renewals, affidavits of
use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and payment of maintenance fees, filing fees, taxes or other
governmental fees. If any Intellectual Property (other than Intellectual
Property described in the proviso to the first sentence of subsection (i) of
this clause (h)) is infringed, misappropriated, diluted or otherwise violated
in
any material respect by a third party, each Grantor shall (x) upon learning
of
such infringement, misappropriation, dilution or other violation, promptly
notify the Collateral Agent and (y) to the extent any Grantor shall deem
appropriate under the circumstances, promptly xxx for infringement,
misappropriation, dilution or other violation, seek injunctive relief where
appropriate and recover any and all damages for such infringement,
misappropriation, dilution or other violation, or take such other actions as
such Grantor shall deem appropriate under the circumstances to protect such
Intellectual Property. Each Grantor shall furnish to the Collateral Agent,
from time to time upon its request, statements and schedules further identifying
and describing the Intellectual Property and Licenses and such other reports
in connection with the Intellectual Property and Licenses as the Collateral
Agent may reasonably request, all in reasonable detail and promptly upon request
of the Collateral Agent, following receipt by the Collateral Agent of any such
statements, schedules or reports, each Grantor shall modify this Agreement
by
amending Schedule
II
hereto,
as the case may be, to include any Intellectual Property and License, as the
case may be, which becomes part of the Collateral under this Agreement and
shall
execute and authenticate such documents and do such commercially reasonable
acts
as shall be necessary or, in the judgment of the Collateral Agent, desirable
to
subject such Intellectual Property and Licenses to the Lien and security
interest created by this Agreement. Notwithstanding anything herein to the
contrary, upon the occurrence and during the continuance of an Event of Default,
no Grantor may abandon or otherwise permit any Intellectual Property to become
invalid without the prior written consent of the Collateral Agent, which consent
shall not be unreasonably withheld or delayed, and if any Intellectual Property
is infringed, misappropriated, diluted or otherwise violated in any material
respect by a third party, each Grantor will take such action as the Collateral
Agent shall deem appropriate under the circumstances to protect such
Intellectual Property.
-13-
(ii) In
no
event shall any Grantor, either itself or through any agent, employee, licensee
or designee, file an application for the registration of any Trademark or
Copyright or the issuance of any Patent with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, or in
any
similar office or agency of the United States or any country or any political
subdivision thereof unless it gives the Collateral Agent prior written notice
thereof. Upon request of the Collateral Agent, any Grantor shall execute,
authenticate and deliver any and all assignments, agreements, instruments,
documents and papers as the Collateral Agent may reasonably request to evidence
the Collateral Agent's security interest hereunder in such Intellectual Property
and the General Intangibles of any Grantor relating thereto or represented
thereby, and each Grantor hereby appoints the Collateral Agent its
attorney-in-fact to execute and/or authenticate and file all such writings
for
the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed, and such power (being coupled with an interest) shall be irrevocable
until the indefeasible payment in full in cash of all of the Obligations in
full
and the termination of each of the Transaction Documents.
(i) Deposit,
Commodities and Securities Accounts.
Upon the Collateral Agent's written request, each Grantor shall use its
best efforts to cause each bank and other financial institution with an account
referred to in Schedule
IV
hereto
to execute and deliver to the Collateral Agent a control agreement, in form
and
substance reasonably satisfactory to the Collateral Agent, duly executed by
each
Grantor and such bank or financial institution, or enter into other arrangements
in form and substance satisfactory to the Collateral Agent, pursuant to which
such institution shall irrevocably agree, inter
alia,
that
(i) upon the occurrence and during the continuation of an Event of Default,
it will comply at any time with the instructions originated by the Collateral
Agent to such bank or financial institution directing the disposition of cash,
Commodity Contracts, securities, Investment Property and other items from time
to time credited to such account, without further consent of each Grantor,
which
instructions the Collateral Agent will not give to such bank or other financial
institution in the absence of a continuing Event of Default, (ii) all cash,
Commodity Contracts, securities, Investment Property and other items of each
Grantor deposited with such institution shall be subject to a perfected, first
priority security interest in favor of the Collateral Agent, (iii) any
right of set off (other than recoupment of standard fees), banker's Lien or
other similar Lien, security interest or encumbrance shall be fully waived
as
against the Collateral Agent, and (iv) upon receipt of written notice from
the Collateral Agent during the continuance of an Event of Default, such bank
or
financial institution shall
immediately send to the Collateral Agent by wire transfer (to such account
as
the Collateral Agent shall specify, or in such other manner as the Collateral
Agent shall direct) all such cash, the value of any Commodity Contracts,
securities, Investment Property and other items held by it. Without the
prior written consent of the Collateral Agent, each Grantor shall not make
or
maintain any Deposit Account, Commodity Account or Securities Account except
for
the accounts set forth in Schedule
IV
hereto;
provided that as long as there is no Event of Default then continuing, any
Grantor may make, open or maintain new Deposit Accounts without the Collateral
Agent’s prior written consent provided that any such Deposit Accounts shall
constitute Collateral under this Agreement and such Grantor shall comply with
the provisions of this Agreement with respect thereto.
The provisions of this paragraph 5(i) shall not apply to (i) Deposit
Accounts for which the Collateral Agent is the depositary and (ii) Deposit
Accounts specially and exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of each Grantor's
salaried or hourly employees.
-14-
(j) Motor
Vehicles.
(i) Upon
the
Collateral Agent's written request, each Grantor shall deliver to the Collateral
Agent originals of the certificates of title or ownership for all motor vehicles
with a value in excess of $50,000, owned by such Grantor with the Collateral
Agent listed as lienholder, for the benefit of the Buyers.
(ii) Each
Grantor hereby appoints the Collateral Agent as its attorney-in-fact, effective
the date hereof and terminating upon the termination of this Agreement, for
the
purpose of (A) executing on behalf of each Grantor title or ownership
applications for filing with appropriate state agencies to enable motor vehicles
now owned or hereafter acquired by each Grantor to be retitled and the
Collateral Agent listed as lienholder thereof, (B) filing such applications
with
such state agencies, and (C) executing such other documents and instruments
on
behalf of, and taking such other action in the name of, each Grantor as the
Collateral Agent may deem necessary or advisable to accomplish the purposes
hereof (including, without limitation, for the purpose of creating in favor
of
the Collateral Agent a perfected Lien on the motor vehicles and exercising
the
rights and remedies of the Collateral Agent hereunder). This appointment
as attorney-in-fact is coupled with an interest and is irrevocable until all
of
the Obligations are indefeasibly paid in full in cash and after all Transaction
Documents have been terminated.
(iii) Any
certificates of title or ownership delivered pursuant to the terms hereof shall
be accompanied by odometer statements for each motor vehicle covered
thereby.
(iv) So
long
as no Event of Default shall have occurred and be continuing, upon the request
of any Grantor, the Collateral Agent shall execute and deliver to any Grantor
such instruments as any Grantor shall reasonably request to remove the notation
of the Collateral Agent as lienholder on any certificate of title for any motor
vehicle; provided,
however,
that
any such instruments shall be delivered, and the release effective, only upon
receipt by the Collateral Agent of a certificate from any Grantor stating that
such motor vehicle is to be sold or has suffered a casualty loss (with title
thereto passing to the casualty insurance company therefor in settlement of
the
claim for such loss) and the amount that any Grantor will receive as sale
proceeds or insurance proceeds. Any proceeds of such sale or casualty loss
shall be paid to the Collateral Agent hereunder immediately upon receipt, to
be
applied to the Obligations then outstanding.
-15-
(l) Inspection
and Reporting.
Each Grantor shall permit the Collateral Agent, or any agent or
representatives thereof or such professionals or other Persons as the Collateral
Agent may designate, not more frequently than once a year in the absence of
an
Event of Default, during normal business hours, upon reasonable advance notice
to the Grantor, and without unreasonably disrupting the business of such
grantor, (i) to examine and make copies of and abstracts from any Grantor's
records and books of account, (ii) to visit and inspect its properties,
(iii) to verify materials, leases, Instruments, Accounts, Inventory and
other assets of any Grantor from time to time, (iii) to conduct audits,
physical counts, appraisals and/or valuations, examinations at the locations
of
any Grantor. Each Grantor shall also, upon reasonable advance notice from
the Collateral Agent, permit the Collateral Agent, or any agent or
representatives thereof or such professionals or other Persons as the Collateral
Agent may designate, to discuss such Grantor's affairs, finances and accounts
with any of its directors, officers, managerial employees, independent
accountants or any of its other representatives during normal business hours
at
a time and place to be mutually agreed upon by the Collateral Agent or its
designee and such Grantor.
(m) Future
Subsidiaries.
If any Grantor shall hereafter create or acquire any Subsidiary,
simultaneously with the creation of acquisition of such Subsidiary, such Grantor
shall cause such Subsidiary to become a party to this Agreement as an additional
"Grantor" hereunder, and to duly execute and deliver a guaranty of the
Obligations in favor of the Collateral Agent in form and substance reasonably
acceptable to the Collateral Agent, and to duly execute and/or deliver such
opinions of counsel and other documents, in form and substance reasonably
acceptable to the Collateral Agent, as the Collateral Agent shall reasonably
request with respect thereto.
SECTION
6. ADDITIONAL
PROVISIONS CONCERNING THE COLLATERAL.
(a) Each
Grantor hereby (i) authorizes the Collateral Agent to file one or more
Uniform Commercial Code financing or continuation statements, and amendments
thereto, relating to the Collateral and (ii) ratifies such authorization to
the extent that the Collateral Agent has filed any such financing or
continuation statements, or amendments thereto, prior to the date hereof.
A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as
a
financing statement where permitted by law.
-16-
(b) Each
Grantor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact
and proxy, with full authority in the place and stead of each Grantor and in
the
name of each Grantor or otherwise, from time to time in the Collateral Agent's
discretion, so long as an Event of Default shall have occurred and is
continuing, to take any action and to execute any instrument which the
Collateral Agent may deem necessary or advisable to accomplish the purposes
of
this Agreement (subject to the rights of each Grantor under Section
5
hereof),
including, without limitation, after the occurrence and during the continuance
of an Event of Default, (i) to obtain and adjust insurance required to be paid
to the Collateral Agent pursuant to Section
5(e)
hereof,
(ii) to ask, demand, collect, xxx for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect
of
any Collateral, (iii) to receive, endorse, and collect any drafts or other
instruments, documents
and chattel paper in connection with clause (i) or (ii) above, (iv) to file
any
claims or take any action or institute any proceedings which the Collateral
Agent may deem necessary or desirable for the collection of any Collateral
or
otherwise to enforce the rights of the Collateral Agent and the Buyers with
respect to any Collateral, and (v) to execute assignments, licenses and other
documents to enforce the rights of the Collateral Agent and the Buyers with
respect to any Collateral. This power is coupled with an interest and is
irrevocable until all of the Obligations are indefeasibly paid in full in
cash.
(c) For
the
purpose of enabling the Collateral Agent to exercise rights and remedies
hereunder, at such time as the Collateral Agent shall be lawfully entitled
to
exercise such rights and remedies, and for no other purpose, each Grantor hereby
grants to the Collateral Agent, to the extent assignable, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to any Grantor) to use, assign, license or sublicense any
Intellectual Property now owned or hereafter acquired by any Grantor, wherever
the same may be located, including in such license reasonable access to all
media in which any of the licensed items may be recorded or stored and to all
computer programs used for the compilation or printout thereof.
Notwithstanding anything contained herein to the contrary, but subject to
the provisions of the Securities Purchase Agreement that limit the right of
any
Grantor to dispose of its property and Section
5(h)
hereof,
so long as no Event of Default shall have occurred and be continuing, any
Grantor may exploit, use, enjoy, protect, license, sublicense, assign, sell,
dispose of or take other actions with respect to the Intellectual Property
in
the ordinary course of its business. In furtherance of the foregoing,
unless an Event of Default shall have occurred and be continuing, the Collateral
Agent shall from time to time, upon the request of any Grantor, execute and
deliver any instruments, certificates or other documents, in the form so
requested, which such Grantor shall have certified are appropriate (in any
Grantor's judgment) to allow it to take any action permitted above (including
relinquishment of the license provided pursuant to this clause (c) as to any
Intellectual Property). Further, upon the indefeasible payment in full in
cash of all of the Obligations, the Collateral Agent (subject to Section
10(e)
hereof)
shall release and reassign to any Grantor all of the Collateral Agent's right,
title and interest in and to the Intellectual Property, and the Licenses, all
without recourse, representation or warranty whatsoever. The exercise of
rights and remedies hereunder by the Collateral Agent shall not terminate the
rights of the holders of any licenses or sublicenses theretofore granted by
any
Grantor in accordance with the second sentence of this clause (c). Each Grantor
hereby releases the Collateral Agent from any claims, causes of action and
demands at any time arising out of or with respect to any actions taken or
omitted to be taken by the Collateral Agent under the powers of attorney granted
herein other than actions taken or omitted to be taken through the Collateral
Agent's gross negligence or willful misconduct, as determined by a final
determination of a court of competent jurisdiction.
-17-
(d) If
any
Grantor fails to perform any agreement contained herein, the Collateral Agent
may itself perform, or cause performance of, such agreement or obligation,
in
the name of any Grantor or the Collateral Agent, and the expenses of the
Collateral Agent incurred in connection therewith shall be payable by any
Grantor pursuant to Section
8
hereof
and shall be secured by the Collateral.
(e) The
powers conferred on the Collateral Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise
any
such powers. Except
for the safe custody of any Collateral in its possession and the accounting
for
moneys actually received by it hereunder, the Collateral Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any
Collateral.
(f) Anything
herein to the contrary notwithstanding (i) each Grantor shall remain liable
under the Licenses and otherwise with respect to any of the Collateral to the
extent set forth therein to perform all of its obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise
by the Collateral Agent of any of its rights hereunder shall not release any
Grantor from any of its obligations under the Licenses or otherwise in respect
of the Collateral, and (iii) the Collateral Agent shall not have any
obligation or liability by reason of this Agreement under the Licenses or with
respect to any of the other Collateral, nor shall the Collateral Agent be
obligated to perform any of the obligations or duties of any Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION
7. REMEDIES
UPON EVENT OF DEFAULT.
If any Event of Default shall have occurred and be
continuing:
-18-
(a) The
Collateral Agent may exercise in respect of the Collateral, in addition to
any
other rights and remedies provided for herein or otherwise available to it,
all
of the rights and remedies of a secured party upon default under the Code
(whether or not the Code applies to the affected Collateral), and also may
(i) take absolute control of the Collateral, including, without limitation,
transfer into the Collateral Agent's name or into the name of its nominee or
nominees (to the extent the Collateral Agent has not theretofore done so) and
thereafter receive, for the benefit of the Collateral Agent, all payments made
thereon, give all consents, waivers and ratifications in respect thereof and
otherwise act with respect thereto as though it were the outright owner thereof,
(ii) require each Grantor to, and each Grantor hereby agrees that it will
at its expense and upon request of the Collateral Agent forthwith, assemble
all
or part of its respective Collateral as directed by the Collateral Agent and
make it available to the Collateral Agent
at
a place or places to be designated by the Collateral Agent that is reasonably
convenient to both parties, and the Collateral Agent may enter into and occupy
any premises owned or leased by any Grantor where the Collateral or any part
thereof is located or assembled for a reasonable period in order to effectuate
the Collateral Agent's rights and remedies hereunder or under law, without
obligation to any Grantor in respect of such occupation, and (iii) without
notice except as specified below and without any obligation to prepare or
process the Collateral for sale, (A) sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the
Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Collateral Agent may deem commercially reasonable and/or (B) lease, license
or dispose of the Collateral or any part thereof upon such terms as the
Collateral Agent may deem commercially reasonable. Each Grantor agrees
that, to the extent notice of sale or any other disposition of its respective
Collateral shall be required by law, at least ten (10) days' notice to any
Grantor of the time and place of any public sale or the time after which any
private sale or other disposition of its respective Collateral is to be made
shall constitute reasonable notification. The Collateral Agent shall not
be obligated to make any sale or other disposition of any Collateral regardless
of notice of sale having been given. The Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be
made at
the time and place to which it was so adjourned. Each Grantor hereby
waives any claims against the Collateral Agent and the Buyers arising by reason
of the fact that the price at which its respective Collateral may have been
sold
at a private sale was less than the price which might have been obtained at
a
public sale or was less than the aggregate amount of the Obligations, even
if
the Collateral Agent accepts the first offer received and does not offer such
Collateral to more than one offeree, and waives all rights that any Grantor
may
have to require that all or any part of such Collateral be marshalled upon
any
sale (public or private) thereof. Each Grantor hereby acknowledges that
(i) any such sale of its respective Collateral by the Collateral Agent
shall be made without warranty, (ii) the Collateral Agent may specifically
disclaim any warranties of title, possession, quiet enjoyment or the like,
and
(iii) such actions set forth in clauses (i) and (ii) above shall not
adversely effect the commercial reasonableness of any such sale of Collateral.
In addition to the foregoing, (1) upon written notice to any Grantor
from the Collateral Agent after and during the continuance of an Event of
Default, such Grantor shall cease any use of the Intellectual Property or any
trademark, patent or copyright similar thereto for any purpose described in
such
notice; (2) the Collateral Agent may, at any time and from time to time, upon
10
days' prior notice to such Grantor, license, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any of the
Intellectual Property, throughout the universe for such term or terms, on such
conditions, and in such manner, as the Collateral Agent shall in its sole
discretion determine; and (3) the Collateral Agent may, at any time, pursuant
to
the authority granted in Section
6
hereof
(such authority being effective upon the occurrence and during the continuance
of an Event of Default), execute and deliver on behalf of such Grantor, one
or
more instruments of assignment of the Intellectual Property (or any application
or registration thereof), in form suitable for filing, recording or registration
in any country.
-19-
(b) Any
cash
held by the Collateral Agent as Collateral and all Cash Proceeds received by
the
Collateral Agent in respect of any sale of or collection from, or other
realization upon, all or any part of the Collateral may, in the discretion
of
the Collateral Agent, be held by the Collateral Agent as collateral for, and/or
then or at any time thereafter applied (after payment of any amounts payable
to
the Collateral Agent pursuant to Section
8
hereof)
in whole or in part by the Collateral Agent against, all or any part of the
Obligations in such order as the Collateral Agent shall elect, consistent with
the provisions of the Securities Purchase Agreement. Any surplus of such
cash or Cash Proceeds held by the Collateral Agent and remaining after the
indefeasible payment in full in cash of all of the Obligations shall be paid
over to whomsoever shall be lawfully entitled to receive the same or as a court
of competent jurisdiction shall direct.
(c) In
the
event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Collateral Agent and the Buyers
are
legally entitled, each Grantor shall be liable for the deficiency, together
with
interest thereon at the highest rate specified in any of the applicable
Transaction Documents for interest on overdue principal thereof or such other
rate as shall be fixed by applicable law, together with the costs of collection
and the reasonable fees, costs, expenses and other client charges of any
attorneys employed by the Collateral Agent to collect such
deficiency.
(d) Each
Grantor hereby acknowledges that if the Collateral Agent complies with any
applicable state, provincial, or federal law requirements in connection with
a
disposition of the Collateral, such compliance will not adversely affect the
commercial reasonableness of any sale or other disposition of the
Collateral.
SECTION
8. INDEMNITY
AND EXPENSES.
(a) Each
Grantor agrees, jointly and severally, to defend, protect, indemnify and hold
the Collateral Agent and each of the Buyers, jointly and severally, harmless
from and against any and all claims, damages, losses, liabilities, obligations,
penalties, fees, costs and expenses (including, without limitation, reasonable
legal fees, costs, expenses, and disbursements of such Person's counsel) to
the
extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses or liabilities resulting solely and directly from such Person's gross
negligence or willful misconduct, as determined by a final judgment of a court
of competent jurisdiction.
-20-
(b) Each
Grantor agrees, jointly and severally, to pay to the Collateral Agent upon
demand the amount of any and all costs and expenses, including the reasonable
fees, costs, expenses and disbursements of counsel for the Collateral Agent
and
of any experts and agents (including, without limitation, any collateral trustee
which may act as agent of the Collateral Agent), which the Collateral Agent
may
properly incur under the terms hereof after the occurrence and during the
continuance of an Event of Default in connection with (i) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (ii) the exercise or enforcement of any
of the rights of the Collateral Agent hereunder, or (iii) the failure by
any Grantor to perform or observe any of the provisions hereof.
SECTION
10. MISCELLANEOUS.
(a) No
amendment of any provision of this Agreement shall be effective unless it is
in
writing and signed by each Grantor and the Collateral Agent, and no waiver
of
any provision of this Agreement, and no consent to any departure by each Grantor
therefrom, shall be effective unless it is in writing and signed by each Grantor
and the Collateral Agent, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which
given.
(b) No
failure on the part of the Collateral Agent to exercise, and no delay in
exercising, any right hereunder or under any of the other Transaction Documents
shall operate as a waiver thereof; nor shall any single or partial exercise
of
any such right preclude any other or further exercise thereof or the exercise
of
any other right. The rights and remedies of the Buyers and the Collateral
Agent provided herein and in the other Transaction Documents are cumulative
and
are in addition to, and not exclusive of, any rights or remedies provided by
law. The rights of the Collateral Agent under any of the other Transaction
Documents against any party thereto are not conditional or contingent on any
attempt by such Person to exercise any of its rights under any of the other
Transaction Documents against such party or against any other Person, including
but not limited to, any Grantor.
(c) Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
-21-
(d) This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the indefeasible payment in
full
in cash of the Obligations, and (ii) be binding on each Grantor and all other
Persons who become bound as debtor to this Agreement in accordance with Section
9-203(d) of the Code and shall inure, together with all rights and remedies
of
the Collateral Agent and the Buyers hereunder, to the benefit of the Collateral
Agent and the Buyers and their respective permitted successors, transferees
and
assigns. Without limiting the generality of clause (ii) of the immediately
preceding sentence, without notice to any Grantor, the Collateral Agent and
the
Buyers may assign or otherwise transfer their rights and obligations under
this
Agreement and any of the other Transaction Documents, to any other Person and
such other Person shall thereupon become
vested
with all of the benefits in respect thereof granted to the Collateral Agent
and
the Buyers herein or otherwise. Upon any such assignment or transfer, all
references in this Agreement to the Collateral Agent or any such Buyer shall
mean the assignee of the Collateral Agent or such Buyer. None of the
rights or obligations of any Grantor hereunder may be assigned or otherwise
transferred without the prior written consent of the Collateral Agent, and
any
such assignment or transfer without the consent of the Collateral
Agent
shall be null and void.
(e) Upon
the
indefeasible payment in full in cash of the Obligations, (i) this Agreement
and
the security interests created hereby shall terminate and all rights to the
Collateral shall revert to the respective Grantor that granted such security
interests hereunder, and (ii) the Collateral Agent will, upon any Grantor's
request and at such Grantor's expense, (A) return to such Grantor such of the
Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof, and (B) execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination,
all without any representation, warranty or recourse whatsoever.
(f) THIS
AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE
LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF
LAW
AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION
AND
THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED
HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW
YORK.
(g) ANY
LEGAL
ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT
RELATED THERETO MAY BE BROUGHT IN XXX XXXXXX XX XXX XXXXX XX XXX XXXX IN THE
COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
OF
NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS,
WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR
PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF
SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
-22-
(h) EACH
GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COLLATERAL
AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OF
THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING,
VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES
HERETO.
(i) Each
party irrevocably consents to the service of process of any of the aforesaid
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail (or any substantially similar form of mail),
postage prepaid, to such party at the address of such party specified for
notices hereunder, such service to become effective 10 days after such
mailing.
(j) Nothing
contained herein shall affect the right of the Collateral Agent to serve process
in any other manner permitted by law or commence legal proceedings or otherwise
proceed against any Grantor or any property of any Grantor in any other
jurisdiction.
(k) Each
Grantor irrevocably and unconditionally waives any right it may have to claim
or
recover in any legal action, suit or proceeding referred to in this Section
any
special, exemplary, punitive or consequential damages.
(l) Section
headings herein are included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
(m) This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which taken together constitute one in the same
Agreement.
[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]
-23-
IN
WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
|
|
NESCO
INDUSTRIES, INC.
|
|
| |
|
|
| By: | /s/ Xxxxxxx Xxxxxxxx | |
|
Name:
Xxxxxxx
Xxxxxxxx
Title:
President
Address:
000
Xxxxxxx Xxx., Xxxxx 0000
Xxx
Xxxx, XX 00000
|
||
| HYDROGEL DESIGN SYSTEMS, INC. | ||
| |
|
|
| By: | /s/ Xxxxxxx Xxxxxxxx | |
|
Name: Xxxxxxx Xxxxxxxx Title:
President
Address:
000
Xxxxxxx Xxx., Xxxxx 0000
Xxx
Xxxx, XX 00000
|
||
| FOAM MANUFACTURING INC. | ||
| |
|
|
| By: | /s/ Xxxxxxx Xxxxxxxx | |
|
Name: Xxxxxxx Xxxxxxxx Title:
President
Address:
000
Xxxxxxx Xxx., Xxxxx 0000
Xxx
Xxxx, XX 00000
|
||
| CONVERTING SCIENCES, INC. | ||
| |
|
|
| By: | /s/ Xxxxxxx Xxxxxxxx | |
|
Name: Xxxxxxx
Xxxxxxxx
Title:
President
Address:
000
Xxxxxxx Xxx., Xxxxx 0000
Xxx
Xxxx, XX 00000
|
||
ACCEPTED
BY:
GOTTBETTER
CAPITAL MASTER, LTD.
as
Collateral Agent
By: /s/
Xxxx X. Xxxxxxxxxx
| Name: |
Xxxx
X. Xxxxxxxxxx
|
| Title: |
Director
|
| Address: |
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
|
|
Xxx
Xxxx, XX 00000
|
