SECURITY AGREEMENT
Exhibit 10.9
EXECUTION COPY
SECURITY AGREEMENT, dated as of January 17, 2007 (this “Agreement”) made by HYTHIAM, INC., a
Delaware corporation (the “Company”), in favor of HIGHBRIDGE INTERNATIONAL LLC, a limited liability
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”).
W I T N E S S E T H:
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, it is a condition precedent to the Buyers purchasing the Notes pursuant to the
Securities Purchase Agreement that the Company 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 the Company, and all securities, partnership,
membership or other equity interests held by the Company in any direct or indirect subsidiaries of
the Company, to secure all of the Company’s obligations under the Securities Purchase Agreement,
the Notes and the “Transaction Documents” (as defined in the Securities Purchase Agreement) (the
“Transaction Documents”);
WHEREAS, the Company has determined that the execution, delivery and performance of this
Agreement directly benefits, and is in the best interest of, the Company.
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, the Company 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:
“Capital Stock” means (i) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated and whether or not
voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and
all partnership, membership or other equity interests of such Person.
“Titled Collateral” means all Collateral for which the title to such Collateral is governed by
a Certificate of Title or certificate of ownership, including, without limitation, all motor
vehicles (including, without limitation, all trucks, trailers, tractors, service vehicles,
automobiles and other mobile equipment) for which the title to such motor vehicles is governed by a
Certificate of Title or certificate of ownership.
“Copyright Licenses” means all licenses, contracts or other agreements, whether written or
oral, naming the Company 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 the Company (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.
“Governmental Authority” means any nation or government, any Federal, state, city, town,
municipality, county, local or other political subdivision thereof or thereto and any department,
commission, board, bureau, instrumentality, agency or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.
“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
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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.
“Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.
“Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights).
“Patent Licenses” means all licenses, contracts or other agreements, whether written or oral,
naming the Company 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 the Company 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 the Company 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 the Company (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
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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 the
Company relating to the distribution of products and services in connection with which any of such
marks are used.
SECTION 2. Grant of Security Interest. As collateral security for all of the
“Obligations” (as defined in Section 3 hereof), the Company hereby pledges and assigns to
the Collateral Agent for the benefit of the Buyers, and grants to the Collateral Agent for the
benefit of the Buyers a continuing security interest in, all personal property of the Company,
wherever located and whether now or hereafter existing and whether now owned or hereafter acquired,
of every kind and description, tangible or intangible (collectively, the “Collateral”), including,
without limitation, the following:
(a) all Accounts;
(b) all Chattel Paper (whether tangible or electronic);
(c) the Commercial Tort Claims;
(d) all Deposit Accounts, all cash and 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 Buyer or
any affiliate, representative, agent or correspondent of the Collateral Agent or 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 the Company (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 the Company 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 the
Company 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 the Company or any other Person from time to
time acting for the Company, in each case, to the extent of the Company’s rights therein, 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 the Company’s interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
In addition to the foregoing, as further collateral security for all of the “Obligations” (as
defined in Section 3 hereof), the Company hereby pledges and assigns to the Collateral Agent for
the benefit of the Buyers, and grants to the Collateral Agent for the benefit of the Buyers a
continuing security interest in, all Capital Stock held beneficially or of records by the Company
in any direct or indirect Subsidiary of the Company.
Notwithstanding anything herein to the contrary, the term “Collateral” shall not include in the
case of a Subsidiary of the Company organized under the laws of a jurisdiction other than the
United States, any of the states thereof or the District of Columbia (a “Foreign Subsidiary”), more
than 65% (or such greater percentage that, due to a change in applicable law after the date hereof,
(i) would not reasonably be expected to cause the undistributed earnings of such Foreign Subsidiary
as determined for United States federal income tax purposes to be treated as a deemed dividend to
such Foreign Subsidiary’s United States parent and (ii) would not reasonably be expected to cause
any material adverse tax consequences) of the issued and outstanding shares of Capital Stock
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (it being understood and
agreed that the Collateral shall include 100% of the issued and outstanding shares of Capital Stock
not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) or other equity
interest of such Foreign Subsidiary).
The Company agrees that the pledge of the shares of Capital Stock acquired by the Company of any
and all Persons now or hereafter existing who is a Foreign Subsidiary may be supplemented by one or
more separate pledge agreements, deeds of pledge, share charges, or other similar agreements or
instruments, executed and delivered by the Company in favor of the Collateral Agent, which pledge
agreements will provide for the pledge of such shares of Capital Stock in accordance with the laws
of the applicable foreign jurisdiction. With respect to such shares of Capital Stock, the
Collateral Agent may, at any time and from time to time, in its sole discretion,
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take actions in such foreign jurisdictions that will result in the perfection of the Lien created
in such shares of Capital Stock.
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) for so long as the Notes are outstanding, 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, (i) all principal of and interest on the Notes (including,
without limitation, all interest that accrues after the commencement of any Insolvency Proceeding
of the Company, whether or not the payment of such interest is unenforceable or is not allowable
due to the existence of such Insolvency Proceeding), and (ii) all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due under any of the
Transaction Documents; and
(b) for so long as the Notes are outstanding, the due performance and observance by the
Company 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.
SECTION 4. Representations and Warranties. The Company represents and warrants as of
the date of this Agreement as follows:
(a) Schedule I hereto sets forth (i) the exact legal name of the Company, and (ii) the
state of incorporation, organization or formation and the organizational identification number of
the Company in such state.
(b) There is no pending or, to its knowledge, written notice threatening any action, suit,
proceeding or claim affecting any Guarantor before any governmental authority or any arbitrator, or
any order, judgment or award issued by any governmental authority or arbitrator, in each case, that
may adversely affect the grant by the Company, 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) All Federal, state and local tax returns and other reports required by applicable law to
be filed by the Company have been filed, or extensions have been obtained, and all taxes,
assessments and other governmental charges imposed upon the Company or any property of the Company
(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 GAAP.
(d) All Equipment, Fixtures, Goods and Inventory of the Company now existing are, and all
Equipment, Fixtures, Goods and Inventory of the Company hereafter
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existing will be, located and/or based at the addresses specified therefor in Schedule
III hereto, except that the Company 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 the Company 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 or will take such actions
pursuant to Section 5(n). The Company’s chief place of business and chief executive office, the
place where the Company 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 the Company and (ii) each Deposit Account, Securities
Account and Commodities Account of the Company, 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. Agreement. Set forth in Schedule II
hereto is a complete and correct list of each trade name used by the Company and the name of,
and each trade name used by, each person from which the Company has acquired any substantial part
of the Collateral.
(e) The Company 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 the Company 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.
(f) The Company owns and controls, or otherwise possesses adequate rights to use, all
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 the Company as of
the date hereof. To the best knowledge of the Company, all such Intellectual Property of the
Company is subsisting and 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 (i)
in Schedule II, (ii) in the Company’s SEC Documents (as such term is defined in the
Securities Purchase Agreement) or (iii) in the customer agreements entered into in the ordinary
course of business substantially in the form of the Company’s standard Technology License and
Administrative Services Agreement, no such Intellectual Property is the subject of any licensing or
franchising agreement. The Company has no knowledge of any conflict with the rights of others to
any such Intellectual Property and, to the best knowledge of the Company, the Company is not now
infringing or in conflict with any such rights of others in any material
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respect, and to the best knowledge of the Company, no other Person is now infringing or in
conflict in any material respect with any such properties, assets and rights owned or used by the
Company. The Company has not 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) The Company is and will be at all times the sole and exclusive owner of, or otherwise has
and will have adequate rights in, the Collateral free and clear of any Liens, except for Permitted
Liens. 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 as (i) may have
been filed in favor of the Collateral Agent and/or the Buyers relating to this Agreement or the
other Security Documents and (ii) are described on 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 the Company or
any of its properties and will not result in or require the creation of any Lien, upon or with
respect to any of its properties.
(i) No authorization or approval or other action by, and no notice to or filing with, any
governmental authority or other regulatory body, is required for (i) the grant by the Company, or
the perfection, of the security interest purported to be created hereby in the Collateral, or (ii)
the exercise by the Collateral Agent of any of its rights and remedies hereunder, except (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 the Company 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 United States Intellectual Property
and Licenses, for the recording of the appropriate Assignment for Security, substantially in the
form of Exhibit A hereto 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 such foreign 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 Company, 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
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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. The Perfection Requirements
result in the perfection of such security interests. Such security interests are, or in the case
of Collateral in which the Company obtains rights after the date hereof, will be, perfected, first
priority security interests, subject only to Permitted Liens and the Perfection Requirements and
the financing statements described in Schedule 4(g). Such recordings and filings and all
other action necessary to perfect and protect such security interest have been duly taken or will
be taken pursuant to Section 5(n), and, in the case of Collateral in which the Company obtains
rights after the date hereof, will be duly taken, except for the Collateral Agent’s having
possession of all Documents, Chattel Paper, Instruments and cash constituting Collateral after the
date hereof and the other actions, filings and recordations described above, including the
Perfection Requirements.
(k) As of the date hereof, the Company holds no Commercial Tort Claims and has no knowledge of
any pending Commercial Tort Claims, except for such Commercial Tort Claims described in
Schedule VI.
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:
(a) Further Assurances. The Company 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 pursuant to the
Pledge each Promissory Note, Security, Chattel Paper or other Instrument, now or hereafter owned by
the Company, 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 the Company’s signature is required thereon) or authenticating the filing of,
such financing or continuation statements, or amendments thereto, as may be necessary or that the
Collateral Agent may reasonably 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
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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 reasonably satisfactory to the Collateral Agent, (F) if at any time after the
date hereof, the Company acquires or holds any Commercial Tort Claim, promptly notifying the
Collateral Agent in a writing signed by the Company 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
the Company 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
Section 5(j) hereof; 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. The Company will keep the Equipment and
Inventory (i) at the locations specified therefor on Schedule III hereto, or (ii) at such
other locations set forth on Schedule III (or a new Schedule III delivered by the
Company 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, or (iii) at such other
locations in the United States, provided that within 20 days following the relocation of Equipment
or Inventory to such other location or the acquisition of Equipment or Inventory, the Company shall
deliver to the Collateral Agent a new Schedule III indicating such new locations.
(c) Condition of Equipment. The Company 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 the Company 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. The Company 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. The Company 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.
(e) Insurance.
(i) The Company will, at its own expense, maintain insurance (including, without limitation,
commercial general liability and property insurance) with respect
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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 the Company
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 the Company, (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. The Company 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. The Company will also, at the 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 the Company pursuant to this
Section 5(e) may be paid directly to the Person who shall have incurred liability covered
by such insurance. In the case of any loss involving damage to Equipment or Inventory, any
proceeds of insurance maintained by the Company 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), the Company 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 the Company pursuant to
this Section 5(e) shall be paid by the Collateral Agent to the Company as reimbursement for
the costs of such repairs or replacements.
(iii) Following and during the continuance of an Event of Default, 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) The Company will (A) give the Collateral Agent at least 30 days’ prior written notice of
any change in the Company’s name, identity or organizational structure, (B) maintain its
jurisdiction of incorporation, organization or formation as set forth in Schedule I hereto,
(C) immediately notify the Collateral Agent upon obtaining an organizational identification number,
if on the date hereof the Company did not have such identification number, and (D) keep adequate
records concerning the Accounts and Chattel Paper and permit
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representatives of the Collateral Agent during normal business hours on reasonable notice to
the Company, to inspect and make abstracts from such Records and Chattel Paper.
(ii) The Company will, except as otherwise provided in this subsection (f), continue to
collect, at its own expense, all amounts due or to become due under the Accounts. In connection
with such collections, the Company may (and, at the Collateral Agent’s direction, will) take such
action as the Company 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 the Company thereunder directly to the Collateral Agent or its designated
agent and, upon such notification and at the expense of the Company 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 the Company might have done. After
receipt by the Company of a notice from the Collateral Agent that the Collateral Agent has
notified, intends to notify, or has enforced or intends to enforce the Company’s rights against the
account debtors or obligors under any Accounts as referred to in the proviso to the immediately
preceding sentence, (A) all amounts and proceeds (including Instruments) received by the Company 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 the Company and shall be forthwith paid over to
the Collateral Agent in the same form as so received (with any necessary endorsement) to be applied
as specified in Section 7(b) hereof, and (B) the Company will not 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 the Company 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. Any such securities, cash,
investments and other items so received by the Collateral Agent shall be applied as specified in
accordance with Section 7(b) hereof.
(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 the
Company, the Company 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.
(iv) The Company 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
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rights or affect any of its obligations thereunder, together with a copy of any reply by the
Company thereto.
(v) The Company 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. The Company will not,
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.
(g) Transfers and Other Liens.
(i) The Company will not sell, assign (by operation of law or otherwise), lease, license,
exchange or otherwise transfer or dispose of any of the Collateral, except (A) Inventory in the
ordinary course of business, and (B) worn out or obsolete assets, not necessary to the business.
(ii) The Company will not create, suffer to exist or grant any Lien upon or with respect to
any Collateral other than a Permitted Lien.
(h) Intellectual Property.
(i) If applicable, the Company 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. The Company (either itself or through licensees) will, and will cause each
licensee thereof to, take all 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 the Company 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, the Company shall have no 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. The Company 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,
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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, the
Company shall (x) upon learning of such infringement, misappropriation, dilution or other
violation, promptly notify the Collateral Agent and (y) to the extent the Company 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 the
Company shall deem appropriate under the circumstances to protect such Intellectual Property. The
Company 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, the Company
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 acts as shall be
necessary or, in the reasonable 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, the Company may abandon or otherwise permit any Intellectual Property to
become invalid without the prior written consent of the Collateral Agent, and if any Intellectual
Property is infringed, misappropriated, diluted or otherwise violated in any material respect by a
third party, the Company will take such action as the Collateral Agent shall deem appropriate under
the circumstances to protect such Intellectual Property.
(ii) In no event shall the Company, 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, the Company 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 the Company relating thereto or represented
thereby, and the Company 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.
(i) Deposit, Commodities and Securities Accounts. Upon the Collateral Agent’s written
request and subject to Section 10(f) of the Note, the Company shall 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
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satisfactory to the Collateral Agent, duly executed by the Company 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) 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 the Company, which instructions the Collateral Agent will not give to such bank or other
financial institution in the absence of a continuing Event of Default under Sections 3(a)(i),
3(a)(ii), 3(a)(iii) and 3(a)(iv) of the Note, (ii) all Commodity Contracts, securities, Investment
Property and other items of the Company 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 (not to exceed, in any event, the Obligations), the value of any
Commodity Contracts, securities, Investment Property and other items held by it. Without the prior
written consent of the Collateral Agent, the Company shall not make or maintain any Deposit
Account, Commodity Account or Securities Account except for the accounts set forth in Schedule
IV hereto. 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 the Company’s salaried or hourly employees.
(j) Titled Collateral. At the request of the Collateral Agent’s written request, the
Company shall (i) cause all Collateral, now owned or hereafter acquired by the Company, which under
applicable law are required to be registered, to be properly registered in the name of the Company,
(ii) cause all Titled Collateral, to be properly titled in the name of the Company, and if
requested by the Collateral Agent, with the Collateral Agent’s Lien noted thereon and (iii) if
requested by the Collateral Agent, promptly deliver to the Collateral Agent (or its custodian)
originals of such Certificates of Title or certificates of ownership for such Titled Collateral,
with the Collateral Agent’s Lien noted thereon, and take such other actions as may be reasonably
required by the Collateral Agent.
(k) Control. The Company hereby agrees to take any or all action that may be
necessary or that the Collateral Agent may reasonably request in order for the Collateral Agent to
obtain control in accordance with Sections 9-105 – 9-107 of the Code with respect to the following
Collateral: (i) Electronic Chattel Paper, (ii) Investment Property, and (iii) Letter-of-Credit
Rights.
(l) Inspection and Reporting. The Company shall permit the Collateral Agent, or any
agent or representatives thereof or such professionals or other Persons as the Collateral Agent may
designate, during normal business hours, after reasonable notice in the absence of an Event of
Default, and charge such costs for one visit per year to the Company therefor, (i) to examine and
make copies of and abstracts from the Company’s records and books of account, (ii) to visit and
inspect its properties, (iii) to verify materials, leases, Instruments,
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Accounts, Inventory and other assets of the Company from time to time, and (iv) to conduct
audits, physical counts, appraisals and/or valuations, examinations at the locations of the
Company. The Company shall also permit the Collateral Agent, or any agent or representatives
thereof or such professionals or other Persons as the Collateral Agent may designate to discuss the
Company’s affairs, finances and accounts with any of its directors, officers, managerial employees,
independent accountants or any of its other representatives.
(m) Future Subsidiaries. Future Subsidiaries. If the Company shall hereafter
create or acquire (i) any Subsidiary with assets in excess of $1,000,000, simultaneously with the
creation or acquisition of such Subsidiary, or (ii) if any Subsidiary so created or acquired shall
subsequently acquire obtain assets such that the total assets of such Subsidiary exceed $1,000,000,
then within 5 Business Days, the Company shall (x) execute and deliver to the Collateral Agent, a
pledge agreement, in form and substance satisfactory to the Collateral Agent, pursuant to which the
Company shall pledge the securities, partnership, membership or other equity interests of such
Subsidiary to the Collateral Agent as additional collateral for the payment and performance of the
Obligations, together with (A) certificates, if any, evidencing all of the securities, partnership,
membership or other equity interests of such Subsidiary, (B) undated stock powers or other
appropriate instruments of assignment executed in blank with signature guaranteed, (C) such opinion
of counsel and such approving certificate of such Subsidiary as the Collateral Agent may reasonably
request in respect of complying with any legend on any such certificate or any other matter
relating to such shares and (D) such other agreements, instruments, approvals, legal opinions or
other documents requested by the Collateral Agent, (y) cause such Subsidiary 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 (z) shall 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, provided
that the Company that acquires a subsidiary on or within two days after the Closing Date shall have
10 Business Days in which to satisfy the requirements of this Section 5(m).
SECTION 6. Additional Provisions Concerning the Collateral.
(a) To the maximum extent permitted by applicable law, and for the purpose of taking any
action that the Collateral Agent may deem necessary or advisable to accomplish the purposes of this
Agreement, the Company hereby (i) authorizes the Collateral Agent to execute any such agreements,
instruments or other documents in the Company’s name and to file such agreements, instruments or
other documents in the Company’s name and in any appropriate filing office, (ii) authorizes the
Collateral Agent at any time and from time to time to file, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral (including, without limitation, any
such financing statements that (A) describe the Collateral as “all assets” or “all personal
property” (or words of similar effect) or that describe or identify the Collateral by type or in
any other manner as the Collateral Agent may determine regardless of whether any particular asset
of the Company falls within the scope of Article 9 of the Uniform Commercial Code or whether any
particular asset of the Company constitutes part of the Collateral, and (B) contain any other
information required by Part 5 of Article 9 of the Code for the sufficiency or filing office
acceptance of any financing statement, continuation statement or amendment, including, without
limitation, whether the Company is an organization, the type of
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organization and any organizational identification number issued to the Company ) and (iii)
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.
(b) The Company hereby irrevocably appoints the Collateral Agent as its attorney-in-fact and
proxy, with full authority in the place and stead of the Company and in the name of the Company 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 reasonably deem necessary or advisable to accomplish the purposes of this
Agreement (subject to the rights of the Company under Section 5 hereof), including, without
limitation, (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, the Company hereby grants to the Collateral Agent, to the
extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to the Company) to use, assign, license or sublicense any Intellectual Property
now owned or hereafter acquired by the Company, 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 the Company to dispose of its property, and Section 5(g)
and Section 5(h) hereof, so long as no Event of Default shall have occurred and be
continuing, the Company 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 the Company,
execute and deliver any instruments, certificates or other documents, in the form so requested,
which the Company shall have certified are appropriate (in the Company’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 the Company 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
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Collateral Agent shall not terminate the rights of the holders of any licenses or sublicenses
theretofore granted by the Company in accordance with the second sentence of this clause (c). The
Company 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.
(d) If the Company fails to perform any agreement or obligation contained herein, the
Collateral Agent may itself perform, or cause performance of, such agreement or obligation, in the
name of the Company or the Collateral Agent, and the expenses of the Collateral Agent incurred in
connection therewith shall be payable by the Company 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) the Company 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 the Company 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 the Company 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:
(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 the Company to, and the Company 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
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to both parties, and the Collateral Agent may enter into and occupy any premises owned or
leased by the Company 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 the Company 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. The Company 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 the Company 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. The Company 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 the Company may have to require that all or any part
of such Collateral be marshaled upon any sale (public or private) thereof. The Company 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 affect the commercial reasonableness of any such sale of Collateral. In
addition to the foregoing, (1) upon written notice to the Company from the Collateral Agent after
and during the continuance of an Event of Default, the Company 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 after and
during the continuance of an Event of Default, upon 10 days’ prior notice to the Company, 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 the Company, 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.
(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 shall be applied (after payment of any amounts payable to the Collateral
Agent pursuant to Section 8 hereof) 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
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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,
the Company shall be liable for the deficiency, together with interest thereon at the highest rate
specified in the Notes 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) The Company 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.
(e) The Collateral Agent shall not be required to marshal any present or future collateral
security (including, but not limited to, this Agreement and the Collateral) for, or other
assurances of payment of, the Obligations or any of them or to resort to such collateral security
or other assurances of payment in any particular order, and all of the Collateral Agent’s rights
hereunder and in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To the extent that
the Company lawfully may, the Company hereby agrees that it will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the enforcement of the Collateral
Agent’s rights under this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the
Company hereby irrevocably waives the benefits of all such laws.
SECTION 8. Indemnity and Expenses.
(a) The Company agrees 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 to the extent resulting from such Person’s gross negligence
or willful misconduct, as determined by a final judgment of a court of competent jurisdiction.
(b) The Company agrees 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 incur in
connection with (i) the preparation, negotiation, execution,
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delivery, recordation, administration, amendment, waiver or other modification or termination
of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the
rights of the Collateral Agent hereunder, or (iv) the failure by the Company to perform or observe
any of the provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications provided for hereunder
shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt
requested), telecopied, e-mailed or delivered if to the Company at its address below and if to the
Collateral Agent to it, at its address specified on the signature pages below; or as to any such
Person, at such other address as shall be designated by such Person in a written notice to all
other parties hereto complying as to delivery with the terms of this Section 9. All such
notices and other communications shall be effective (a) if sent by certified mail, return receipt
requested, when received or three days after deposited in the mails, whichever occurs first, (b) if
telecopied or e-mailed, when transmitted (during normal business hours) and confirmation is
received, and otherwise, the day after the notice or communication was transmitted and confirmation
is received, or (c) if delivered in person, upon delivery.
SECTION 10. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective unless it is in writing
and signed by the Company and the Collateral Agent, and no waiver of any provision of this
Agreement, and no consent to any departure by the Company therefrom, shall be effective unless it
is in writing and signed by the Company 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 Collateral
Agent or any Buyer 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 or any Buyer 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, the Company.
(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.
(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 the Company 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,
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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 the Company, 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 the Company 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 Company, and (ii) the Collateral Agent will, upon the Company’s request and at the Company’s
expense, (A) return to the Company 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 the Company
such documents as the Company 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 HERETO 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, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS. THE COMPANY 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) THE COMPANY 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, ORAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES
HERETO.
(i) The Company 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 the Company at its address
provided herein, 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 the
Company or any property of the Company in any other jurisdiction.
(k) The Company 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]
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its
officer thereunto duly authorized, as of the date first above written.
| HYTHIAM, INC. | ||||||
| By: | /s/ Xxxxx Xxxxx | |||||
| Name: Xxxxx Xxxxx | ||||||
| Title: Chief Financial Officer | ||||||
| Address: | 00000 Xxxxx Xxxxxx Xxxxxxxxx | |||||
| Xxxxx 0000 | ||||||
| Xxx Xxxxxxx, Xxxxxxxxxx 00000 | ||||||
| Facsimile: | (000) 000-0000 | |||||
ACCEPTED BY:
HIGHBRIDGE INTERNATIONAL LLC,
as Collateral Agent
as Collateral Agent
By: HIGHBRIDGE CAPITAL MANAGEMENT, LLC
By:
|
/s/ Xxxx X. Chill
Title: Managing Director |
| Address: | c/o Highbridge Capital Management, LLC 0 Xxxx 00xx Xxxxxx, 00xx Xxxxx Xxx Xxxx, Xxx Xxxx 00000 |
| Facsimile: | (000) 000-0000 |
SCHEDULE I
LEGAL NAME; ORGANIZATIONAL IDENTIFICATION NUMBER;
STATE OF ORGANIZATION
STATE OF ORGANIZATION
| Federal | ||||||||||||
| Company’s Name | State of Organization | Employer I.D. | Organizational I.D. | |||||||||
Sched. I-1
SCHEDULE II
INTELLECTUAL PROPERTY
Trademarks
| Application or | Registration | |||||||||||
| Company | Country | Trademark | Registration No. | Filing Date | Date | Assignees | ||||||
Patents
Copyrights
SCHEDULE III
LOCATIONS
| Inventory, | ||||||||||||||||
| Company’s Name | Chief Executive Office | Chief Place of Business | Books and Records | Equipment, Etc. | ||||||||||||
SCHEDULE IV
PROMISSORY NOTES, SECURITIES, DEPOSIT ACCOUNTS,
SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS
SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS
Securities
| Number of | Certificate | |||||||||||||||
| Company | Name of Issuer | Shares | Class | No.(s) | ||||||||||||
Deposit Accounts
| Name and Address of | ||||||||||||
| Company | Institution | Purpose of the Account | Account No. | |||||||||
SCHEDULE V
FINANCING STATEMENTS
| Company | Jurisdiction For Filing Financing Statements |
SCHEDULE VI
COMMERCIAL TORT CLAIMS
EXHIBIT A
ASSIGNMENT FOR SECURITY
[TRADEMARKS] [PATENTS] [COPYRIGHTS]
WHEREAS, (the “Assignor”
) [has adopted, used and is
using, and holds all right, title and interest in and to, the trademarks and service marks listed
on the annexed Schedule 1A, which trademarks and service marks are registered or applied
for in the United States Patent and Trademark Office (the “Trademarks”)] [holds all right,
title and interest in the letter patents, design patents and utility patents listed on the annexed
Schedule 1A, which patents are issued or applied for in the United States Patent and
Trademark Office (the “Patents”)] [holds all right, title and interest in the copyrights
listed on the annexed Schedule 1A, which copyrights are registered in the United States
Copyright Office (the “Copyrights”)];
WHEREAS, the Assignor has entered into a Security Agreement, dated as of January ___, 2007 (as
amended, restated, supplemented or as otherwise modified or replaced from time to time, the
“Security Agreement”), in favor Highbridge International LLC as collateral agent for
certain purchasers (the “Assignee”);
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned to the Assignee and
granted to the Assignee for the benefit of the Buyers (as defined in the Security Agreement) a
continuing security interest in all right, title and interest of the Assignor in, to and under the
[Trademarks, together with, among other things, the good-will of the business symbolized by the
Trademarks] [Patents] [Copyrights] and the applications and registrations thereof, and all proceeds
thereof, including, without limitation, any and all causes of action which may exist by reason of
infringement thereof and any and all damages arising from past, present and future violations
thereof (the “[Trademark] [Patent] [Copyright] Collateral”), to secure the payment,
performance and observance of the “Obligations” (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Assignor does hereby pledge, convey, sell, assign, transfer and set over
unto the Assignee and grants to the Assignee for the benefit of the Buyers a continuing security
interest in the [Trademark] [Patent] [Copyright] Collateral to secure the prompt payment,
performance and for the benefit of the Buyers observance of the Obligations.
The Assignor does hereby further acknowledge and affirm that the rights and remedies of the
Assignee with respect to the [Trademark] [Patent] [Copyright] Collateral are more fully set forth
in the Security Agreement, the terms and provisions of which are hereby incorporated herein by
reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly executed by its officer
thereunto duly authorized as of , 20___
| [COMPANY] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Assignment
for Security
STATE OF
ss.:
COUNTY OF
On
this ___ day of , 20___, before me personally came , to me
known to be the person who executed the foregoing instrument, and who, being duly sworn by me, did
depose and say that s/he is the
of
, a
, and that s/he executed the foregoing instrument in the firm name of
, an
d that s/he had authority to sign the same, and s/he
acknowledged to me that he executed the same as the act and deed of said firm for the uses and
purposes therein mentioned.
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
[Trademarks and Trademark Applications]
[Patent and Patent Applications]
[Copyright and Copyright Applications]
Owned by
[Patent and Patent Applications]
[Copyright and Copyright Applications]
Owned by
Schedule 4(g)
Effective Financing Statements
