Exhibit 4.5
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EXECUTION VERSION
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of September 29, 2005, by and among Arotech
Corporation, a Delaware corporation (f/k/a Electric Fuel Corporation) (the
"Parent"), and the undersigned subsidiaries of the Parent (each a "Guarantor"
and collectively, the "Guarantors" and together with the Parent, each a "Debtor"
and collectively, the "Debtors" and the secured parties signatory hereto and
their respective successors and assigns (each, a "Secured Party", and
collectively, the "Secured Parties").
W I T N E S S E T H:
WHEREAS, pursuant to the Securities Purchase Agreement, dated the date
hereof by and among the Parent and the Secured Parties named therein (the
"Purchase Agreement"), the Secured Parties have agreed to purchase Senior
Secured Convertible Notes, par value $0.01 per share (the "Notes") and warrants
(as described in the Purchase Agreement) (the 'Warrants" and together with the
Notes, the "Securities");
WHEREAS, it is a condition precedent to the Buyers entering into the
Securities Purchase Agreement that (i) the Parent shall have executed and
delivered to the Secured Parties this Agreement providing for the grant to the
Secured Parties of a security interest in the Collateral (as defined below)
owned by the Parent to secure all of the Parent 's obligations under the
Purchase Agreement and the Notes, and (ii) each of IDS and IES (each a
"Guarantor" and collectively, the "Guarantors") shall have executed and
delivered to the Secured Parties the "Guaranty" (as defined therein) with
respect to the obligations of the Parent under the Purchase Agreement and the
Notes (as amended, restated or otherwise modified from time to time, the
"Guaranty"), and this Agreement providing for the grant to the Secured Parties
of a security interest in the respective Collateral (as defined herein) owned by
each of Guarantors to secure its obligations under the Guaranty; and
WHEREAS, in order to induce the Secured Parties to enter into the Purchase
Agreement, the Debtors wish to grant to the Secured Parties to secure the prompt
payment, performance and discharge in full of all of the Obligations (as defined
below) (a) a first priority, perfected security interest in the First Lien
Collateral and (b) a second priority, perfected security interest in the Second
Lien Collateral junior only to the first priority security interest, granted to
certain investors (the "First Investors") pursuant to a Security Agreement,
dated as of September 30, 2003, among the Parent, its subsidiaries party thereto
and the First Investors, with respect to the security interest (the "First
Investors' Security Interest") granted to the First Investors in such Collateral
(as defined below); and
WHEREAS, each of the Guarantors has determined that the execution,
delivery and performance of this Agreement and the Guaranty directly benefits,
and are in the best interest of the Parent and the Guarantors; and
NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "General Intangibles" and "Proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.
(a) "Accounts" shall mean all present and future rights of the Debtors to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
(b) "Acquisition" shall mean the purchase, acquisition by lease, exchange,
merger, consolidation, succession or other acquisition by or on behalf of the
Parent (whether directly or indirectly through a Subsidiary or other entity
currently existing or hereafter created in which Parent or any of its
subsidiaries own more than 50% of the ownership interests) of more than 10% of
the stock or assets of any entity. Assets so acquired that are held by Electric
Fuel Battery Corporation ("EFBC") for use by EFBC in its zinc-air military
battery business ("Battery Assets"), or stock acquired by EFBC of entities the
primary business assets of which consist of Battery Assets, shall not be deemed
to be Acquisitions under this agreement, provided that the consideration paid
for such stock and/or asset should not exceed $1,000,000.
(c) "Additional Subsidiaries" means any Subsidiary other than the Original
Subsidiaries.
(d) "Agent" means Smithfield Fiduciary LLC, as agent for each of the
Secured Parties pursuant to this Agreement and the IP Security Agreement, or
such other Person as shall have been subsequently appointed as a successor agent
pursuant to this Agreement.
(e) "Collateral" means collectively, the First Lien Collateral and the
Second Lien Collateral.
(f) "First Investors' Security Agreement" means the Security Agreement
dated as of September 30, 2003 made by the Debtors and certain other
Subsidiaries of the Parent in favor of the First Investors.
(g) "First Lien Collateral" means collectively, all personal property of
each Debtor other than the Second Lien Collateral, wherever located and whether
now or hereafter existing and whether now owned or hereafter acquired, of every
kind and description, tangible or intangible, including, without limitation, the
following:
(i) all Accounts;
(ii) all Chattel Paper (whether tangible or electronic);
(iii) the Commercial Tort Claims specified on Schedule 1(g) hereto;
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(iv) 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 Agent or any Buyer or any
affiliate, representative, agent or correspondent of the Agent or any
Buyer;
(v) all Documents;
(vi) all Equipment;
(vii) all Fixtures;
(viii) all General Intangibles (including, without limitation, all
Payment Intangibles);
(ix) all Goods;
(x) all Instruments (including, without limitation, Promissory Notes
and each certificated Security);
(xi) all Inventory;
(xii) all Investment Property;
(xiii) all Copyrights, Patents and Trademarks, and all Licenses;
(xiv) all Letter-of-Credit Rights;
(xv) all Supporting Obligations;
(xvi) all other tangible and intangible personal property of the
Debtor (whether or not subject to the Article 9 of the UCC), 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 Debtor 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 Debtor 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 Debtor or any other Person
from time to time acting for the Debtor 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
(xvii) all Proceeds, including all Cash Proceeds and Noncash
Proceeds, and products of any and all of the foregoing Collateral;
(xviii) in each case howsoever the Debtor's interest therein may
arise or appear (whether by ownership, security interest, claim or
otherwise).
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(h) "First Lien Pledged Shares" means all of the all present, and all
future, issued and outstanding shares of capital stock, or other equity or
investment securities of, or partnership, membership, or joint venture interests
in, each Original Subsidiary and each Additional Subsidiary, other than the
Second Lien Pledged Shares, whether now owned or hereafter acquired by such
Debtor and whether or not evidenced or represented by any stock certificate,
certificated security or other instrument, together with the certificates
representing such equity interests, all options and other rights, contractual or
otherwise, in respect thereof and all dividends, distributions, cash,
instruments, investment property and any other property (including, but not
limited to, any stock dividend and any distribution in connection with a stock
split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the foregoing and all cash and
noncash proceeds thereof;
(i) all present and future increases, profits, combinations,
reclassifications, and substitutes and replacements for all or part of the
foregoing Collateral heretofore described;
(ii) all investment property, financial assets, securities, capital
stock, other equity interests, stock options and commodity contracts of
such Debtor, all notes, debentures, bonds, promissory notes or other
evidences of indebtedness payable or owing to such Debtor, and all other
assets now or hereafter received or receivable with respect to the
foregoing;
(iii) all securities entitlements of such Debtor in any and all of
the foregoing; and
(iv) all proceeds (including proceeds of proceeds) of any and all of
the foregoing;
in each case, whether now owned or hereafter acquired by such Debtor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, Lien, claim or otherwise).
(i) "First Lien Stock Collateral" means the Subsidiary Stock Collateral
other than the Second Lien Stock Collateral.
(j) "First Purchase Agreement" means the Securities Purchase Agreements
dated as of September 30, 2003, by and among the Parent and the First Investors.
(k) "IES Collateral" means all personal property and assets of IES,
including, without limitation, the following, whether presently owned or
existing or hereafter acquired or coming into existence, and all additions and
accessions thereto and all substitutions and replacements thereof, and all
proceeds, products and Accounts thereof, including, without limitation, all
proceeds from the sale or transfer of the Collateral and of insurance covering
the same and of any tort claims in connection therewith:
(i) All Goods of IES, including, without limitations, all machinery,
equipment, computers, motor vehicles, trucks, tanks, boats, ships,
appliances, furniture, special and general tools, fixtures, test and
quality control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and documents
representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing
and all other items used and useful in connection with IES' businesses and
all improvements thereto (collectively, the "Equipment"); and
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(ii) All Inventory of IES; and
(iii) All of IES' contract rights and general intangibles,
including, without limitation, all partnership interests, stock or other
securities, licenses, distribution and other agreements, computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights, deposit
accounts, and income tax refunds (collectively, the "General
Intangibles"); and
(iv) All Accounts of IES including all insurance proceeds, and
rights to refunds or indemnification whatsoever owing, together with all
instruments, all documents of title representing any of the foregoing, all
rights in any merchandising, goods, equipment, motor vehicles and trucks
which any of the same may represent, and all right, title, security and
guaranties with respect to each Receivable, including any right of
stoppage in transit;
(v) All IES Pledged Shares; and
(vi) All of IES' documents, instruments and chattel paper, files,
records, books of account, business papers, computer programs and the
products and proceeds of all of the foregoing Collateral set forth in
clauses (i)-(v) above.
(l) "IES/IDS/MDT Stock Collateral" means (i) all the shares of capital
stock of each of IES, IDS and MDT of which the Parent is the direct or indirect
beneficial and record holder and set forth on Schedule C attached to the First
Investor's Security Agreement; (ii) all additional shares of each of MDT, IDS
and IES from time to time acquired by the Parent in any manner provided,
however, that to the extent any such subsidiary is organized or formed under the
laws of a jurisdiction other than the United States of America, a pledge of the
shares of common stock of such subsidiary will be limited to sixty-six percent
(66%) of the shares of common stock of such subsidiary; (iii) the certificates
representing the shares referred to in clauses (i) and (ii) above; and (iv)
subject to Section 4, all dividends, cash, instruments, options, rights and
other property or proceeds, from time to time received, receivable or otherwise
distributed or distributable in respect of or in exchange for any or all of the
shares referred to in clauses (i) and (ii) above.
(m) "IES Pledged Shares" means (i) all the shares of capital stock of
Summit Training International, Inc., a Delaware corporation ("STI") and of any
other corporation or other entity of which IES is the direct or indirect
beneficial and record holder and set forth on Schedule C attached hereto; (ii)
all additional shares of each of the Subsidiaries from time to time acquired by
IES in any manner provided, however, that to the extent any such Subsidiary is
organized or formed under the laws of a jurisdiction other than the United
States of America, a pledge of the shares of capital stock of such Subsidiary
will be limited to sixty-six percent (66%) of the shares of capital stock of
such Subsidiary; (iii) the certificates representing the shares referred to in
clauses (i) and (ii) above; and (iv) subject to Section 4, all dividends, cash,
instruments, options, rights and other property or proceeds, from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of the shares referred to in clauses (i) and (ii)
above.
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(n) "IP Security Agreement" means that certain security agreement, dated
the date hereof, among the Debtors and the Secured Parties, granting to the
Secured Parties a security interest in the intellectual property of the Debtors
in accordance with the terms thereof.
(o) "MAC Stock Collateral" means (i) all the shares of capital stock of
MDT Armor Corporation of which the Parent is the direct or indirect beneficial
and record holder and set forth on Schedule C attached hereto, (ii) all
additional shares of MDT Armor Corporation from time to time acquired by the
Parent in any manner provided, however, that to the extent such Subsidiary is
organized or formed under the laws of a jurisdiction other than the United
States of America, a pledge of the shares of common stock of such Subsidiary
will be limited to sixty-six percent (66%) of the shares of common stock of such
Subsidiary; (iii) the certificates representing the shares referred to in
clauses (i) and (ii) above; and (iv) subject to Section 4, all dividends, cash,
instruments, options, rights and other property or proceeds, from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of the shares referred to in clauses (i) and (ii)
above.
(p) "Obligations" means all of the Debtors' obligations under this
Agreement, the IP Security Agreement, the Guaranty, the Purchase Agreement and
the Notes and the transaction documents contemplated thereby, in each case,
whether now or hereafter existing, voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from the Secured Parties as a
preference, fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time.
(q) "Original Subsidiary" means each of Electric Fuel Transportation
Corp., a Delaware corporation ("EFT"), Electric Fuel B.V., a Netherlands
corporation ("EF-BV"), Electric Fuel Battery Corporation, a Delaware corporation
(formerly known as Instant Power Corporation) ("IPC"), Electric Fuel GmbH, a
German corporation ("EF-G"), IES, MDT, Electric Fuel UK Ltd., a British
corporation ("EF-UK"), Arotech Security Corporation, a Delaware corporation
("ASC"), and Arcon Security Corporation, a Delaware corporation.
(r) "Parent Collateral" means all personal property and assets of the
Parent hereafter acquired or coming into existence in connection with any
Acquisition, and all additions and accessions thereto and all substitutions and
replacements thereof, and all proceeds, products and Accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in
connection therewith:
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(i) All Goods of the Parent, including, without limitations, all
machinery, equipment, computers, motor vehicles, trucks, tanks, boats,
ships, appliances, furniture, special and general tools, fixtures, test
and quality control devices and other equipment of every kind and nature
and wherever situated, together with all documents of title and documents
representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing
and all other items used and useful in connection with the Parent's
businesses and all improvements thereto (collectively, the "Equipment");
and
(ii) All Inventory of the Parent; and
(iii) All of the Parent's contract rights and general intangibles,
including, without limitation, all partnership interests, stock or other
securities, licenses, distribution and other agreements, computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights, deposit
accounts, and income tax refunds (collectively, the "General
Intangibles");
(iv) All Accounts of the Debtors including all insurance proceeds,
and rights to refunds or indemnification whatsoever owing, together with
all instruments, all documents of title representing any of the foregoing,
all rights in any merchandising, goods, equipment, motor vehicles and
trucks which any of the same may represent, and all right, title, security
and guaranties with respect to each Receivable, including any right of
stoppage in transit; and
(v) All Parent Pledged Shares.
(s) All of the Debtors' documents, instruments and chattel paper, files,
records, books of account, business papers, computer programs and the products
and proceeds of all of the foregoing Collateral set forth in clauses (i)-(v)
above.
(t) "Parent Pledged Shares" means (i) all additional shares of any entity
from time to time acquired by the Parent in any manner in or in connection with
an Acquisition provided, however, that to the extent any such Subsidiary is
organized or formed under the laws of a jurisdiction other than the United
States of America, a pledge of the shares of common stock of such Subsidiary
will be limited to sixty-six percent (66%) of the shares of common stock of such
Subsidiary; (ii) the certificates representing the shares referred to in clause
(i) above; and (iii) subject to Section 4, all dividends, cash, instruments,
options, rights and other property or proceeds, from time to time received,
receivable or otherwise distributed or distributable in respect of or in
exchange for any or all of the shares referred to in clause (i) above.
(u) "Permitted Liens" shall have the meaning provided in the Notes.
(v) "Pledged Shares" means collectively the First Lien Pledged Shares and
the Second Lien Pledged Shares.
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(w) "Second Lien Collateral" means collectively, the IES Collateral, the
Parent Collateral, the IES/IDS/MDT Stock Collateral, the Second Lien Subsidiary
Stock Collateral and the MAC Stock Collateral.
(x) "Second Lien Pledged Shares" means collectively the IES Pledged Shares
and the Parent Pledged Shares.
(y) "Second Lien Subsidiary Stock Collateral" means (i) all the shares of
capital stock of each of the Original Subsidiaries; (ii) all additional shares
of the Original Subsidiaries from time to time acquired by the Parent in any
manner provided, however, that to the extent any such Original Subsidiary is
organized or formed under the laws of a jurisdiction other than the United
States of America, a pledge of the shares of common stock of such Original
Subsidiary will be limited to sixty-six percent (66%) of the shares of common
stock of such Original Subsidiary; (iii) the certificates representing the
shares referred to in clauses (i) and (ii) above; and (iv) subject to Section 4,
all dividends, cash, instruments, options, rights and other property or
proceeds, from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the shares referred
to in clauses (i) and (ii) above.
(z) "Second Lien Stock Collateral" means collectively the MAC Stock
Collateral, the IES/IDS/MDT Stock Collateral and the Second lien Subsidiary
Stock Collateral.
(aa) "Security Interests" means collectively, the First Investor's
Security Interest and the security interest granted to the Secured Parties
hereunder.
(bb) "Stock Collateral" means collectively, the First Lien Stock
Collateral and the Second Lien Stock Collateral.
(cc) "Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.
(dd) "Subsidiary Stock Collateral" means (i) all the shares of capital
stock of each of the Subsidiaries set forth on Schedule C attached hereto; (ii)
all additional shares of the Subsidiaries from time to time acquired by the
Parent in any manner provided, however, that to the extent any such Subsidiary
is organized or formed under the laws of a jurisdiction other than the United
States of America, a pledge of the shares of common stock of such Subsidiary
will be limited to sixty-six percent (66%) of the shares of common stock of such
Subsidiary; (iii) the certificates representing the shares referred to in
clauses (i) and (ii) above; and (iv) subject to Section 4, all dividends, cash,
instruments, options, rights and other property or proceeds, from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of the shares referred to in clauses (i) and (ii)
above.
(ee) "UCC" means the Uniform Commercial Code and/or any other applicable
law of each jurisdiction in which any Debtor is incorporated or organized
(including, without limitation the State of Delaware) and any jurisdiction as to
any Collateral located therein.
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2. Grant of Security Interest. As an inducement for the Secured Parties to
enter into the Purchase Agreement, and to secure the complete and timely
payment, performance and discharge in full of the Obligations, each of the
Debtors hereby, unconditionally and irrevocably, pledges, grants and
hypothecates to the Agent for the benefit of the Secured Parties a continuing
security interest in and lien upon and a right of set-off against all of the
Debtors' right, title and interest of whatsoever kind and nature in and to the
Collateral, junior only to the First Investor's Security Interest in the Second
Lien Collateral (the "First Investors' Security Interest") and Permitted Liens.
3. Representations, Warranties, Covenants and Agreements of the Debtors.
The Debtors jointly and severally represent and warrant to, and covenant and
agree with, the Secured Parties as follows:
(a) Each Debtor has the requisite corporate power and authority to enter
into this Agreement and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by each Debtor of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of such Debtor and no further action is required by such Debtor.
(b) Each Debtor represents and warrants that its jurisdiction of
organization and organization identification number are as set forth on Schedule
A attached hereto;
(c) (i) Except for the Security Interests and as set forth in Schedule
3(c)(i) hereto, each Debtor is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Debtors in the ordinary course of
business), free and clear of any liens, security interests, encumbrances, rights
or claims other than Permitted Liens, and is fully authorized to grant the
security interest granted hereunder to the Secured Parties in the Collateral.
There is not on file in any governmental or regulatory authority, agency or
recording office an effective financing statement, security agreement, license
or transfer or any notice of any of the foregoing (other than those that have
been filed in favor of (i) the Secured Parties in accordance with this Agreement
and (ii) the First Investors pursuant to the First Investors' Security
Agreement. So long as this Agreement shall be in effect, the Debtors shall not
execute and shall not knowingly permit to be on file in any such office or
agency any such financing statement or other document or instrument (except to
the extent filed or recorded in favor of the Secured Parties pursuant to the
terms of this Agreement).
(ii) The Debtors are the record, direct and beneficial owner of the
Pledged Shares and Stock Collateral. Except as set forth in Schedule
3(c)(ii) hereto, all of the Pledged Shares and Stock Collateral are owned
by the Debtors, free and clear of any lien, claim, encumbrance, security
interest, right or other charge, other than (A) the Security Interests
granted hereunder and (B) the First Investors' Security Interest. The
Debtors have the power, authority and legal right to pledge, assign,
transfer, deliver, deposit and set over the Stock Collateral and the
Pledged Shares pledged to the Secured Parties as provided herein.
(iii) Concurrently with or promptly following the execution of this
Agreement, all certificates or instruments representing or evidencing the
Pledged Shares and the Stock Collateral, which are not currently in the
possession of the Agent, have been delivered to and held by the Agent for
the benefit of the Secured Parties pursuant to this Agreement together
with undated stock powers duly endorsed in blank and irrevocable proxies,
provided that such delivery shall not be required with respect to any such
certificates or instruments delivered to the First Investors pursuant to
the terms of the First Investors' Security Agreement.
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(d) No part of the Collateral has been judged invalid or unenforceable. No
written claim has been received that any Collateral or the Debtors' use of any
Collateral violates the rights of any third party. There has been no adverse
decision to the Debtors' claim of ownership rights in or exclusive rights to use
the Collateral in any jurisdiction or to the Debtors' right to keep and maintain
such Collateral in full force and effect, and there is no proceeding involving
said rights pending or, to the best knowledge of the Debtors, threatened before
any court, judicial body, administrative or regulatory agency, arbitrator or
other governmental authority.
(e) Each Debtor shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business and its
Collateral at the locations set forth on Schedule A attached hereto and may not
relocate such books of account and records or tangible Collateral unless it
delivers to each of the Secured Parties at least 30 days prior to such
relocation written notice of such relocation and the new location thereof (which
must be within the United States). The principal place of business of each of
the Debtors is located at the address set forth in Schedule A hereto, and will
not be moved without notice to each Secured Party.
(f) This Agreement creates in favor of the Secured Parties a valid
security interest in the Collateral securing the payment and satisfaction of the
Obligations and, upon making the filings described in Section 3(g), a perfected
security interest in the Parent Collateral, the IES Collateral and the MAC Stock
Collateral in which a security interest may be perfected by UCC filings
("Article 9 Collateral"), which security interest shall have the respective
priorities set forth in clause (e) above. Except for the filing of financing
statements pursuant to the UCC with the proper filing and recording agencies in
the jurisdictions indicated on Schedule B, attached hereto, no authorization or
approval of or filing with or notice to any governmental authority or regulatory
body is required either (i) for the grant by the Debtors of, or the
effectiveness of, the Security Interests granted hereby or for the execution,
delivery and performance of this Agreement by the Debtors or (ii) for the
perfection (as to Article 9 Collateral) of or exercise by the Secured Parties of
their rights and remedies hereunder.
(g) The Debtors acknowledge and agree that on the date of execution of
this Agreement, the Secured Parties will file one or more financing statements
under the UCC with respect to the Security Interests with the proper filing and
recording agencies in the jurisdictions, all as indicated on Schedule B,
attached hereto and in such other jurisdictions as the Secured Parties may deem
necessary.
(h) The execution, delivery and performance of this Agreement does not
conflict with or cause a breach or default, or an event that with or without the
passage of time or notice, shall constitute a breach or default, under any
agreement to which the Debtors are a party or by which the Debtors are bound. No
consent (including, without limitation, from stock holders or creditors of the
Debtors) which has not been obtained is required for the Debtors to enter into
and perform their obligations hereunder.
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(i) The Debtors shall at all times maintain the liens and Security
Interests provided for hereunder as valid liens and security interests in the
Collateral in favor of the Secured Parties in accordance with the terms hereof
to ensure that such liens and Security Interests are and remain senior to all
not existing and hereafter created security interests and liens. The Collateral
will be kept free of all liens, security interest, claims and encumbrances
whatsoever, except for the First Investors' Security Interest and Permitted
Liens. Each Debtor hereby agrees to defend the same against any and all persons.
Each Debtor shall safeguard and protect all Collateral for the account of the
Secured Parties. At the request of the Agent and/or the Secured Parties, the
Debtors will sign and deliver to the Secured Parties at any time or from time to
time one or more financing statements pursuant to the UCC in form reasonably
satisfactory to the Secured Parties and will pay the cost of filing the same in
all public offices wherever filing is, or is deemed by the Secured Parties to
be, necessary or desirable to effect the rights and obligations provided for
herein. Without limiting the generality of the foregoing, the Debtors shall pay
all fees, taxes and other amounts necessary to maintain the Collateral and the
Security Interests hereunder, and the Debtors shall obtain and furnish to the
Secured Parties from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain the
priority of the Security Interests.
(j) The Debtors will not allow any Collateral to be abandoned, forfeited
or dedicated to the public without the prior written consent of the Secured
Parties. The Debtors will not transfer, pledge, hypothecate, encumber, license
(except for non-exclusive licenses granted by the Debtors in the ordinary course
of business), sell or otherwise dispose of any of the Collateral without the
prior written consent of the Secured Parties.
(k) Each Debtor shall keep and preserve its Equipment, Inventory and other
tangible Collateral in good condition, repair and order and shall not operate or
locate any such Collateral (or cause to be operated or located) in any area
excluded from insurance coverage.
(l) Each Debtor shall, within ten (10) days of obtaining knowledge
thereof, advise the Agent, in sufficient detail, of any substantial change in
the Collateral, and of the occurrence of any event which would have a material
adverse effect on the value of the Collateral or the Security Interests.
(m) Each Debtor shall promptly execute and deliver to the Secured Parties
such further deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and assurances and take
such further action as the Secured Parties may from time to time request and may
in its sole discretion deem necessary to perfect, protect or enforce its
security interest in the Collateral including, without limitation, the IP
Security Agreement in which each the Secured Parties has been granted a security
interest hereunder, substantially in a form acceptable to the Secured Parties,
which IP Security Agreement, other than as stated therein, shall be subject to
all of the terms and conditions hereof.
(n) The Debtors shall permit the Secured Parties and their representatives
and agents upon reasonable prior notice to inspect the Collateral at any time
during normal business hours, and to make copies of records pertaining to the
Collateral as may be requested by the Secured Parties from time to time.
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(o) Each Debtor will, at its own expense, take all steps reasonably
necessary to diligently pursue and seek to preserve, enforce and collect any
rights, claims, causes of action and accounts receivable in respect of the
Collateral.
(p) Each Debtor shall promptly notify the Secured Parties in sufficient
detail upon becoming aware of any attachment, garnishment, execution or other
legal process levied against any Collateral and of any other information
received by the Debtors that may materially affect the value of the Collateral,
the Security Interests or the rights and remedies of the Secured Parties
hereunder.
(q) Each Debtor shall not use or permit any Collateral to be used
unlawfully or in violation of any provision of this Agreement or any applicable
statute, regulation or ordinance or any policy of insurance covering the
Collateral where violation is reasonably likely to have a material adverse
effect on the Secured Parties' rights in the Collateral or Secured Parties'
ability to foreclose on the Collateral.
(r) The Debtors shall not grant to any person or entity any rights or
interests in or to any of the Collateral that are senior to, or pari passu with,
the Secured Parties other than Permitted Liens.
(s) Each Debtor shall notify the Agent of any change in such Debtor's
name, identity, chief place of business, chief executive office or residence
within 10 days prior to such change.
(t) All information heretofore, herein or hereafter supplied to the
Secured Parties by or on behalf of the Debtors with respect to the Collateral is
accurate and complete in all material respects as of the date furnished.
4. Voting Rights; Dividends; Etc.
(a) Subject to the first priority rights of the First Investors in the
Second Lien Stock Collateral, as long as no Event of Default (as defined in
Section 5) shall have occurred and be continuing and, in the case of Section
4(b)(i), as long as no notice thereof shall have been given by the Secured
Parties to the Parent):
(i) The Debtors shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Stock Collateral and Pledged
Shares pledged by it hereunder or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Securities; provided,
however, that the Parent shall not exercise or refrain from exercising any
such right if such action would have an adverse effect on the value of the
Stock Collateral and Pledged Shares or any part thereof.
(ii) The Debtors shall be entitled to receive and retain any and all
dividends paid in respect of the Stock Collateral and Pledged Shares
pledged by it hereunder, other than any and all:
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(1) dividends paid or payable other than in cash in respect
of, and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Stock Collateral and Pledged
Shares;
(2) dividends and other distributions paid or payable in cash
in respect of any Stock Collateral and Pledged Shares in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus; and
(3) cash paid, payable or otherwise distributed in redemption
of, or in exchange for, any Stock Collateral and Pledged Shares,
all of which shall be, and all of which shall be forthwith delivered to
the Secured Parties to hold as pledged shares, provided that, such delivery
shall not be required with respect to the Second Lien Stock Collateral or any
Pledged Shares so long as these are subject to the First Investors' Security
Interest, and shall, if received by the any Debtor, be received in trust for the
benefit of the Secured Parties, be segregated from the other property or funds
of the Debtors, and be forthwith delivered to Agent for the benefit of the
Secured Parties as pledged shares in the same form as so received (with any
necessary endorsement). Upon termination of the First Investors' Security
Interest, the Debtors will take all steps necessary to cause the First Investors
to return any of the Second Lien Stock Collateral or Second Lien Pledged Shares
held by the First Investors to the Debtors and promptly upon receipt by the
Debtors deliver these to the Agent to for the benefit of the Secured Parties.
(iii) The Secured Parties shall execute and deliver (or cause to be
executed and delivered) to the Debtors all such proxies and other
instruments as the Debtors may reasonably request for the purpose of
enabling the Debtors to exercise the voting and other rights which it is
entitled to exercise pursuant to subsection (a)(i) above and to receive
the dividends which it is authorized to receive and retain pursuant to
subsection (a)(ii) above.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of the Debtors to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 4(a)(i) above shall cease upon notice from the Secured
Parties to the Debtors, and all such rights shall thereupon become vested
in the Secured Parties who shall thereupon have the sole right to exercise
such voting and other consensual rights and any and all rights of
conversion, exchange, subscription or any other rights, privileges or
options pertaining to the Stock Collateral and Pledged Shares or any part
thereof, subject to the rights of the First Investors to exercise voting
and other consensual rights upon the occurrence and during the continuance
of an "Event of Default" under the First Investors' Security Agreement,
and the Secured Parties may exercise such powers in such manner as the
Secured Parties may elect, but the Secured Parties shall have no duty to
exercise any of the aforesaid right, privileges or options and shall not
be responsible for any failure to do so or delay in doing so.
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(ii) All rights of the Debtors to receive the dividends which the
Debtors would otherwise be authorized to receive and retain pursuant to
Section 4(a)(ii) above shall cease, and all such rights shall thereupon
become vested in the Secured Parties who shall thereupon have the sole
right to receive and hold as part of the Pledged Shares such dividends,
subject to the rights of the First Investors to receive such dividends
with respect to the Second Lien Pledged Shares under the First Security
Agreement.
(iii) All dividends which are received by the Debtors contrary to
the provisions of paragraph (ii) of this Section 4(b) shall be received in
trust for the benefit of the Secured Parties, shall be segregated from
other funds of the Debtors and shall be forthwith paid over to the Secured
Parties as Pledged Shares in the same form as so received (with any
necessary endorsement).
(c) In order to permit the Secured Parties to exercise the voting and
other rights which it may be entitled to exercise pursuant to Section 4(b)(i)
above, and to receive all dividends and distributions which it may be entitled
Secured Parties, from time to time execute and deliver to the Secured Parties
appropriate proxies, dividend payment orders and other instruments as the
Secured Parties may reasonably request.
5. Defaults. The following events shall be "Events of Default":
(a) The occurrence of an Event of Default (as defined in the Notes) under
the Notes;
(b) Any representation or warranty of the Debtors in this Agreement or in
the IP Security Agreement shall prove to have been incorrect in any material
respect when made; or
(c) The failure by a Debtor to observe or perform any of its obligations
hereunder or in the IP Security Agreement for ten (10) days after receipt by a
Debtor of notice of such failure from the Secured Parties
6. Duty To Hold In Trust. Upon the occurrence and the continuation of any
Event of Default, the Debtors shall, upon receipt by the Debtors of any revenue,
income or other sums subject to the security interests granted to the Secured
Parties hereunder, whether payable pursuant to the Securities or otherwise, or
of any check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for the Secured Parties
and shall forthwith endorse and transfer any such sums or instruments, or both,
to the Secured Parties for application, on a pro rata basis, to the satisfaction
of the Obligations.
7. Rights and Remedies Upon Default. Upon the occurrence and during the
continuation of any Event of Default, the Agent (on behalf of, and for the
benefit of, itself and each of the Secured Parties) shall have the right to
exercise all of the remedies conferred hereunder, under the Securities and under
the IP Security Agreement, and the Agent (on behalf of and for the benefit of
the Secured Parties) shall have all the rights and remedies of a secured party
under the UCC. Without limitation, the Agent (on behalf of and for the benefit
of the Secured Parties) shall have the following rights and powers:
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(a) The Agent shall have the right to take possession of all tangible
manifestations or embodiments of the Collateral and, for that purpose, enter,
with the aid and assistance of any person, any premises where the Collateral, or
any part thereof, is or may be placed and remove the same, and the Debtors shall
assemble the Collateral and make it available to the Agent at places which the
Agent shall reasonably select, whether at the Debtors' premises or elsewhere,
and make available to the Agent, without rent, all of the Debtors' respective
premises and facilities for the purpose of the Agent taking possession of,
removing or putting the Collateral in saleable or disposable form.
(b) The Agent shall have the right to operate the business of the Debtors
using the Collateral and shall have the right to assign, sell, lease or
otherwise dispose of and deliver all or any part of the Collateral, at public or
private sale or otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in such parcel or
parcels and at such time or times and at such place or places, and upon such
terms and conditions as the Agent may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to the Debtors or right of redemption of
the Debtors, which are hereby expressly waived. Upon each such sale, lease,
assignment or other transfer of Collateral, the Agent may, unless prohibited by
applicable law which cannot be waived, purchase all or any part of the
Collateral being sold, free from and discharged of all trusts, claims, right of
redemption and equities of the Debtors, which are hereby waived and released.
(c) The Agent may license or, to the same extent the Debtors are permitted
by law and contract to do so, sublicense, whether on an exclusive or
non-exclusive basis, any of the Collateral throughout the world for such period,
on such conditions and in such manner as the Secured Parties shall, in its
reasonable discretion, determine.
(d) The Agent may (without assuming any obligations or liabilities
thereunder), at any time, enforce (and shall have the exclusive right to
enforce) against licensee or sublicensee all rights and remedies of the Debtors
in, to and under any license agreement with respect to such Collateral, and take
or refrain from taking any action thereunder.
(e) The Agent may, in order to implement the assignment, license, sale or
other disposition of any of the Collateral pursuant to this Section, pursuant to
the authority provided for in Section 13, execute and deliver on behalf of the
Debtors one or more instruments of assignment of the Collateral in form suitable
for filing, recording or registration in any jurisdictions as the Secured
Parties may determine advisable.
(f) In the event that any Secured Party shall recover from the Debtors or
the Collateral more than its pro rata share of the Obligations owed to all
Secured Parties hereunder, whether by agreement, understanding or arrangement
with the Debtors or any other Person, set off or other means, such Secured Party
shall immediately deliver or pay over to the other Secured Parties a pro rata
portion of any such recovery in the form received.
(g) Agent may, at any time or times that an Event of Default exists or has
occurred and is continuing, (i) notify any or all account debtors that the
Accounts have been assigned to Secured Parties and that Secured Parties have a
security interest therein and Agent may direct any or all accounts debtors to
make payment of Accounts directly to Secured Parties, (ii) extend the time of
payment of, compromise, settle or adjust for cash, credit, return of merchandise
or otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Agent and Secured Parties shall not be liable for its failure to
collect or enforce the payment thereof nor for the negligence of its agents or
attorneys with respect thereto and (iv) take whatever other action Agent may
deem necessary or desirable for the protection of its interests. At any time
that an Event of Default exists or has occurred and is continuing, at Agent's
request, all invoices and statements sent to any account debtor shall state that
the Accounts and such other obligations have been assigned to Secured Parties
and are payable directly and only to Secured Parties and the Debtors shall
deliver to Agent such originals of documents evidencing the sale and delivery of
goods or the performance of services giving rise to any Accounts as Agent may
require.
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8. Apportionment and Application of Proceeds. (a) Except as otherwise
provided herein, the proceeds of any such sale, lease, license or other
disposition of the Collateral hereunder shall be apportioned ratably among the
Secured Parties (according to the unpaid balance of the Obligations to which
such payments relate held by each Secured Party) and shall be applied as
follows, provided that any apportionment and application under this Section 8
shall be subject to any apportionment among the First Investors and application
of the proceeds of any Collateral under the First Investors' Security Agreement:
(i) first, to the expenses of retaking, holding, storing, processing
and preparing for sale, selling, and the like (including, without
limitation, any taxes, fees and other costs incurred in connection
therewith) of the Collateral,
(ii) second, to the reasonable attorneys' fees and expenses incurred
by the Agent and/or Secured Parties in enforcing its rights hereunder and
in connection with collecting, storing and disposing of such Collateral,
(iii) third, to satisfaction of the Obligations due to the Secured
Parties,
(iv) fourth, to the payment of any other amounts required by
applicable law, and
(v) fifth, to the Debtors any surplus proceeds.
(b) If, upon the sale, license or other disposition of the Collateral, the
proceeds thereof are insufficient to pay all amounts to which the Secured
Parties are legally entitled, the Debtors will be liable for the deficiency,
together with interest thereon, at the rate of 12% per annum or the lesser
amount permitted by applicable law (the "Default Rate"), and the reasonable fees
of any attorneys employed by the Agent and/or Secured Parties to collect such
deficiency. To the extent permitted by applicable law, each Debtor waives all
claims, damages and demands against the Secured Parties arising out of the
repossession, removal, retention or sale of the Collateral, unless due to the
gross negligence or willful misconduct of the Agent and/or Secured Parties.
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(c) In the event of a direct conflict between the priority provisions of
this Section 8 and other provisions contained in any other Securities or
documents executed in connection with the Securities, it is the intention of the
parties hereto that such priority provisions in such documents shall be read
together and construed, to the fullest extent possible, to be in concert with
each other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of this Section 8 shall control
and govern.
9. Costs and Expenses. The Debtors agree to pay all out-of-pocket fees,
costs and expenses incurred in connection with any filing required hereunder,
including without limitation, any financing statements pursuant to the UCC,
continuation statements, partial releases and/or termination statements related
thereto or any expenses of any searches reasonably required by the Agent. The
Debtors shall also pay all other claims and charges which in the reasonable
opinion of the Agent and/or Secured Parties might prejudice, imperil or
otherwise affect the Collateral or the Security Interests therein. The Debtors
will also, upon demand, pay to the Agent and/or Secured Parties the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which the Agent and/or Secured
Parties may incur in connection with (i) the enforcement of this Agreement, (ii)
the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or (iii) the exercise or enforcement of
any of the rights of the Secured Parties under the Securities. Until so paid,
any fees payable hereunder shall be added to the principal amount of the
Securities and shall bear interest at the Default Rate.
10. Responsibility for Collateral. Each Debtor assumes all liabilities and
responsibility in connection with all Collateral, and the obligations of such
Debtor hereunder, under the Securities or under the IP Security Agreement shall
in no way be affected or diminished by reason of the loss, destruction, damage
or theft of any of the Collateral or its unavailability for any reason.
11. Security Interests Absolute. All rights of the Secured Parties and all
Obligations of the Debtors hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Securities, IP Security Agreement or any agreement entered into in
connection with the foregoing, or any portion hereof or thereof; (b) any change
in the time, manner or place of payment or performance of, or in any other term
of, all or any of the Obligations, or any other amendment or waiver of or any
consent to any departure from the Securities, or the IP Security Agreement or
any other agreement entered into in connection with the foregoing; (c) any
exchange, release or nonperfection of any of the Collateral, or any release or
amendment or waiver of or consent to departure from any other collateral for, or
any guaranty, or any other security, for all or any of the Obligations; (d) any
action by the Secured Parties to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to the Debtors, or a discharge of all
or any part of the Security Interests granted hereby. Until the Obligations
shall have been paid and performed in full, the rights of the Secured Parties
shall continue even if the Obligations are barred for any reason, including,
without limitation, the running of the statute of limitations or bankruptcy.
Each Debtor expressly waives presentment, protest, notice of protest, demand,
notice of nonpayment and demand for performance. In the event that at any time
any transfer of any Collateral or any payment received by the Secured Parties
hereunder shall be deemed by final order of a court of competent jurisdiction to
have been a voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or shall be deemed to be otherwise due to
any party other than the Secured Parties, then, in any such event, the Debtors'
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof. Each Debtor waives all right
to require the Secured Parties to proceed against any other person or to apply
any Collateral which the Secured Parties may hold at any time, or to marshal
assets, or to pursue any other remedy. Each Debtor waives any defense arising by
reason of the application of the statute of limitations to any obligation
secured hereby.
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12. Term of Agreement. This Agreement and the Security Interests shall
terminate on the date on which all payments under the Securities have been made
in full or otherwise converted pursuant to the terms thereof and all other
Obligations have been paid or discharged. Upon such termination, the Secured
Parties and Agent, at the request and at the expense of the Debtors, will join
in executing any termination statement with respect to any financing statement
executed and filed pursuant to this Agreement and take all other actions
requested by Debtors which are reasonably necessary to terminate the Secured
Parties' security interest in the Collateral and return any Collateral in their
possession or control.
13. Power of Attorney; Further Assurances. (a) Each Debtor authorizes the
Secured Parties, and does hereby make, constitute and appoint it, and its
respective officers, agents, successors or assigns with full power of
substitution, as the Debtors' true and lawful attorney-in-fact, with power, in
its own name or in the name of the Debtors, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any notes, checks, drafts,
money orders, or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Secured Parties; (ii) to sign and endorse any
financing statement pursuant to the UCC or any invoice, freight or express ▇▇▇▇,
▇▇▇▇ of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts, and other
documents relating to the Collateral; (iii) to pay or discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on or
threatened against the Collateral; (iv) to demand, collect, receipt for,
compromise, settle and ▇▇▇ for monies due in respect of the Collateral; and (v)
generally, to do, at the option of the Secured Parties, and at the Debtors'
expense, at any time, or from time to time, all acts and things which the
Secured Parties deems necessary to protect, preserve and realize upon the
Collateral and the Security Interests granted therein in order to effect the
intent of this Agreement, the Securities and the IP Security Agreement all as
fully and effectually as the Debtors might or could do; and each Debtor hereby
ratifies all that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter as long as any of the
Obligations shall be outstanding.
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(b) On a continuing basis, each Debtor will make, execute, acknowledge,
deliver, file and record, as the case may be, with the proper filing and
recording agencies in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule B, attached hereto, all such instruments,
and take all such action as may reasonably be deemed necessary or advisable, or
as reasonably requested by the Secured Parties, to perfect the Security
Interests granted hereunder and otherwise to carry out the intent and purposes
of this Agreement, or for assuring and confirming to the Secured Parties the
grant or perfection of Security Interests in all the Collateral under the UCC
having the priority set forth in this Agreement. In furtherance thereof, each
Debtor hereby irrevocably authorizes Agent at any time and from time to time to
file in any UCC filing office any initial financing statements and amendments
thereto that (A) indicate the Collateral (1) as all assets of such Debtor or
words of similar effect, regardless of whether any particular asset comprised in
the Collateral falls within the scope of Article 9 of the UCC or such
jurisdiction, or (2) as being of an equal or lesser scope or with greater
detail, and (B) contain any other information required by part 5 of Article 9 of
the UCC for the sufficiency or filing office acceptance of any financing
statement or amendment, including (1) whether such Debtor is an organization,
the type of organization and any organization identification number issued to
such Debtor, and (2) in the case of a financing statement filed as a fixture
filing or indicating Collateral as as-extracted collateral or timber to be cut,
a sufficient description of real property to which the Collateral relates. Each
Debtor agrees to furnish any such information to Agent promptly upon request.
Each Debtor also ratifies its authorization for Agent to have filed in any UCC
filing office any initial financing statements or amendments thereto if filed
prior to the date hereof.
(c) Each Debtor hereby irrevocably appoints the Secured Parties as such
Debtor's attorney-in-fact, with full authority in the place and stead of such
Debtor and in the name of such Debtor, from time to time in the Secured Parties'
discretion, to take any action and to execute any instrument which the Secured
Parties may deem necessary or advisable to accomplish the purposes of this
Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of such Debtor where permitted by law.
14. Agent.
(a) Actions The Agent shall at all times act upon and in accordance with
written instructions received from a Majority-in-Interest (as defined in Section
17) time to time. The Agent shall be deemed to be authorized on behalf of each
Secured Party to act on behalf of such Secured Party under this Agreement and
the IP Security Agreement and, in the absence of written instructions from a
Majority-in-Interest (with respect to which the Agent agrees that it will,
subject to the last two sentences of this Section, comply, except as otherwise
advised by counsel), to exercise such powers hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof, together with such powers as may be reasonably incidental thereto. The
Agent shall have no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement or the IP Security Agreement by
the Debtors. By accepting their Securities each Secured Party shall be deemed to
have agreed to indemnify the Agent (which agreement shall survive any
termination of such Secured Party's percentage), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may at
any time be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of this Agreement, the Securities and the IP Security
Agreement, including the reimbursement of the Agent for all out-of-pocket
expenses (including attorneys' fees) incurred by the Agent hereunder or in
connection herewith or in enforcing the Obligations of the Debtors under this
Agreement, the Securities or the IP Security Agreement, in all cases as to which
the Agent is not reimbursed by the Debtors; provided that no Secured Party shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements determined by a court of competent jurisdiction in a final
proceeding to have resulted solely from the Agent's gross negligence or willful
misconduct. The Agent shall not be required to take any action hereunder, under
the Securities or under IP Security Agreement, or to prosecute or defend any
suit in respect of this Agreement or under the Securities or under IP Security
Agreement, unless the Agent is indemnified to its reasonable satisfaction by the
Secured Parties against loss, costs, liability and expense. If any indemnity in
favor of the Agent shall become impaired, it may call for additional indemnity
and cease to do the acts indemnified against until such additional indemnity is
given.
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(b) Exculpation. Neither the Agent nor any of its directors, officers,
partners, members, shareholders, employees or agents shall be liable to any
Secured Party for any action taken or omitted to be taken by it under this
Agreement, the Securities or the IP Security Agreement, or in connection
herewith or therewith, except for its own willful misconduct or gross negligence
or be responsible for the consequences of any error in judgment. Neither the
Agent nor any of its directors, officers, partners, members, shareholders,
employees or agents has any fiduciary relationship with any Secured Party by
virtue of this Agreement or the IP Security Agreement. The Agent shall not be
responsible to any Secured Party for any recitals, statements, representations
or warranties herein or in any certificate or other document delivered in
connection herewith or for the authorization, execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, or
sufficiency this Agreement, the Securities or the IP Security Agreement, the
financial condition of the Debtors or the condition or value of any of the
Collateral, or be required to make any inquiry concerning either the performance
or observance of any of the terms, provisions or conditions of this Agreement,
the Securities or the IP Security Agreement, the financial condition of the
Debtors or the existence or possible existence of any default or event of
default. The Agent shall be entitled to rely upon advice of counsel concerning
legal matters and upon any notice, consent, certificate, statement or writing
which it believes to be genuine and to have presented by a proper person.
(c) Obligations Held by the Agent. The Agent shall have the same rights
and powers with respect to any Securities held by it or any of its affiliates,
as any Secured Party and may exercise the same as if it were not the Agent. Each
of the Debtors and the Secured Parties hereby waives, and each successor to any
Secured Party shall be deemed to waive, any right to disqualify any Secured
Party from serving as the Agent or any claim against that Secured Party for
serving as Agent.
(d) Copies, etc. The Agent shall give prompt notice to each Secured Party
of each notice or request required or permitted to be given to the Agent by the
Debtors pursuant to the terms of this Agreement. The Agent will distribute to
each Secured Party each instrument and other agreement received for its account
and copies of all other communications received by the Agent from a Debtor for
distribution to the Secured Parties by the Agent in accordance with the terms of
this Agreement. Notwithstanding anything herein contained to the contrary, all
notices to and communications with the Debtors under this Agreement shall be
effected by the Secured Parties through the Agent.
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(e) Resignation of Agent. The Agent may resign as such at any time upon at
least thirty (30) days' prior notice to the Debtors and all the Secured Parties,
such resignation not to be effective until a successor Agent is in place. If the
Agent at any time shall resign, a Majority-in-Interest may jointly appoint
another Secured Party as a successor Agent which shall thereupon become the
Agent hereunder. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent such documents of transfer and assignment as such successor Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges, and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement.
(f) Replacement of Agent. A Majority-in-Interest may at any time and for
any reason replace the Agent with a successor Agent jointly selected by them,
upon at least ten days written notice to the Debtors and the other Secured
Parties. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall be entitled to receive from the
terminated Agent such documents of transfer and assignment as such successor
Agent may reasonably request, and shall thereupon succeed to and become vested
with all rights, powers, privileges, and duties of the retiring Agent, and the
terminated Agent shall be discharged from its duties and obligations under this
Agreement.
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:
If to the Debtors: Arotech Corporation
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: Chief Executive Officer
If to the Secured Parties: To the address set forth under such Secured
Parties' name on the signature pages hereto.
16. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Parties shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.
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17. Actions by Secured Parties. Any action required or permitted hereunder
to be taken by or on behalf of the Secured Parties shall, for such action to be
valid, require the approval of the Majority-in-Interest prior to the taking of
such action. If the consent, approval or disapproval of the Secured Parties is
required or permitted pursuant to this Agreement, such consent, approval or
disapproval shall only be valid if given by the Majority-in-Interest.
"Majority-in-Interest" means the Secured Party or Secured Parties (as the case
may be) holding in excess of a majority of the outstanding aggregate principal
amount under the Securities, determined on a cumulative basis.
18. Miscellaneous.
(a) No course of dealing between the Debtors and the Secured Parties, nor
any failure to exercise, nor any delay in exercising, on the part of the Secured
Parties, any right, power or privilege hereunder, under the Securities or under
the IP Security Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
(b) All of the rights and remedies of the Secured Parties with respect to
the Collateral, whether established hereby, by the Securities, by the IP
Security Agreement or by any other agreements, instruments or documents or by
law shall be cumulative and may be exercised singly or concurrently.
(c) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect thereto. Except as
specifically set forth in this Agreement, no provision of this Agreement may be
modified or amended except by a written agreement signed by the parties hereto.
(d) In the event that any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this Agreement
shall be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach or
default or right, whether of the same or similar nature or otherwise.
(f) This Agreement shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns.
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(g) Each party shall take such further action and execute and deliver such
further documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.
(h) This Agreement shall be construed in accordance with the laws of the
State of New York, except to the extent the validity, perfection or enforcement
of a security interest hereunder in respect of any particular Collateral which
are governed by a jurisdiction other than the State of New York in which case
such law shall govern. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of any New York State or United States Federal court
sitting in New York county over any action or proceeding arising out of or
relating to this Agreement, and the parties hereto hereby irrevocably agree that
all claims in respect of such action or proceeding may be heard and determined
in such New York State or Federal court. The parties hereto agree that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The parties hereto further waive any objection to venue in the
State of New York and any objection to an action or proceeding in the State of
New York on the basis of forum non convenient. If either party shall commence an
action or a proceeding to enforce any provisions of this Agreement, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorney's fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
(i) EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING
SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT, NOTWITHSTANDING
ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS AND
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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(j) This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
* * * * * * * * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed on the day and year first above written.
AROTECH CORPORATION
By:
--------------------------------------
Name:
Title:
IES INTERACTIVE TRAINING, INC.
By:
--------------------------------------
Name:
Title:
ARMOUR OF AMERICA, INCORPORATED
By:
--------------------------------------
Name:
Title:
Address: [_______________________]
[_______________________]
ELECTRIC FUEL BATTERY
CORPORATION
By:
--------------------------------------
Name:
Title:
Address: [_______________________]
[_______________________]
FAAC INCORPORATED
By:
--------------------------------------
Name:
Title:
Address: [_______________________]
[_______________________]
MDT ARMOR CORPORATION
By:
--------------------------------------
Name:
Title:
Address: [_______________________]
[_______________________]
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed on the day and year first above written.
SMITHFIELD FIDUCIARY LLC
By:
--------------------------------------
Name:
Title:
Address for Notice:
c/o Highbridge Capital Management, LLC
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇ / ▇▇▇▇ ▇. Chill
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
PORTSIDE GROWTH AND OPPORTUNITY FUND
By:
--------------------------------------
Name:
Title:
OMICRON MASTER TRUST
By:
--------------------------------------
Name:
Title:
CRANSHIRE CAPITAL L.P.
By:
--------------------------------------
Name:
Title:
IROQUOIS MASTER FUND LTD.
By:
--------------------------------------
Name:
Title: