EXHIBIT 10.47
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SECURITY AGREEMENT
▇▇▇▇▇▇ Traffic Systems, Inc.
To: Laurus Master Fund, Ltd.
c/o M&C Corporate Services, Ltd.
▇.▇. ▇▇▇ ▇▇▇ ▇.▇
▇▇▇▇▇▇ House
South Church Street
Grand Cayman, Cayman Islands
Gentlemen:
1. To secure the payment of all Obligations (as hereafter defined), we
hereby grant to you a continuing security interest in all of the following
property now owned or at any time hereafter acquired by us, or in which we now
have or at any time in the future may acquire any right, title or interest (the
"Collateral"): all of the undersigned's right, title and interest in and to the
contracts set forth on Schedule A attached hereto and made a part hereof, all
books, records and other property at any time evidencing or relating to the
foregoing, all monies due and to become due under the foregoing contracts, all
of our rights in, to and under all purchase orders or receipts for services
relating thereto and , all proceeds and products thereof (including, without
limitation, proceeds of insurance) and all additions, accessions and
substitutions thereto or therefor. Capitalized terms used but not defined herein
shall have the meanings given them in the Purchase Agreement (defined below.)
2. The term "Obligations" as used herein shall mean and include all
debts, liabilities and obligations owing by ▇▇▇▇▇▇, Inc. ("▇▇▇▇▇▇") or any of
its subsidiaries to Laurus Master Fund, Ltd., arising out of or in connection
with: that certain Guaranty dated as of the date hereof made by us in favor of
you (as amended, modified and supplemented from time to time, the "Guaranty");
(ii) the Securities Purchase Agreement dated as of the date hereof between
▇▇▇▇▇▇, Inc. and you (as the same may be amended, modified and supplemented from
time to time, the "Purchase Agreement") the Related Agreements referred to in
the Purchase Agreement, and, (iii) that certain Convertible Note dated as of the
date hereof made by ▇▇▇▇▇▇ in favor of you in the original principal amount of
$6,000,000, as amended, modified and supplemented from time to time or otherwise
(as each may amended, modified and supplemented from time to time, the
"Documents") and in connection with any documents, instruments or agreements
relating to or executed in connection with the Documents or any documents,
instruments or agreements referred to therein or otherwise, and in connection
with any other indebtedness, obligations or liabilities of each of ▇▇▇▇▇▇ or any
of its subsidiaries to Laurus, whether now existing or hereafter arising, direct
or indirect, liquidated or unliquidated, absolute or contingent, due or not due
and whether under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or otherwise, including, without limitation, obligations and
liabilities of of ▇▇▇▇▇▇ or any of its subsidiaries for post-petition interest,
fees, costs and charges that accrue after the commencement of any case by or
against such of ▇▇▇▇▇▇ or any of its subsidiaries under any bankruptcy,
insolvency, reorganization or like proceeding (collectively, the "Debtor Relief
Laws") in each case, irrespective of any collateral therefor or of the existence
or extent of such collateral, and irrespective of the allowability, allowance or
disallowance of any or all of the Obligations in any case commenced by or
against any of ▇▇▇▇▇▇ or any of its subsidiaries under any Debtor Relief Laws.
3. We hereby represent, warrant and covenant to you that: (a) we are a
company validly existing, in good standing and formed under the laws of the
State of Delaware and we will provide you thirty days prior written notice of
any change in our state of formation; (b) our legal name is " ▇▇▇▇▇▇ Traffic
Systems, Inc. ", as set forth in our Certificate of Incorporation as amended
through the date hereof; (c) we are the lawful owner of the Collateral and have
the sole right to grant a security interest therein and will defend the
Collateral against all claims and demands of all persons and entities; (d) we
will keep the Collateral free and clear of all attachments, levies, taxes,
liens, security interests and encumbrances of every kind and nature
("Encumbrances") except to the extent said Encumbrance does not secure
indebtedness in excess of $100,000 and such Encumbrance is removed or otherwise
released within 10 days of the creation thereof; (e) we will at our own cost and
expense keep the Collateral in good state of repair and will not waste or
destroy the same or any part thereof; (f) we will not without your prior written
consent, sell, exchange, lease or otherwise dispose of the Collateral (except
for sales or inventory in the ordinary course of business) or any of our rights
therein; (g) we will insure the Collateral in your name against loss or damage
by fire, theft, burglary, pilferage, loss in transit and such other hazards as
you shall specify in amounts and under policies by insurers acceptable to you
and all premiums thereon shall be paid by us and the policies delivered to you.
If we fail to do so, you may procure such insurance and the cost thereof shall
constitute Obligations; (h) we will at all times allow you or your
representatives free access to and the right of inspection of the Collateral;
(i) we hereby indemnify and save you harmless from all loss, costs, damage,
liability and/or expense, including reasonable attorneys' fees, that you may
sustain or incur to enforce payment, performance or fulfillment of any of the
Obligations and/or in the enforcement of this Agreement or the Guaranty or in
the prosecution or defense of any action or proceeding either against you or us
concerning any matter growing out of or in connection with this Agreement, the
Guaranty and/or any of the Obligations and/or any of the Collateral; (j) with
respect to all accounts arising out of Assigned Contracts (as defined in the
Purchase Agreement), the United States of America, or any state, or any
department, agency or instrumentality of any of them (each, a "Government
Contract"), we will so notify you in writing and comply with any governmental
notice or approval requirements, including, without limitation, compliance with
the Federal Assignment of Claims Act, (k) each account shall conform to the
following criteria: (i) . services shall not have been rejected or disputed by
the account debtor and there shall not have been asserted any offset, defense or
counterclaim (other than any such rejections, disputes, offsets, defenses or
counterclaims which in the aggregate do not at any time exceed $100,000 (ii) the
proceeds of such account shall be remitted by the applicable account debtor to
and be on deposit in the Pledged Account (as hereafter defined) within forty
(40) days from invoice date, and (iii) such Account is a good and valid account
representing an undisputed bona fide indebtedness incurred by the account debtor
liable therefor, upon the stated terms work, labor and/or services rendered by
us; (l) we shall have no access to any funds on deposit in any Pledged Account
(as hereafter defined), except to the extent expressly set forth in the Control
Agreement (as hereafter defined) and we shall comply with the terms and
provisions of the Pledge Agreement and the Control Agreement; and (m) we shall
be the direct beneficiary of all funds made available by you to ▇▇▇▇▇▇ under the
Note and acknowledge receipt of the proceeds thereof. For purposes hereof, the
following terms shall have the following meanings: (1)"Control Agreement" shall
mean the Deposit Account Control Agreement dated as of the date hereof among us,
you and North Fork Bank (the "Lockbox Bank"), as amended, modified and
supplemented from time to time, (2) "Pledged Accounts" shall have the meaning
set forth on Schedule A to the Control Agreement.
4. Following the occurrence and during the continuance of an Event of
Default, you shall have the right to instruct all of our account debtors to
remit payments on all accounts in accordance with your express written
instructions: provided, however, the account debtor liable under the Government
Contract shall be instructed on or prior to the date hereof to remit payments on
all accounts arising under the Government Contract to deposit account number
▇▇▇-▇▇▇-▇▇▇▇ in our name at North Fork Bank. With respect to accounts arising
from the Government Contract, we shall execute all such documentation as you
shall require so as to comply with the Federal Assignment of Claims Act and to
instruct the governmental agency party to the Government Contract to remit all
accounts arising thereunder to the Pledged Account or such other address and/or
deposit account as you shall direct in writing. If, despite such instructions,
we shall receive any payments with respect to accounts, we shall receive such
payments in trust for your benefit, shall segregate such payments from our other
funds and shall deliver or cause to be delivered to you, in the same form as so
received with all necessary endorsements, all such payments as soon as
practicable, but in no event later than two (2) business days after our receipt
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thereof. You shall have full power and authority to collect each account,
through legal action or otherwise, and may settle, compromise, or assign (in
whole or in part) the claim for any account, or otherwise exercise any other
right now existing or hereafter arising with respect to any account if such
action will facilitate collection.
5. On or prior to the Closing Date (or such later date as may be
agreed by you in writing), we, the undersigned will, (x) irrevocably direct all
of the present and future Account Debtors (as defined below) and other persons
or entities obligated to make payments constituting Collateral to make such
payments directly to the lockboxes maintained by ▇▇▇▇▇▇ Traffic Systems, Inc.,
("NTSI") (the "Lockboxes") with North Fork Bank (the "Lockbox Bank") (each such
direction pursuant to this clause (x), a "Direction Notice") and (y) provide you
with copies of each Direction Notice, each of which shall be agreed to and
acknowledged by the respective Account Debtor. The Lockbox Bank shall agree to
deposit the proceeds of such payments immediately upon receipt thereof in that
certain deposit account maintained at the Lockbox Bank and evidenced by the
account name of ▇▇▇▇▇▇ Traffic System, Inc. and the account number of
▇▇▇-▇▇▇-▇▇▇▇, or such other deposit account accepted by you in writing (the
"Lockbox Deposit Account"). On or prior to the Closing Date, NTSI, , shall and
shall cause the Lockbox Bank to enter into all such documentation acceptable to
you pursuant to which, among other things, the Lockbox Bank agrees to, following
notification by you (which notification you shall only give following the
occurrence and during the continuance of an Event of Default), comply only with
the instructions or other directions of you concerning the Lockbox and the
Lockbox Deposit Account. All of NTSI 's invoices, account statements and other
written or oral communications directing, instructing, demanding or requesting
payment of any Account (as hereinafter defined) constituting Collateral or any
other amount constituting Collateral shall conspicuously direct that all
payments be made to the Lockbox or such other address as you may direct in
writing. If, notwithstanding the instructions to Account Debtors, any of the
undersigned receives any payments, such entity shall immediately remit such
payments to the Lockbox Deposit Account in their original form with all
necessary endorsements; until so remitted, such entity shall hold all such
payments in trust for and as the property of you and shall not commingle such
payments with any of its other funds or property. For the purpose of this
Security Agreement, (x) "Accounts" shall mean all "accounts", as such term is
defined in the Uniform Commercial Code as in effect in the State of New York on
the date hereof, now owned or hereafter acquired by NTSI and (y) "Account
Debtor" shall mean any person or entity who is or may be obligated with respect
to, or on account of any Assigned Contract.
6. We shall be in default under this Agreement upon the happening of
any of the following events or conditions, each such event or condition an
"Event of Default" (a) we shall fail to pay when due or punctually perform any
of the Obligations; (b) any covenant, warranty, representation or statement made
or furnished to you by us or on our behalf was false in any material respect
when made or furnished; (c) the loss, theft, substantial damage, destruction,
sale or encumbrance to or of any of the Collateral or the making of any levy,
seizure or attachment thereof or thereon except to the extent said levy, seizure
or attachment does not secure indebtedness in excess of $100,000 and such levy,
seizure or attachment has not been removed or otherwise released within 10 days
of the creation or the assertion thereof; (d) we shall become insolvent, cease
operations, dissolve, terminate our business existence, make an assignment for
the benefit of creditors, suffer the appointment of a receiver, trustee,
liquidator or custodian of all or any part of our property; (e) any proceedings
under any bankruptcy or insolvency law shall be commenced by or against us and
if commenced against us shall not be dismissed within 30 days; (f) we shall
repudiate, purport to revoke or fail to perform any of our obligations under the
Guaranty; (g) an Event of Default shall have occurred under and as defined in
the Purchase Agreement or the Related Agreements; or (h) an Event of Default
shall have occurred under and as defined in the Pledge Agreement or (i) Laurus
shall have an effective, valid, binding security interest in the proceeds of
less than seventy five percent (75.0%), of the Assigned Contracts, except as
contemplated by the Purchase Agreement, provided, however, that failure to meet
the aforementioned seventy-five percent (75%) threshold shall not be deemed an
Event of Default to the extent that NTSI shall validly pledge, assign and
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substitute for the Assigned Contracts in the proceeds of which Laurus shall not
have an effective, valid, binding enforceable security interest, contracts
substantially similar in type and tenor for which consent to assignment of
proceeds has been obtained and delivered to Purchaser, if such substitution
contracts are otherwise acceptable to Laurus in the exercise of its reasonable
discretion.
7. Upon the occurrence of any Event of Default and at any time
thereafter, you may declare all Obligations immediately due and payable and you
shall have the remedies of a secured party provided in the Uniform Commercial
Code as in effect in the State of New York, this Agreement and other applicable
law. Upon the occurrence of any Event of Default and at any time thereafter, you
will have the right to take possession of the Collateral and to maintain such
possession on our premises or to remove the Collateral or any part thereof to
such other premises as you may desire. Upon your request, we shall assemble the
Collateral and make it available to you at a place designated by you. If any
notification of intended disposition of any Collateral is required by law, such
notification, if mailed, shall be deemed properly and reasonably given if mailed
at least ten days before such disposition, postage prepaid, addressed to us
either at our address shown herein or at any address appearing on your records
for us. Any proceeds of any disposition of any of the Collateral shall be
applied by you to the payment of all expenses in connection with the sale of the
Collateral, including reasonable attorneys' fees and other legal expenses and
disbursements and the reasonable expense of retaking, holding, preparing for
sale, selling, and the like, and any balance of such proceeds may be applied by
you toward the payment of the Obligations in such order of application as you
may elect, and we shall be liable for any deficiency.
8. If we default in the performance or fulfillment of any of the
terms, conditions, promises, covenants, provisions or warranties on our part to
be performed or fulfilled under or pursuant to this Agreement, you may, at your
option without waiving your right to enforce this Agreement according to its
terms, immediately or at any time thereafter and without notice to us, perform
or fulfill the same or cause the performance or fulfillment of the same for our
account and at our sole cost and expense, and the cost and expense thereof
(including reasonable attorneys' fees) shall be added to the Obligations and
shall be payable on demand with interest thereon at the highest rate permitted
by law or, at your option, debited by you from the Pledged Account.
9. We appoint you, any of your officers, employees or any other person
or entity whom you may designate as our attorney, with power to execute such
documents in our behalf and to supply any omitted information and correct patent
errors in any documents executed by us or on our behalf; to file financing
statements against us covering the Collateral; to sign our name on public
records; and to do all other things you deem necessary to carry out this
Agreement. We hereby ratify and approve all acts of the attorney and neither you
nor the attorney will be liable for any acts of commission or omission, nor for
any error of judgment or mistake of fact or law. This power being coupled with
an interest, is irrevocable so long as any Obligations remains unpaid.
10. No delay or failure on your part in exercising any right,
privilege or option hereunder shall operate as a waiver of such or of any other
right, privilege, remedy or option, and no waiver whatever shall be valid unless
in writing, signed by you and then only to the extent therein set forth, and no
waiver by you of any default shall operate as a waiver of any other default or
of the same default on a future occasion. Your books and records containing
entries with respect to the Obligations shall be admissible in evidence in any
action or proceeding, shall be binding upon us for the purpose of establishing
the items therein set forth and shall constitute prima facie proof thereof. You
shall have the right to enforce any one or more of the remedies available to
you, successively, alternately or concurrently. We agree to join with you in
executing financing statements or other instruments to the extent required by
the Uniform Commercial Code in form satisfactory to you and in executing such
other documents or instruments as may be required or deemed necessary by you for
purposes of affecting or continuing your security interest in the Collateral.
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11. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and cannot be terminated orally. All of
the rights, remedies, options, privileges and elections given to you hereunder
shall enure to the benefit of your successors and assigns. The term "you" as
herein used shall include your company, any parent of your company, any of your
subsidiaries and any co-subsidiaries of your parent, whether now existing or
hereafter created or acquired, and all of the terms, conditions, promises,
covenants, provisions and warranties of this Agreement shall enure to the
benefit of and shall bind the representatives, successors and assigns of each of
us and them. You and we hereby (a) waive any and all right to trial by jury in
litigation relating to this Agreement and the transactions contemplated hereby
and we agree not to assert any counterclaim in such litigation, (b) submit to
the nonexclusive jurisdiction of any New York State court sitting in the borough
of Manhattan, the city of New York and (c) waive any objection you or we may
have as to the bringing or maintaining of such action with any such court.
12. All notices from you to us shall be sufficiently given if mailed
or delivered to us at our address set forth below.
[Remainder of page intentionally left blank]
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Very truly yours,
▇▇▇▇▇▇ TRAFFIC SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and CEO
Solely with respect to Section 5 hereof,
▇▇▇▇▇▇, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
ACKNOWLEDGED:
LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ Grin
---------------------------------
Name: ▇▇▇▇▇ Grin
Title: Partner
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SCHEDULE A
to
the Security Agreement dated as of May 16, 2005
by and among ▇▇▇▇▇▇ Traffic Systems, Inc. , ▇▇▇▇▇▇, Inc. and
Laurus Master Fund, Ltd.
ASSIGNED CONTRACTS
Locale Agreement
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1. Alpharetta, GA Traffic Signal Violation Video-Enforcement System
& Lease Agreement between NTSI and City of
Alpharetta, GA dated __ November 2004
2. Baltimore, MD Definitive Subcontract Agreement between ACS State
Solutions, Inc. ("ACS") and NTSI dated 13 April
2004
3. Cerritos, CA Automated Traffic Signal Enforcement and Citation
Processing Pilot Program for the City of Cerritos
between City of Cerritos, CA and NTSI dated 11
July 2002, amended by Addendum 1 (11 September
2003)
4. Costa Mesa, CA Traffic Signal Violation Video-Monitoring System
Services Agreement between NTSI and City of Costa
Mesa, CA dated 15 July 2002, amended by Addendum 1
(30 April 2003) and Addendum 2 (31 July 2003)
5. Chatham County, GA Traffic Signal Violation Video-Enforcement System
Lease & Services Agreement between NTSI and the
Savannah Economic Development Authority dated 21
October 2004
6. Falls Church, VA Traffic Signal Violation Photo-Monitoring System
Agreement between NTSI and City of Falls Church,
VA dated16 December 1999 amended by Addendum 1 (11
February 2003), Addendum 2 (5 September 2003),
Addendum 3 (8 October 2003), Addendum 4 (2 March
2004)
7. Frederick, MD Agreement for Services between City of Frederick,
MD and NTSI dated 16 December 2004 amended by
First Amendment to Agreement for Services (16
December 2004)
8. Fresno, CA Contract: Red Traffic Light Enforcement Program
Proposal No. ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇, ▇▇ and
NTSI dated 16 November 2000 amended by First
Amendment to Contract (16 November 2000)
9. Fullerton, CA Traffic Signal Violation Video-Monitoring Systems
Services Agreement between NTSI and City of
Fullerton, CA dated 19 June 2002 amended by
Addendum 1 (31 March 2003) and Addendum 2 (31
December 2003)
10. Germantown, TN Traffic Signal Violation Video-Monitoring System
Services Agreement between NTSI and City of
Germantown, TN dated __ October 2001
11. Irvine, CA Traffic Signal Violation Video-Monitoring System
Services Agreement between NTSI and City of
Irvine, CA dated 11 December 2001
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Locale Agreement
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12. Long Beach, CA Agreement between NTSI and City of Long Beach, CA
dated 1 December 2004
13. Montclair, CA Traffic Signal Violation Video-Monitoring System
Agreement between NTSI and Municipality of
Montclair, CA dated 4 September 2001
14. Pasadena, CA Traffic Signal Violation Video-Monitoring System
Services Agreement No. 17,712 between NTSI and
City of Pasadena, CA dated 24 June 2002
15. Rancho Cucamonga, CA Traffic Signal Violation Photo-Monitoring System
Agreement between NTSI and City of Rancho
Cucamonga, CA dated 7 March 2001 amended by
Addendum 1 (19 March 2003)
16. Vienna, VA Traffic Signal Violation Video-Monitoring System
Services Agreement between NTSI and Town of
Vienna, VA dated 31 October 2002
17. Davis, CA Any contract subsequently entered into; currently,
no contract exists
18. Los Angeles, CA Any contract subsequently entered into; currently,
no contract exists
19. New Bern, NC Any contract subsequently entered into; currently,
no contract exists
20. San Bernadino, CA Any contract subsequently entered into; currently,
no contract exists
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