EXHIBIT 4.6
SECURITY AGREEMENT
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This SECURITY AGREEMENT, dated as of October 1, 2001, is made by
CONSTELLATION 3D, INC., a corporation organized under the laws of the State of
Delaware (the "Company"), with its principal offices located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and each of the Company's undersigned
subsidiaries (the "Subsidiaries"), (the Company and the Subsidiaries are
hereinafter sometimes referred to collectively as the "Debtors" or individually
as a "Debtor"), in favor of Halifax Fund, L.P, a Cayman Islands limited
partnership ("Halifax" or the "Secured Parties") and Halifax Fund, L.P., as
collateral agent (the "Collateral Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Halifax are entering into the Exchange
Agreement, dated as of the date hereof (the "Exchange Agreement") pursuant to
which the Company shall issue to Halifax $5,000,000 aggregate principal amount
of its 5% Senior Secured Convertible Debentures (the "Debentures") and its
Optional Debenture Warrant (the "Warrant") that entitles Halifax to purchase an
additional $5,000,000 aggregate principal amount of Debentures;
WHEREAS, the Subsidiaries are parties to the Subsidiary Guaranty, dated
the date hereof (the "Subsidiary Guarantee") pursuant to which the Subsidiaries
guarantee the obligations of the Company under the Exchange Agreement, the
Debentures, the Warrant and any Debentures issued in the future upon the
exercise of the Warrant;
WHEREAS, pursuant to the Exchange Agreement, the Company and the
Subsidiaries have agreed that all of the Company's obligations under the
Exchange Agreement, the Debenture, the Warrant and any Debentures issued upon
the exercise of the Warrant, the Registration Rights Agreement between the
Company and Halifax dated August 23, 2000 and the Subsidiaries' obligations
under the Subsidiary Guarantee (collectively, the "Secured Obligations") be
secured by a first priority lien on all of the assets of the Company and of the
Subsidiaries pursuant to the terms of this Security Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in order to induce Halifax to enter into the Exchange
Agreement, the Debtors hereby agree with the Collateral Agent and the Secured
Parties as follows:
SECTION 1: DEFINITIONS
1.1 Definitions. The following words shall have the following meanings when
used in this Security Agreement. All terms used herein not otherwise defined in
this Security Agreement shall have the meanings attributed to such terms in the
Exchange Agreement, and if not defined in the Exchange Agreement, then the New
York Uniform Commercial Code, as may be amended from time to time. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
"Account Debtor" means any person who is or who may become obligated under,
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with respect to, or on account of an Account.
"Accounts" means all presently existing and hereafter arising accounts,
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contract rights, and all other forms of obligations owed or owing now or in the
future to a Debtor or any joint venture among Debtors, including, without
limitation any obligations arising out of the sale or lease of goods or the
rendition of services by such persons, or arising out of the sale or lease of
goods or the rendition of services by a person other than such persons and
acquired by such persons from such person by assignment or purchase, including,
without limitation, rights to payment with respect to accounts that are sold or
assigned to Debtors, irrespective of whether earned by performance, and any and
all credit insurance, guarantees, or security therefor.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978, as heretofore
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and hereinafter amended, and codified as 11 U.S.C. (S)(S) 101 et seq.
"Debtors' Books" means all of the Debtors' books and records including:
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ledgers; records indicating, summarizing, or evidencing each Debtor's assets or
liabilities, or the Collateral; all information relating to each Debtor's
business operations or financial condition; and all computer programs, disc or
tape files, printouts, runs, or other computer prepared information, and the
equipment containing such information.
"Collateral" means all of the assets of the Debtors (whether currently
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owned or hereafter acquired or owned by a Debtor) including, but not limited to,
each of the following: the Pledged Securities; Accounts; Debtors' Books;
Equipment; General Intangibles; Goods; Inventory; Negotiable Collateral; any
money or other assets of the Debtors that hereafter comes into possession,
custody or control of the Collateral Agent; and the proceeds and any and all of
the products, whether tangible or intangible, of any of the foregoing including
proceeds of insurance covering any or all of the Collateral, and any and all
Accounts, Equipment, General Intangibles, Goods, Inventory, Negotiable
Collateral, money, deposit accounts, or other tangible or intangible, real or
personal, property resulting from the sale, exchange, collection, rent, lease,
license, or other disposition of the Collateral, or any portion thereof or
interest therein, and the proceeds thereof.
"Debt" shall mean for any person: (i) obligations incurred by such person
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for borrowed money (whether by loan, the issuance and sale of debt securities or
the sale of property to another person subject to an understanding or agreement,
contingent or otherwise, to repurchase such property from such person), (ii)
obligations evidenced by bonds, debentures, notes or other similar instruments,
(iii) obligations to pay the deferred purchase price of property or services,
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(iv) obligations as lessee under capital leases, and (v) obligations under
direct or indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i)-(iv) above
"Default" shall mean any condition, act or event which, with notice or
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lapse of time or both, would constitute an Event of Default.
"Equipment" means all machinery, equipment, office machinery, furniture,
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fixtures, conveyors, tools, materials, storage and handling equipment, computer
equipment and hardware including central processing units, terminals, drives,
memory units, printers, keyboards, screens, peripherals and input or output
devices, automotive equipment, trucks, molds dies, stamps, motor vehicles and
other equipment of every kind and nature and wherever situated now or hereafter
directly or indirectly owned by the Debtors or in which the Debtors have any
interest together with all additions and accessions thereto, all replacements
and all accessories and parts therefor, all manuals, blueprints, know-how,
warranties and records in connection therewith, all rights against suppliers,
warrantors, manufacturers, sellers or others in connection therewith, and
together with all substitutions for any of the foregoing, wherever located.
"Event of Default" means and includes any of the Events of Default set
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forth in Section 3.
"General Intangibles" shall mean all "General Intangibles," as such term is
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defined in Section 9-106 of the Uniform Commercial Code of the State of New
York, now or hereafter directly or indirectly owned by the Debtors, including,
without limitation, present and future trade secrets and other proprietary
information; trademarks, trade names and trademark applications, service marks,
business names, logos and the goodwill of the business relating thereto;
copyrights and copyright applications and all tangible property embodying the
copyrights; unpatented inventions (whether or not patentable); designs; research
and development results; patent applications and patents; customer contracts;
license agreements related to any of the foregoing and the income therefrom;
books, records, computer tapes or disks, flow diagrams, specification sheets,
source codes, object codes, and other physical manifestations of the foregoing.
"Indebtedness" means all amounts due and owing to the Secured Parties
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pursuant to, and all payment obligations arising under, the Debentures, the
Warrant, the Registration Rights Agreement, the Subsidiary Guarantee and the
Exchange Agreement together with all reasonable expenses relating to enforcement
thereof, including, without limitation, reasonable legal fees.
"Inventory" means all present and future inventory in which the Debtors or
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joint ventures thereof have any interest, including goods held for sale or lease
or to be furnished under a contract of service and all of such persons' present
and future raw materials, work in process, finished goods, and packing and
shipping materials, wherever located, and any documents of title representing
any of the above.
"Negotiable Collateral" means all of a Debtor's present and future letters
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of credit, notes, drafts, instruments, certificated securities, documents,
personal property leases (wherein a Debtor
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is the lessor), chattel paper, and Debtors' Books relating to any of the
foregoing.
"Pledged Securities" means (i) all capital stock of all current and future
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Subsidiaries, whether currently issued or issued in the future ("Subsidiary
Shares"); (ii) any capital stock or other securities currently owned or received
by the Debtors in the future ("Further Securities"); (iii) all other securities
which may be delivered to and held by the Collateral Agent in respect of the
Further Securities and Subsidiary Shares pursuant to the terms hereof; (iv) all
dividends, cash, instruments, securities and other property from time to time
received, receivable or otherwise distributed, in respect of, in, for, or upon
the exchange or conversion of the securities referred to in clauses (i), (ii)
and (iii) above; and (v) all rights and privileges of the Debtors with respect
to the Pledged Securities and other properties referred to in clauses (i), (ii),
(iii) and (iv).
"Registration Rights Agreement" means the Registration Rights Agreement, as
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defined in the Exchange Agreement.
"Security Agreement" means this Security Agreement, as this Security
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Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Security Agreement from time to time.
"Secured Obligations" means all of the obligations of the Debtors,
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including but not limited to, the Indebtedness, under the Exchange Agreement,
the Debentures, the Warrant, any Debentures issued upon the exercise of the
Warrant, the Registration Rights Agreement and the Subsidiary Guarantee.
"subsidiary" means each subsidiary (as defined under U.S. generally
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accepted accounting principles) of the Debtors.
"Transaction Documents" means the Exchange Agreement, the Debentures, the
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Warrant, any Debenture issued upon the exercise of the Warrant, the Registration
Rights Agreement, the Subsidiary Guarantee and this Security Agreement.
SECTION 2: GRANT OF SECURITY INTEREST; OBLIGATIONS OF THE DEBTORS
2.1 Grant of Security Interest. (a) As collateral security for all of the
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Indebtedness, the Debtors hereby grant to the Collateral Agent a continuing
first security interest in all currently existing and hereafter acquired or
arising Collateral to secure prompt repayment of any and all Indebtedness and to
secure prompt performance by the Debtors of each of their respective covenants
and duties under the Transaction Documents. The Debtors further agree that the
Collateral Agent and the Secured Parties shall have the rights stated in this
Security Agreement with respect to the Collateral in addition to all other
rights which the Secured Parties may have by law.
(b) Concurrently with the execution of this Security Agreement, the
Company is delivering to the Collateral Agent, certificates representing all of
the outstanding Subsidiary Shares, together with all stock powers duly executed
in blank. Upon the issuance of any additional Subsidiary Shares, the Company
shall immediately deliver such Shares to the Collateral Agent, together with
stock powers duly executed in blank and corporate resolutions
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authorizing the transfer of title of such stock to the Secured Parties, the
Collateral Agent or their respective designee or designees upon an Event of
Default pursuant to the terms of this Security Agreement.
(c) Upon receipt of Further Securities by any Debtor, such Debtor shall
immediately deliver the certificates representing such securities, together with
stock powers duly executed in blank to the Collateral Agent and corporate
resolutions of the type described in Section 2.1(b) above.
(d) A reasonably detailed list of the Collateral existing as of the
date hereof is set forth on Schedule A attached hereto. For each item of
Collateral, Schedule A provides the location, description and ownership and, for
items of Collateral which have a certificate of title, the jurisdiction of such
certificates, and for those items of Collateral which are mobile goods (goods
that are mobile and generally used in more than one jurisdiction such as motor
vehicles, trailers and similar items) the present location of such goods.
Schedule A also identifies any liens and encumbrances with respect to any items
of Collateral.
2.2 Representations and Obligations of the Debtors. Each of the Debtors
jointly and severally represents, warrants and covenants to the Collateral Agent
and the Secured Parties as follows:
(a) Perfection of Security Interest. Each of the Debtors agrees to
execute at any time and from time to time such financing statements and to take
whatever other actions are requested by The Collateral Agent to perfect and
continue The Collateral Agent's security interest in the Collateral. Upon
request of the Collateral Agent, each Debtor will deliver to the Collateral
Agent any and all documents evidencing or constituting the Collateral,
possession of which is required in order for the Collateral Agent to perfect its
security interest therein. Upon request of the Collateral Agent, the Debtors
will note Collateral Agent's interest, as the case may be, upon any and all
Accounts if not delivered to Collateral Agent for possession by Collateral
Agent. The Collateral Agent may at any time and from time to time, and without
further authorization from the Debtors, file a carbon, photographic or other
reproduction of any financing statement or of this Security Agreement for use as
a financing statement. The Debtors will reimburse The Collateral Agent for all
reasonable expenses for the perfection and the continuation of the perfection of
Collateral Agent's security interest in the Collateral. Each Debtor will
promptly notify The Collateral Agent of any change in its name including any
change to the assumed business names of such Debtor. This is a continuing
Security Agreement and will continue in effect until all of the Indebtedness is
paid in full and any other Secured Obligations are satisfied and The Collateral
Agent shall release its interest in the Collateral upon the full and final
payment and satisfaction of the Indebtedness and other Secured Obligations. If
payment is made by a Debtor, whether voluntarily or otherwise, or by any third
party, on the Indebtedness and thereafter a Secured Party is forced to remit the
amount of that payment to such Debtor's trustee in bankruptcy or to any similar
person under any federal, state or foreign bankruptcy law or other law for the
relief of debtors, the Indebtedness shall be considered unpaid for the purpose
of enforcement of this Security Agreement. If permitted or required under
applicable law, the Collateral Agent may file any financing statements with
respect to the Collateral without the signatures of the Debtors. Any financing
statements may state that the Collateral Agent have a lien in all of the
Debtors' assets. The Debtors will make any necessary
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filings and take any other necessary actions to provide a first priority and
perfected security interest to the Collateral Agent with respect to any
Collateral located outside the United States. The Debtors will also make any
filings in the United States Patent and Trademark Office that are necessary to
provide a perfected first priority security interest in any Collateral that is
intellectual property. Evidence of such filings and action by the Debtors will
be provided to the Collateral Agent on a timely basis.
(b) Power of Attorney. Each Debtor hereby irrevocably makes,
constitutes, and appoints the Collateral Agent (and all of such Collateral
Agent's general partners, officers, employees, or agents designated by such
Collateral Agent) as its true and lawful attorney, with power to: (i) sign such
Debtor's name on any of the documents described hereunder or on any other
similar documents to be executed, recorded, or filed in order to perfect or
continue perfected the Collateral Agent's security interest in the Collateral;
(ii) at any time that an Event of Default has occurred and is continuing,
execute, sign and endorse such Debtor's name on any invoice or ▇▇▇▇ of lading
relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (iii) send requests for verification of Accounts; (iv) at any time that
an Event of Default has occurred and is continuing, execute, sign and endorse
such Debtor's name on any checks, notices, instruments, acceptances, money
orders, drafts, warrants or other item of payment or security that may come into
Collateral Agent's possession; (v) at any time that an Event of Default has
occurred and is continuing, demand, collect, receive, receipt for, ▇▇▇ and
recover all sums of money or other property which may now or hereafter become
due, owing or payable from the Collateral; (vi) file any claim or claims or,
following an Event of Default, take any action or institute or take part in any
proceedings, either in its own name or in the name of such Debtor, or otherwise,
which in the discretion of the Collateral Agent may seem to be necessary or
advisable; (vii) at any time that an Event of Default has occurred and following
acceleration of the Indebtedness, direct the Account Debtors and other persons
sending mail to the Debtors to send all mail relating to the Collateral to the
Collateral Agent; (viii) at any time that an Event of Default has occurred and
is continuing, make, settle, and adjust all claims under the Debtors' policies
of insurance and make all determinations and decisions with respect to such
policies of insurance; and (ix) at any time that an Event of Default has
occurred and is continuing, settle and adjust disputes and claims respecting the
Accounts directly with Account Debtors, for amounts and upon terms which the
Collateral Agent determines to be reasonable, and the Collateral Agent may cause
to be executed and delivered any documents and releases which the Collateral
Agent determines to be necessary. The appointment of the Collateral Agent as
such Debtor's attorney, and each and every one of the Collateral Agent's rights
and powers, being coupled with an interest, is irrevocable and shall remain in
full force and effect until all of the Indebtedness has been fully repaid and
performed and the Collateral Agent renounces such appointment.
(c) No Violation. The execution and delivery of this Security Agreement
does not violate any law or agreement governing any Debtor or to which any
Debtor is a party, and the Debtors' certificate or articles of incorporation and
bylaws or other organizational documents do not prohibit any term or condition
of this Security Agreement. The execution and delivery hereof is in the interest
of each of the Debtors.
(d) Enforceability of Collateral. With respect to the Accounts, the
Collateral is enforceable in accordance with its terms, is genuine, and complies
in all material respects with
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applicable laws concerning form, content and manner of preparation and
execution, and, to the best of the knowledge of the Debtors, all persons
appearing to be obligated on the Collateral have authority and capacity to
contract and are in fact obligated as they appear to be on the Collateral.
(e) Accounts. All Accounts existing as of the date hereof are good and
valid Accounts representing an undisputed, bona fide indebtedness incurred by
the Account Debtors, and there exists no set-offs or counterclaims against any
such Accounts and no agreements under which any deductions or discounts may be
claimed with any Account Debtor except as disclosed to the Collateral Agent in
writing.
(f) Removal of Collateral; Transactions Involving Collateral. To the
extent the Collateral consists of Accounts, General Intangibles, Negotiable
Collateral or Debtors' Books the records and other documents pertaining to the
Collateral shall be kept at the principal office of the Debtor that owns such
collateral, or at such other locations as are reasonably acceptable to the
Collateral Agent. Except as provided below, the Debtors shall keep the
non-mobile tangible Collateral at the location(s) at which they are kept
specified on Schedule A and shall maintain any certificate of title of any
tangible Collateral in the same jurisdiction as indicated on Schedule A. Except
for transactions in the ordinary course of business in accordance with past
practice or for sales or dispositions on arm's length terms and for fair
equivalent value, the Debtors shall not sell, offer to sell, or otherwise
transfer, dispose of or encumber any tangible Collateral. Without the prior
written consent of the Secured Parties, Debtors shall not sell, offer to sell,
or otherwise transfer, dispose of or encumber any intangible Collateral,
provided, however the Debtors may sell their interest in Velor Inc., a Delaware
corporation, and any other Collateral not related to Debtors' core business of
fluorescent disk multimedia technology provided that, at the Secured Parties'
option (A) 50% of the proceeds of such sale or other disposition in excess of
$1,500,000 are used to prepay the Debentures, or (B) 50% of the proceeds of such
sale or other disposition in excess of $1,500,000 are placed in a segregated
account in which the Collateral Agent has a perfected first priority security
interest. The Debtors shall not pledge, mortgage, encumber or otherwise permit
the Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this Security Agreement
and Permitted Liens (as set forth in the Exchange Agreement), without the prior
written consent of the Secured Parties which may be withheld for any reason in
the Secured Parties' sole discretion. Without the prior written consent of the
Secured Parties, no Collateral that is located in the United States shall be
moved outside of the United States except that Debtors can move tangible
Collateral among themselves provided (i) such move is in the ordinary course of
business consistent with past business practice, (ii) the Collateral Agent
continues to hold a perfected first priority security interest in such
Collateral and (iii) as to Collateral transfers to subsidiaries, the transferee
subsidiary has executed and provided to the Secured Parties a Guaranty in the
form of the Subsidiary Guarantee.
(g) Title. As of the date hereof, the Debtors hold good and marketable
title to the Collateral, free and clear of all liens and encumbrances except for
the lien of this Security Agreement and Permitted Liens. No financing statement
or other evidence of a lien or transfer covering any of the Collateral is on
file in any public office in any jurisdiction other than those which reflect the
security interest created by this Security Agreement or Permitted Liens. The
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Debtors shall defend the Collateral Agent's rights in the Collateral against any
and all claims and demands.
(h) Prepayments. None of the Collateral has been prepaid by any Account
Debtor for any Accounts.
(i) Collateral Schedules and Locations. On a monthly basis, the Debtors
shall deliver to the Collateral Agent and the Secured Parties schedules of the
Collateral, including such information as the Collateral Agent may require,
including without limitation names and addresses of Account Debtors, the
location of mobile goods or changes in any certificates of title. The Debtors
represent and warrant to the Collateral Agent and Secured Parties that Schedule
A is true, accurate and complete in all material respects and shall be updated
monthly by the Debtors to reflect any changes thereto.
(j) Application of Payments Received With Respect to Collateral. Unless
an Event of Default has occurred and is continuing, any amounts received by or
on behalf of any Debtor with respect to any Account pledged as Collateral
hereunder may be used by such Debtor in the ordinary course of its business.
Following the occurrence and continuance of an Event of Default, any amounts
received by or on behalf of any Debtor with respect to any Account shall be
applied in the following order: (i) costs and expenses of the Collateral Agent
and Secured Parties incurred in connection with collecting the Indebtedness and
enforcing this Agreement; (i) unpaid interest due and owing on the Indebtedness
as of such date; and (iii) unpaid principal due and owing with respect to the
Indebtedness as of such date.
(k) Possession and Collection of Accounts. Following an Event of
Default and following acceleration of the Indebtedness, the records and
documents evidencing the Accounts pledged as Collateral hereunder shall, upon
the Collateral Agent's request, be delivered to the Collateral Agent or their
agent and held in accordance with the terms of this Security Agreement.
(l) Maintenance and Inspection of Collateral. The Debtors shall
maintain or cause to be maintained all tangible Collateral in good condition and
repair except for ordinary wear and tear. The Debtors will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral. The
Collateral Agent and its designated representatives and agents shall have the
right at all reasonable times, upon reasonable advance notice, to examine,
inspect, and audit the Collateral wherever located and the books, records or any
property which is otherwise used in connection with the Collateral. The Debtors
shall immediately notify the Collateral Agent of all material cases involving
the return, rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising with
respect to the Collateral; and generally of all happenings and events materially
adversely affecting the Collateral or the value or the amount of the Collateral.
(m) Taxes, Assessments and Liens. The Debtors will pay when due all
taxes, assessments and liens upon the Collateral, its use or operation and upon
the Transaction Documents. A Debtor may withhold any such payment or may elect
to contest any lien if such Debtor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as the Collateral
Agent's interest in the Collateral is not jeopardized in the Collateral
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Agent's sole reasonable opinion. If any of the Collateral is subjected to a lien
which is not discharged or bonded, or the enforcement thereof stayed (in either
case without granting any security interests in any of the assets of any Debtor)
within fifteen (15) days, the Debtors shall deposit with the Collateral Agent
cash, a sufficient corporate surety bond or other security satisfactory to the
Collateral Agent (in their discretion) in an amount adequate to provide for the
discharge of the lien plus any interest, reasonable costs, attorneys' fees or
other charges that could accrue as a result of foreclosure or sale of the
Collateral. In any contest the Debtor or Debtors shall defend itself or
themselves and the Collateral Agent and shall satisfy any final adverse judgment
before enforcement against the Collateral. The Debtors shall name the Collateral
Agent as an additional obligee under any surety bond furnished in such contest
proceedings.
(n) Incorporation by Reference. The Debtors hereby restate and affirm all
representations, warranties and agreements contained in the other Transaction
Documents (as of each date and time such representations and warranties are made
under each of the other Transaction Documents), the terms and conditions of
which are hereby incorporated herein by reference.
(o) Compliance With Governmental Requirements. The Debtors shall comply
promptly with all laws, ordinances and regulations of all governmental
authorities applicable to the production, disposition, or use of the Collateral.
The Debtors may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate appeals, so
long as the Collateral Agent's interest in the Collateral, in the Collateral
Agent's sole reasonable opinion, is not jeopardized.
(p) Insurance. The Debtors shall comply with all insurance requirements and
provisions set forth in the Transaction Documents.
(q) The Debtors' Right to Possession and to Collect Accounts. Except as
otherwise provided herein, until the occurrence of an Event of Default or
acceleration of Indebtedness, the Debtors may have possession of the tangible
personal property and beneficial use of all the Collateral and may use it in any
lawful manner not inconsistent with this Security Agreement or the other
Transaction Documents, provided that the Debtors' right to possession and
beneficial use shall not apply to any Collateral where possession of the
Collateral by the Collateral Agent is required by law to perfect the Collateral
Agent's security interest in such Collateral. At any time an Event of Default
exists or following acceleration of Indebtedness, the Collateral Agent may
exercise its right to directly collect the Accounts and to notify Account
Debtors to make payments directly to the Collateral Agent for application to the
Indebtedness, and the Debtors authorize and direct the Account Debtors, if the
Collateral Agent exercises such right, to make payments on the Accounts to the
Collateral Agent. If the Collateral Agent at any time has possession of any
Collateral, whether before or after an Event of Default, the Collateral Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if the Collateral Agent takes such action for
that purpose as the Debtors shall reasonably request or as the Collateral Agent,
in the Collateral Agent's sole reasonable discretion, shall deem appropriate
under the circumstances, but failure to honor any request by the Debtors shall
not of itself be deemed to be a failure to exercise reasonable care. The
Collateral Agent shall not be required to take any steps necessary to preserve
any rights in the
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Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Collateral. The Collateral Agent shall
have the right to direct who shall collect and service the Accounts.
(r) Transactions with Others. After the occurrence and during the
continuation of any Event of Default, the Collateral Agent may (i) extend the
time for payment or other performance, (ii) grant a renewal or change in terms
or conditions, or (iii) compromise, compound or release any obligation with an
Account Obligor as the Collateral Agent deems advisable, without obtaining the
prior written consent of the Debtors, and no such act or failure to act shall
affect the Collateral Agent's or Secured Parties' rights against the Debtors or
the Collateral.
(s) Expenditures by the Collateral Agent. If not discharged or paid when
due, and provided that such items have not been contested as permitted herein,
the Collateral Agent may (but shall not be obligated to) discharge or pay any
amounts required to be discharged or paid by the Debtors under this Security
Agreement, including without limitation all taxes, liens, security interests,
encumbrances, and other claims, at any time levied or placed on the Collateral.
The Collateral Agent also may (but shall not be obligated to) pay all reasonable
costs for insuring, maintaining and preserving the Collateral. All such
expenditures incurred or paid by the Collateral Agent for such purposes will
then bear interest at the then rate charged under the Debentures from the date
incurred or paid by the Collateral Agent to the date of repayment by the
Debtors. All such expenses shall become a part of the Indebtedness and, at the
Collateral Agent's option, will (i) be payable on demand or (ii) be added to the
balance of the Debentures becoming a part of the outstanding principal amount
due and payable on the Interest Payment Dates (as defined in the Debentures).
This Security Agreement also will secure payment of these amounts. Such right
under this subsection shall be in addition to all other rights and remedies to
which the Collateral Agent and Secured Parties may be entitled upon the
occurrence of an Event of Default.
(t) Sale or Factoring of Accounts; Release of Accounts. Except with respect
to Permitted Liens, or as otherwise expressly permitted herein, the Debtors
shall not sell or otherwise transfer or encumber any of the Accounts, or other
Collateral without the Secured Parties' written consent. It is expressly agreed
that the Secured Parties are under no obligation to grant such a consent and
will do so only in its sole and absolute discretion on terms and conditions they
deem acceptable in their sole and absolute discretion.
(u) In the event that in the future, any Accounts or Inventory are held by
subsidiaries, affiliates or joint ventures of the Debtors who are not a party to
this Agreement, then the Debtors shall cause such entities to grant the
Collateral Agent an exclusive first priority lien in such Accounts and
Inventory, to cause such entities to enter into security agreements reasonably
satisfactory to the Collateral Agent, and to take all actions necessary to
perfect such security interests.
(v) Debt. The Company has no Debt other than Debt created under the
Transaction Documents or as disclosed therein. None of the Subsidiaries have any
Debt.
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(w) Monthly Compliance Certificate. On the last business day of each
calendar month, the Company shall deliver a certificate executed by the Chief
Financial Officer of the Company stating that each of the representations made
by the Debtors in this Security Agreement are true as of the date of such
certificate and no default or Event of Default has occurred under this Security
Agreement.
SECTION 3: EVENTS OF DEFAULT; REMEDIES
3.1 Events of Default. Each of the following shall constitute an Event
of Default under this Security Agreement:
(a) Event of Default under Debentures. An Event of Default shall
have occurred under the Debentures.
(b) Other Defaults. Failure of any Debtor to comply with or to
perform when due or required (after the expiration of any applicable stated cure
periods) any term, obligation, covenant or condition contained in this Security
Agreement.
(c) False Statements. Any warranty, representation or statement made
or furnished to the Collateral Agent or the Secured Parties by or on behalf of
the Debtors under this Security Agreement or any certificate or schedule
required thereby, including but not limited to those required by Sections 2.2(i)
and (x) hereof, is false or misleading in any material respect, either now or at
the time made or furnished.
(d) Defective Collateralization. This Security Agreement ceases to
be in full force and effect (including failure to create a valid and perfected
security interest or lien as intended) at any time and for any reason.
(e) Material Adverse Change. the Collateral Agent shall have
determined in good faith (which determination shall be conclusive) that a
material adverse change has occurred in the condition, value or operation of a
material portion of the Collateral.
3.2 Rights and Remedies on Default. If an Event of Default occurs and is
continuing under this Security Agreement, at any time thereafter, the Collateral
Agent and the Secured Parties shall have all the rights of a secured party under
the New York Uniform Commercial Code. In addition and without limitation, the
Collateral Agent and the Secured Parties may exercise any one or more of the
following rights and remedies:
(a) Accelerate Indebtedness. The Collateral Agent may declare the
entire Indebtedness immediately due and payable, without notice.
(b) Assemble Collateral. The Collateral Agent may require the
Debtors to deliver to the Collateral Agent all or any portion of the Collateral
and other documents relating to the Collateral. the Collateral Agent may require
the Debtors to assemble the Collateral and make it available to the Collateral
Agent at a place to be designated by the Collateral Agent. The Collateral Agent
also shall have full power to enter upon the property of the Debtors to take
possession of and remove the Collateral. If the Collateral contains other goods
not covered by this Security Agreement at the time of repossession, the Debtors
agree that the Collateral Agent
11
may take such other goods, provided that the Collateral Agent makes reasonable
efforts to return them to the Debtors after repossession.
(c) Sell the Collateral. The Collateral Agent shall have full power
to sell, lease, transfer, or otherwise deal with the Collateral or proceeds
thereof in its own name or that of the Debtors. The Collateral Agent may sell
the Collateral at public auction or private sale. Unless the Collateral
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Collateral Agent will give the Debtors reasonable notice
of the time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice shall be met
if such notice is given at least ten (10) days before the time of the sale or
disposition. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Security Agreement and shall be payable on demand,
with interest at the lower of eighteen percent (18%) per annum or the highest
rate permitted by law from date of expenditure until repaid.
(d) Foreclosure. Maintain a judicial suit for foreclosure and sale
of the Collateral.
(e) Appoint Receiver. To the extent permitted by applicable law, the
Collateral Agent shall have the following rights and remedies regarding the
appointment of a receiver: (i) the Collateral Agent may have a receiver
appointed as a matter of right, (ii) the receiver may be an employee of the
Collateral Agent and may serve without band, and (iii) all fees of the receiver
and the receiver's attorney shall become part of the Indebtedness secured by
this Security Agreement and shall be payable on demand, with interest at the
lower of eighteen percent (18%) per annum or the highest rate permitted by law
from date of expenditure until repaid.
(f) Transfer Title. Effect transfer of title upon sale of all or
part of the Collateral. For this purpose, the Debtors irrevocably appoint the
Collateral Agent, acting singly, as its attorneys-in-fact to execute
endorsements, assignments and instruments in the name of the Debtors as shall be
necessary or reasonable.
(g) Collect Revenues, Apply Accounts. The Collateral Agent, either
itself or through a receiver, may collect the payments, rents, income, and
revenues from the Collateral. The Collateral Agent may at any time in its
discretion transfer any Collateral into its own names or that of its nominees
and receive the payments, rents, income, and revenues therefrom and hold the
same as security for the Indebtedness or apply it to payment of the Indebtedness
in such order of preference as the Collateral Agent may determine. The
Collateral Agent may demand, collect, receipt for, settle, compromise, adjust,
▇▇▇ for, foreclose, or realize on the Collateral as the Collateral Agent may
determine, whether or not the Indebtedness is then due. For these purposes, the
Collateral Agent may, on behalf of and in the name of the Debtors, open and
dispose of mail addressed to any Debtor; change any address to which mail and
payments are to be sent; and endorse notes, checks, drafts, money orders,
documents of title, instruments and items pertaining to payment, shipment or
storage of any Collateral. To facilitate collection, the Collateral Agent may,
notify Account Debtors and obligors on any Collateral to make payments directly
to the Collateral Agent.
12
(h) Obtain Deficiency. If the Collateral Agent chooses to sell any
or all of the Collateral and/or pursue any other remedy available hereunder,
under any other agreement, at law or in equity, the Collateral Agent may obtain
a judgment against the Debtors for any deficiency remaining on the Indebtedness
due to the Secured Parties after application of all amounts received from the
exercise of the rights provided in this Security Agreement. The Debtors shall be
liable for a deficiency even if the transaction described in this Subsection is
a sale of accounts or chattel paper.
(i) Application of Proceeds. The proceeds of any foreclosure or
realization upon the Collateral shall be applied:
(A) First, to the costs and expenses of collection;
(B) Second, to overdue interest;
(C) Third, to the outstanding principal amount of the
Indebtedness; and
(D) Fourth, any excess to the Debtors or other party or parties
in accordance with applicable law or court order.
(j) Other Rights and Remedies. The Collateral Agent shall have all
the rights and remedies of a secured creditor under the provisions of the New
York Uniform Commercial Code, as may be amended from time to time. In addition,
the Collateral Agent and the Secured Parties shall have and may exercise any or
all rights and remedies they may have available at law, in equity, or otherwise.
3.3 Cumulative Remedies. All of the Secured Parties' rights and
remedies, whether evidenced by this Security Agreement, or the other Transaction
Documents or by any other writing, shall be cumulative and may be exercised
singularly or concurrently. Election by the Collateral Agent to pursue any
remedy shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of a Debtor under this
Security Agreement, after such Debtor's failure to perform, shall not affect the
Collateral Agent's right to declare a default and to exercise their remedies.
SECTION 3A. PLEDGED SECURITIES
(a) So long as no Event of Default shall have occurred and be
continuing:
13
(A) The Debtors shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Securities or any part
thereof for any purpose not inconsistent with the terms of this Security
Agreement or the Transaction Documents; provided, however, that the Debtors
shall not exercise or refrain from exercising any such right if such action
would have a material adverse effect on the value of the Pledged Securities
or any part thereof; and provided further that the Debtors shall give the
Collateral Agent at least five days' prior written notice of the manner in
which it intends to exercise, or the reasons for refraining from
exercising, any such right.
(B) The Debtors shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Pledge Securities; provided,
however, that any and all
(i) dividends and interest 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 Pledge
Securities,
(ii) dividends and other distributions paid or payable in cash
in respect of any Pledge Securities 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
(iii) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Pledged
Securities
shall be, and shall be forthwith delivered to the Collateral Agent to hold as,
Collateral and shall, if received by the Debtors, be received in trust for the
benefit of the Collateral Agent, be segregated from the other property or funds
of the Debtors and be forthwith delivered to the Collateral Agent as Collateral
in the same form as so received (with any necessary endorsement) and such cash
received by the Collateral Agent will be deposited in an account held by the
Collateral Agent. The Debtors, promptly upon the request of the Collateral
Agent, shall execute such documents and do such acts as may be necessary or
desirable in the reasonable judgment of the Collateral Agent to give effect to
this clause (B).
(C) The Debtors shall deliver to the Collateral Agent any distribution
consisting of Subsidiary Shares or Further Securities immediately upon
receipt, together with executed stock powers and corporate resolutions
authorizing the transfer of title of such shares after an Event of Default
pursuant to the terms of this Security Agreement.
(D) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to the Debtors all such proxies and other
instruments as Debtors may reasonably request for the purpose of enabling
the Debtors to
14
exercise the voting and other rights that it is entitled to exercise
pursuant to clause (A) above and to receive the dividends or interest
payments that it is authorized to receive and retain pursuant to
clause (B) above.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(A) All rights of Debtors (x) to exercise or refrain from
exercising the voting and other consensual rights that it would
otherwise be entitled to exercise pursuant to Section 3A(a)(A) shall,
upon notice to Debtors by the Collateral Agent, cease and (y) to
receive the dividends and interest payments that it would otherwise be
authorized to receive and retain pursuant to Section 3A(a)(B) shall
automatically cease, and all such rights shall thereupon become vested
in the Collateral Agent, which shall thereupon have the sole right to
exercise or refrain from exercising such voting and other consensual
rights and to receive and hold as Pledge Securities such dividends,
interest payments and other distributions. For the avoidance of doubt,
the Collateral Agent is hereby granted an irrevocable proxy coupled
with an interest to exercise all voting power with respect to the
Subsidiary Shares and/or the Further Securities, effective upon the
occurrence of an Event of Default.
(B) All dividends, interest payments and other distributions that
are received by the Debtors contrary to the provisions of clause (A)
of this Section 3A(b) shall be received in trust for the benefit of
the Collateral Agent, shall be segregated from other funds of Debtors
and shall be forthwith paid over to the Collateral Agent as Collateral
in the same form as so received (with any necessary endorsement).
SECTION 3B. The Collateral Agent's Duties.
(a) Other than as specified in this Security Agreement and any
amendment hereto, the Collateral Agent shall not be required to take or refrain
from taking any actions, to exercise or refrain from exercising any rights, or
to make or refrain from making any requests unless it shall first receive proper
instructions from the Collateral Agent (or their respective successors or
assigns).
(b) The Collateral Agent shall hold all Collateral received by it,
and shall make disposition thereof, only in accordance with this Security
Agreement or any amendment thereto. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Collateral Agent shall have no duty as to any Collateral, as
to ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Securities, whether
or not the Collateral Agent or any the Collateral Agent has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any parties or any other rights pertaining to any
Collateral.
(c) The Collateral Agent shall not be under any duty or obligation to
inspect, review or examine any document, instrument, certificate, agreement or
other papers to determine
15
that they are enforceable or that they are other than what they purport to be on
their face. The Collateral Agent shall hold any Collateral delivered to the
Collateral Agent as the agent of the Collateral Agent.
(d) The duties and obligations of the Collateral Agent shall be determined
solely by the express provisions of this Security Agreement or any amendment
hereto or any instructions permitted hereby. The Collateral Agent shall have no
obligation with respect to any other matters covered in any other document other
than as expressly provided herein, or any amendment hereto. The Collateral Agent
shall not be liable except for the performance of such duties and obligations as
are specifically set forth in this Security Agreement or as set forth in a
written amendment to this Security Agreement executed by the parties hereto or
their successors or assigns. No representations, warranties, covenants or
obligations of the Collateral Agent shall be implied with respect to this
Agreement or the Collateral Agent's services hereunder. Without limiting the
generality of the foregoing, the Collateral Agent:
(i) shall use the same degree of care and skill as a reasonably
prudent person would use in similar circumstances (without limiting the
generality of the foregoing, the Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral
in its possession if such Collateral is accorded treatment substantially
equal to that which the Collateral Agent accords its own property of like
tenor);
(ii) shall not be obligated to take any legal action hereunder that
might in its reasonable judgment involve any expense or liability unless it
has been furnished with reasonable indemnity;
(iii) may rely on and shall be protected in acting in good faith upon
any certificate, instrument, opinion, notice, letter, telegram or other
document, or any security, delivered to it and in good faith believed by it
to be genuine and to have been signed by the proper party or parties;
(iv) may rely on and shall be protected in acting in good faith upon
the written instructions of the Collateral Agent;
(v) may consult its own independent counsel satisfactory to it and
the opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered, or omitted by it
hereunder in good faith and in furtherance of its duties hereunder, in
accordance with the opinion of such counsel;
(vi) may execute any of the powers hereunder or perform any duties
hereunder either directly or through agents or attorneys; and
(vii) will be regarded as making no representation and having no
responsibilities (except as expressly set forth herein) as to the validity,
sufficiency, value, genuineness, ownership or transferability of any
portion of the Collateral, and will not be required to and will not make
any representations as to
16
the validity, value or genuineness of any portion of the Collateral.
(e) Neither the Collateral Agent nor any of its partners, agents or
employees, shall be liable for any error in judgment, for any mistake of fact or
for any action taken or omitted to be taken by it or them hereunder or in
connection herewith in good faith and believed by it or them to be within the
purview of this Security Agreement, except for its or their own gross
negligence, lack of good faith or willful misconduct. In no event shall the
Collateral Agent or its partners, officers, agents and employees be held liable
for any special, indirect or consequential damages resulting from any action
taken or omitted to be taken by it or them hereunder in connection herewith even
if advised of the possibility of such damages.
(f) Whenever, in the administration of this Security Agreement, the
Collateral Agent reasonably shall deem it necessary that a matter be proved or
established prior to taking, suffering or omitting any action under this
Security Agreement, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate of the Secured Parties, and such certificate shall
be full warranty to the Collateral Agent for any action taken, suffered or
omitted under the provisions of this Agreement, upon the faith thereof.
SECTION 4: MISCELLANEOUS PROVISIONS
4.1 Entire Agreement; Amendments. This Security Agreement, together with
the other Transaction Documents, constitute the entire understanding and
agreement of the parties as to the matters set forth in this Security Agreement.
No alteration of or amendment to this Security Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.
4.2 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS
------------------------------------------
SECURITY AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE
RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THE
PARTIES IRREVOCABLY AND UNCONDITIONALLY AGREE (1) THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK,
NEW YORK COUNTY AND THAT THE PARTIES SHALL BE SUBJECT TO THE JURISDICTION OF
SUCH COURTS, AND (2) THAT SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, SHALL CONSTITUTE PERSONAL SERVICE. EACH DEBTOR, THE COLLATERAL AGENT
AND THE SECURED PARTIES WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 4.2. EACH DEBTOR, THE COLLATERAL AGENT AND THE SECURED PARTIES HEREBY
WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT OR ANY OF THE ACTIONS
CONTEMPLATED HEREIN, INCLUDING WITHOUT LIMITATION
17
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH DEBTOR, THE COLLATERAL AGENT AND THE SECURED PARTIES
REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
4.3 Attorneys' Fees; Expenses. The Debtors agrees to pay, jointly and
severally upon demand, all of the Collateral Agent's costs and expenses,
including without limitation reasonable attorneys' fees and legal expenses,
incurred in connection with the enforcement of this Security Agreement. The
Collateral Agent may pay someone else to help enforce this Security Agreement,
and the Debtors shall pay the costs and expenses of such enforcement. Costs and
expenses include without limitation the Collateral Agent's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, reasonable attorneys'
fees and legal expenses for bankruptcy proceedings (and including efforts to
modify or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. The Debtors also shall pay all court costs
and such additional fees as may be directed by the court.
4.4 Caption Headings. Caption headings in this Security Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Security Agreement.
4.5 Notices. All notices required to be given under this Security Agreement
shall be given in writing and shall be effective when actually delivered or two
(2) days after being deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given or, if via
facsimile, when sent via facsimile transmission to the party to whom the notice
is to be given and confirmation of such transmission has been received, at the
address and/or facsimile number shown below:
if to the Collateral Agent
Halifax Fund, L.P.
c/o The Palladin Group, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to:
Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
18
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
if to Halifax:
Halifax Fund, L.P.
c/o The Palladin Group, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to:
Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
If to the Debtors
Constellation 3D, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇
----------------------------------------------------
Any party may change its address for notices under this Security Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. For notice purposes, the Debtors
agrees to keep the Collateral Agent informed at all times of the Debtors'
current addresses.
4.6 Severability. The parties acknowledge and agree that the Collateral
Agent and
19
Secured Parties are not agents or partners of each other, that all
representations, warranties, covenants and agreements of the Collateral Agent
and Secured Parties hereunder are several and not joint, that the Collateral
Agent and Secured Parties shall not have any responsibility or liability for the
representations, warrants, agreements, acts or omissions of the other and that
any rights granted to "the Collateral Agent and Secured Parties" hereunder shall
be enforceable by each of the Collateral Agent and Secured Parties hereunder. If
a court of competent jurisdiction finds any provision of this Security Agreement
to be invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other persons
or circumstances. If feasible, any such offending provision shall be deemed to
be modified to be within the limits of enforceability or validity; however, if
the offending provision cannot be so modified, it shall be stricken, and all
other provisions of this Security Agreement in all other respects shall remain
valid and enforceable and such offending provision shall not be affected in any
other jurisdiction.
4.7 Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Security Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns. The Debtors
shall not, however, have the right to assign this Security Agreement without the
prior written consent of the Secured Parties which may be withheld for any
reason in the Secured Parties' sole discretion.
4.8 Waiver. the Collateral Agent and Secured Parties shall not be deemed to
have waived any rights under this Security Agreement unless such waiver is given
in writing and signed by the Collateral Agent and Secured Parties. No delay or
omission on the part of the Collateral Agent and Secured Parties in exercising
any right shall operate as a waiver of such right or any other right. A waiver
by the Collateral Agent and Secured Parties of a provision of this Security
Agreement shall not prejudice or constitute a waiver of the Collateral Agent's
and Secured Parties' right otherwise to demand strict compliance with that
provision or any other provision of this Security Agreement. No prior waiver by
the Collateral Agent and Secured Parties, nor any course of dealing between the
Collateral Agent and Secured Parties and the Debtors, shall constitute a waiver
of any of the Collateral Agent's and Secured Parties' rights or of any of the
Debtors' obligations as to any future transactions. Whenever the consent of the
Collateral Agent and Secured Parties is required under this Security Agreement,
the granting of such consent by the Collateral Agent and Secured Parties in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of the Collateral Agent and Secured Parties.
4.9 Indemnity. Except to the extent caused directly by the Collateral Agent
or a Secured Parties' gross negligence or wilful misconduct, the Debtors agree,
jointly and severally, to indemnify, pay and hold the Collateral Agent, each
Secured Party and the officers, partners, directors, employees, agents and
affiliates thereof (collectively, the "indemnitees") harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) that may be imposed on, incurred by, or asserted
against any indemnitee, in any manner relating to or arising out of this
Security Agreement and any action undertaken or contemplated hereby. This
indemnification shall survive the satisfaction and payment of the Indebtedness
and termination of
20
this Security Agreement.
4.10 Subsidiary Liability. Anything herein or in any other to the contrary
notwithstanding, the maximum liability of each Subsidiary hereunder and under
the other Transaction Documents shall in no event exceed the amount allowed
under applicable federal and state laws, including laws relating to the
insolvency of debtors, fraudulent conveyance or transfer or laws affecting the
rights of creditors generally (after giving effect to the right of contribution
established in Section 4.11).
4.11 Right Of Contribution. Each Debtor hereby agrees that to the extent
that a Debtor shall have paid more than its proportionate share of any payment
made hereunder, such Debtor shall be entitled to seek and receive contribution
from and against any other Debtor hereunder which has not paid its proportionate
share of such payment. Each Debtor's right of contribution shall be subject to
the terms and conditions of Section 4.12. The provisions of this Section 4.11
shall in no respect limit the obligations and liabilities of any Debtor to the
Secured Parties, and each Debtor shall remain liable to the Secured Parties for
the full amount for which such Debtor is obligated hereunder.
4.12 No Subrogation. Notwithstanding any payment made by any Debtor
hereunder or any set-off or application of funds of any Debtor by the Secured
Parties, no Debtor shall be entitled to be subrogated to any of the rights of
the Secured Parties against a Debtor or any collateral security or guarantee or
right of offset held by the Secured Parties for the payment of the Indebtedness,
nor shall any Debtor seek or be entitled to seek any contribution or
reimbursement from another Debtor in respect of payments made by such Debtor
hereunder, until all amounts owing to the Secured Parties by the Debtors under
any Indebtedness Documents are paid in full. If any amount shall be paid to any
Debtor on account of such subrogation rights at any time when any such amounts
shall not have been paid in full, such amount shall be held by such Debtor in
trust for the Secured Parties, segregated from other funds of such Debtor, and
shall, forthwith upon receipt by such Debtor, be turned over to the Secured
Parties in the exact form received by such Debtor (duly indorsed by such Debtor
to the Investor, if required), to be applied against the Indebtedness of the
Debtors under the Indebtedness Documents, whether matured or unmatured, in such
order as the Secured Parties may determine.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed as of the date first written above.
CONSTELLATION 3D, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------
Name:
Title: Chief Executive Officer
VELOR INCORPORATED
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
Title:
TRIDSTORE IP, L.L.C.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
Title:
TRID STORE VOSTOK
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
Title:
C-TRID ISRAEL LTD
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
Title:
TRIDSV, INC.
22
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
Title:
CONSTELLATION 3D TRUST LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
Title:
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COLLATERAL AGENT
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-fact
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
Name:
Title: Counsel
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in Fact
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Name:
Title: Counsel
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SCHEDULE A
Identification, Ownership and Location of Collateral
----------------------------------------------------
Please see attachments.
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