SECURITY AGREEMENT between CODA OCTOPUS GROUP, INC. CERTAIN OF ITS WHOLLY OWNED SUBSIDIARIES and THE ROYAL BANK OF SCOTLAND PLC
DATED
21 FEBRUARY
2008
between
CERTAIN
OF ITS WHOLLY OWNED SUBSIDIARIES
and
THE
ROYAL BANK OF SCOTLAND PLC
1
THIS
SECURITY AGREEMENT (this “Agreement”) dated
as
of 21 February 2008 by and among Coda Octopus Group, Inc., a corporation
organized under the laws of Delaware which has its main offices at ▇▇▇ ▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇,
▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (as is defined in Section 1.1 below, the “Company”) and
certain of the Company’s Subsidiaries named on the signature page to this
Agreement and The Royal Bank of Scotland plc acting through its London offices
located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ a signatory hereto (collectively,
the
“Secured Party”)
W
I T N E
S S E TH
WHEREAS,
pursuant to a Subscription Agreement dated the date hereof between the Company
and the Secured Party (the “Subscription
Agreement”),
the
Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from the Company certain of the Company’s 8.5% Secured
Convertible Loan Notes due 7 years from the date of issue (the “Notes”) which
are convertible into shares of the Company’s Common Stock, par value $0.001 per
share (the “Common Stock”); and
WHEREAS,
in order to induce the Secured Party to purchase the Notes, the Company has
agreed to execute and deliver to the Secured Party for the benefit of the
Secured Party and to grant to it a security interest in certain property of
the
Company to secure the prompt payment, performance and discharge of all of the
Company’s Obligations (as defined below) under the Notes;
NOW,
THEREFORE, in consideration of the agreements set forth herein and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
AGREED
TERMS
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DEFINITIONS
AND INTERPRETATION
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1.1
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Definitions
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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 Section 1 or Article
9
of the UCC (such as “general intangibles” and “proceeds”) shall have the
respective meanings given to such terms in Article 9 of the UCC.
“Business
Day”
means a
day (excluding Saturdays, Sundays and any public holiday) on which banks are
open for business in New York and London for the transaction of normal banking
business.
2
“Collateral”
means
the
collateral in which the Secured Party is granted a security interest by this
Agreement and which shall include 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 in connection therewith:
| (i) |
All
goods of the Company, including, without limitation, 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 in connection
with the Company's businesses improvements thereto (collectively,
the
“Equipment”);
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| (ii) |
All
inventory of the Company; and
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| (iii) |
All
of the Company'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, internet domain names, deposit accounts, and income tax
refunds (collectively, “General Intangibles”); and
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| (iv) |
All
present and future rights of the Company to payment of a monetary
obligation, whether or not earned by performance, which is not evidenced
by chattel paper or an instrument, (a) for property that has been
or is to
be sold, leased, licensed, assigned, or otherwise disposed of, (b)
for
services rendered or to be rendered, (c) for a secondary obligation
incurred or to be incurred, or (d) arising out of the use of a credit
or
charge card or information contained on or for use with the card
(collectively, “Accounts”); and
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| (v) |
All
receivables of the Company 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
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| (vi) |
All
of the Company's documents, instruments, chattel paper, files, records,
books of account, business papers, computer programs
and the products and proceeds of all Collateral set forth in clauses
(i)-(iv) above in any form including, without limitation, all claims
against third parties for loss or damage to, or destruction of, or
other
involuntary conversion of any kind or nature of any of the other
Collateral;
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but
excludes Excluded Property and all assets of Colmek (as is defined below) until
the provisions set forth in Paragraph 2 of Schedule 1.1(a) hereto are satisfied
and upon such satisfaction the collateral in respect of which the Colmek
security interest is granted is limited as set forth in Paragraph 2 of Schedule
1.1(a).
3
“Company”
means,
collectively, the Company and all its US subsidiaries (whether wholly owned
or
otherwise) which are set forth in Schedule 1.1 (b) hereto and any future US
subsidiaries (whether wholly owned or otherwise) or any of them as the context
permits.
“Costs”:
means
all costs, charges, expenses and liabilities of any kind including, without
limitation, costs and damages in connection with litigation, professional fees,
disbursements and any value added tax charged on Costs.
“Colmek
Encumbrances” means
those set forth in Paragraph 2 of Schedule 1.1(c).
“Colmek
Shares”
means
all the issued and outstanding shares of common stock of Colmek sold by the
Selling Shareholders to Coda Octopus (US) Holdings, Inc.
“Cure
Period”
means
the period before the Security Interest provided for herein becomes enforceable
and which shall be 30 days from the earlier of (i)
the
date the Company becomes aware, or ought reasonably to be aware, of the failure
to observe or commission of the breach and (ii) the date the Company is given
notice by RBS to remedy an
Event
of Default.
“Debentures”
means
the two debentures to be granted on the date hereof in favour of the Subscriber,
one debenture to be granted by Coda Octopus (UK) Holdings Ltd and the other
by
Martech Systems (Weymouth) Ltd and “Debenture”
shall
mean whichever of the Debentures as the context admits;
“Encumbrance”
means
any mortgage, charge (whether legal or equitable), pledge, lien, assignment
by
way of security or other security interest securing any obligation of any
person, or any other agreement or arrangement having a similar effect.
“Excluded
Property”
means
any leasehold property held by the Company under a lease which precludes, either
absolutely or conditionally (including requiring the consent of any third
party), the Company from creating any charge over its leasehold interest in
that
property.
“FGI”
means
Faunus Group International, Inc. a Delaware corporation whose principal place
of
business is ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
“FGI
Encumbrances”
means
those set forth in Paragraph 1 of Schedule 1.1(c).
“Floating
Charges”
means
the two floating charges to be granted on the date hereof in favour of the
Subscriber, one floating charge to be granted by Coda Octopus Products Ltd
and
the other by Coda Octopus R & D Ltd and “Floating
Charge”
shall
mean whichever of the Floating Charges as the context admits;
4
“Intercreditor
Deed” means
a
deed entered into on or around the date of this Agreement among the Company,
the
Secured Party and FGI regulating the priorities of the various charges and
security interests held by the Secured Party and FGI.
“Loan
Note Instrument
means an
instrument executed by Coda Octopus Group, Inc. on the date hereof creating
USD
12,000,000 of secured, convertible loan notes.
“Lock-up
Agreements”
means
certain agreements entered into on or around the date hereof between the
directors and board members of the Company (with certain exceptions) during
the
agreed period not to sell or transfer or otherwise disposed of any of their
shares in the Company.
“▇▇▇▇▇▇
& Hilton d/b/a Colmek Systems Engineering (“Colmek”),
means a
corporation incorporated and registered in the State of Utah with Company Number
689323-0142 and whose address is ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇ and which is a wholly owned subsidiary of the Company.
“Noteholder”
means
the
person for the time being entered in the Register as a holder of any part of
the
Notes
“Notes”
means
USD 12,000,000 Convertible Secured Loan Notes due 21 February
2015 constituted by this Instrument, or, as the case may be, the Principal
Amount Outstanding represented by them, and each “Note”
shall be
for a nominal amount of USD 100,000;
“Obligations”
means
all of the Company’s obligations under the Transaction Documents, in each case,
whether now or hereafter existing, voluntary or involuntary, 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 decreased, 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 Party as a preference, fraudulent transfer or
otherwise as such obligations may be amended, supplemented, converted, extended
or modified from time to time.
“Permitted
Encumbrance”
means
any Encumbrances referred to in Schedule 1.1(c).
“Selling
Shareholders”
means
the shareholders who sold the Colmek Shares to Coda Octopus (US) Holdings Inc.
pursuant to an acquisition agreement between the parties dated April 6,
2007.
“Subscription
Agreement”
means
the subscription agreement on the date hereof between the Secured Party and
the
Coda Octopus Group, Inc.
“Transaction
Documents” means
this Agreement, the Subscription Agreement, the Loan Note Instrument, the Deed
of Guarantee, the Debentures, the Floating Charges, the Lock-up Agreements,
the
Confidentiality Agreement, the Intercreditor Deed and all other documents
entered into in connection with any of them;
“UCC”
means
the Uniform Commercial Code, as effect in the State of New York.
5
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2.
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GRANT
OF SECURITY INTEREST
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2.1.
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As
an inducement for the Secured Party to purchase the Notes and secure
the
complete and timely payment, performance, discharge in full, as the
case
may be, of all the Obligations, the Company hereby unconditionally
and
irrevocably pledges, grants and hypothecates to the Secured Party,
a
continuing security interest in, a continuing lien upon, and a right
of
set-off against, in each case to the fullest extent permitted by
law, all
of the Company’s right, title and interest of whatsoever kind and nature
in and to the Collateral ( the “Security
Interest”).
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2.2.
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The
Security Interest in Colmek shall be subject to the Colmek Encumbrances
and shall be granted in and/or over the Colmek Collateral defined
in the
said Schedule.
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2.3.
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The
Secured Party acknowledges the Permitted Encumbrances set forth in
Schedule 1.1(c) hereto, and that FGI has first and continuing security
interest existing in the Collateral (FGI Encumbrance) and the Selling
Shareholders have prior pledges of the Colmek Shares at the date
of this
Agreement (Colmek Encumbrance).
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3.
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REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY
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3.1.
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The
Company represents and warrants to, and covenants and agrees with
the
Secured Party as follows:
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3.1.1.
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Authorization
and Binding Effect. Each
of the Company 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 the Company and the filings
contemplated therein have been duly authorized by all necessary action
of
the Company and no further action is required by the Company. This
Agreement constitutes a legal, valid and binding obligation of the
Company
enforceable in accordance with its terms, except as enforceability
may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar
principles affecting the enforcement of creditors’ rights generally.
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3.1.2.
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Title
in and over Collateral. Except as is disclosed in Schedule 3.1.2
hereto,
the Company is the sole owner of the Collateral (except for non-exclusive
licenses granted by the Company in the ordinary course of business),
free
and clear of any Encumbrances and is fully authorized to grant the
Security Interest in and pledge the Collateral. Except as is disclosed
in
Schedule 3.1.2 hereto, 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
the
Secured Party pursuant to this Agreement) covering or affecting any
of the
Collateral.
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6
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3.1.3.
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Impairment
of Collateral. No part of the Collateral has been judged invalid
or
unenforceable. No written claim has been received that any Collateral
or
the Company's use of any Collateral violates rights of any third
party.
There has been no adverse decision to the Company's claim of ownership
rights in or exclusive rights to use the Collateral in any jurisdiction
or
to the Company's right to keep and maintain such Collateral in force and
effect, and there is no proceeding involving said rights pending
or, to
the best knowledge of the Company threatened before any court, judicial
body, administrative or regulatory agency, arbitrator or other
governmental authority.
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3.1.4.
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Contractual
Obligations.
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 Company is
a party or by which the Company is bound. No consent (including,
without
limitation, from stockholders or creditors of the Company) is required
for
the Company to enter into and perform its obligations hereunder.
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| 3.1.5. |
Maintenance
of Liens and Security Interest Obligations. Subject to existing Permitted
Encumbrances at the date of this Agreement, the Company shall at
all times
maintain the liens and Security Interest provided for hereunder as
valid
and perfected first priority liens and security interests in the
Collateral in favor of the Secured Party until this Agreement and
the
Security Interest hereunder shall terminate pursuant to Section 12
hereof.
The Company hereby agrees to defend the same against any and all
persons.
The Company shall safeguard and protect all Collateral for the account
of
the Secured Party. Without limiting the generality of the foregoing,
the
Company shall pay all fees, taxes and other amounts necessary to
maintain
the Collateral and the Security Interest hereunder, and the Company
shall
obtain and furnish to the Secured Party from time to time, upon demand,
such releases subordinations of claims and liens which may be required
to
maintain the priority of the Security Interest.
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3.1.6.
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Restriction
on further Encumbrances. Save Permitted Encumbrances at the date
of this
Agreement and those authorized by Clause 3.7 of the Loan Note Instrument,
the Company will not grant or create any Encumbrances in favor of
a third
party (except in the ordinary course of business and in connection
with
any receivables financing which the Company may obtain and in such
event
any grant of a security interest will rank junior to the Secured
Party’s
Security Interest granted herein), sell or otherwise dispose of any
of the
Collateral without the prior written consent of the Secured Party.
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3.1.7.
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The
Company 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.
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7
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3.1.8.
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The
Company shall, within 15 days of obtaining knowledge thereof, advise
the
Secured Party promptly, in sufficient detail, of any substantial
change in
the Collateral, and of the occurrence of any event which would have
material adverse effect on the value of the Collateral or on the
Secured
Party’s Security Interest therein.
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3.1.9.
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The
Company shall promptly execute and deliver to the Secured Party such
further deeds, mortgages, assignments, agreements, financing statements
or
other instruments, documents, certificates and assurances and take
such
further action as the Secured Party may from time request and may
in its
sole discretion deem necessary to perfect, protect or enforce its
Security
Interest in the Collateral.
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3.1.10.
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The
Company shall permit the Secured Party and its representatives and
agents
to inspect the Collateral at any time, and to make copies of records
pertaining to the Collateral as may be requested by the Secured Party
from
time to time.
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3.1.11.
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The
Company will take all steps reasonably necessary to pursue diligently
and
seek to preserve, enforce and collect any rights, claims, causes
of action
and accounts in respect of the Collateral.
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3.1.12.
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The
Company shall promptly notify the Secured Party in sufficient detail
upon
becoming aware of any garnishment, execution or other legal process
levied
against any Collateral and of any other information received by the
Company that may materially affect the value of the Collateral, the
Security Interest or the rights of the Secured Party hereunder.
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3.1.13
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All
information heretofore, herein or hereafter supplied to the Secured
Party
by or on behalf of the Company with respect to the Collateral is
accurate
and complete in all respects as of the date
furnished.
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3.1.14
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Accounts
Covenants.
The Secured Party shall after an Event of Default and after the expiration
of the Cure Period (and the Event of Default remains uncured) have
the
right at any time or times, in Secured Party's name or in the name
of a
nominee of Secured Party, to verify the validity, amount or any other
matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
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| 3.1.15 |
Chief
Executive Office. Collateral Locations. The chief executive office
of the
Company and the Company's records concerning Accounts are located
only at
the address set forth in the preamble to this Agreement. Except as
is
disclosed in this Schedule 3.1.15, the Company has not, during the
past
five years, been known by or used by any other corporate or fictitious
name or been a party to any merger or consolidation, or acquired
all or
substantially all of the assets of any Person, or acquired any of
its
property or assets out of the ordinary course of
business.
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8
| 3.1.16 |
Maintenance
of Existence.
The Company shall at all times preserve, renew and keep in full force
and
effect its corporate existence and rights and franchises with respect
thereto and maintain in full force and effect all permits, licenses,
approvals, authorizations, leases and contracts necessary to carry
on the
business as presently, or proposed to be, conducted. The Company
shall not
change its name unless each of the following conditions is specified:
(i)
the Company shall give the Secured Party fifteen (15) days’ prior written
notice of any proposed change in its legal name, which notice shall
accurately set forth the new name; and (ii) prior to the filing thereof
the Company shall deliver to Secured Party a copy of the proposed
amendment to the certificate of incorporation of the Company providing
for
the name change and once the filing has been made, Secured Party
shall
receive a copy of such amendment to the certificate of incorporation
of
the Company certified by the Secretary of State of the jurisdiction
of
organization of the Company as soon as it is available. The Company
shall
not change its jurisdiction of incorporation without the consent
of the
Secured Party.
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| 3.1.17 |
Payment
of Taxes and Claims. The Company has paid or caused to be paid all
taxes
due and payable or claimed due and payable in any assessment received
by
it, except taxes the validity of which is being contested in good
faith by
appropriate proceedings diligently pursued and available to the Company
and with respect to which adequate reserves have been set aside on
its
books. The Company shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its
properties or assets, except for taxes the validity of which is being
contested in good faith by appropriate proceedings diligently pursued
and
available to the Company and with respect to which adequate reserves
have
been set aside on its books.
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| 3.1.18 |
Insurance.
The Company shall, at all times, maintain with reputable insurers
insurance with respect to the Collateral against loss or damage and
all
other insurance of the kinds and in the amounts customarily insured
against or carried by corporations of established reputation engaged
in
similar businesses and similarly situated.
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COVENANT
TO DISCHARGE PERMITTED
ENCUMBRANCES
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4.1.
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The
Company shall take all steps necessary to settle all its indebtedness
and
obligations in full in relation to (a) the Colmek Encumbrances by
no later
than April 30, 2008; and (b) the FGI Encumbrances by no later than
September 30, 2008; and procure that the security interest in and
over the
Collateral in respect of these Permitted Encumbrances be released
and all
filings and recordings pertaining to same be terminated or otherwise
removed from all registers.
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4.2.
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In
respect of the Colmek Encumbrances the Company shall no later than
April
30, 2008 take all steps in all jurisdictions necessary to ensure
that
after the discharge of the Colmek Encumbrance, the Security Interest
of
the Secured Party constitutes at that time a first priority Security
Interest in the Collateral. No Cure Period shall be given for breach
of
this covenant.
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4.3.
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In
respect of the FGI Encumbrance the Company shall no later than November
1,
2008, take all steps in all jurisdictions necessary to ensure that
after
the discharge of the related Permitted Encumbrance, the Security
Interest
of the Secured Party constitutes at that time a first priority Security
Interest in the Collateral. No Cure Period shall be given for breach
of
this covenant.
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9
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5.
DEFAULTS
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| 5.1. |
The
following events shall be Events of Default:
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5.1.1.
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an
Event of Default as is prescribed by Condition 9 of Loan Note Instrument
which has not been remedied as provided for in Condition 9.2 of the
Loan
Note Instrument.
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5.1.2.
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Any
representation or warranty of the Company in this Agreement proves
to have
been incorrect in any material respect when made.
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5.1.3
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the
failure of the Company to observe or perform its obligations hereunder
and
which remains uncured after the expiration of the Cure
Period.
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| 6. |
DUTY
TO HOLD ON TRUST
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Upon
the
expiration of the Cure Period and if the Event of Default remains uncured and
at
any time thereafter, the Company shall, upon receipt by it of any revenue,
income or other sums subject to the Security Interest, whether payable pursuant
to the Notes 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 Party and shall forthwith endorse and transfer any such
sums or instruments or both, to the Secured Party for application to the
satisfaction of the Obligations.
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7.1.
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Upon
occurrence of any Event of Default and provided that after the lapse
of
the Cure Period such Event of Default remains uncured, and at any
time
thereafter, the Secured Party shall have the right to exercise all
of the
remedies conferred hereunder and under the Notes, and the Secured
Party
shall have all the rights and remedies of a secured party under the
UCC
and/or any other applicable law (including Commercial Code of any
jurisdiction in which then located) but subject always to the prior
Permitted Encumbrances if such Event of Default occurs prior to their
discharge. Without limitation, the Secured Party shall have the following
rights and powers:
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7.1.1.
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The
Secured Party shall have the right to take possession 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 Company shall assemble
the
Collateral or any part thereof and make it available to the Secured
Party
at places which Secured Party shall reasonably select, whether at
the
Company’s premises or elsewhere, and make available to the Secured Party,
without rent, all of the Company's respective premises and facilities
for
the purpose of the Secured Party taking possession of, removing or
putting
the Collateral in saleable or disposable form.
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10
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7.1.2.
|
The
Secured Party shall have the right to operate the business of the
Company
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 such parcel or parcels and at such time or times
and at
such place or places, and upon such terms and conditions as the Secured
Party may deem commercially reasonable, (except as shall be required
by
applicable statute and cannot be waived) all without advertisement
or
demand upon or notice to the Company or right of redemption of the
Company, which are hereby expressly waived.
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8.1
|
The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder shall be applied first, to the expenses of retaking, holding,
storing, processing and preparing for sale, selling and the like,
including Costs incurred in connection therewith, of the Collateral
by the
Secured Party in enforcing its rights hereunder and in connection
with
collecting, storing and disposing of the Collateral, and then to
satisfaction of any indebtedness in relation to the prior Permitted
Encumbrances (if the Event of Default occurs prior to their discharge),
satisfaction of the Obligations, and to the payment of any other
amounts
required by applicable law, after which the Secured Party shall pay
the
Company any surplus proceeds. If, upon the sale, license or other
disposition of the Collateral, the proceeds thereof are insufficient
to
pay all amounts to which the Secured Party is legally entitled, the
Company will be liable for the deficiency, together with interest
thereon,
at the rate of 10% per annum (the “Default Rate”), and the reasonable
Costs incurred by the Secured Party in collecting the deficiency.
To the
extent permitted by applicable law, the Company waives all claims,
damages
and demands against the Secured Party arising out of the repossession,
removal, retention or sale of the Collateral, unless resulting from
the
negligence or wilful misconduct of the Secured Party.
|
The
Company agrees to pay out-of-pocket fees and Costs incurred in connection with
any filing required hereunder, including without limitation, any financing
statements, continuation statements, partial releases and/or termination
statements related thereto or any expenses of any searches reasonably required
by the Secured Party. The Company shall also pay all other claims and charges
which in the reasonable opinion of the Secured Party might prejudice, imperil
or
otherwise affect the Security Interest therein. The Company will also, upon
demand, pay to the Secured Party the amount of reasonable expenses and Costs
which the Secured Party may incur in connection with (i) enforcement of this
Agreement, (ii) the custody or preservation of, or the sale of, collection
from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Secured Party under the Transaction
Documents.
11
The
Company assumes all liabilities and responsibility in connection with all
Collateral,
and the obligations of the Company hereunder or under the Transaction Documents
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.
All
rights of the Secured Party and all Obligations of the Company hereunder, shall
be absolute and unconditional, irrespective of: (a) any lack of validity or
enforceability of this Agreement or the Transaction Documents 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 Transaction Documents or any other
agreement entered into in connection with the foregoing; (c) any exchange,
release, 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 Party 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 circumstances which might otherwise constitute
any legal or equitable defense available to the Company, or a discharge of
all
or any part of the Security Interest granted hereby. Until the Obligations
shall
have been paid and performed in full the rights of the Secured Party shall
continue even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations or bankruptcy. The Company
expressly waives presentment, protest, notice of protest, demand, notice of
non-payment and demand for performance. In the event that at any time any
transfer of any Collateral or any payment received by the Secured Party
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 Party, then, in any such event, the Company's
obligations hereunder shall survive the 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 provisions hereof. The Company waives all
right to require the Secured Party to proceed against any other person or to
apply any Collateral which the Secured Party may hold at any time or to marshal
assets, or to pursue any other remedy. The Company waives any defense arising
by
reason of the application of the statute of limitations to any obligations
secured hereby.
12
This
Agreement and the Security Interest shall terminate on the date on which all
payments under the Notes have been made in full and all other Obligations been
paid or discharged. Upon such termination, the Secured Party,
at
the request and at the expense of the Company, will join in executing any
termination statement with respect to any financing statement authorized and
filed pursuant to this Agreement.
|
13.1.
|
The
Company authorizes the Secured Party, and does hereby make, constitute
and
appoint it, and its respective agents, successors or assigns with
full
power of substitution, as the Company's true and lawful attorney-in-fact,
with power in its own name or in the name of the Company, to, after
the
occurrence and after any Cure Period has lapsed and the Event of
Default
continues (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 Party (ii) authorize and endorse any UCC
financing statement 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) pay or discharge
taxes,
liens, security interests or other Encumbrances at any time levied
or
placed on or threatened against the Collateral; (iv) demand, collect,
receipt for, compromise, settle and ▇▇▇ for monies due in respect
of the
Collateral; and (v) generally, do, at the option of the Secured Party,
and
at the Company’s expense at any time, or from time to time, all acts and
things which the Secured Party deems necessary to protect, preserve
and
realize upon the Collateral and the Security Interest granted therein
in
order to effect the intent of this Agreement and the other Transaction
Documents, all as fully and effectually as the Company might or could
do;
and the Company 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.
|
|
13.2.
|
On
a continuing basis, the Company will make, execute, acknowledge,
deliver,
file and record, as the case may be, in the proper filing and recording
places in any jurisdictions, including without limitation, the
jurisdictions indicated on Schedule 13.2 hereof, all such instruments,
and
take all such actions as may reasonably be deemed necessary to perfect
the
Security Interest granted hereunder and otherwise to carry out the
intent
and purposes of this Agreement or for assuring and confirming to
the
Secured Party the grant or perfection of a security interest in all
the
Collateral.
|
13
|
13.3.
|
The
Company hereby irrevocably appoints the Secured Party as the Company's
attorney-in-fact, with full authority in the place and stead of the
Company and in the name of the Company, from time to time in the
Secured
Party's discretion, to take any action and to execute any instrument
which
the Secured Party 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 the
Company where permitted by law.
|
| 14. |
|
14.1.
|
All
notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or
certified
first-class mail, return receipt requested, telecopier, courier service
or
personal delivery:
|
if
to the
Company or any of its subsidiaries to:
▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Telecopy:
1 212 924 3447
Attention:
Chief Executive Officer and President
with
copies to:
Sichenzia
▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇
▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy:
212-930-9725
and
to
▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Telecopy:
1 917 591 8594
Attention:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
if
to the
Secured Party :
The
Royal
Bank of Scotland plc
▇▇▇
▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇ ▇▇▇
Attention:
Repack Middle Office
Fax:
▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇
14
with
copies to:
The
Royal
Bank of Scotland plc
▇▇▇
▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇ ▇▇▇
Attention:
GBM Legal
Fax:
▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇
and
to
▇▇▇▇▇▇
& ▇▇▇▇▇▇▇
Citypoint,
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
All
such
notices, demands and other communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied. Any party may by notice given
in
accordance with this Section 14 designate another address or Person for receipt
of notices hereunder.
| 15. |
| 15.1. |
Headings
|
The
headings in this Agreement are for convenience of reference only and shall
not
limit or otherwise affect the meaning hereof.
| 15.2. |
Governing
law
|
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to the principles of conflicts of law
thereof.
| 15.3. |
Amendment
and Waiver
|
No
course
of dealing between the Company and the Secured Party, failure to exercise,
nor
delay in exercising, on the part of the Secured Party, any right, power or
privilege hereunder or under the Transaction Documents shall operate as a waiver
thereof; nor shall any single or partial exercise or any right, power or
privilege hereunder preclude any other further exercise thereof or the exercise
of any other right, power or privilege. All of the rights and remedies of the
Secured Party with respect to the Collateral, whether established hereby or
by
the Transaction Documents or any other agreements, instruments or documents
or
by law shall be cumulative and may be exercised singly or concurrently.
Except
as
is specifically set forth in this Agreement, no provision of this Agreement
may
be modified or amended except by a written agreement specifically referring
to
this Agreement and signed by the parties hereto.
15
| 15.4. |
Rules
of Construction.
|
Unless
the context otherwise requires, references to sections or subsections refer
to
sections or subsections of this Agreement.
| 15.5. |
Entire
Agreement
|
This
Agreement, together with the exhibits and schedules hereto, and the other
Transaction Documents are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of
the subject matter contained herein and therein. There are no restrictions,
promises, representations, warranties or undertakings, other than those set
forth or referred to herein or therein. This Agreement, together with the
exhibits and schedules hereto, and the other Transaction Documents supersede
all
prior agreements and understandings between the parties with respect to such
subject matter.
| 15.6. |
Severability
|
|
If
any one or more of the provisions contained herein, or the application
thereof in any circumstance, is held invalid, illegal or unenforceable
in
any respect for any reason, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the
benefits
of the remaining provisions hereof.
|
| 15.7. |
Counterparts
|
This
Agreement may be executed in any number of counterparts and by the parties
hereto in separate 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.
|
15.8.
|
Further
Assurances
|
Each
of
the parties shall execute such documents and perform such further acts
(including, without limitation, obtaining any consents,
exemptions, authorizations or other actions by, or giving any notices to, or
making any filings with, any governmental authority or any other person as
may
be reasonably required or desirable to carry out or to perform the provisions
of
this Agreement.
16
| 15.9 |
Choice
of Forum; Service of Process; Jury Trial Waiver.
|
|
15.9.1.
|
The
Company irrevocably consents and submits to the non-exclusive jurisdiction
of any federal or State court of competent jurisdiction sitting in
the
City and County of New York, New York, and waives any objection based
on
venue or forum
non conveniens
with respect to any action instituted therein arising under this
Agreement
or any of the other Transaction Documents or in any way connected
or
related or incidental to the dealings of the Company and Secured
Party in
respect of this Agreement or the other Transaction Documents or the
transactions related hereto or thereto, in each case whether now
existing
or hereafter arising, and whether in contract, tort, equity or otherwise,
and agrees that any dispute with respect to any such matters shall
be
heard only in the courts described above (except that Secured Party
shall
have the right to bring any action or proceeding against the Company
or
its property in the courts of any other jurisdiction which Secured
Party
deems necessary or appropriate in order to realize on the Collateral
or to
otherwise enforce its rights against the Company or its property).
|
|
15.9.2.
|
The
Company hereby waives personal service of any and all process upon
it and
consents that all such service of process may be made by certified
mail
(return receipt requested) directed to its address set forth in the
preamble hereto and service so made shall be deemed to be completed
five
(5) days after the same shall have been so deposited in the U.S.
mails,
or, at Secured Party's option, by service upon the Company in any
other
manner provided under the rules of any such courts. Within thirty
(30)
days after such service, the Company shall appear in answer to such
process, failing which the Company shall be deemed in default and
judgment
may be entered by Secured Party against the Company for the amount
of the
claim and other relief requested.
|
|
15.9.3.
|
The
Company hereby waives and right to trial by jury of any claim, demand,
action or cause of action (i) arising under this Agreement or any
of the
other Transaction Documents or (ii) in any way connected with or
related
or incidental to the dealings of the Company and Secured Party in
respect
of this Agreement or any of the other Transaction Documents or the
transactions related hereto or thereto in each case whether now existing
or hereafter arising, and whether in contract, tort, equity or otherwise.
The Company hereby agrees and consents that any such claim, demand,
action
or cause of action shall be decided by court trial without a jury
and that
the Company or Secured Party may file an original counterpart of
a copy of
this Agreement with any court as written evidence of the consent
of the
Company and Secured Party to the waiver of their right to trial by
jury.
|
[Remainder
of page intentionally left blank.]
17
IN
WITNESS WHEREOF, the undersigned have executed, or have caused to be executed,
this Security Agreement on the date first written above.
| CODA OCTOPUS GROUP, INC. | ||
| |
|
|
| By: | ||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
President
|
||
|
CODA
OCTOPUS (US) HOLDINGS, INC.
|
||
| |
|
|
| By: | ||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
President
|
||
|
PORT
SECURITY GROUP, Inc.
|
||
| |
|
|
| By: | ||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
Director
|
||
| INNALOGIC, Inc. | ||
| |
|
|
| By: | ||
|
Name:
Title:
|
||
| ▇▇▇▇▇▇ AND HILTON D/BA COLMEK ENGINEERING SYSTEMS | ||
| |
|
|
| By: | ||
|
Name:
Title:
|
||
▇▇
| ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ PLC | ||
| |
|
|
| By: | ||
|
Name:
Title:
|
||
19
Schedule
1.1(a)
The
grant
of the Security Interest in Colmek shall be construed as taking effect on or
no
later than April 30, 2008 and at such time the “Collateral” for the purposes of
securing the Obligations shall mean:
“All
receivables of the Company 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 (“Colmek
Collateral”).
The
Secured Party specifically takes its Security Interest in and over the Colmek
Collateral with full knowledge that the Company’s interest in and over Colmek is
restricted by the terms of a Special Security Agreement between Coda Octopus
Group Inc, Coda Octopus (US) Holdings, Inc and its affiliates, Colmek (on the
one hand) and United States Department of Defense (DoD) appended hereto as
Exhibit
2 and
which
is designed to prevent the unauthorized access or disclosure of US classified
restricted information.
Schedule
1.1(b)
As
of
date hereof the Coda Octopus Group, Inc. has the following wholly owned US
subsidiaries:
|
1.
|
Coda
Octopus Products Inc. a Delaware Corporation with its principal place
of
business at ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
|
|
2.
|
Coda
Octopus (US) Holdings, Inc. a Delaware corporation with its principal
place of business at ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇ (▇▇), ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇.
|
|
3.
|
Coda
Octopus Research and Development Inc, a Delaware corporation with
its
principal place of business at ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇ (▇▇), ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇.
|
|
4.
|
Innalogic
Inc., a Delaware corporation with its place of business at 164 West,
25th
Street, 6th
Floor (6F), ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇ with its principal place of business
at ▇▇▇
▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇ (▇▇), ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇.
|
|
5.
|
The
Port Security Group, Inc., a Delaware corporation with its place
of
business at ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇ (▇▇), ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇.
|
|
6.
|
▇▇▇▇▇▇
and ▇▇▇▇▇▇, d/b/a Colmek Systems Engineering (“Colmek”), a Utah
corporation (Corporation Number 2400704-0150) with its principal
place of
business at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇.
|
20
Schedule
1.1(c)
Permitted
Encumbrances
| 1. |
FGI
Encumbrance
|
As
of the
date hereof Faunus Group International, Inc a Delaware corporation whose
principal place of business is ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ has a prior first and continuing security interest
in a
part of the Collateral pursuant to a “Sale of Accounts and Security Agreement”
(Exhibit
1 hereto)
and
which has been perfected in accordance with the applicable provisions of the
UCC. The said Permitted Encumbrances are specifically subject to the various
covenants and undertakings of the Company to discharge the Permitted
Encumbrances.
| 2. |
Colmek
Encumbrance
|
As
of the
date hereof and pursuant to the acquisition agreement between the Coda Octopus
(US) Holdings Inc, Colmek and the Selling Shareholders of Colmek, Coda Octopus
(US) Holdings has pledged the Colmek Shares to the Selling Shareholders to
secure the deferred consideration remaining and due to the Selling Shareholders
of US$700,000. This is due to be discharged on April 6, 2008 along with the
pledges.
| 3. |
General
Liens
|
Any
liens
for taxes or assessments not at the time due and (b) liens in respect of pledges
or deposits under workers’ compensation laws or similar legislation, carriers’,
warehousemen’s, mechanics’, laborers’ and material men’s and similar liens, if
the obligations secured by such liens are not then delinquent.
21
Schedule
3.1.2
The
Company’s title in and over the Collateral is limited by the Permitted
Encumbrances disclosed in Schedule 1.1.(c).
UCC
Filings are recorded in Delaware in respect of the FGI Encumbrance.
22
Schedule
3.1.15
On
July
13, 2004, pursuant to the terms of a share exchange agreement between The Panda
Project, Inc., a Florida corporation, and Fairwater Technologies Ltd.
(“Fairwater”), Panda acquired the shares of Coda Octopus Limited, a UK
corporation and Fairwater’s wholly-owned subsidiary, in consideration for the
issuance of a total of 20,050,000 shares of common stock to Fairwater and other
shareholders of Coda Octopus Limited. The shares issued represented
approximately 90.9% of the issued and outstanding shares of Panda. The share
exchange was accounted for as a reverse acquisition of Panda by Coda.
Subsequently, Panda was reincorporated in Delaware and changed its name to
Coda
Octopus Group, Inc. (“COGI”)
The
business of COGI began as Coda Technologies Ltd (now operating under the name
of
Coda Octopus Products Limited), a UK corporation which was formed in 1994.
In
June
2002, Coda Technologies Ltd acquired by way of merger Octopus Marine Systems
Ltd, a UK corporation, and changed its name from Coda Technologies Ltd to Coda
Octopus Ltd.
In
December 2002, Coda Octopus Ltd acquired OmniTech AS, a Norwegian company,
which
became a wholly-owned subsidiary of Coda Octopus Ltd and now operates under
the
name CodaOctopus Omnitech AS.
In
June
2006, COGI’s subsidiary, Coda Octopus (UK) Holdings Ltd, acquired all the issued
and outstanding shares of Martech Systems (Weymouth) Ltd
(“Martech”).
In
April
2007, COGI acquired all the issued and outstanding shares of common stock of
Utah-based engineering firm, ▇▇▇▇▇▇ & Hilton, Inc. d/b/a Colmek Systems
Engineering,
23
Schedule
13.2
State
of
Delaware
State
of
Utah
24