Exhibit 10(b)
SECURITY AGREEMENT
1. Identification.
This Security Agreement (the "Agreement"), dated January 10, 2002, is
entered into by and between Artera Group, Inc., a Delaware corporation ("Artera"
or "Debtor"), and Barbara Mittman, as collateral agent (acting in the manner and
to the extent described in the Collateral Agent Agreement defined below) (the
"Collateral Agent"), for the benefit of the parties identified on Schedule A
hereto (collectively, the "Lenders").
2. Recitals.
2.1 The Lenders have made or are making loans to Debtor (the "Loans").
2.2 The Loans are evidenced by those certain Convertible Notes described on
Schedule A hereto (collectively "Notes") and executed by Debtor as the
"Borrower" thereof, for the benefit of each individual Lender as the "Holder"
thereof which were issued pursuant to subscription agreements, securities
purchase agreements, Exchange Rights Agreements and/or Registration Rights
Agreements with Artera on or about January 9, 2001, April 4, 2001 and June 29,
2001 (collectively "Subscription Documents").
2.4 In order to induce Lenders to make the Loans, and as security for
Debtor's performance of its obligations under the Notes and Subscription
Documents and as security for the repayment of the Loans and any and all other
sums due from Debtor to Lender arising under the Notes issued pursuant to the
Subscription Documents, including all of the Debtor's obligations arising under
the Notes and the Subscription Documents relating thereto (collectively, the
"Obligations"), Artera, for good and valuable consideration, receipt of which is
acknowledged, has agreed to grant to the Collateral Agent, for the benefit of
the Lenders, a security interest in the Collateral (as such term is hereinafter
defined), on the terms and conditions hereinafter set forth.
2.5 The Lenders have appointed Barbara Mittman as Collateral Agent pursuant
to that certain Collateral Agent Agreement dated as of January 10, 2002
("Collateral Agent Agreement"), among the Lenders and Collateral Agent.
Defined Terms. The following defined terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Inventory and Proceeds.
3. Grant of General Security Interest in Collateral.
3.1 As security for the Obligations, Debtor hereby grants the Collateral
Agent, for the benefit of the Lenders, a security interest in the Collateral.
3.2 "Collateral" shall mean all of the following property of Artera, which
as of the date of this Agreement and at any time hereafter that Obligations
remain outstanding come into the possession of Debtor:
(a) All now owned and hereafter acquired right, title and interest of
Artera in, to and in respect of all: Accounts, interests in goods
represented by Accounts, returned, reclaimed or repossessed goods with
respect thereto and rights as an unpaid vendor; contract rights; Chattel
Paper; investment property; General Intangibles (including but not limited
to, tax and duty claims and refunds, registered and unregistered patents,
trademarks, service marks, certificates, copyrights trade names,
applications for the foregoing, trade secrets, goodwill, processes,
drawings, blueprints, customer lists, licenses, whether as licensor or
licensee, choses in action and other claims, and existing and future
leasehold interests in equipment, real estate and fixtures); Documents;
Instruments; letters of credit, bankers' acceptances or guaranties; cash
moneys, deposits; securities, bank accounts, deposit accounts, credits and
other property now or hereafter held in any capacity by Lender, its
affiliates or any entity which, at any time, participates in Lender's
financing of Artera at any other depository or other institution;
agreements or property securing or relating to any of the items referred to
above;
(b) All now owned and hereafter acquired right, title and interest of
Artera in, to and in respect of goods, including, but not limited to:
(i) All Inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description, including
all raw materials, work-in-process, finished goods, and materials to
be used or consumed in Artera's business; and all names or marks
affixed to or to be affixed thereto for purposes of selling same by
the seller, manufacturer, lessor or licensor thereof and all Inventory
which may be returned to Artera by its customers or repossessed by
Artera and all of Artera's right, title and interest in and to the
foregoing (including all of Artera's rights as a seller of goods);
(ii) All Equipment and fixtures, wherever located, whether now
owned or hereafter acquired, including, without limitation, all
machinery, motor vehicles, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and
accessions thereof and thereto (including, but not limited to Artera's
rights to acquire any of the foregoing, whether by exercise of a
purchase option or otherwise);
(c) All now owned and hereafter acquired right, title and interests of
Artera in, to and in respect of any real or other personal property in or
upon which Artera has or may hereafter have a security interest, lien or
right of setoff;
(d) All present and future books and records relating to any of the
above including, without limitation, all computer programs, printed output
and computer readable data in the possession or control of the Artera, any
computer service bureau or other third party; and
(e) All products and Proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and
all claims against third parties for loss or destruction of or damage to
any of the foregoing.
3.3 The Collateral Agent is hereby specifically authorized, after an Event
of Default, to transfer any Collateral into the name of the Collateral Agent and
to take any and all action deemed advisable to the Collateral Agent to remove
any transfer restrictions affecting the Collateral.
4. Perfection of Security Interest.
Artera shall execute and deliver to the Collateral Agent UCC-1 Financing
Statements and other forms of financing statements ("Financing Statements")
relating to the security interests in Artera's right, title and interest in and
to the Collateral. The Collateral Agent is instructed to file the Financing
Statements at the Debtor's expense, in the following jurisdictions: State of New
York, New York County, Delaware, Connecticut, New Haven County, Connecticut and
Fairfield County, Connecticut, and any other jurisdiction including local,
state, national and international, deemed advisable to Collateral Agent. These
Financing Statements are deemed to have been filed for the benefit of the
Lenders identified on Schedule A hereto. Upon satisfaction and discharge of all
of the Notes held by a particular Lender, the Collateral Agent is instructed to
file a UCC-3 Termination Statement with respect to such Lender, at the Debtor's
expense, in all jurisdictions in which a Financing Statement with respect to
such Lender is then on file.
5. Distribution on Liquidation.
5.1 If any sum is paid as a liquidating distribution on or with respect to
the Collateral, Debtor shall deliver same to the Collateral Agent to be applied
to the Obligations then due, in accordance with the terms of the Notes.
5.2 Prior to any Event of Default (as defined herein), Debtor shall be
entitled to exercise all voting power pertaining to any of the Collateral,
provided such exercise is not contrary to the interests of the Lenders and does
not impair the Collateral, or the security interest granted the Lenders hereby.
6. Further Action By Debtor; Covenants and Warranties.
6.1 Collateral Agent at all times shall have a perfected security interest
in the Collateral. Subject to the security interest described herein, Artera has
and will continue to have full title to the Collateral free from any liens,
leases, encumbrances, judgments or other claims. Collateral Agent's security
interest in the Collateral constitutes and will continue to constitute a first,
prior and indefeasible security interest in favor of Collateral Agent. Debtor
will do all acts and things, and will execute and file all instruments
(including, but not limited to, security agreements, financing statements,
continuation statements, etc.) reasonably requested by Collateral Agent to
establish, maintain and continue the perfected security interest of Collateral
Agent in the Collateral, and will promptly on demand, pay all costs and expenses
of filing and recording, including the costs of any searches reasonably deemed
necessary by Collateral Agent from time to time to establish and determine the
validity and the continuing priority of the security interest of Collateral
Agent, and also pay all other claims and charges that, in the opinion of
Collateral Agent, exercised in good faith, is reasonably likely to materially
prejudice, imperil or otherwise affect the Collateral or its security interest
therein.
6.2 Other than in the ordinary course of business, and except for
Collateral which has become obsolete or is of inconsequential in value, Artera
will not sell, transfer, assign or pledge those items of Collateral (or allow
any such items to be sold, transferred, assigned or pledged), without the prior
written consent of Collateral Agent. Although Proceeds of Collateral are covered
by this Security Agreement, this shall not be construed to mean that Collateral
Agent consents to any sale of the Collateral, except as provided herein.
6.3 Debtor will, at all reasonable times, allow Collateral Agent or its
representatives free and complete access to all of Debtor 's records which in
any way relate to the Collateral, for such inspection and examination as
Collateral Agent reasonably deems necessary.
6.4 Debtor, at its sole cost and expense, will protect and defend this
Security Agreement, all of the rights of Collateral Agent hereunder, and the
Collateral against the claims and demands of all other parties.
6.5 Debtor will promptly notify Collateral Agent of any levy, distraint or
other seizure by legal process or otherwise of any part of the Collateral, and
of any threatened or filed claims or proceedings that are reasonably likely to
affect or impair any of the rights of Collateral Agent under this Security
Agreement.
6.6 Debtor, at its own expense, will obtain and maintain in force insurance
policies covering losses or damage to those items of Collateral which constitute
physical personal property. The insurance policies to be obtained by Debtor
shall be in form and amounts reasonably acceptable to Collateral Agent. Debtor
shall make the Collateral Agent a loss payee thereon to the extent of its
interest. Collateral Agent is hereby irrevocably (until the Obligations are paid
in full) appointed Debtor's attorney-in-fact to endorse any check or draft that
may be payable to Debtor so that Collateral Agent may collect the proceeds
payable for any loss under such insurance. The proceeds of such insurance, less
any costs and expenses incurred or paid by Collateral Agent in the collection
thereof, shall be applied either toward the cost of the repair or replacement of
the items damaged or destroyed, or on account of any sums secured hereby,
whether or not then due or payable. Insurance will not be required for the
Security Shares.
6.7 Collateral Agent may, at its option, and without any obligation to do
so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Debtor, upon Debtor's
failure to do so, and all amounts expended by Collateral Agent in so doing shall
become part of the Obligations secured hereby, and shall be immediately due and
payable by Debtor to Collateral Agent upon demand and shall bear interest at 14%
per annum from the dates of such expenditures until paid.
6.8 Upon the request of Collateral Agent, Debtor will furnish within five
(5) days thereafter to Collateral Agent, or to any proposed assignee of this
Security Agreement, a written statement in form reasonably satisfactory to
Collateral Agent, duly acknowledged, certifying the amount of the principal and
interest then owing under the Obligations, whether to its knowledge any claims,
offsets or defenses exist against the Obligations or against this Security
Agreement, or any of the terms and provisions of any other agreement of Debtor
securing the Obligations. In connection with any assignment by Collateral Agent
of this Security Agreement, Debtor hereby agrees to cause the insurance policies
required hereby to be carried by Debtor, if any, to be endorsed in form
satisfactory to Collateral Agent or to such assignee, with loss payable clauses
in favor of such assignee, and to cause such endorsements to be delivered to
Collateral Agent within ten (10) calendar days after request therefor by
Collateral Agent.
6.9 The Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take further steps relating to the
Collateral and other property or rights covered by the security interest hereby
granted, as the Collateral Agent may reasonably require to perfect its security
interest hereunder.
6.10 Artera represents and warrants that it is the true and lawful
exclusive owner of the Collateral, free and clear of any liens and encumbrances.
6.11 Debtor hereby agrees not to directly or indirectly divest itself of
any right under the Collateral absent prior written approval of the Collateral
Agent except in the ordinary course of business. Debtor further agrees to not
take any action or suffer any action which would impair the value of the
Collateral or negatively impact the security interest of the Lenders granted
hereby.
7. Power of Attorney.
Debtor hereby irrevocably constitutes and appoints the Collateral Agent as
the true and lawful attorney of Debtor, with full power of substitution, in the
place and stead of Debtor and in the name of Debtor or otherwise, at any time or
times, in the discretion of the Collateral Agent, to take any action and to
execute any instrument or document which the Collateral Agent may deem necessary
or advisable to accomplish the purposes of this Agreement which Debtor fails to
take or fails to execute within five (5) business days of the Collateral Agent's
reasonable written request therefor. This power of attorney is coupled with an
interest and is irrevocable.
8. Performance By The Collateral Agent.
If Debtor fails to perform any material covenant, agreement, duty or
obligation of Debtor under this Agreement, the Collateral Agent may, after any
applicable cure period, at any time or times in its discretion, take action to
effect performance of such obligation. All reasonable expenses of the Collateral
Agent incurred in connection with the foregoing authorization shall be payable
by Debtor as provided in Paragraph 12.1 hereof. No discretionary right, remedy
or power granted to the Collateral Agent under any part of this Agreement shall
be deemed to impose any obligation whatsoever on the Collateral Agent with
respect thereto, such rights, remedies and powers being solely for the
protection of the Collateral Agent.
9. Event of Default.
An event of default ("Event of Default") shall be deemed to have occurred
hereunder upon the occurrence of any event of default as defined in the Notes or
Subscription Documents. Upon and after any Event of Default, after the
applicable cure period, if any, any or all of the Obligations shall become
immediately due and payable at the option of the Collateral Agent, for the
benefit of the Lenders, and the Collateral Agent may dispose of Collateral as
provided below. A default by Debtor of any of its obligations pursuant to this
Agreement shall be deemed an Event of Default hereunder and an event of default
as defined in the Obligations. Without limiting the foregoing, failure to pay to
the Collateral Agent any sum due hereunder from the Debtor within five days of
demand shall be an Event of Default.
10. Disposition of Collateral.
Upon and after any Event of Default which is then continuing,
10.1 The Collateral Agent may exercise its rights with respect to each and
every component of the Collateral, without regard to the existence of any other
security or source of payment for the Obligations. In addition to other rights
and remedies provided for herein or otherwise available to it, the Collateral
Agent shall have all of the rights and remedies of a lender on default under the
Uniform Commercial Code then in effect in the State of New York.
10.2 If any notice to Debtor of the sale or other disposition of Collateral
is required by then applicable law, five (5) days' prior notice (or, if longer,
the shortest period of time permitted by then applicable law) to Debtor of the
time and place of any public sale of Collateral or of the time after which any
private sale or any other intended disposition is to be made, shall constitute
reasonable notification.
10.3 The Collateral Agent is authorized, at any such sale, if the
Collateral Agent deems it advisable to do so, in order to comply with any
applicable securities laws, to restrict the prospective bidders or purchasers to
persons who will represent and agree, among other things, that they are
purchasing the Collateral for their own account for investment, and not with a
view to the distribution or resale thereof, or otherwise to restrict such sale
in such other manner as the Collateral Agent deems advisable to ensure such
compliance. Sales made subject to such restrictions shall be deemed to have been
made in a commercially reasonable manner.
10.4 All cash proceeds received by the Collateral Agent for the benefit
of the Lenders in respect of any sale, collection or other enforcement or
disposition of Collateral, shall be applied (after deduction of any amounts
payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against the
Obligations pro rata among the Lenders in proportion to their interests in the
Obligations. Upon payment in full of all Obligations, Debtor shall be entitled
to the return of all Collateral, including cash, which has not been used or
applied toward the payment of Obligations or used or applied to any and all
costs or expenses of the Collateral Agent incurred in connection with the
liquidation of the Collateral (unless another person is legally entitled
thereto). Any assignment of Collateral by the Collateral Agent to Debtor shall
be without representation or warranty of any nature whatsoever and wholly
without recourse. Each Lender may purchase the Collateral and pay for such
purchase by offsetting any sums owed to such Lender by Debtor arising under the
Obligations or any other source.
10.5 The Collateral, if any, is so available after application to satisfy
the Obligations and any other sums due hereunder, shall be released to the
Debtor upon the complete satisfaction of the Obligations.
11. Waiver of Automatic Stay. The Debtor acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Debtor, or if any of the Collateral (as defined in this Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Collateral Agent should be entitled to, among other relief to which the
Collateral Agent may be entitled under the Subscription Documents and any other
agreement to which the Debtor, Lenders or Collateral Agent are parties,
(collectively "Loan Documents") and/or applicable law, an order from the court
granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section
362 to permit the Collateral Agent to exercise all of its rights and remedies
pursuant to the Loan Documents and/or applicable law. THE DEBTOR EXPRESSLY WAIVE
THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE,
THE DEBTOR EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL AGENT TO
ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. The Debtor hereby consents to any motion for relief from stay
which may be filed by the Collateral Agent in any bankruptcy or insolvency
proceeding initiated by or against the Debtor, and further agrees not to file
any opposition to any motion for relief from stay filed by the Collateral Agent.
The Debtor represents, acknowledges and agrees that this provision is a specific
and material aspect of this Agreement, and that the Collateral Agent would not
agree to the terms of this Agreement if this waiver were not a part of this
Agreement. The Debtor further represents, acknowledges and agrees that this
waiver is knowingly, intelligently and voluntarily made, that neither the
Collateral Agent nor any person acting on behalf of the Collateral Agent has
made any representations to induce this waiver, that the Debtor has been
represented (or has had the opportunity to be represented) in the signing of
this Agreement and in the making of this waiver by independent legal counsel
selected by the Debtor and that the Debtor has had the opportunity to discuss
this waiver with counsel.
12. Miscellaneous.
12.1 Expenses. Debtor shall pay to the Collateral Agent, on demand, the
amount of any and all reasonable expenses, including, without limitation,
attorneys' fees, legal expenses and brokers' fees, which the Collateral Agent
may incur in connection with (a) sale, collection or other enforcement or
disposition of Collateral; (b) exercise or enforcement of any the rights,
remedies or powers of the Collateral Agent hereunder or with respect to any or
all of the Obligations; or (c) failure by Debtor to perform and observe any
agreements of Debtor contained herein which are performed by the Collateral
Agent.
12.2 Waivers, Amendment and Remedies. No course of dealing by the
Collateral Agent and no failure by the Collateral Agent to exercise, or delay by
the Collateral Agent in exercising, any right, remedy or power hereunder shall
operate as a waiver thereof, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy or power of the Collateral Agent. No amendment, modification or
waiver of any provision of this Agreement and no consent to any departure by
Debtor therefrom, shall, in any event, be effective unless contained in a
writing signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The rights, remedies and powers of the Collateral Agent, not only
hereunder, but also under any instruments and agreements evidencing or securing
the Obligations and under applicable law are cumulative, and may be exercised by
the Collateral Agent from time to time in such order as the Collateral Agent may
elect.
12.3 Notices. Any notice or other communications under the provisions of
this Agreement shall be given in writing and delivered to the recipient in
person, by reputable overnight courier or delivery service, by facsimile machine
(receipt conformed) with a copy sent by first class mail on the date of
transmission, or by registered or certified mail, return receipt requested,
directed to its address set forth below (or to any new address of which a party
hereto shall have informed the others by the giving of notice in the manner
provided herein):
To Debtor: Artera Group, Inc.
20 Ketchum Street
Westport, CT 06880
Attn: Chief Financial Officer
Fax: (203) 226-4338
With a copy to: General Counsel
To Lenders: To the addresses and telecopier numbers
Set forth on Schedule A hereto
To the Collateral Agent: Barbara R. Mittman
Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, New York 10176
Fax: (212) 697-3575
Any party may change its address by written notice in accordance with this
paragraph.
12.4 Term; Binding Effect. This Agreement shall (a) remain in full force
and effect until payment and satisfaction in full of all of the Obligations; (b)
be binding upon Debtor, and its successors and permitted assigns; and (c) inure
to the benefit of the Collateral Agent, for the benefit of the Lenders and their
respective successors and assigns.
12.5 Captions. The captions of Paragraphs, Articles and Sections in this
Agreement have been included for convenience of reference only, and shall not
define or limit the provisions hereof and have no legal or other significance
whatsoever.
12.6 Governing Law; Venue; Severability. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts or choice of law, except to the extent that
the perfection of the security interest granted hereby in respect of any item of
Collateral may be governed by the law of another jurisdiction. Any legal action
or proceeding against the Debtor with respect to this Agreement may be brought
in the courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, the
Debtor hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Debtor hereby irrevocably waives any objection which they may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement brought in the aforesaid
courts and hereby further irrevocably waives and agrees not to plead or claim in
any such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum. If any provision of this Agreement, or
the application thereof to any person or circumstance, is held invalid, such
invalidity shall not affect any other provisions which can be given effect
without the invalid provision or application, and to this end the provisions
hereof shall be severable and the remaining, valid provisions shall remain of
full force and effect.
12.7 Counterparts/Execution. This Agreement may be executed in any number
of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Security Agreement, as of the date first written above.
"DEBTOR"
ARTERA GROUP, INC.
a Delaware corporation
By: _____________________________________
Its: ____________________________________
"THE COLLATERAL AGENT"
_________________________________________
BARBARA R. MITTMAN
APPROVED BY "LENDERS":
_________________________________________
ALPHA CAPITAL AKTIENGESELLSCHAFT
- - "Lender"
_________________________________________ __________________________________
AUSTOST ANSTALT SCHAAN - "Lender" BALMORE FUNDS, S.A. - "Lender"
This Security Agreement may be executed by facsimile signature and delivered by
confirmed facsimile transmission.
SCHEDULE A TO SECURITY AGREEMENT
LENDERS PRINCIPAL AMOUNT ORIGINAL ISSUE DATE
OF NOTES
ALPHA CAPITAL AKTIENGESELLSCHAFT $706,250.00 4/4/01
Pradafant 7 $830,375.00 6/29/01
9490 Furstentums $550,000.00 At or about the date of
Vaduz, Lichtenstein this Security Agreement
Fax: 011-42-32323196
AUSTOST ANSTALT SCHAAN $661,668.00 1/9/01
7440 Fuerstentum
Lichtenstein, Landstrasse 163
Fax: 011-431-534532895
BALMORE FUNDS, S.A. $866,666.00 1/9/01
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
TOTAL $3,614,959.00