EXHIBIT 4.4
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of October 31, 2005 (this "Agreement"),
among Silverstar Holdings, Ltd., a Bermuda corporation (the "Company") and all
of the Subsidiaries of the Company (such subsidiaries, the "Guarantors") (the
Company and Guarantors are collectively referred to as the "Debtors") and the
holder or holders of the Company's Variable Rate Secured Convertible Debentures
due October 31, 2008 in the original aggregate principal amount of $5,000,000
(the "Debenture"), signatory hereto, their endorsees, transferees and assigns
(collectively referred to as, the "Secured Parties"). Notwithstanding anything
herein to the contrary, DKR SoundShore Oasis Holding Fund Ltd. is the only
Secured Party and references hereunder to "Secured Parties" or multiple Secured
Parties shall be disregarded.
W I T N E S S E T H:
WHEREAS, pursuant to the Debenture, the Secured Parties have severally
agreed to purchase the Debentures;
WHEREAS, pursuant to a certain Subsidiary Guarantee dated as of the
date hereof (the "Guaranty"), the Guarantors have jointly and severally agreed
to guaranty and act as surety for payment of the obligations underlying the
Debentures;
WHEREAS, pursuant to a certain Individual Guaranty dated as of the date
hereof (the "Individual Guaranty"), George Karfunkel has agreed to guaranty and
act as surety for payment of the obligations underlying the Debentures; and
WHEREAS, in order to induce the Secured Parties to purchase the
Debentures, each Debtor has agreed to execute and deliver to the Secured Parties
this Agreement and to grant the Secured Parties, pari passu with each other
Secured Party, a perfected security interest in certain property of such Debtor
to secure the prompt payment, performance and discharge in full of all of the
Company's obligations under the Debenture and the other Debtor's obligations
under the Guaranty.
NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "account", "chattel paper", "commercial tort claim", "deposit account",
"document", "equipment", "fixtures", "general intangibles", "goods",
"instruments", "inventory", "investment property", "letter-of-credit rights",
"proceeds" and "supporting obligations") shall have the respective meanings
given such terms in Article 9 of the UCC.
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(a) "Collateral" means the collateral in which the Secured Parties are
granted a security interest by this Agreement and which shall include the
following personal property of the Debtors, whether presently owned or
existing or hereafter acquired or coming into existence, wherever situated,
and all additions and accessions thereto and all substitutions and
replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of
the Collateral and of insurance covering the same and of any tort claims in
connection therewith, and all dividends, interest, cash, notes, securities,
equity interest or other property at any time and from time to time
acquired, receivable or otherwise distributed in respect of, or in exchange
for, any or all of the Pledged Securities (as defined below):
(i) All goods, including, without limitations, (A) all machinery,
equipment, computers, motor vehicles, trucks, tanks, boats, ships,
appliances, furniture, special and general tools, fixtures, test and
quality control devices and other equipment of every kind and nature
and wherever situated, together with all documents of title and
documents representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes for any
of the foregoing and all other items used and useful in connection
with any Debtor's businesses and all improvements thereto; and (B) all
inventory;
(ii) All contract rights and other general intangibles,
including, without limitation, all partnership interests, membership
interests, stock or other securities, rights under any of the
Organizational Documents, agreements related to the Pledged
Securities, licenses, distribution and other agreements, computer
software (whether "off-the-shelf", licensed from any third party or
developed by any Debtor), 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, and income tax
refunds;
(iii) All accounts, 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 account, including any right of
stoppage in transit;
(iv) All documents, letter-of-credit rights, instruments and
chattel paper;
(v) All commercial tort claims;
(vi) All deposit accounts and all cash (whether or not deposited
in such deposit accounts);
(vii) All investment property;
(viii) All supporting obligations; and
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(ix) All files, records, books of account, business papers, and
computer programs; and
(x) The products and proceeds of all of the foregoing Collateral
set forth in clauses (i)-(ix) above.
Without limiting the generality of the foregoing, the
"Collateral" shall include all investment property and general
intangibles respecting ownership and/or other equity interests in each
Guarantor, including, without limitation, the shares of capital stock
and the other equity interests listed on Schedule H hereto (as the
same may be modified from time to time pursuant to the terms hereof),
and any other shares of capital stock and/or other equity interests of
any other direct or indirect subsidiary of any Debtor obtained in the
future, and, in each case, all certificates representing such shares
and/or equity interests and, in each case, all rights, options,
warrants, stock, other securities and/or equity interests that may
hereafter be received, receivable or distributed in respect of, or
exchanged for, any of the foregoing (all of the foregoing being
referred to herein as the "Pledged Securities") and all rights arising
under or in connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.
Notwithstanding the foregoing, nothing herein shall be deemed to
constitute an assignment of any asset which, in the event of an
assignment, becomes void by operation of applicable law or the
assignment of which is otherwise prohibited by applicable law (in each
case to the extent that such applicable law is not overridden by
Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar
applicable law); provided, however, that to the extent permitted by
applicable law, this Agreement shall create a valid security interest
in such asset and, to the extent permitted by applicable law, this
Agreement shall create a valid security interest in the proceeds of
such asset.
(b) "Intellectual Property" means the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, (i) all copyrights arising under
the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether
published or unpublished, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation, all
registrations, recordings and applications in the United States Copyright
Office, (ii) all letters patent of the United States, any other country or
any political subdivision thereof, all reissues and extensions thereof, and
all applications for letters patent of the United States or any other
country and all divisions, continuations and continuations-in-part thereof,
(iii) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade dress, service marks, logos, domain
names and other source or business identifiers, and all goodwill associated
therewith, now existing or hereafter adopted or acquired, all registrations
and recordings thereof, and all applications in connection therewith,
whether in the United States Patent and Trademark Office or in any similar
office or agency of the
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United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common law rights related
thereto, (iv) all trade secrets arising under the laws of the United
States, any other country or any political subdivision thereof, (v) all
rights to obtain any reissues, renewals or extensions of the foregoing,
(vi) all licenses for any of the foregoing, and (vii) all causes of action
for infringement of the foregoing.
(c) "Majority in Interest" shall mean, at any time of determination,
the majority in interest (based on then-outstanding principal amounts of
Debentures at the time of such determination) of the Secured Parties.
(d) "Necessary Endorsement" shall mean undated stock powers endorsed in
blank or other proper instruments of assignment duly executed and such
other instruments or documents as the Secured Parties may reasonably
request.
(e) "Obligations" means all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or acquired, or
owing to, of any Debtor to the Secured Parties, including, without
limitation, all obligations under this Agreement, the Debentures, the
Guaranty and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether
now or hereafter existing, voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly
owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any
portion of such obligations or liabilities that are paid, to the extent all
or any part of such payment is avoided or recovered directly or indirectly
from any of the Secured Parties as a preference, fraudulent transfer or
otherwise as such obligations may be amended, supplemented, converted,
extended or modified from time to time. Without limiting the generality of
the foregoing, the term "Obligations" shall include, without limitation:
(i) principal of, and interest on the Debentures; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from
time to time under or in connection with this Agreement, the Debentures,
the Guaranty and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith; and (iii)
all amounts (including but not limited to post-petition interest) in
respect of the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding
involving any Debtor.
(f) "Organizational Documents" means with respect to any Debtor, the
documents by which such Debtor was organized (such as a certificate of
incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of
designation for preferred stock or other forms of preferred equity) and
which relate to the internal governance of such Debtor (such as bylaws, a
partnership agreement or an operating, limited liability or members
agreement).
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(g) "UCC" means the Uniform Commercial Code of the State of New York
and or any other applicable law of any state or states which has
jurisdiction with respect to all, or any portion of, the Collateral or this
Agreement, from time to time. It is the intent of the parties that defined
terms in the UCC should be construed in their broadest sense so that the
term "Collateral" will be construed in its broadest sense. Accordingly if
there are, from time to time, changes to defined terms in the UCC that
broaden the definitions, they are incorporated herein and if existing
definitions in the UCC are broader than the amended definitions, the
existing ones shall be controlling.
2. Grant of Perfected First Priority Security Interest. As an
inducement for the Secured Parties to purchase the Debentures and to secure the
complete and timely payment, performance and discharge in full, as the case may
be, of all of the Obligations, each Debtor hereby unconditionally and
irrevocably pledges, grants and hypothecates to the Secured Parties a continuing
and perfected security interest in and to, a lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and
nature in and to, the Collateral (the "Security Interest").
3. Delivery of Certain Collateral. Contemporaneously or prior to the
execution of this Agreement, each Debtor shall deliver or cause to be delivered
to the Secured Parties (a) any and all certificates and other instruments
representing or evidencing the Pledged Securities, and (b) any and all
certificates and other instruments or documents representing any of the other
Collateral, in each case, together with all Necessary Endorsements. The Debtors
are, contemporaneously with the execution hereof, delivering to the Secured
Parties, or have previously delivered to the Secured Parties, a true and correct
copy of each Organizational Document governing any of the Pledged Securities.
4. Representations, Warranties, Covenants and Agreements of the
Debtors. Each Debtor represents and warrants to, and covenants and agrees with,
the Secured Parties as follows:
(a) Each Debtor has the requisite corporate, partnership, limited
liability company or other power and authority to enter into this Agreement
and otherwise to carry out its obligations hereunder. The execution,
delivery and performance by each Debtor of this Agreement and the filings
contemplated therein have been duly authorized by all necessary action on
the part of such Debtor and no further action is required by such Debtor.
This Agreement has been duly executed by each Debtor. This Agreement
constitutes the legal, valid and binding obligation of each Debtor,
enforceable against each Debtor in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization and similar laws of general application relating to or
affecting the rights and remedies of creditors and by general principles of
equity.
(b) The Debtors have no place of business or offices where their
respective books of account and records are kept (other than temporarily at
the offices of its attorneys or accountants) or places where Collateral is
stored or located, except as set forth on Schedule A attached hereto.
Except as specifically set forth on Schedule A, each
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Debtor is the record owner of the real property where such Collateral is
located, and there exist no mortgages or other liens on any such real
property except for Permitted Liens (as defined in the Debentures). Except
as disclosed on Schedule A, none of such Collateral is in the possession of
any consignee, bailee, warehouseman, agent or processor.
(c) Except for Permitted Liens (as defined in the Debentures) and
except as set forth on Schedule B attached hereto, the Debtors are the sole
owner of the Collateral (except for non-exclusive licenses granted by any
Debtor in the ordinary course of business), free and clear of any liens,
security interests, encumbrances, rights or claims, and are fully
authorized to grant the Security Interest. 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 will be filed in
favor of the Secured Parties pursuant to this Agreement) covering or
affecting any of the Collateral. So long as this Agreement shall be in
effect, the Debtors shall not execute and shall not knowingly permit to be
on file in any such office or agency any such financing statement or other
document or instrument (except to the extent filed or recorded in favor of
the Secured Parties pursuant to the terms of this Agreement).
(d) No written claim has been received that any Collateral or Debtor's
use of any Collateral violates the rights of any third party. There has
been no adverse decision to any Debtor's claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to any
Debtor's right to keep and maintain such Collateral in full force and
effect, and there is no proceeding involving said rights pending or, to the
best knowledge of any Debtor, threatened before any court, judicial body,
administrative or regulatory agency, arbitrator or other governmental
authority.
(e) Each Debtor shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business and
its Collateral at the locations set forth on Schedule A attached hereto and
may not relocate such books of account and records or tangible Collateral
unless it delivers to the Secured Parties at least 30 days prior to such
relocation (i) written notice of such relocation and the new location
thereof and (ii) evidence that appropriate financing statements or other
applicable documentation under the UCC or other applicable recordation
system and other necessary documents have been filed and recorded and other
steps have been taken to perfect the Security Interest to create in favor
of the Secured Parties a valid, perfected and continuing perfected first
priority lien in the Collateral.
(f) This Agreement creates in favor of the Secured Parties a valid,
security interest in the Collateral, subject only to Permitted Liens (as
defined in the Debentures) securing the payment and performance of the
Obligations. Upon making the filings described in the immediately following
paragraph, all security interests created hereunder in any Collateral which
may be perfected by filing Uniform Commercial Code financing statements
shall have been duly perfected. Except for the filing of the Uniform
Commercial Code financing statements referred to in the immediately
following paragraph, the recordation of the Intellectual Property Security
Agreement (as defined
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below) with respect to copyrights and copyright applications in the United
States Copyright Office referred to in paragraph (m), the execution and
delivery of deposit account control agreements satisfying the requirements
of Section 9-104(a)(2) of the UCC with respect to each deposit account of
the Debtors, and the delivery of the certificates and other instruments
provided in Section 3, no action is necessary to create, perfect or protect
the security interests created hereunder. Without limiting the generality
of the foregoing, except for the filing of said financing statements, the
recordation of said Intellectual Property Security Agreement, and the
execution and delivery of said deposit account control agreements, no
consent of any third parties and no authorization, approval or other action
by, and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the execution, delivery and performance
of this Agreement, (ii) the creation or perfection of the Security
Interests created hereunder in the Collateral or (iii) the enforcement of
the rights of the Secured Parties hereunder.
(g) Each Debtor hereby authorizes the Secured Parties, or any of them,
to file one or more financing statements or other applicable documents
under the UCC or other applicable recordation system, with respect to the
Security Interest with the proper filing and recording agencies in any
jurisdiction deemed proper by them.
(h) The execution, delivery and performance of this Agreement by the
Debtors does not (i) violate any of the provisions of any Organizational
Documents of any Debtor or any judgment, decree, order or award of any
court, governmental body or arbitrator or any applicable law, rule or
regulation applicable to any Debtor or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing any Debtor's debt or otherwise) or other understanding to which
any Debtor is a party or by which any property or asset of any Debtor is
bound or affected. No consent (including, without limitation, from
stockholders or creditors of any Debtor) is required for any Debtor to
enter into and perform its obligations hereunder.
(i) The capital stock and other equity interests listed on Schedule H
hereto represent all of the capital stock and other equity interests of the
Guarantors, and represent all capital stock and other equity interests
owned, directly or indirectly, by the Company. All of the Pledged
Securities are validly issued, fully paid and nonassessable, and the
Company is the legal and beneficial owner of the Pledged Securities, free
and clear of any lien, security interest or other encumbrance except for
the security interests created by this Agreement and other Permitted Liens
(as defined in the Debenture).
(j) The ownership and other equity interests in partnerships and
limited liability companies (if any) included in the Collateral (the
"Pledged Interests") by their express terms do not provide that they are
securities governed by Article 8 of the UCC and are not held in a
securities account or by any financial intermediary.
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(k) Each Debtor 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 Parties
until this Agreement and the Security Interest hereunder shall be
terminated pursuant to Section 11 hereof. Each Debtor hereby agrees to
defend the same against the claims of any and all persons and entities.
Each Debtor shall safeguard and protect all Collateral for the account of
the Secured Parties. At the request of the Secured Parties, each Debtor
will sign and deliver to the Secured Parties at any time or from time to
time one or more financing statements or other applicable documents
pursuant to the UCC or other applicable recordation system in form
reasonably satisfactory to the Secured Parties and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed by
the Secured Parties to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, each Debtor shall pay all fees, taxes and other amounts
necessary to maintain the Collateral and the Security Interest hereunder,
and each Debtor shall obtain and furnish to the Secured Parties from time
to time, upon demand, such releases and/or subordinations of claims and
liens which may be required to maintain the priority of the Security
Interest hereunder.
(l) No Debtor will transfer, pledge, hypothecate, encumber, license,
sell or otherwise dispose of any of the Collateral (except for
non-exclusive licenses granted by a Debtor in its ordinary course of
business and sales of inventory by a Debtor in its ordinary course of
business) without the prior written consent of a Majority in Interest.
(m) Each Debtor shall keep and preserve its equipment, inventory and
other tangible Collateral in good condition, repair and order and shall not
operate or locate any such Collateral (or cause to be operated or located)
in any area excluded from insurance coverage.
(n) Each Debtor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral against loss or damage
of the kinds and in the amounts customarily insured against by entities of
established reputation having similar properties similarly situated and in
such amounts as are customarily carried under similar circumstances by
other such entities and otherwise as is prudent for entities engaged in
similar businesses but in any event sufficient to cover the full
replacement cost thereof. Each Debtor shall cause each insurance policy
issued in connection herewith to provide, and the insurer issuing such
policy to certify to the Secured Parties that (a) the Secured Parties will
be named as lender loss payee and additional insured under each such
insurance policy; (b) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly
notify the Secured Parties and such cancellation or change shall not be
effective as to the Secured Parties for at least thirty (30) days after
receipt by the Secured Parties of such notice, unless the effect of such
change is to extend or increase coverage under the policy; and (c) the
Secured Parties will have the right (but no obligation) at its election to
remedy any default in the payment of premiums within thirty (30) days of
notice from the insurer of such default. If no Event of Default (as defined
in the Debenture) exists and if the proceeds arising out of any claim or
series of related claims do not exceed $100,000, loss payments in each
instance
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will be applied by the applicable Debtor to the repair and/or replacement
of property with respect to which the loss was incurred to the extent
reasonably feasible, and any loss payments or the balance thereof
remaining, to the extent not so applied, shall be payable to the applicable
Debtor, provided, however, that payments received by any Debtor after an
Event of Default occurs and is continuing or in excess of $100,000 for any
occurrence or series of related occurrences shall be paid to the Secured
Parties and, if received by such Debtor, shall be held in trust for and
immediately paid over to the Secured Parties unless otherwise directed in
writing by the Secured Parties. Copies of such policies or the related
certificates, in each case, naming the Secured Parties as lender loss payee
and additional insured shall be delivered to the Secured Parties at least
annually and at the time any new policy of insurance is issued.
(o) Each Debtor shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Parties promptly, in sufficient detail, of any
substantial change in the Collateral, and of the occurrence of any event
which would have a material adverse effect on the value of the Collateral
or on the Secured Parties' security interest therein.
(p) Each Debtor shall promptly execute and deliver to the Secured
Parties such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates and
assurances and take such further action as the Secured Parties may from
time to time request and may in its sole discretion deem necessary to
perfect, protect or enforce its security interest in the Collateral
including, without limitation, if applicable, the execution and delivery of
a separate security agreement with respect to each Debtor's Intellectual
Property ("Intellectual Property Security Agreement") in which the Secured
Parties have been granted a security interest hereunder, substantially in a
form acceptable to the Secured Parties, which Intellectual Property
Security Agreement, other than as stated therein, shall be subject to all
of the terms and conditions hereof.
(q) Each Debtor shall permit the Secured Parties and their
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
a Secured Party from time to time.
(r) Each Debtor shall take all steps reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights, claims, causes
of action and accounts receivable in respect of the Collateral.
(s) Each Debtor shall promptly notify the Secured Parties in sufficient
detail upon becoming aware of any attachment, garnishment, execution or
other legal process levied against any Collateral and of any other
information received by such Debtor that may materially affect the value of
the Collateral, the Security Interest or the rights and remedies of the
Secured Parties hereunder.
(t) All information heretofore, herein or hereafter supplied to the
Secured Parties by or on behalf of any Debtor with respect to the
Collateral is accurate and complete in all material respects as of the date
furnished.
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(u) The Debtors shall at all times preserve and keep in full force and
effect their respective valid existence and good standing and any rights
and franchises material to its business.
(v) No Debtor will change its name, type of organization, jurisdiction
of organization, organizational identification number (if it has one),
legal or corporate structure, or identity, or add any new fictitious name
unless it provides at least 30 days prior written notice to the Secured
Parties of such change and, at the time of such written notification, such
Debtor provides any financing statements or fixture filings necessary to
perfect and continue perfected the perfected security Interest granted and
evidenced by this Agreement.
(w) No Debtor may consign any of its Inventory or sell any of its
Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale without the consent of a Majority in Interest
which shall not be unreasonably withheld, except to the extent such
consignment or sale does not exceed 15% of the total value of all of the
Company's finished goods in Inventory.
(x) No Debtor may relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to the Secured
Parties and so long as, at the time of such written notification, such
Debtor provides any financing statements or fixture filings necessary to
perfect and continue perfected the perfected security Interest granted and
evidenced by this Agreement.
(y) Each Debtor was organized and remains organized solely under the
laws of the state set forth next to such Debtor's name in the first
paragraph of this Agreement. Schedule D attached hereto sets forth each
Debtor's organizational identification number or, if any Debtor does not
have one, states that one does not exist.
(z) (i) The actual name of each Debtor is the name set forth in the
signature lines hereto; (ii) no Debtor has any trade names except as set
forth on Schedule E attached hereto; (iii) no Debtor has used any name
other than that stated in the preamble hereto or as set forth on Schedule E
for the preceding five years; and (iv) no entity has merged into any Debtor
or been acquired by any Debtor within the past five years except as set
forth on Schedule E.
(aa) At any time and from time to time that any Collateral consists of
instruments, certificated securities or other items that require or permit
possession by the secured party to perfect the security interest created
hereby, the applicable Debtor shall deliver such Collateral to the Secured
Parties.
(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply
with any and all orders and instructions of Secured Parties regarding the
Pledged Interests consistent with the terms of this Agreement without the
further consent of any Debtor as contemplated by Section 8-106 (or any
successor section) of the UCC. Further, each
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Debtor agrees that it shall not enter into a similar agreement (or one that
would confer "control" within the meaning of Article 8 of the UCC) with any
other person or entity.
(cc) Each Debtor shall cause all tangible chattel paper constituting
Collateral to be delivered to the Secured Parties, or, if such delivery is
not possible, then to cause such tangible chattel paper to contain a legend
noting that it is subject to the security interest created by this
Agreement. To the extent that any Collateral consists of electronic chattel
paper, the applicable Debtor shall cause the underlying chattel paper to be
"marked" within the meaning of Section 9-105 of the UCC (or successor
section thereto).
(dd) If there is any investment property or deposit account included as
Collateral that can be perfected by "control" through an account control
agreement, the applicable Debtor shall cause such an account control
agreement, in form and substance in each case satisfactory to the Secured
Parties, to be entered into and delivered to the Secured Parties.
(ee) To the extent that any Collateral consists of letter-of-credit
rights, the applicable Debtor shall cause the issuer of each underlying
letter of credit to consent to an assignment of the proceeds thereof to the
Secured Parties.
(ff) To the extent that any Collateral is in the possession of any
third party, the applicable Debtor shall join with the Secured Parties in
notifying such third party of the Secured Parties' security interest in
such Collateral and shall use its best efforts to obtain an acknowledgement
and agreement from such third party with respect to the Collateral, in form
and substance satisfactory to the Secured Parties.
(gg) If any Debtor shall at any time hold or acquire a commercial tort
claim, such Debtor shall promptly notify the Secured Parties in a writing
signed by such Debtor of the particulars thereof and grant to the Secured
Parties in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in
form and substance satisfactory to the Secured Parties.
(hh) Each Debtor shall immediately provide written notice to the
Secured Parties of any and all accounts which arise out of contracts with
any governmental authority and, to the extent necessary to perfect or
continue the perfected status of the Security Interest in such accounts and
proceeds thereof, shall execute and deliver to the Secured Parties an
assignment of claims for such accounts and cooperate with the Secured
Parties in taking any other steps required, in their judgment, under the
Federal Assignment of Claims Act or any similar federal, state or local
statute or rule to perfect or continue the perfected status of the Security
Interest in such accounts and proceeds thereof.
(ii) Each Debtor shall cause each subsidiary of such Debtor to
immediately become a party hereto (an "Additional Debtor"), by executing
and delivering an Additional Debtor Joinder in substantially the form of
Annex A attached hereto and comply with the provisions hereof applicable to
the Debtors. Concurrent therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other
11
Schedules to (or referred to in) this Agreement, as applicable, which
replacement schedules shall supersede, or supplements shall modify, the
Schedules then in effect. The Additional Debtor shall also deliver such
opinions of counsel, authorizing resolutions, good standing certificates,
incumbency certificates, organizational documents, financing statements and
other information and documentation as the Secured Parties may reasonably
request. Upon delivery of the foregoing to the Secured Parties, the
Additional Debtor shall be and become a party to this Agreement with the
same rights and obligations as the Debtors, for all purposes hereof as
fully and to the same extent as if it were an original signatory hereto and
shall be deemed to have made the representations, warranties and covenants
set forth herein as of the date of execution and delivery of such
Additional Debtor Joinder, and all references herein to the "Debtors" shall
be deemed to include each Additional Debtor.
(jj) Each Debtor shall vote the Pledged Securities to comply with the
covenants and agreements set forth herein and in the Debentures.
(kk) Each Debtor shall register the pledge of the applicable Pledged
Securities on the books of such Debtor. Each Debtor shall notify each
issuer of Pledged Securities to register the pledge of the applicable
Pledged Securities in the name of the Secured Parties on the books of such
issuer. Further, except with respect to certificated securities delivered
to the Secured Parties, the applicable Debtor shall deliver to Secured
Parties an acknowledgement of pledge (which, where appropriate, shall
comply with the requirements of the relevant UCC with respect to perfection
by registration) signed by the issuer of the applicable Pledged Securities,
which acknowledgement shall confirm that: (a) it has registered the pledge
on its books and records; and (b) at any time directed by the Secured
Parties during the continuation of an Event of Default, such issuer will
transfer the record ownership of such Pledged Securities into the name of
any designee of the Secured Parties, will take such steps as may be
necessary to effect the transfer, and will comply with all other
instructions of the Secured Parties regarding such Pledged Securities
without the further consent of the applicable Debtor.
(ll) In the event that, upon an occurrence of an Event of Default, the
Secured Parties shall sell all or any of the Pledged Securities to another
party or parties (herein called the "Transferee") or shall purchase or
retain all or any of the Pledged Securities, each Debtor shall, to the
extent applicable: (i) deliver to the Secured Parties or the Transferee, as
the case may be, the articles of incorporation, bylaws, minute books, stock
certificate books, corporate seals, deeds, leases, indentures, agreements,
evidences of indebtedness, books of account, financial records and all
other Organizational Documents and records of the Debtors and their direct
and indirect subsidiaries; (ii) use its best efforts to obtain resignations
of the persons then serving as officers and directors of the Debtors and
their direct and indirect subsidiaries, if so requested; and (iii) use its
best efforts to obtain any approvals that are required by any governmental
or regulatory body in order to permit the sale of the Pledged Securities to
the Transferee or the purchase or retention of the Pledged Securities by
the Secured Parties and allow the Transferee or the Secured Parties to
continue the business of the Debtors and their direct and indirect
subsidiaries.
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(mm) Without limiting the generality of the other obligations of the
Debtors hereunder, each Debtor shall promptly (i) cause to be registered at
the United States Copyright Office all of its material copyrights, (ii)
cause the security interest contemplated hereby with respect to all
Intellectual Property registered at the United States Copyright Office or
United States Patent and Trademark Office to be duly recorded at the
applicable office, and (iii) give the Secured Parties notice whenever it
acquires (whether absolutely or by license) or creates any additional
material Intellectual Property.
(nn) Each Debtor will from time to time, at the joint and several
expense of the Debtors, promptly execute and deliver all such further
instruments and documents, and take all such further action as may be
necessary or desirable, or as the Secured Parties may reasonably request,
in order to perfect and protect any security interest granted or purported
to be granted hereby or to enable the Secured Parties to exercise and
enforce their rights and remedies hereunder and with respect to any
Collateral or to otherwise carry out the purposes of this Agreement.
(oo) Schedule F attached hereto lists all of the patents, patent
applications, trademarks, trademark applications, registered copyrights,
and domain names owned by any of the Debtors as of the date hereof.
Schedule F lists all material licenses in favor of any Debtor for the use
of any patents, trademarks, copyrights and domain names as of the date
hereof. All material patents and trademarks of the Debtors have been duly
recorded at the United States Patent and Trademark Office and all material
copyrights of the Debtors have been duly recorded at the United States
Copyright Office.
(pp) Except as set forth on Schedule G attached hereto, none of the
account debtors or other persons or entities obligated on any of the
Collateral is a governmental authority covered by the Federal Assignment of
Claims Act or any similar federal, state or local statute or rule in
respect of such Collateral.
5. Effect of Pledge on Certain Rights. If any of the Collateral subject
to this Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of certain events
(including, without limitation, upon the transfer of all or any of the other
stock or assets of the issuer), it is agreed that the pledge of such equity or
ownership interests pursuant to this Agreement or the enforcement of any of the
Secured Parties' rights hereunder shall not be deemed to be the type of event
which would trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is subject or to
which any Debtor is party.
6. Defaults. The following events shall be "Events of Default":
(a) The occurrence of an Event of Default (as defined in the Debenture)
under the Debenture;
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(b) Any representation or warranty of any Debtor in this Agreement
shall prove to have been incorrect in any material respect when made;
(c) The failure by any Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor of
notice of such failure by or on behalf of a Secured Party unless such
default is capable of cure but cannot be cured within such time frame and
such Debtor is using best efforts to cure same in a timely fashion; or
(d) If any provision of this Agreement shall at any time for any reason
be declared to be null and void, or the validity or enforceability thereof
shall be contested by any Debtor, or a proceeding shall be commenced by any
Debtor, or by any governmental authority having jurisdiction over any
Debtor, seeking to establish the invalidity or unenforceability thereof, or
any Debtor shall deny that any Debtor has any liability or obligation
purported to be created under this Agreement.
7. Duty To Hold In Trust.
(a) Upon the occurrence of any Event of Default and at any time
thereafter, each Debtor shall, upon receipt of any revenue, income,
dividend, interest or other sums subject to the Security Interest, whether
payable pursuant to the Debenture or otherwise, or of any check, draft,
note, trade acceptance or other instrument evidencing an obligation to pay
any such sum, hold the same in trust for the Secured Parties and shall
forthwith endorse and transfer any such sums or instruments, or both, to
the Secured Parties, pro-rata in proportion to their initial purchases of
Debentures for application to the satisfaction of the Obligations (and if
any Debenture is not outstanding, pro-rata in proportion to the initial
purchases of the remaining Debentures).
(b) If any Debtor shall become entitled to receive or shall receive any
securities or other property (including, without limitation, shares of
Pledged Securities or instruments representing Pledged Securities acquired
after the date hereof, or any options, warrants, rights or other similar
property or certificates representing a dividend, or any distribution in
connection with any recapitalization, reclassification or increase or
reduction of capital, or issued in connection with any reorganization of
such Debtor or any of its direct or indirect subsidiaries) in respect of
the Pledged Securities (whether as an addition to, in substitution of, or
in exchange for, such Pledged Securities or otherwise), such Debtor agrees
to (i) accept the same as the agent of the Secured Parties; (ii) hold the
same in trust on behalf of and for the benefit of the Secured Parties; and
(iii) to deliver any and all certificates or instruments evidencing the
same to the Secured Parties on or before the close of business on the fifth
business day following the receipt thereof by such Debtor, in the exact
form received together with the Necessary Endorsements, to be held by the
Secured Parties subject to the terms of this Agreement as Collateral.
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8. Rights and Remedies Upon Default.
(a) Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Parties, acting through any agent appointed by them
for such purpose, shall have the right to exercise all of the remedies
conferred hereunder and under the Debentures, and the Secured Parties shall
have all the rights and remedies of a secured party under the UCC. Without
limitation, the Secured Parties shall have the following rights and powers:
(i) The Secured Parties 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 each Debtor
shall assemble the Collateral and make it available to the Secured
Parties at places which the Secured Parties shall reasonably select,
whether at such Debtor's premises or elsewhere, and make available to
the Secured Parties, without rent, all of such Debtor's respective
premises and facilities for the purpose of the Secured Parties taking
possession of, removing or putting the Collateral in saleable or
disposable form.
(ii) Upon notice to the Debtors by the Secured Parties, all
rights of each Debtor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise and all rights
of each Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall cease. Upon such
notice, the Secured Parties shall have the right to receive any
interest, cash dividends or other payments on the Collateral and, at
the option of the Secured Parties, to exercise in such the Secured
Parties' discretion all voting rights pertaining thereto. Without
limiting the generality of the foregoing, the Secured Parties shall
have the right (but not the obligation) to exercise all rights with
respect to the Collateral as it were the sole and absolute owners
thereof, including, without limitation, to vote and/or to exchange, at
its sole discretion, any or all of the Collateral in connection with a
merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the Collateral or any Debtor or
any of its direct or indirect subsidiaries.
(iii) The Secured Parties shall have the right to operate the
business of each Debtor using the Collateral and shall have the right
to assign, sell, lease or otherwise dispose of and deliver all or any
part of the Collateral, at public or private sale or otherwise, either
with or without special conditions or stipulations, for cash or on
credit or for future delivery, in such parcel or parcels and at such
time or times and at such place or places, and upon such terms and
conditions as the Secured Parties may deem commercially reasonable,
all without (except as shall be required by applicable statute and
cannot be waived) advertisement or demand upon or notice to any Debtor
or right of redemption of a Debtor, which are hereby expressly waived.
Upon each such sale, lease, assignment or other transfer of
Collateral, the Secured Parties may, unless prohibited by applicable
law which cannot be waived, purchase all or any part of the Collateral
being sold, free from and discharged of all trusts, claims, right of
redemption and equities of any Debtor, which are hereby waived and
released. Notwithstanding the
15
foregoing, the Secured Parties agree not to exercise their right to
assign, sell, lease or otherwise dispose of, and deliver all or any
part of the Collateral unless they have provided George Karfunkel at
least five business days prior written notice and an opportunity to
pay all amounts owing to the Secured Parties as a result of any Event
of Default. If such payment is not received on or before the fifth
business day following the date such written notice is deemed
delivered to Mr. Karfunkel (in accordance with the notice provisions
of the Individual Guaranty), the Secured Parties may exercise their
right to assign, sell, lease or otherwise dispose of and deliver such
Collateral.
(iv) The Secured Parties shall have the right (but not the
obligation) to notify any account debtors and any obligors under
instruments or accounts to make payments directly to the Secured
Parties and to enforce the Debtors' rights against such account
debtors and obligors.
(v) The Secured Parties may (but are not obligated to) direct any
financial intermediary or any other person or entity holding any
investment property to transfer the same to the Secured Parties or
their designee.
(vi) The Secured Parties may (but are not obligated to) transfer
any or all Intellectual Property registered in the name of any Debtor
at the United States Patent and Trademark Office and/or Copyright
Office into the name of the Secured Parties or any designee or any
purchaser of any Collateral.
(b) The Secured Parties may comply with any applicable law in
connection with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any sale of
the Collateral. The Secured Parties may sell the Collateral without giving
any warranties and may specifically disclaim such warranties. If the
Secured Parties sells any of the Collateral on credit, the Debtors will
only be credited with payments actually made by the purchaser. In addition,
each Debtor waives any and all rights that it may have to a judicial
hearing in advance of the enforcement of any of the Secured Parties' rights
and remedies hereunder, including, without limitation, its right following
an Event of Default to take immediate possession of the Collateral and to
exercise its rights and remedies with respect thereto.
(c) For the purpose of enabling the Secured Parties to further exercise
rights and remedies under this Section 8 or elsewhere provided by agreement
or applicable law, each Debtor hereby grants to the Secured Parties, an
irrevocable, nonexclusive license (exercisable without payment of royalty
or other compensation to such Debtor) to use, license or sublicense
following an Event of Default, any Intellectual Property now owned or
hereafter acquired by such Debtor, and wherever the same may be located,
and including in such license access to all media in which any of the
licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof.
9. Applications of Proceeds. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding,
16
storing, processing and preparing for sale, selling, and the like (including,
without limitation, any taxes, fees and other costs incurred in connection
therewith) of the Collateral, to the reasonable attorneys' fees and expenses
incurred by the Secured Parties in enforcing their rights hereunder and in
connection with collecting, storing and disposing of the Collateral, and then to
satisfaction of the Obligations pro rata among the Secured Parties (based on
then-outstanding principal amounts of Debentures at the time of any such
determination), and to the payment of any other amounts required by applicable
law, after which the Secured Parties shall pay to the applicable Debtor 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 Parties are legally entitled, the Debtors will be liable for the
deficiency, together with interest thereon, at the rate of 10% per annum or the
lesser amount permitted by applicable law (the "Default Rate"), and the
reasonable fees of any attorneys employed by the Secured Parties to collect such
deficiency. Except as otherwise provided herein and to the extent permitted by
applicable law, each Debtor waives all claims, damages and demands against the
Secured Parties arising out of the repossession, removal, retention or sale of
the Collateral, unless due solely to the gross negligence or willful misconduct
of the Secured Parties as determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction.
10. Securities Law Provision. Each Debtor recognizes that the Secured
Parties may be limited in its ability to effect a sale to the public of all or
part of the Pledged Securities by reason of certain prohibitions in the
Securities Act of 1933, as amended, or other federal or state securities laws
(collectively, the "Securities Laws"), and may be compelled to resort to one or
more sales to a restricted group of purchasers who may be required to agree to
acquire the Pledged Securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Debtor agrees that sales
so made may be at prices and on terms less favorable than if the Pledged
Securities were sold to the public, and that the Secured Parties has no
obligation to delay the sale of any Pledged Securities for the period of time
necessary to register the Pledged Securities for sale to the public under the
Securities Laws. Each Debtor shall cooperate with the Secured Parties in its
attempt to satisfy any requirements under the Securities Laws (including,
without limitation, registration thereunder if requested by the Secured Parties)
applicable to the sale of the Pledged Securities by the Secured Parties.
11. Costs and Expenses. Each Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Secured Parties. The Debtors shall also pay all other
claims and charges which in the reasonable opinion of the Secured Parties might
prejudice, imperil or otherwise affect the Collateral or the Security Interest
therein. The Debtors will also, upon demand, pay to the Secured Parties the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Secured Parties
may incur in connection with (i) the enforcement of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or (iii) the exercise or enforcement of
any of the rights of the Secured Parties under the Debentures. Until so paid,
any fees payable hereunder shall be added to the principal amount of the
Debentures and shall bear interest at the Default Rate.
17
12. Responsibility for Collateral. The Debtors assume all liabilities
and responsibility in connection with all Collateral, and the Obligations 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. Without
limiting the generality of the foregoing, (a) no Secured Party (i) has any duty
(either before or after an Event of Default) to collect any amounts in respect
of the Collateral or to preserve any rights relating to the Collateral, or (ii)
has any obligation to clean-up or otherwise prepare the Collateral for sale, and
(b) each Debtor shall remain obligated and liable under each contract or
agreement included in the Collateral to be observed or performed by such Debtor
thereunder. No Secured Party shall have any obligation or liability under any
such contract or agreement by reason of or arising out of this Agreement or the
receipt by any Secured Party of any payment relating to any of the Collateral,
nor any Secured Party be obligated in any manner to perform any of the
obligations of any Debtor under or pursuant to any such contract or agreement,
to make inquiry as to the nature or sufficiency of any payment received by any
Secured Party in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Secured Parties or to
which any Secured Party may be entitled at any time or times.
13. Security Interest Absolute. All rights of the Secured Parties and
all obligations of the Debtors hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures 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 Debentures or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to a Debtor, 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 Parties shall continue even if the Obligations are barred for any
reason, including, without limitation, the running of the statute of limitations
or bankruptcy. Each Debtor expressly waives presentment, protest, notice of
protest, demand, notice of nonpayment and demand for performance. In the event
that at any time any transfer of any Collateral or any payment received by the
Secured Parties hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to be
otherwise due to any party other than the Secured Parties, then, in any such
event, each Debtor's obligations hereunder shall survive cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or cancellation of this Agreement, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof. Each
Debtor waives all right to require the Secured Parties to proceed against any
other person or entity or to apply any Collateral which the Secured Parties may
hold at any
18
time, or to marshal assets, or to pursue any other remedy. Each Debtor waives
any defense arising by reason of the application of the statute of limitations
to any obligation secured hereby.
14. Term of Agreement. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Debentures have been
indefeasibly paid in full and all other Obligations have been paid or
discharged; provided, however, that all indemnities of the Debtors contained in
this Agreement shall survive and remain operative and in full force and effect
regardless of the termination of this Agreement.
15. Power of Attorney; Further Assurances.
(a) Each Debtor authorizes the Secured Parties, and does hereby make,
constitute and appoint the Secured Parties and their respective officers,
agents, successors or assigns with full power of substitution, as such
Debtor's true and lawful attorney-in-fact, with power, in the name of the
various Secured Parties or such Debtor, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any note, checks,
drafts, money orders or other instruments of payment (including payments
payable under or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of the Secured Parties; (ii) to
sign and endorse any financing statement pursuant to the UCC or any
invoice, freight or express bill, bill of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to the Collateral;
(iii) to pay or discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on or threatened against the
Collateral; (iv) to demand, collect, receipt for, compromise, settle and
sue for monies due in respect of the Collateral; (v) to transfer any
Intellectual Property or provide licenses respecting any Intellectual
Property; and (vi) generally, at the option of the Secured Parties, and at
the expense of the Debtors, at any time, or from time to time, to execute
and deliver any and all documents and instruments and to do all acts and
things which the Secured Parties deem 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 Debentures all as
fully and effectually as the Debtors might or could do; and each Debtor
hereby ratifies all that said attorney shall lawfully do or cause to be
done by virtue hereof. This power of attorney is coupled with an interest
and shall be irrevocable for the term of this Agreement and thereafter as
long as any of the Obligations shall be outstanding. The designation set
forth herein shall be deemed to amend and supersede any inconsistent
provision in the Organizational Documents or other documents or agreements
to which any Debtor is subject or to which any Debtor is a party. Without
limiting the generality of the foregoing, after the occurrence and during
the continuance of an Event of Default, each Secured Party is specifically
authorized to execute and file any applications for or instruments of
transfer and assignment of any patents, trademarks, copyrights or other
Intellectual Property with the United States Patent and Trademark Office
and the United States Copyright Office.
(b) On a continuing basis, each Debtor will make, execute, acknowledge,
deliver, file and record, as the case may be, with the proper filing and
recording agencies in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule
19
C attached hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by
the Secured Parties, to perfect the Security Interest granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Secured Parties the grant or perfection of a
perfected security interest in all the Collateral under the UCC.
(c) Each Debtor hereby irrevocably appoints the Secured Parties as such
Debtor's attorney-in-fact, with full authority in the place and instead of
such Debtor and in the name of such Debtor, from time to time in the
Secured Parties' discretion, to take any action and to execute any
instrument which the Secured Parties may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its
sole discretion, of one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature
of such Debtor where permitted by law, which financing statements may (but
need not) describe the Collateral as "all assets" or "all personal
property" or words of like import, and ratifies all such actions taken by
the Secured Parties. 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.
16. Notices. All notices, requests, demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement (as
such term is defined in the Debentures).
17. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Parties shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.
18. [RESERVED].
19. Miscellaneous.
(a) No course of dealing between the Debtors and the Secured Parties,
nor any failure to exercise, nor any delay in exercising, on the part of
the Secured Parties, any right, power or privilege hereunder or under the
Debentures shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
(b) All of the rights and remedies of the Secured Parties with respect
to the Collateral, whether established hereby or by the Debentures or by
any other agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or concurrently.
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(c) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect thereto. Except as
specifically set forth in this Agreement, no provision of this Agreement
may be modified or amended except by a written agreement specifically
referring to this Agreement and signed by the parties hereto.
(d) In the event any provision of this Agreement is held to be invalid,
prohibited or unenforceable in any jurisdiction for any reason, unless such
provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction, be construed as if such invalid, prohibited or
unenforceable provision had been more narrowly drawn so as not to be
invalid, prohibited or unenforceable. If, notwithstanding the foregoing,
any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such
provision or the other provisions of this Agreement and without affecting
the validity or enforceability of such provision or the other provisions of
this Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed a waiver of
any subsequent breach or default or right, whether of the same or similar
nature or otherwise.
(f) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its successors and assigns.
(g) Each party shall take such further action and execute and deliver
such further documents as may be necessary or appropriate in order to carry
out the provisions and purposes of this Agreement.
(h) All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each Debtor
agrees that all proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and the
Debenture (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, partners, members, employees
or agents) shall be commenced exclusively in the state and federal courts
sitting in the City of New York, Borough of Manhattan. Each Debtor hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process
21
and consents to process being served in any such proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in
any manner permitted by law. Each party hereto hereby irrevocably waives,
to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If any party shall
commence a proceeding to enforce any provisions of this Agreement, then the
prevailing party in such proceeding shall be reimbursed by the other party
for its reasonable attorney's fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such proceeding.
(i) This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the
event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same
force and effect as if such facsimile signature were the original thereof.
(j) All Debtors shall jointly and severally be liable for the
obligations of each Debtor to the Secured Parties hereunder.
(k) Each Debtor shall indemnify, reimburse and hold harmless the
Secured Parties and their respective partners, members, shareholders,
officers, directors, employees and agents (collectively, "Indemnitees")
from and against any and all losses, claims, liabilities, damages,
penalties, suits, costs and expenses, of any kind or nature, (including
fees relating to the cost of investigating and defending any of the
foregoing) imposed on, incurred by or asserted against such Indemnitee in
any way related to or arising from or alleged to arise from this Agreement
or the Collateral, except any such losses, claims, liabilities, damages,
penalties, suits, costs and expenses which result from the gross negligence
or willful misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation of, any
other indemnification provision in the Debentures, the Purchase Agreement
(as such term is defined in the Debentures) or any other agreement,
instrument or other document executed or delivered in connection herewith
or therewith.
(l) Nothing in this Agreement shall be construed to subject any Secured
Party to liability as a partner in any Debtor or any if its direct or
indirect subsidiaries that is a partnership or as a member in any Debtor or
any of its direct or indirect subsidiaries that is a limited liability
company, nor shall any Secured Party be deemed to have assumed any
obligations under any partnership agreement or limited liability company
agreement, as applicable, of any such Debtor or any if its direct or
indirect subsidiaries or otherwise, unless and until any such Secured Party
exercises its right to be substituted for such Debtor as a partner or
member, as applicable, pursuant hereto.
22
(m) To the extent that the grant of the security interest in the
Collateral and the enforcement of the terms hereof require the consent,
approval or action of any partner or member, as applicable, of any Debtor
or any direct or indirect subsidiary of any Debtor or compliance with any
provisions of any of the Organizational Documents, the Debtors hereby grant
such consent and approval and waive any such noncompliance with the terms
of said documents.
[SIGNATURE PAGES FOLLOW]
23
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.
SILVERSTAR HOLDINGS, LTD.
By: /s/ Clive Kabatznik
------------------------------------------
Name: Clive Kabatznik
Title: Chief Executive Officer
SILVERSTAR HOLDINGS INC.
By: /s/ Clive Kabatznik
------------------------------------------
Name: Clive Kabatznik
Title: Chief Executive Officer
FIRST SOUTH AFRICAN HOLDINGS PTY LTD.
By: /s/ Clive Kabatznik
------------------------------------------
Name: Clive Kabatznik
Title: Director
FIRST SOUTH AFRICAN MANAGEMENT
By: /s/ Clive Kabatznik
------------------------------------------
Name: Clive Kabatznik
Title: Chief Executive Officer
STRATEGY FIRST INC.
By: /s/ Clive Kabatznik
------------------------------------------
Name: Clive Kabatznik
Title: Director
FANTASY SPORTS INC.
By: /s/ Clive Kabatznik
------------------------------------------
Name: Clive Kabatznik
Title: Chairman
24
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
25
[SIGNATURE PAGE OF HOLDERS TO SSTR SA]
Name of Investing Entity: DKR SoundShore Oasis Holding Fund Ltd.
Signature of Authorized Signatory of Investing entity: _________________________
Name of Authorized Signatory: Brad Caswell
Title of Authorized Signatory: Director
26
SCHEDULE A
Principal Place of Business of Debtors:
Locations Where Collateral is Located or Stored:
Silverstar Holdings Inc. - Florida
6100 Glades Road, Ste 305
Boca Raton, FL 33434
#22-3783760
Silverstar Holding, Ltd - Bermuda
6100 Glades Road, Ste 305
Boca Raton, FL 33434
# EC-21106
First South Africa Management Corp
6100 Glades Road, Ste 305
Boca Raton, FL 33434
#65-0618087
Fantasy Sports Inc.
867 Clare Lane
York, PA 17402
#52-2277713
Strategy First Inc.
147 St-Paul West
Suite 300
Montreal, Quebec
Canada
#98-0412944
First South African Holdings (Pty) Ltd
PO Box 3782
Edenvale 1610
South Africa
#1995/003959/07
27
SCHEDULE B
None
28
SCHEDULE C
Bermuda
District of Columbia
Delaware
Pennsylvania
29
SCHEDULE D
Organizational Identification Numbers
Silverstar Holding, Ltd - Bermuda
6100 Glades Road, Ste 305
Boca Raton, FL 33434
# EC-21106
Silverstar Holdings Inc. - Delaware
6100 Glades Road, Ste 305
Boca Raton, FL 33434
#22-3783760
First South Africa Management Corp - Delaware
6100 Glades Road, Ste 305
Boca Raton, FL 33434
#65-0618087
Fantasy Sports Inc. - Pennsylvania
867 Clare Lane
York, PA 17402
#52-2277713
Strategy First Inc. - Quebec
147 St-Paul West
Suite 300
Montreal, Quebec
Canada
#98-0412944
First South African Holdings (Pty) Ltd - South Africa
PO Box 3782
Edenvale 1610
South Africa
#1995/003959/07
30
SCHEDULE E
Names; Mergers and Acquisitions
Silverstar Holdings Ltd, previously Leisureplanet Holdings Ltd, previously
First South Africa Corp.
Fantasy Sports was acquired in November 2000 by Silverstar Holdings Ltd.
Strategy First was acquired in April 2005 by Silverstar Holdings Ltd.
31
SCHEDULE F
Intellectual Property
Websites:
o Fantasycup.com
o Fantasycup.net
o Fantasystockcar.com
o Strategyfirst.com
o Silverstarholdings.com
Patents: None
Trademarks: None
Copyrights: None
32
SCHEDULE G
Account Debtors
N/A
33
SCHEDULE H
Pledged Securities
Stock and Subsidiaries :
o Silverstar Holdings Inc 100%
o Fantasy Sports 100%
o Strategy First 100%
o First South Africa Management Corp 100%
o First South African Holdings (Pty) Ltd 100%
o 1,978,070 Series A Shares of Magnolia Broadband
34
ANNEX A
to
SECURITY
AGREEMENT
FORM OF ADDITIONAL DEBTOR JOINDER
Security Agreement dated as of October 31, 2005 made by
Silverstar Holdings, Ltd.
and its subsidiaries party thereto from time to time, as Debtors
to and in favor of
the Secured Parties identified therein (the "Security Agreement")
Reference is made to the Security Agreement as defined above;
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in, or by reference in, the Security Agreement.
The undersigned hereby agrees that upon delivery of this Additional
Debtor Joinder to the Secured Parties referred to above, the undersigned shall
(a) be an Additional Debtor under the Security Agreement, (b) have all the
rights and obligations of the Debtors under the Security Agreement as fully and
to the same extent as if the undersigned was an original signatory thereto and
(c) be deemed to have made the representations and warranties set forth in
Section 4 therein as of the date of execution and delivery of this Additional
Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN
THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND
ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH
THEREIN.
Attached hereto are supplemental and/or replacement Schedules to the
Security Agreement, as applicable.
An executed copy of this Joinder shall be delivered to the Secured
Parties, and the Secured Parties may rely on the matters set forth herein on or
after the date hereof. This Joinder shall not be modified, amended or terminated
without the prior written consent of the Secured Parties.
IN WITNESS WHEREOF, the undersigned has caused this Joinder to be
executed in the name and on behalf of the undersigned.
[Name of Additional Debtor]
By:
Name:
Title:
Address:
Dated: