SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of February 20, 2007 (this "Agreement"),
is among Airtrax, Inc., a New Jersey corporation (the "Company"), all of the
Subsidiaries of the Company (such subsidiaries, the "Guarantors" and together
with the Company, the "Debtors") and the holders of the Company's Secured
Convertible Debentures due, subject to the terms therein, 2 years from their
date of issuance, and issued on February 20, 2007 in the original aggregate
principal amount of $3,500,000 (collectively, the "Debentures") signatory
hereto, their endorsees, transferees and assigns (collectively, the "Secured
Parties").
W I T N E S S E T H:
WHEREAS, pursuant to the Debentures, the Secured Parties have severally
agreed to extend the loans to the Company evidenced by the Debentures;
WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date
hereof (the "Guarantee"), the Guarantors have jointly and severally agreed to
guarantee and act as surety for payment of such Debentures; and
WHEREAS, in order to induce the Secured Parties to extend the loans
evidenced by 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 and through the Agent, a 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 Debentures and
the Guarantors' obligations under the Guarantee.
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.
(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 limitation, (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
(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 and all rights arising under or in
connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.
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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 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" means, 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" means undated stock powers endorsed in
blank or other proper instruments of assignment duly executed and such
other instruments or documents as the Agent (as that term is defined below)
may reasonably request.
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(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
Guarantee 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 and the loans extended
pursuant thereto; (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 Guarantee 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).
(g) "Pledged Securities" shall have the meaning ascribed to such term
in Section 4(i).
(h) "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 Security Interest in Collateral. As an inducement for the
Secured Parties to extend the loans as evidenced by 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 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 (a "Security Interest" and collectively, the "Security
Interests").
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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 Agent (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 Agent, or have previously delivered to
Agent, a true and correct copy of each Organizational Document governing any of
the Pledged Securities.
4. Representations, Warranties, Covenants and Agreements of the Debtors.
Except as set forth under the corresponding section of the disclosure schedules
delivered to the Secured Parties concurrently herewith (the "Disclosure
Schedules"), which Disclosure Schedules shall be deemed a part hereof, 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 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 Interests. Except as set forth on Schedule
B attached hereto, there is not on file in any governmental or regulatory
authority, agency or recording office an effective financing statement,
security agreement, license or transfer or any notice of any of the
foregoing (other than those that will be filed in favor of the Secured
Parties pursuant to this Agreement) covering or affecting any of the
Collateral. Except as set forth on Schedule B attached hereto and except
pursuant to this Agreement, as 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 other 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).
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(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 (which must be within the United States) and (ii) evidence that
appropriate financing statements under the UCC and other necessary
documents have been filed and recorded and other steps have been taken to
perfect the Security Interests 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 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 Agent and the Secured Parties
hereunder.
(g) Each Debtor hereby authorizes the Agent to file one or more
financing statements under the UCC, with respect to the Security Interests
with the proper filing and recording agencies in any jurisdiction deemed
proper by it.
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(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. If any, all required consents (including, without
limitation, from stockholders or creditors of any Debtor) necessary for any
Debtor to enter into and perform its obligations hereunder have been
obtained.
(i) The capital stock and other equity interests listed on Schedule H
hereto (the "Pledged Securities") 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 Debentures).
(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.
(k) Except for Permitted Liens (as defined in the Debentures), each
Debtor shall at all times maintain the liens and Security Interests
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 Agent, each Debtor will sign and deliver to
the Agent on behalf of the Secured Parties at any time or from time to time
one or more financing statements pursuant to the UCC in form reasonably
satisfactory to the Agent and will pay the cost of filing the same in all
public offices wherever filing is, or is deemed by the Agent 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 Interests hereunder, and each Debtor shall obtain and
furnish to the Agent 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 Interests hereunder.
(l) Except for Permitted Liens (as defined in the Debentures), 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.
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(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, including Collateral
hereafter acquired, 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 Agent that
(a) the Agent 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 Agent and such cancellation or change shall not be
effective as to the Agent for at least thirty (30) days after receipt by
the Agent of such notice, unless the effect of such change is to extend or
increase coverage under the policy; and (c) the Agent 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 Debentures) 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 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 Agent on behalf of the Secured Parties
and, if received by such Debtor, shall be held in trust for the Secured
Parties and immediately paid over to the Agent unless otherwise directed in
writing by the Agent. Copies of such policies or the related certificates,
in each case, naming the Agent as lender loss payee and additional insured
shall be delivered to the Agent 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
material adverse 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, through the Agent,
therein.
(p) Each Debtor shall promptly execute and deliver to the Agent such
further deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and assurances and
take such further action as the Agent may from time to time request and may
in its sole discretion deem necessary to perfect, protect or enforce the
Secured Parties' security interest in the Collateral including, without
limitation, if applicable and requested in writing by the Agent, 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 reasonably acceptable to the
Agent, which Intellectual Property Security Agreement, other than as stated
therein, shall be subject to all of the terms and conditions hereof.
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(q) Each Debtor shall permit the Agent and its representatives and
agents to inspect the Collateral during normal business hours and upon
reasonable prior notice, and to make copies of records pertaining to the
Collateral as may be reasonably requested by the Agent 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.
(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 the perfection of the Security Interests granted and
evidenced by this Agreement.
(w) Except in the ordinary course of business and except for Permitted
Liens (as defined in the Debentures), 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
the Agent which shall not be unreasonably withheld.
(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 the perfection of the Security
Interests 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 Schedule D
attached hereto, which Schedule D sets forth each Debtor's organizational
identification number or, if any Debtor does not have one, states that one
does not exist.
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(z) (i) The actual name of each Debtor is the name set forth in
Schedule D attached 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 Agent.
(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply
with any and all orders and instructions of Agent 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 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 Agent, 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 Agent, to
be entered into and delivered to the Agent for the benefit of 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 Agent 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 reasonably satisfactory to the Agent.
(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 Agent.
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(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 Interests in such accounts
and proceeds thereof, shall execute and deliver to the Agent an assignment
of claims for such accounts and cooperate with the Agent in taking any
other steps required, in its 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 Interests in such
accounts and proceeds thereof.
(ii) Each Debtor shall cause each subsidiary of such Debtor with
operations or material operations (which, if in doubt, shall be in the sole
determination of the Agent) 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. As of the date
hereof, the Company represents and warrants that none of its subsidiaries
have any operations or material assets. Concurrent therewith, the
Additional Debtor shall deliver replacement schedules for, or supplements
to all other 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 Agent
may reasonably request. Upon delivery of the foregoing to the Agent, 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 Agent, the applicable Debtor shall deliver to Agent 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 Agent 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
Agent, will take such steps as may be necessary to effect the transfer, and
will comply with all other instructions of Agent regarding such Pledged
Securities without the further consent of the applicable Debtor.
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(ll) In the event that, upon an occurrence of an Event of Default,
Agent 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 Agent 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 Agent and allow the
Transferee or Agent to continue the business of the Debtors and their
direct and indirect subsidiaries.
(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 Agent 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 Agent 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 Agent's 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.
12
6. Defaults. The following events shall be "Events of Default":
(a) The occurrence of an Event of Default (as defined in the
Debentures) under the Debentures;
(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 Interests, whether
payable pursuant to the Debentures 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 respective
then-currently outstanding principal amount 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 Agent 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 Agent 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 the Agent, 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 Agent, for the
benefit of the Secured Parties, shall have the following rights and powers:
(i) The Agent 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 Agent at places
which the Agent shall reasonably select, whether at such Debtor's
premises or elsewhere, and make available to the Agent, without rent,
all of such Debtor's respective premises and facilities for the
purpose of the Agent taking possession of, removing or putting the
Collateral in saleable or disposable form.
(ii) Upon notice to the Debtors by Agent, 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, Agent
shall have the right to receive, for the benefit of the Secured
Parties, any interest, cash dividends or other payments on the
Collateral and, at the option of Agent, to exercise in such Agent's
discretion all voting rights pertaining thereto. Without limiting the
generality of the foregoing, Agent shall have the right (but not the
obligation) to exercise all rights with respect to the Collateral as
it were the sole and absolute owner 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 Agent 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 Agent 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
Agent, for the benefit of 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.
(iv) The Agent 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 Agent, on behalf of the
Secured Parties, and to enforce the Debtors' rights against such
account debtors and obligors.
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(v) The Agent, for the benefit of the Secured Parties, may (but
is not obligated to) direct any financial intermediary or any other
person or entity holding any investment property to transfer the same
to the Agent, on behalf of the Secured Parties, or its designee.
(vi) The Agent may (but is 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 Agent shall 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 Agent may sell the Collateral without giving any
warranties and may specifically disclaim such warranties. If the Agent
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 Agent's 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 Agent to further exercise rights and
remedies under this Section 8 or elsewhere provided by agreement or
applicable law, each Debtor hereby grants to the Agent, for the
benefit of the Agent and 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 or from payments made on account of any
insurance policy insuring any portion of the Collateral shall be applied first,
to the expenses of retaking, holding, 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 Agent in enforcing the
Secured Parties' 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) with Subscription Amounts on
the Closing Date of at least $250,000 and then to the satisfaction of the
Obligations pro rata among the remaining 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 18% 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. 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.
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10. Securities Law Provision. Each Debtor recognizes that Agent 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 Agent 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 Agent in its attempt to satisfy any requirements under the Securities Laws
(including, without limitation, registration thereunder if requested by Agent)
applicable to the sale of the Pledged Securities by Agent.
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 Agent. The Debtors shall also pay all other claims
and charges which in the reasonable opinion of the Agent is reasonably likely to
prejudice, imperil or otherwise affect the Collateral or the Security Interests
therein. The Debtors will also, upon demand, pay to the Agent 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 Agent, for the benefit of 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.
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) neither the Agent nor any 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. Neither the Agent nor any 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 the Agent or any
Secured Party of any payment relating to any of the Collateral, nor shall the
Agent or 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 the
Agent or 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 Agent or to which
the Agent or any Secured Party may be entitled at any time or times.
16
13. Security Interests 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 guarantee, 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 Interests 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 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 Interests 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 (including, without limitation, Annex B hereto) shall survive and
remain operative and in full force and effect regardless of the termination of
this Agreement.
17
15. Power of Attorney; Further Assurances.
(a) Each Debtor authorizes the Agent, and does hereby make, constitute and
appoint the Agent and its 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 Agent 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 Agent; (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 Agent, 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 Agent deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests 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 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
Agent, to perfect the Security Interests granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or
for assuring and confirming to the Agent the grant or perfection of a
perfected security interest in all the Collateral under the UCC.
(c) Each Debtor hereby irrevocably appoints the Agent 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
Agent's discretion, to take any action and to execute any instrument
which the Agent 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 Agent. 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.
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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
Agent 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. Appointment of Agent. The Secured Parties hereby appoint ____ to act as
their agent ("_____" or "Agent") for purposes of exercising any and all rights
and remedies of the Secured Parties hereunder. Such appointment shall continue
until revoked in writing by a Majority in Interest, at which time a Majority in
Interest shall appoint a new Agent, provided that ____ may not be removed as
Agent unless _____ shall then hold less than $50,000 in Principal Amount of
Debentures; provided, further, that such removal may occur only if the other
Secured Parties shall then hold not less than an aggregate of $______ in
Principal Amount of Debentures. The Agent shall have the rights,
responsibilities and immunities set forth in Annex B hereto.
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.
(c) This Agreement, together with the exhibits and schedules hereto,
contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which
the parties acknowledge have been merged into this Agreement and the
exhibits and schedules hereto. No provision of this Agreement may be
waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Debtors and the
Secured Parties or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought.
(d) If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void
or unenforceable, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their commercially reasonable efforts to
find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
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(e) No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver
of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right.
(f) This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company and
the Guarantors may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each
Secured Party (other than by merger). Any Secured Party may assign any
or all of its rights under this Agreement to any Person to whom such
Secured Party assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions of this Agreement that apply
to the "Secured Parties."
(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 Debentures (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 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.
20
(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 Agent and
the Secured Parties and their respective partners, members,
shareholders, officers, directors, employees and agents (and any other
persons with other titles that have similar functions) (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 Agent or 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 Agent or 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.
(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]
21
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed on the day and year first above written.
AIRTRAX, INC.
By: /s/ Robert M. Watson
---------------------
Robert M. Watson
Chief Executive Officer
AIRTRAX FINANCIAL SERVICES LLC
By: /s/ Robert M. Watson
---------------------
Robert M. Watson
Chief Executive Officer
AIRTRAX MANUFACTURING CORP.
By: /s/ Robert M. Watson
---------------------
Robert M. Watson
Chief Executive Officer
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
22
[SIGNATURE PAGE OF HOLDERS TO AITX SA]
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing entity: _______________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
23
SCHEDULE A
Principal Place of Business of Debtors:
Locations Where Collateral is Located or Stored:
SCHEDULE B
SCHEDULE C
SCHEDULE D
Legal Names and Organizational Identification Numbers
SCHEDULE E
Names; Mergers and Acquisitions
SCHEDULE F
Intellectual Property
SCHEDULE G
Account Debtors
SCHEDULE H
Pledged Securities
24
ANNEX A
to
SECURITY
AGREEMENT
FORM OF ADDITIONAL DEBTOR JOINDER
Security Agreement dated as of
February ___, 2007 made by
Airtrax, Inc.
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 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.
25
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:
26
ANNEX B
to
SECURITY
AGREEMENT
THE AGENT
1. Appointment. The Secured Parties (all capitalized terms used herein and
not otherwise defined shall have the respective meanings provided in the
Security Agreement to which this Annex B is attached (the "Agreement")), by
their acceptance of the benefits of the Agreement, hereby designate ____ ("____"
or "Agent") as the Agent to act as specified herein and in the Agreement. Each
Secured Party shall be deemed irrevocably to authorize the Agent to take such
action on its behalf under the provisions of the Agreement and any other
Transaction Document (as such term is defined in the Debentures) and to exercise
such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The Agent
may perform any of its duties hereunder by or through its agents or employees.
2. Nature of Duties. The Agent shall have no duties or responsibilities
except those expressly set forth in the Agreement. Neither the Agent nor any of
its partners, members, shareholders, officers, directors, employees or agents
shall be liable for any action taken or omitted by it as such under the
Agreement or hereunder or in connection herewith or therewith, be responsible
for the consequence of any oversight or error of judgment or answerable for any
loss, unless caused solely by its or their gross negligence or willful
misconduct as determined by a final judgment (not subject to further appeal) of
a court of competent jurisdiction. The duties of the Agent shall be mechanical
and administrative in nature; the Agent shall not have by reason of the
Agreement or any other Transaction Document a fiduciary relationship in respect
of any Debtor or any Secured Party; and nothing in the Agreement or any other
Transaction Document, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of the
Agreement or any other Transaction Document except as expressly set forth herein
and therein.
3. Lack of Reliance on the Agent. Independently and without reliance upon
the Agent, each Secured Party, to the extent it deems appropriate, has made and
shall continue to make (i) its own independent investigation of the financial
condition and affairs of the Company and its subsidiaries in connection with
such Secured Party's investment in the Debtors, the creation and continuance of
the Obligations, the transactions contemplated by the Transaction Documents, and
the taking or not taking of any action in connection therewith, and (ii) its own
appraisal of the creditworthiness of the Company and its subsidiaries, and of
the value of the Collateral from time to time, and the Agent shall have no duty
or responsibility, either initially or on a continuing basis, to provide any
Secured Party with any credit, market or other information with respect thereto,
whether coming into its possession before any Obligations are incurred or at any
time or times thereafter. The Agent shall not be responsible to the Debtors or
any Secured Party for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith, or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of the
Agreement or any other Transaction Document, or for the financial condition of
the Debtors or the value of any of the Collateral, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of the Agreement or any other Transaction Document, or
the financial condition of the Debtors, or the value of any of the Collateral,
or the existence or possible existence of any default or Event of Default under
the Agreement, the Debentures or any of the other Transaction Documents.
27
4. Certain Rights of the Agent. The Agent shall have the right to take any
action with respect to the Collateral, on behalf of all of the Secured Parties.
To the extent practical, the Agent shall request instructions from the Secured
Parties with respect to any material act or action (including failure to act) in
connection with the Agreement or any other Transaction Document, and shall be
entitled to act or refrain from acting in accordance with the instructions of
Secured Parties holding a majority in principal amount of Debentures (based on
then-outstanding principal amounts of Debentures at the time of any such
determination); if such instructions are not provided despite the Agent's
request therefor, the Agent shall be entitled to refrain from such act or taking
such action, and if such action is taken, shall be entitled to appropriate
indemnification from the Secured Parties in respect of actions to be taken by
the Agent; and the Agent shall not incur liability to any person or entity by
reason of so refraining. Without limiting the foregoing, (a) no Secured Party
shall have any right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting hereunder in accordance with the terms of
the Agreement or any other Transaction Document, and the Debtors shall have no
right to question or challenge the authority of, or the instructions given to,
the Agent pursuant to the foregoing and (b) the Agent shall not be required to
take any action which the Agent believes (i) could reasonably be expected to
expose it to personal liability or (ii) is contrary to this Agreement, the
Transaction Documents or applicable law.
5. Reliance. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by the proper person
or entity, and, with respect to all legal matters pertaining to the Agreement
and the other Transaction Documents and its duties thereunder, upon advice of
counsel selected by it and upon all other matters pertaining to this Agreement
and the other Transaction Documents and its duties thereunder, upon advice of
other experts selected by it. Anything to the contrary notwithstanding, the
Agent shall have no obligation whatsoever to any Secured Party to assure that
the Collateral exists or is owned by the Debtors or is cared for, protected or
insured or that the liens granted pursuant to the Agreement have been properly
or sufficiently or lawfully created, perfected, or enforced or are entitled to
any particular priority.
6. Indemnification. To the extent that the Agent is not reimbursed and
indemnified by the Debtors, the Secured Parties will jointly and severally
reimburse and indemnify the Agent, in proportion to their initially purchased
respective principal amounts of Debentures, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in performing its duties
hereunder or under the Agreement or any other Transaction Document, or in any
way relating to or arising out of the Agreement or any other Transaction
Document except for those determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction to have resulted solely from the
Agent's own gross negligence or willful misconduct. Prior to taking any action
hereunder as Agent, the Agent may require each Secured Party to deposit with it
sufficient sums as it determines in good faith is necessary to protect the Agent
for costs and expenses associated with taking such action.
28
7. Resignation by the Agent.
(a) The Agent may resign from the performance of all its
functions and duties under the Agreement and the other Transaction
Documents at any time by giving 30 days' prior written notice (as
provided in the Agreement) to the Debtors and the Secured Parties.
Such resignation shall take effect upon the appointment of a successor
Agent pursuant to clauses (b) and (c) below.
(b) Upon any such notice of resignation, the Secured Parties,
acting by a Majority in Interest, shall appoint a successor Agent
hereunder.
(c) If a successor Agent shall not have been so appointed within
said 30-day period, the Agent shall then appoint a successor Agent who
shall serve as Agent until such time, if any, as the Secured Parties
appoint a successor Agent as provided above. If a successor Agent has
not been appointed within such 30-day period, the Agent may petition
any court of competent jurisdiction or may interplead the Debtors and
the Secured Parties in a proceeding for the appointment of a successor
Agent, and all fees, including, but not limited to, extraordinary fees
associated with the filing of interpleader and expenses associated
therewith, shall be payable by the Debtors on demand.
8. Rights with respect to Collateral. Each Secured Party agrees
with all other Secured Parties and the Agent (i) that it shall not,
and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other
agreement or otherwise (other than pursuant to this Agreement), or
take or institute any action against the Agent or any of the other
Secured Parties in respect of the Collateral or its rights hereunder
(other than any such action arising from the breach of this Agreement)
and (ii) that such Secured Party has no other rights with respect to
the Collateral other than as set forth in this Agreement and the other
Transaction Documents. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations under the Agreement. After
any retiring Agent's resignation or removal hereunder as Agent, the
provisions of the Agreement including this Annex B shall inure to its
benefit as to any actions taken or omitted to be taken by it while it
was Agent.
29