EXHIBIT 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (as amended, supplemented, restated or otherwise
modified from time to time, the "SECURITY AGREEMENT"), dated as of December 13,
2004, made by Neoprobe Corporation, a Delaware corporation ("GRANTOR"), in favor
of Biomedical Value Fund, L.P. ("BVF"), a Delaware limited partnership,
Biomedical Offshore Value Fund, Ltd. ("BOVF" and together with "BVF," the "BV
FUNDS"), an exempted company incorporated under the provisions of the Companies
Law of the Cayman Islands, and DAVID C. BUPP ("BUPP" and together with BV Funds,
each a "LENDER" and collectively, the "LENDERS").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of December
13, 2004 ("PURCHASE AGREEMENT") among Grantor and Lenders, Grantor has issued to
(i) BVF an 8% Series A Convertible Promissory Note, due December 12, 2008, in
the principal amount of $4,400,000, (ii) BVOF an 8% Series A Convertible
Promissory Note, due December 12, 2008, in the principal amount of $3,600,000,
and (iii) Bupp an 8% Series A Convertible Promissory Note, due December 12,
2008, in the principal amount of $100,000, (collectively, the "NOTES") and
agreed to secure Grantor's obligations thereunder.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor agrees as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. Capitalized terms not otherwise defined herein
shall have the respective meanings defined in the Purchase Agreement. The
following terms when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"ADMINISTRATIVE AGENT" is defined in Section 7.1.
"BANKRUPTCY CASE" is defined in Section 7.6.
"BANKRUPTCY CODE" is defined in Section 7.6.
"BV FUNDS" is defined in the preamble.
"COLLATERAL" is defined in Section 2.1.
"COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means:
(a) all computer and other electronic data processing hardware,
integrated computer systems, central processing units, memory units, display
terminals, printers, features, computer elements, card readers, tape drives,
hard and soft disk drives, cables, electrical supply hardware, generators, power
equalizers, accessories, all peripheral devices and other related computer
hardware now owned or hereafter acquired by the Grantor;
(b) all software programs (including both source code, object code
and all related applications and data files), whether now owned, licensed or
leased or hereafter acquired by the Grantor, designed for use on the computers
and electronic data processing hardware described in clause (a) above;
(c) all firmware associated therewith now owned or hereafter
acquired by the Grantor;
(d) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware, software and
firmware described in the preceding clauses (a) through (c) above; and
(e) all rights of the Grantor with respect to all of the foregoing,
including, without limitation, any and all copyrights, licenses, options,
warranties, service contracts, program services, test rights, maintenance
rights, support rights, improvement rights, renewal rights and indemnifications
and any substitutions, replacements, additions or model conversions of any of
the foregoing.
"COPYRIGHT COLLATERAL" means all copyrights and all semi-conductor chip
product mask works of the Grantor, whether statutory or common law, registered
or unregistered, now or hereafter in force throughout the world including,
without limitation, all of the Grantor's right, title and interest in and to all
copyrights and mask works registered in the United States Copyright Office or
anywhere else in the world and also including, without limitation, the
copyrights and mask works referred to in Item A of Schedule III attached hereto,
and all applications for registration thereof, whether pending or in
preparation, all copyright and mask work licenses, including each copyright and
mask work license referred to in Item B of Schedule III attached hereto, the
right to sue for past, present and future infringements of any thereof, all
rights corresponding thereto throughout the world, all extensions and renewals
of any thereof and all proceeds of the foregoing, including, without limitation,
licenses, royalties, income, payments, claims, damages and proceeds of suit.
"EQUIPMENT" is defined in clause (a) of Section 2.1.
"GRANTOR" is defined in the preamble.
"INTELLECTUAL PROPERTY COLLATERAL" means, collectively, the Computer
Hardware and Software Collateral, the Copyright Collateral, the Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.
"INVENTORY" is defined in clause (b) of Section 2.1.
"LENDER" is defined in the preamble.
"LENDER REMEDIES" is defined in Section 7.6.
"LOAN DOCUMENTS" means the Purchase Agreement and the Notes and all other
agreements, instruments and documents evidencing or relating to the Secured
Obligations.
"OTHER LENDERS" is defined in Section 7.1.
"PATENT COLLATERAL" means:
(a) all letters patent and applications for letters patent
throughout the world of the Grantor, including all patent applications of the
Grantor in preparation for filing anywhere in the world and including each
patent and patent application referred to in Item A of Schedule I attached
hereto;
(b) all patent licenses in favor of the Grantor, including each
patent license in favor of the Grantor referred to in Item B of Schedule I
attached hereto;
(c) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in clauses
(a) and (b) above; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right of
the Grantor to sue third parties for past, present or future infringements of
any patent or patent application, including any patent or patent application
referred to in Item A of Schedule I attached hereto, and for breach or
enforcement of any patent license, including any patent license referred to in
Item B of Schedule I attached hereto, and all rights corresponding thereto
throughout the world.
"POSSESSORY COLLATERAL" is defined in Section 7.10.
"RECEIVABLES" is defined in clause (c) of Section 2.1.
"RELATED CONTRACTS" is defined in clause (c) of Section 2.1.
"SECURED OBLIGATIONS" is defined in Section 2.2.
"SECURITY AGREEMENT" is defined in the preamble.
"TRADEMARK COLLATERAL" means:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, other source of business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of a like nature of the Grantor (all of
the foregoing items in this clause (a) being collectively called a "TRADEMARK"),
now existing anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, all registrations and recordings thereof and all
applications in connection therewith, whether pending or in preparation for
filing, including registrations, recordings and applications of the Grantor in
the United States Patent and Trademark Office or in any office or agency of the
United States of America or any state thereof or any foreign country, including
those referred to in Item A of Schedule II attached hereto;
(b) all Trademark licenses in favor of the Grantor, including each
Trademark license referred to in Item B of Schedule II attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in clauses (a) and (b) above;
(d) all of the goodwill of the business of the Grantor connected
with the use of, and symbolized by the items described in, clauses (a) and (b)
above; and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by the Grantor against third parties for past, present or
future infringement or dilution of any Trademark, Trademark registration or
Trademark license of the Grantor, including any Trademark, Trademark
registration or Trademark license referred to in Item A or Item B of Schedule II
attached hereto, or for any injury to the goodwill associated with the use of
any such Trademark or for breach or enforcement of any Trademark license.
"TRADE SECRETS COLLATERAL" means common law and statutory trade secrets
and all other confidential or proprietary or useful information of the Grantor
and all know-how obtained by the Grantor or used by the Grantor in the business
of the Grantor (all of the foregoing being collectively called a "TRADE
SECRET"), whether or not such Trade Secret has been reduced to a writing or
other tangible form, including all documents and things embodying, incorporating
or referring in any way to such Trade Secret, all Trade Secret licenses,
including each Trade Secret license referred to in Schedule IV attached hereto,
and including the right of the Grantor to sue for and to enjoin and to collect
damages for the actual or threatened misappropriation of any Trade Secret and
for the breach or enforcement of any such Trade Secret license.
"U.C.C." means the Uniform Commercial Code, as in effect in the State of
New York.
SECTION 1.2. U.C.C. Definitions. Unless otherwise defined herein or in the
Credit Agreement or unless the context otherwise requires, terms for which
meanings are provided in the U.C.C. are used in this Security Agreement,
including its preamble and recitals, with such meanings.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. Grant of Security. Grantor hereby assigns and pledges to the
Lenders and hereby grants to the Lenders a security interest in, all of the
Grantor's right, title and interest in, to and under the following property,
whether now or hereafter existing or acquired, to the extent such property is
primarily used in connection with Grantor's business of manufacturing, marketing
and selling Grantor's Quantix devices, neo2000 devices and any successor or
similar devices the ("COLLATERAL"). The Collateral shall not include any
inventory, equipment, accounts, goods, contract rights or intellectual property
relating exclusively to Grantor's Lymphoseek, Activated Cellular Therapy, or
RIGScan CR technologies:
(a) all equipment in all of its forms of the Grantor, wherever
located, and all parts thereof and all accessions, additions, attachments,
improvements, substitutions and replacements thereto and therefor (any and all
of the foregoing being the "EQUIPMENT");
(b) all inventory in all of its forms of the Grantor, wherever
located, including
(i) all merchandise, goods and other personal property which
are held for sale or lease, all raw materials and work in process therefor
(including, without limitation, tobacco and tobacco related products), finished
goods thereof, and materials used or consumed in the manufacture or production
thereof,
(ii) all goods in which the Grantor has an interest in mass or
a joint or other interest or right of any kind (including goods in which the
Grantor has an interest or right as consignee), and
(iii) all goods which are returned to or repossessed by the
Grantor,
and all accessions thereto, products thereof and documents therefor (any and all
such inventory, materials, goods, accessions, products and documents being the
"INVENTORY");
(c) all accounts, contracts, contract rights, chattel paper,
documents, instruments, and general intangibles of the Grantor, including
ownership rights of the inventory owned by the Grantor, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services, and all rights of the Grantor now or hereafter existing in and to all
security agreements, guaranties, leases and other contracts securing or
otherwise relating to any such accounts, contracts, contract rights, chattel
paper, documents, instruments, and general intangibles (any and all such
accounts, contracts, contract rights, chattel paper, documents, instruments, and
general intangibles being the "RECEIVABLES", and any and all such security
agreements, guaranties, leases and other contracts being the "RELATED
CONTRACTS");
(d) all Intellectual Property Collateral of the Grantor;
(e) all books, records, writings, data bases, information and other
property of the Grantor relating to, used or useful in connection with,
evidencing, embodying, incorporating or referring to any of the foregoing in
this Section 2.1;
(f) all of the Grantor's other property and rights of every kind and
description and interests therein; and
(g) all products, offspring, rents, issues, profits, returns, income
and proceeds of and from any and all of the foregoing Collateral (including
proceeds which constitute property of the types described in clauses (a), (b),
(c), (d), (e) and (f) above, proceeds deposited from time to time in any
collateral account and in any lock boxes of the Grantor, and, to the extent not
otherwise included, all payments under insurance (whether or not the Lender is
the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral).
SECTION 2.2. Security for Secured Obligations. This Security Agreement
secures the prompt payment in full of all amounts payable by the Grantors under
or in connection with the Notes and the Purchase Agreement whether for
principal, interest, costs, fees, expenses, indemnities or otherwise and whether
now or hereafter existing (all of such obligations being the "SECURED
OBLIGATIONS").
SECTION 2.3. Continuing Security Interest; Transfer of Notes. This
Security Agreement shall create a continuing security interest in the Collateral
and shall
(a) remain in full force and effect until the indefeasible payment
in full in cash of all Secured Obligations, and
(b) be binding upon each Grantor, its successors, transferees and
assigns.
SECTION 2.4. Release and Termination. Upon the indefeasible payment in
cash in full of all Secured Obligations, the security interest granted herein
shall terminate and all rights to the Collateral shall revert to the Grantors.
Upon any such termination, the Lenders will, at the Grantors' sole expense,
deliver to the Grantors, without any representations, warranties or recourse of
any kind whatsoever, such documents as the Grantors shall reasonably request to
evidence such termination.
SECTION 2.5. Security Interest Absolute. All rights of the Lenders and the
security interests granted to the Lenders hereunder, and all obligations of the
Grantor hereunder, shall be absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the Notes;
(b) the failure of any Lender or any holder of a Note;
(i) to assert any claim or demand or to enforce any right or
remedy against the Grantor, or
(ii) to exercise any right or remedy against any guarantor of,
or collateral securing, any Secured Obligation;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other extension,
compromise or renewal of any Secured Obligation;
(d) any reduction, limitation, impairment or termination of any
Secured Obligation for any reason (other than repayment in full of the Secured
Obligations), including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to (and each Grantor hereby waives any
right to or claim of) any defense or setoff, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality, nongenuineness,
irregularity, compromise or unenforceability of, or any other event or
occurrence affecting, any Secured Obligation or otherwise;
(e) any amendment to, rescission, waiver, or other modification of,
or any consent to departure from, any of the terms of any Note;
(f) any addition, exchange, release, surrender, impairment or
non-perfection of any collateral (including the Collateral), or any amendment to
or waiver or release of or addition to or consent to departure from any
guaranty, for any of the Secured Obligations; or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Grantor, any
other person or otherwise.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties. Grantor represents and
warrants unto the Lenders as set forth in this Article.
(a) Ownership, No Liens, etc. The Grantor owns the Collateral owed
by it free and clear of any Lien, security interest, charge or encumbrance
except for the security interest created by this Security Agreement and
Permitted Encumbrances. No effective financing statement or other similar
instrument in effect covering all or any part of the Collateral is on file in
any recording office, except such as may have been filed in favor of the Lenders
relating to this Security Agreement and Permitted Encumbrances.
(b) Possession and Control. The Grantor has exclusive possession and
control of the Equipment and Inventory.
(c) Validity, etc. The Liens intended to be created by this Security
Agreement constitute valid first priority security interests in the Collateral
securing the payment of the Secured Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest
have been duly taken.
(d) Authorization, Approval, etc. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than U.C.C. filings) is required either
(i) for the grant by the Grantor of the security interest
granted hereby or for the execution, delivery and performance of this Security
Agreement by the Grantor, or
(ii) for the perfection of or the exercise by the Lenders of
their rights and remedies hereunder.
(e) Compliance with Laws. The Grantor is in compliance in all
material respects with the requirements of all applicable laws (including,
without limitation, the provisions of the Fair Labor Standards Act), rules,
regulations and orders of every governmental authority.
(f) Due Execution, Validity, Etc. The execution, delivery and
performance by the Grantor of this Security Agreement does not contravene or
result in a default under the Grantor's organic documents or contravene or
result in a default under any material contractual restriction, lien or
governmental regulation or court decree or order binding on the Grantor. This
Security Agreement has been duly executed and delivered on behalf of the Grantor
and constitutes the legal, valid and binding obligation of the Grantor
enforceable in accordance with its terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditor's right generally, and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
ARTICLE IV
FURTHER ASSURANCES
SECTION 4.1. Further Assurances, etc. Grantor agrees that, from time to
time at its own expense, the Grantor will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Lenders may request, in order to perfect,
preserve and protect any security interest granted or purported to be granted
hereby or to enable the Lenders to exercise and enforce their rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor will:
(a) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices as may be necessary or
desirable, or as the Lenders may request, in order to perfect and preserve the
security interests and other rights granted or purported to be granted to the
Lender hereby; and
(b) furnish to the Lenders, from time to time at the Lenders'
request, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Lender may reasonably request, all in reasonable detail.
With respect to the foregoing and the grant of the security interest hereunder,
the Grantor hereby authorizes the Lender to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of the Grantor where permitted by law. A
carbon, photographic or other reproduction of this Security Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
ARTICLE V
THE LENDERS
SECTION 5.1. Administrative Agent Appointed Attorney-in-Fact. Grantor
hereby irrevocably appoints the Administrative Agent, as the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor and
in the name of the Grantor or otherwise, from time to time in the Administrative
Agent's discretion, to take any action and to execute any instrument which the
Administrative Agent may deem necessary or advisable to accomplish the purposes
of this Security Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a) above;
(c) to file any claims or take any action or institute any
proceedings which the Administrative Agent may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights of
the Lenders with respect to any of the Collateral; and
(d) to perform the affirmative obligations of the Grantor hereunder.
Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. Perform. If Grantor fails to perform any agreement contained
herein, Administrative Agent may itself perform, or cause performance of, such
agreement, and the expenses of the Administrative Agent incurred in connection
therewith shall be payable by the Grantor.
SECTION 5.3. No Duty. The powers conferred on the Administrative Agent
hereunder are solely to protect the Lenders' interest in the Collateral and
shall not impose any duty on the Administrative Agent to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, no Lender shall have
any duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral.
SECTION 5.4. Reasonable Care. The Administrative Agent is required to
exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; provided, however, that the Administrative Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of any of the Collateral, if it takes such action for that purpose
as the Grantor reasonably requests in writing at times other than upon the
occurrence and during the continuance of any Event of Default, but failure of
the Administrative Agent to comply with any such request at any time shall not
in itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default (as defined in the
Notes) shall have occurred and be continuing:
(a) The Administrative Agent, on behalf of the Lenders, may exercise
in respect of the Collateral, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the U.C.C. applies to
the affected Collateral) and also may:
(i) require Grantor to, and Grantor hereby agrees that it
will, at its expense and upon request of the Administrative Agent forthwith,
assemble all or part of the Collateral as directed by the Administrative Agent
and make it available to the Administrative Agent at a place to be designated by
the Administrative Agent which is reasonably convenient to the Administrative
Agent and the Grantor; and
(ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Administrative Agent's offices or elsewhere, for cash, on credit
or for future delivery (without assumption of any credit risk), and upon such
other terms as the Administrative Agent may deem commercially reasonable.
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten days' prior notice to the Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. The Administrative Agent shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The
Administrative Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(b) All cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Administrative Agent, be
held by the Administrative Agent as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to the Lenders pursuant
to Section 6.2) in whole or in part by the Administrative Agent for the ratable
benefit of the Lenders against, all or any part of the Secured Obligations in
the following order:
(i) first, to payment of the expenses of such sale or other
realization including reasonable compensation to the Administrative Agent and
its counsel, and all expenses, liabilities and advances incurred or made by the
Administrative Agent in connection therewith or Section 6.2 hereof;
(ii) second, to the ratable payment of accrued but unpaid
interest on the Notes;
(iii) third, to the ratable payment of unpaid principal of the
Notes;
(iv) fourth, to the ratable payment of all other Secured
Obligations, until all Secured Obligations shall have been paid in full.
The Administrative Agent may make distributions hereunder in cash or in kind or,
on a ratable basis, in any combination thereof. Any surplus of such cash or cash
proceeds held by the Administrative Agent and remaining after payment in full of
all the Secured Obligations shall be paid over to the Grantor or to whomsoever
may be lawfully entitled to receive such surplus.
SECTION 6.2. Indemnity and Expenses.
(a) The Grantor agrees to indemnify the Lenders, including the
Administrative Agent, and the Indemnified Parties from and against any and all
claims, losses and liabilities arising out of or resulting from this Security
Agreement (including, without limitation, enforcement of this Security
Agreement) in accordance with the provisions of Article 7 of the Purchase
Agreement.
(b) The Grantor will upon demand pay to the Administrative Agent the
amount of any and all reasonable expenses, including the reasonable fees and
disbursements of counsel and of any experts, which the Lenders may incur in
connection with
(i) the administration of this Security Agreement,
(ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the rights of the
Lenders hereunder, or
(iv) the failure by the Grantor to perform or observe any of
the provisions hereof.
ARTICLE VII
INTERCREDITOR ARRANGEMENTS
SECTION 7.1. Administrative Agent. BVF as the "ADMINISTRATIVE AGENT" and
the other Lenders (the "OTHER LENDERS") agree, (i) as to the certain rights and
priorities of each with respect to the Secured Obligations and with respect to
their respective liens upon and security interest in the Collateral and (ii) as
to provide for the orderly sharing among the Lenders of the proceeds of such
Collateral upon any foreclosure thereon or other disposition thereof, to the
intercreditor arrangements set forth in this Article 7.
SECTION 7.2. Payments Held in Trust/Turnover; Application of Payments.
(a) All payments of principal, interest, fees and expenses after the
issuance of the Notes, and proceeds of the Collateral shall be apportioned
ratably among the Lenders.
(b) In the event that any payment or distribution of assets of
Grantor, whether in cash, property or securities, shall be received by a Lender
in contravention of Section 7.2(a) such payment or distribution shall be held in
trust for the benefit of and shall be paid over to or delivered to the other
Lenders for application in accordance with the terms of Section 7.2(a).
SECTION 7.3. Permitted Liens and Relative Priorities. As among the
Lenders, and notwithstanding the terms (including the description of
Collateral), dating, execution, or delivery of any document, instrument, or
agreement; the time, order, method, or manner of granting, attachment or
perfection of any security interest or lien; the time of filing or recording of
any financing statements, assignments, deeds of trust, mortgages, or any other
documents, instruments, or agreements under the U.C.C. or any other applicable
law, and any provision of the U.C.C. or any other applicable law to the
contrary, the Lenders agree that the Administrative Agent not individually, but
on behalf of all of the Lenders, shall have a first priority security interest
in and lien upon the Collateral.
For purposes of the foregoing allocation of priorities, any claim of a
right to a setoff shall be treated in all respects as a security interest and no
claimed right of setoff shall be asserted to defeat or diminish the rights or
priorities provided for herein.
SECTION 7.4. No Alteration of Priority. The lien and security interest
priorities provided in Section 7.3 hereof shall not be altered or otherwise
affected by any amendment, modification, supplement, extension, renewal,
restatement or refinancing of any of the Secured Obligations nor by any action
or inaction which any Lender may take or fail to take in respect of the
Collateral. Each Lender consents to Grantor's granting to each other Lender the
liens and security interests reflected in Section 7.3 hereof.
SECTION 7.5. Nonavoidability and Perfection. The provisions of this
Article 7 are intended solely to govern the respective priorities as among the
Lenders. Each Lender agrees that it will not directly or indirectly take any
action to contest or challenge the validity, legality, perfection, priority,
availability, or enforceability of the liens of the other Lenders upon the
Collateral or seek to have the same avoided, disallowed, set aside, or otherwise
invalidated in any judicial proceeding or otherwise. In the event that any Other
Lender (either individually or together with others) breaches or causes to be
breached the terms of the preceding sentence, resulting (directly or indirectly)
in the avoidance or imperfection of the Administrative Agent's lien or security
interest held on behalf of all of the Lenders in some or all of the Collateral,
then the priority of the lien or security interest of the Lenders in any such
affected Collateral shall continue to be governed by the terms of Section 7.3
hereof irrespective of the avoidance or imperfection of the Administrative
Agent's lien or security interest held on behalf of all of the Lenders.
SECTION 7.6. Management of Collateral. Notwithstanding anything to the
contrary contained in the Purchase Agreement or any of the Notes (with respect
to provisions addressing management of Collateral only):
(a) Until the Secured Obligations have been paid in full and subject
to the remaining provisions of this Article 7: (i) the Administrative Agent, on
behalf of the Lenders, shall have the exclusive right to manage, perform, and
enforce the terms of the Loan Documents with respect to the Collateral and to
exercise and enforce all privileges and rights thereunder in its reasonable
discretion and its exercise of its business judgment, including, without
limitation, the exclusive right to enforce or settle insurance claims with
respect to Collateral, take or retake control or possession of Collateral and to
hold, prepare for sale, process, sell, lease, dispose of, or liquidate
Collateral; provided, however, that nothing in this Article 7 shall be construed
as granting Administrative Agent any rights under this Agreement or the Notes
which do not specifically relate to management of the Collateral (e.g.,
declaring an "Event of Default", or amending or waiving any term or provision of
the Notes or this Agreement); (ii) none of the Other Lenders shall exercise or
take any action in furtherance of the sale, foreclosure, realization upon, or
the repossession or liquidation of any of the Collateral, including, without
limitation: (A) the exercise of any remedies or rights of a "Secured Creditor"
under Article 9 of the U.C.C., such as, without limitation, the notification of
account debtors; (B) the exercise of any remedies or rights as a mortgagee or
beneficiary (or by the trustee on behalf of the beneficiary), including, without
limitation, the appointment of a receiver, or the commencement of any
foreclosure proceedings or the exercise of any power of sale, including, without
limitation, the placing of any advertisement for the sale of any Collateral; (C)
the exercise of any remedies available to a judgment creditor; or (D) any other
remedy available in respect of the Collateral available to such Secured Creditor
under any of the Loan Documents (the "LENDER REMEDIES") with respect to
Collateral; and (iii) any and all proceeds of Collateral which shall come into
the possession, control, or custody of any Lender will be deemed to have been
received for the account of the Administrative Agent, and shall be immediately
paid over to the Administrative Agent for application in accordance with the
provisions hereof. Each Other Lender waives any and all rights to affect the
method or challenge the appropriateness of any action by the Administrative
Agent with respect to the Collateral other than actions arising out of the gross
negligence or willful misconduct of the Administrative Agent, and waives any
claims or defenses they may have against the Administrative Agent, including any
such claims or defenses based on any actions or omissions of the Administrative
Agent in connection with the perfection, maintenance, enforcement, foreclosure,
sale, liquidation or release of any lien or security interest therein, or any
modification or waiver of the Loan Document other than those arising out of the
gross negligence or willful misconduct of the Administrative Agent.
(b) The rights and priorities set forth in this Article 7 shall
remain binding irrespective of the terms of any plan of reorganization in any
proceeding commenced by or against Grantor under any provision of the United
States Bankruptcy Code (11 U.S.C. ss. 101, et seq.), as amended, and any
successor statute (the "BANKRUPTCY CODE") or under any other federal or state
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief, and all converted or succeeding cases in respect thereof (the
"BANKRUPTCY CASE") or other provisions of the Bankruptcy Code or any similar
federal or state statute.
SECTION 7.7. Sale of Collateral. Until the Secured Obligations have been
paid in full and subject to the consent of the BV Funds in accordance with the
remaining provisions of this Section 7.7: (a) only the Administrative Agent on
behalf of the Lenders shall have the right to restrict or permit, or approve or
disapprove, the sale, transfer or other disposition of the Collateral; and (b)
the Other Lenders will, immediately upon the request of the Administrative
Agent, release or otherwise terminate their liens and security interests upon
the Collateral, to the extent such Collateral is sold or otherwise disposed of
by Grantor with the consent of the Administrative Agent, and the Other Lenders
will immediately deliver such release documents as the Administrative Agent may
require in connection therewith, provided, that the proceeds of any given sale
shall be applied to the Secured Obligations of each Lender ratably and no such
sale, transfer or other disposition shall be consented to by the Administrative
Agent with respect to all or a substantial part of the Collateral without the
consent of the BV Funds.
SECTION 7.8. Sections 9-504 and 9-505 Notice and Waiver of Marshalling.
Each Lender hereby acknowledges that this Security Agreement shall constitute
notice of the other Lenders' respective interests in the Collateral as provided
by Sections 9-504 and 9-505 (provided that if the Administrative Agent seeks to
exercise any rights under Section 9-505, it shall provide the other Lenders with
the notices required thereunder) of the U.C.C. and each of the Lenders waives
any right to compel the other Lenders to marshal any of the Collateral or to
seek payment from any particular assets of Grantor or from any third party.
SECTION 7.9. Bankruptcy Issues.
(a) Except as provided in this Section 7.9, this Article 7 shall
continue in full force and effect after the commencement of a Bankruptcy Case
and shall apply with full force and effect with respect to all Collateral
acquired by Grantor, and to all Lenders' Secured Obligations incurred by
Grantor, subsequent to such commencement to the extent consented to by the BV
Funds.
(b) If Grantor shall become subject to a Bankruptcy Case, and if the
Administrative Agent shall desire to permit the use of cash collateral or to
provide post-petition financing to Grantor, the Administrative Agent shall
obtain the prior written consent of the BV Funds for such use of cash collateral
or post-petition financing. No objection will be raised by the Other Lenders to
the Administrative Agent's motion for relief from the automatic stay in any
proceeding under the Bankruptcy Code to foreclose on and sell the Collateral.
(c) In any Bankruptcy Case by or against Grantor,
(i) the Administrative Agent may, and is hereby irrevocably
authorized and empowered (in its own name or in the name of the Lenders or
otherwise), but shall have no obligation, to, (1) demand, sue for, collect and
receive every payment or distribution in respect of the Secured Obligations and
give acquittance therefor and (2) file claims and proofs of claim in respect of
all of the Secured Obligations and take such other action (including, without
limitation, voting all of the Secured Obligations or enforcing any security
interest or other lien securing payment of all of the Secured Obligations) as
the Administrative Agent may reasonably deem necessary or advisable for the
exercise or enforcement of any of the rights or interests of the Administrative
Agent and the Lenders; and
(ii) the Other Lenders will duly and promptly take such action
as the Administrative Agent may reasonably request (1) to collect the Secured
Obligations and to file appropriate claims or proofs of claim with respect
thereto, (2) to execute and deliver to the Administrative Agent such powers of
attorney, assignments or other instruments as the Administrative Agent may
request in order to enable it to enforce any and all claims with respect to, and
any security interests and other liens securing payment of, the Secured
Obligations, and (3) to collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Secured Obligations for application to the Lenders in accordance with this
Security Agreement.
SECTION 7.10. Bailment. With respect to any Collateral in which a security
interest may be perfected under the U.C.C. or other relevant law only by
possession ("POSSESSORY COLLATERAL"), the Administrative Agent will act as
pledgeholder for the Lenders until the payment in full in cash of the Secured
Obligations. Each Other Lender acknowledges and agrees that: (i) the
Administrative Agent makes no representation or warranty whatsoever as to the
nature, extent, description, validity or priority of any Possessory Collateral
or the security interests in or liens upon any Possessory Collateral; (ii) while
any Possessory Collateral is held by the Administrative Agent, the
Administrative Agent shall not have any liability to, and shall be held harmless
by, the Other Lenders, for any losses, damages, claim, or liability of any kind
to the extent arising out of the holding of such Possessory Collateral, other
than losses, damages, claims, or liabilities arising out of the Administrative
Agent's gross negligence or willful misconduct; (iii) the Administrative Agent
need not act as a pledgeholder for the Other Lenders with respect to any
Collateral in which a security interest may be perfected by means other than
possession; (iv) the Other Lenders shall immediately deliver to the
Administrative Agent any Possessory Collateral that is now or in the future
comes into their possession to be held by the Administrative Agent pursuant to
the terms hereof; and (v) the priority of the Lenders' security interests in and
liens upon the Possessory Collateral shall be governed by the terms of this
Security Agreement.
SECTION 7.11. Authority of Agents/Trustees. Each of the Lenders agrees
that any assignment or transfer of an interest in any of the Secured Obligations
held by it shall be made expressly subject to the terms and conditions of this
Security Agreement.
SECTION 7.12. Additional Covenants. So long as any of the Secured
Obligations shall remain outstanding, none of the Lenders will, without the
prior written consent of the BV Funds: (a) (i) except as otherwise expressly
permitted in this Security Agreement, cancel or otherwise discharge any Secured
Obligations (except upon payment in full thereof as contemplated hereby), or
(ii) subordinate any Secured Obligations to any indebtedness of Grantor;
(b) sell, assign, pledge, encumber or otherwise dispose of any
Secured Obligations unless such sale, assignment, pledge, encumbrance or
disposition is made expressly subject to this Article 7, provided that (i) such
Lender provides the other Lenders with not less than 10 days prior written
notice of any such sale, assignment, pledge, encumbrance or disposition and the
identity and address and other notice information of the purchaser, assignee,
pledgee, transferee or other beneficiary, and (ii) such purchaser, assignee,
pledgee, transferee or other beneficiary executes and delivers to the other
Lenders an agreement in form and substance reasonably satisfactory to the BV
Funds agreeing to be bound by this Security Agreement and Article 7 hereof.
(c) commence, or join with any creditor other than the other Lenders
in commencing, any Bankruptcy Case.
SECTION 7.13. Successor Administrative Agent. The Administrative Agent may
resign and be discharged from all further duties and obligations hereunder by
giving each of the Lenders 30-days prior written notice or such shorter notice
period as may be agreed between the Administrative Agent and the BV Funds. In
addition, the Administrative Agent may be removed at any time by the BV Funds.
Upon the resignation or removal of the Administrative Agent, a successor
Administrative Agent shall be elected by the BV Funds.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1. Purchase Agreement. This Security Agreement is executed
pursuant to the Purchase Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 8.2. Amendments; etc. Any amendment, supplement or modification of
or to any provision of this Note, any waiver of any provision of this Note, and
any consent to any departure by any party from the terms of any provision of
this Note, may be made only in the manner provided in Section 11.4 of the
Purchase Agreement, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 8.3. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier communication)
and, if to the Grantor, mailed, telecopied or delivered to it, addressed to it
at the address as set forth in the Purchase Agreement, if to any Lender, mailed,
telecopied or delivered to it, addressed to it at the address of the Lender as
specified in the Purchase Agreement, or as to any party at such other address as
shall be designated by such party in a written notice to each other party
complying as to delivery with the terms of this Section. Any notice, if mailed
and properly addressed and sent return receipt requested with postage prepaid,
shall be deemed given three business days after posting; any notice, if sent by
prepaid overnight express shall be deemed delivered on the next business day;
any notice, if transmitted by telecopier, shall be deemed given when sent, with
confirmation of receipt; and any notice, if transmitted by hand, shall be deemed
received when delivered.
SECTION 8.4. Obligations of the Lenders. The obligations of each Lender
shall be several and not joint and no Lender shall be liable or responsible for
the acts or omissions of any other Lender.
SECTION 8.5. Section Captions. Section captions used in this Security
Agreement are for convenience of reference only, and shall not affect the
construction of this Security Agreement.
SECTION 8.6. Severability. Wherever possible each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
SECTION 8.7. Governing Law, Entire Agreement, etc. THIS SECURITY AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. THIS SECURITY AGREEMENT, THE PURCHASE AGREEMENT AND THE
DOCUMENTS DELIVERED PURSUANT THERETO CONSTITUTE THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY
PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
SECTION 8.8. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECURITY
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF ANY LENDER OR THE GRANTOR MAY BE BROUGHT AND
MAINTAINED IN ANY UNITED STATES FEDERAL OR NEW YORK STATE COURTS SITTING IN THE
CITY OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURTS SITTING
IN THE CITY OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH
ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. THE GRANTOR FURTHER IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF NEW YORK. THE GRANTOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE
GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT
OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR
TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, THE GRANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT
OF ITS OBLIGATIONS UNDER THIS SECURITY AGREEMENT.
SECTION 8.9. Waiver of Jury Trial. THE LENDERS AND THE GRANTOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE
LENDERS OR THE GRANTOR. THE GRANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION
OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE PURCHASE AGREEMENT AND
EACH SUCH OTHER LOAN DOCUMENT. IN NO EVENT SHALL ANY LENDER BE LIABLE FOR ANY
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be executed and delivered by as of the date first above written.
NEOPROBE CORPORATION
By: /s/ Brent L. Larson
-----------------------------------------
Name: Brent L. Larson
Title: VP Finance / CFO
BIOMEDICAL VALUE FUND, L.P.
By: GREAT POINT GP, LLC,
its general partner
By: /s/ David E. Kroin
--------------------------------------
Name: David E. Kroin
Title: Managing Director
BIOMEDICAL OFF SHORE VALUE
FUND, LTD.
By: GREAT POINT PARTNERS, LLC,
its investment manager
By: /s/ David E. Kroin
-------------------------------------
Name: David E. Kroin
Title: Managing Director
/s/ David C. Bupp
-----------------------------------------
DAVID C. BUPP
[SIGNATURE PAGE TO SECURITY AGREEMENT]