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Exhibit 10.4 COLLATERAL AGENT AGREEMENT
COLLATERAL AGENT AGREEMENT (this " Agreement ") dated as of
November 5, 2008, among S. Michael Rudolph (the "
Collateral Agent "), and Longview Fund, L.P. and Alpha
Capital Anstalt (each an " Initial Lender " and
collectively, the " Initial Lenders "), and the Lenders
identified on Schedule A hereto (each a " Bridge Lender
" and collectively, the " Bridge Lenders "). The Initial
Lenders and the Bridge Lenders are referred to individually as a "
Lender " and collectively as the " Lenders ". All
terms used and not defined herein shall the meanings ascribed to
them in the Term Loan Agreement, as defined below. WHEREAS, Lenders
have loaned funds pursuant to (i) that certain Term Loan and
Security Agreement (" Term Loan Agreement ") by and among
Irvine Sensors Corporation (" Irvine Sensors " or "
Debtor " or " Borrower "), a corporation incorporated
pursuant to the laws of the State of Delaware, and the Lenders,
dated December 29, 2006, (ii) those certain Series 1
Senior Subordinated Secured Convertible Notes dated
December 30, 2005 and Series 2 Senior Subordinated
Secured Convertible Notes dated December 30, 2005
(collectively, the " Notes "), originally issued by Irvine
Sensors pursuant to that certain Securities Purchase Agreement
dated as of December 30, 2005 by and among Irvine Sensors and
the purchasers named therein, and subsequently assigned by the
original holders of the Notes to the Lenders pursuant to that
certain Assignment of Series 1 and Series 2 Senior
Subordinated Secured Convertible Notes, dated December 29,
2006, (iii) a Secured Promissory Note (" July 2007 Secured
Promissory Note ") issued to Longview Fund L.P. on
July 19, 2007, (iv) Secured Promissory Notes
(Restructuring) (" Secured Promissory Notes Restructuring ")
issued to Lenders on November 28, 2007, (v) Secured
Promissory Notes (Buyout) (" Secured Promissory Notes Buyout
") issued to Lenders on November 28, 2007, and (vi) all
other Obligations as such term is defined in the foregoing
documents and Initial Lender Security Documents (defined below)
(all items referred to in clauses (i) — (vi) above are
collectively referred to as the " Initial Lenders
Obligations "); WHEREAS, Irvine Sensors has issued to the
Bridge Lenders certain Bridge Notes (" Bridge Notes ") on
September 29, 2008, in the aggregate principal amount of up to
$1,000,000 and Irvine Sensors is responsible for Obligations as
that term is defined and employed in the Bridge Note and Bridge
Lender Security Documents (defined below) (collectively, the "
Bridge Lenders Obligations ") (the Initial Lenders
Obligations and Bridge Lenders Obligations are collectively
referred to as the " Obligations "); WHEREAS, Initial
Lenders and Bridge Lenders have entered into an Intercreditor
Agreement (" Intercreditor Agreement ") at or about the date
of this Agreement setting forth their relative rights in connection
with the Obligations; WHEREAS, the Initial Lenders have entered
into a Memorandum of Understanding dated as of September 19,
2008 (the " MOU ") providing for, among other things, the
foreclosure by public sale of the assets of Optex Systems, Inc., a
Texas corporation (" Optex "); WHEREAS, Irvine
Sensor’s obligations to the Lenders are secured by certain
collateral; WHEREAS, it is desirable to provide for the orderly
administration of such collateral by requiring each Lender to
appoint the Collateral Agent, and the Collateral Agent has agreed
to accept such appointment and to receive, hold and deliver such
collateral, all upon the terms and subject to the conditions
hereinafter set forth; and WHEREAS, it is desirable to allocate the
enforcement of certain rights of the Lenders under the Obligations
for the orderly administration thereof.
NOW, THEREFORE, in consideration of the premises set forth
herein and for other good and valuable consideration, the parties
hereto agree as follows: 1. Collateral . (a) The
following security agreements secure Obligations: (i) Term
Loan Agreement; (ii) Optex Third Party Security Agreement
dated December 29, 2006, executed and delivered to Initial
Lenders by Optex; (iii) Irvine Sensors Intellectual Property
Security Agreement dated December 29, 2006, executed and
delivered to Initial Lenders by Irvine Sensors in favor of Lenders;
(iv) Optex Intellectual Property Security Agreement dated
December 29, 2006, executed and delivered to Initial Lenders
by Optex in favor of Lenders; (v) Security Agreement, dated
December 30, 2005, by and among Irvine Sensors and Pequot
Private Equity Fund III, L.P. and Pequot Offshore Private Equity
Partners III, L.P. (" various Pequot entities ");
(vi) Subsidiary Security Agreements, all dated
December 30, 2005, by and among various subsidiaries of Irvine
Sensors (including Optex) and various Pequot entities (items
(v) and (vi) as amended and as assigned to Lenders
pursuant to that certain Assignment Agreement by and among the
various Pequot entities and Lenders, dated December 29, 2006
in favor of Lenders); (vii) Omnibus Security Interest
Acknowledgement dated July 19, 2007 delivered by Irvine
Sensors and Optex to Initial Lenders; and (viii) Security
Agreement executed and delivered by Irvine Sensors to the
Collateral Agent on behalf of the Bridge Lenders on
, 2008. (b) Items listed in clauses (i) —
(viii) hereinabove are collectively referred to as the "
Security Agreements ," all of which grant a security
interest in assets owned by Debtor (such assets, including, but not
limited to, the Collateral listed on Schedule 2 are
referred to herein and in such Security Agreements as the "
Collateral "). A portion of the Collateral consists of all
non-classified government contracts with a value in excess of
$1,000,000 entered into and to be entered into by Irvine Sensors,
which includes, but is not limited to, the contracts listed on
Schedule 2 (all such contracts, including, but not
limited to, those on Schedule 2 being referred to as the "
Government Contracts Collateral "). Lenders hereby assign
their security interests in the Collateral, including, but not
limited to, the Government Contracts Collateral, to the Collateral
Agent. The Security Agreements, together with the Government
Contracts Collateral and all other agreements and documents
executed and delivered with respect to the Obligations are referred
to herein, collectively, as the " Borrower Documents ." As
used herein the term " Bridge Lender Security Documents "
shall mean the Security Agreement reference in
Section 1(a)(viii) and any UCC financing statements related
thereto. (c) "Optex Collateral" shall mean all components of
the Collateral that is now or hereafter subject to a security
interest under the documents described in Sections 1(a)(ii),
(iv) and (vii) above; owned by Optex at any time; subject to
sale in the foreclosure described in the MOU; "Optex-Texas
Collateral" as defined in the MOU and the equity ownership interest
of Irvine Sensors in Optex. Anything to the contrary herein or in
any Bridge Lender Security Documents notwithstanding, the Bridge
Lenders have no claim, security interest nor rights to or in the
Optex Collateral. Subject to the rights of the Bridge Lenders
described in this Agreement, the Collateral Agent and Initial
Lenders relationship to each other shall remain unchanged by this
Agreement and shall be governed by the Collateral Agent Agreement
entered into by them on July 19, 2007 (" Initial Collateral
Agent Agreement "), which shall remain in full force and effect
vis-à-vis the Optex Collateral, Collateral and Initial
Lenders Obligations, as if this Agreement were not entered into.
From and after the date Bridge Lenders Obligations are no longer
outstanding, the Initial Collateral Agent Agreement shall continue
to govern the relative rights and obligations among the Initial
Lenders and Collateral Agent. Hereinafter, the term
Collateral as employed in this Agreement shall exclude
Optex Collateral.
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(d) For purposes solely of perfection of the security
interests granted to the Collateral Agent, as agent on behalf of
the Lenders, and on its own behalf under the Borrower Documents and
hereunder, the Collateral Agent hereby acknowledges that any
Collateral held by the Collateral Agent is held for the benefit of
the Lenders in accordance with this Agreement and the Borrower
Documents. No reference to the Borrower Documents or any other
instrument or document shall be deemed to incorporate any term or
provision thereof into this Agreement unless expressly so provided.
(e) The Collateral Agent will distribute any proceeds received
from the realization of the Collateral which are distributable to
the Lenders in the order and priority set forth in the
Intercreditor Agreement. 2. Appointment of the Collateral
Agent . The Lenders hereby appoint the Collateral Agent (and
the Collateral Agent hereby accepts such appointment) to take any
action including, without limitation, the registration of any
Collateral in the name of the Collateral Agent or its nominees
prior to or during the continuance of an Event of Default (as
defined in the Borrower Documents), the exercise of voting rights
upon the occurrence and during the continuation of an Event of
Default, the application of any Collateral received by the
Collateral Agent to the payment of the Obligations, the making of
any demand under the Borrower Documents, the exercise of any
remedies given to the Lenders or the Collateral Agent pursuant to
the Borrower Documents and the exercise of any authority pursuant
to the appointment of the Collateral Agent as an attorney-in-fact
pursuant to the Borrower Documents that the Collateral Agent deems
necessary or proper for the administration of the Collateral
pursuant to the Borrower Documents. Upon realizing on any of the
Collateral in accordance with the Borrower Documents, the
Collateral Agent shall promptly distribute in accordance with
Section 1(e) above any cash or Collateral after deduction of any
amounts pursuant to Section 5 herein. Lenders must notify
Collateral Agent in writing of the existence of future Obligations
owed by Debtor to Lenders. The Collateral Agent will not be
required to act hereunder in connection with future Obligations the
existence of which was not disclosed in writing to the Collateral
Agent nor will the Collateral Agent be required to act on behalf of
any assignee of Obligations without the written consent of
Collateral Agent. 3. Action by the Majority in Interest .
(a) Certain Actions . Each of the Lenders covenants
and agrees that for so long as any Bridge Lenders Obligations
remain outstanding, Bridge Lenders who in the aggregate hold more
than 50% of the Bridge Lenders Obligations shall constitute a
majority in interest (a "Majority in Interest"), shall have the
right, but not the obligation, to undertake the following actions
with respect to the Bridge Lenders Obligations and such of the
Borrower Documents necessary to effectuate the following actions
(it being expressly understood that less than a Majority in
Interest hereby expressly waive the following rights that they may
otherwise have under the Borrower Documents): (i)
Acceleration . If an Event of Default occurs or is
continuing, after the applicable cure period, if any, a Majority in
Interest may, on behalf of all the Lenders, instruct the Collateral
Agent to provide to Debtor notice to cure such default and/or
declare the unpaid principal amount of the Bridge Lenders
Obligations to be due and payable, together with any and all
accrued interest thereon and all costs payable pursuant to such
Bridge Lenders Obligations; (ii) Enforcement . Upon
the occurrence of any Event of Default after the applicable cure
period, if any, a Majority in Interest may instruct the Collateral
Agent to proceed to protect, exercise and enforce, on behalf of all
the Bridge Lenders, their rights and remedies under the Borrower
Documents against Debtor, and such other rights and remedies as are
provided by law or equity;
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(iii) Waiver of Past Defaults . A Majority in
Interest may instruct the Collateral Agent to waive any Event of
Default with respect to the Bridge Lenders Obligations by written
notice to Debtor, and the other Lenders; and (iv)
Amendment . A Majority in Interest may instruct the
Collateral Agent to waive, amend, supplement or modify any term,
condition or other provision in the Bridge Lenders Obligations or
Borrower Documents giving rise to such Bridge Lenders Obligations
in accordance with the terms of the Bridge Lenders Obligations or
such Borrower Documents so long as such waiver, amendment,
supplement or modification is made with respect to all of the
Bridge Lenders Obligations and with the same force and effect with
respect to each of the Bridge Lenders. (b) Permitted
Subordination . A Majority in Interest may instruct the
Collateral Agent to agree to subordinate any Collateral to any
claim and may enter into any
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