|
EXHIBIT
10.2
PLEDGE AND SECURITY AGREEMENT
PLEDGE
AND SECURITY AGREEMENT (this “
Agreement ”),
dated as of June 25, 2008, is by and among Precision Optics
Corporation, Inc., a Massachusetts corporation (the “
Borrower ”),
and such other parties as may become Grantors hereunder on or after
the date hereof (together with the Borrower, the “
Grantors ”
and, individually, a “
Grantor ”)
and the Investors named as such in the Purchase Agreement, dated
June 25, 2008 (the “
Purchase Agreement ”),
among the Borrower and such Investors (collectively, the
“
Purchasers ”).
WHEREAS ,
pursuant to the terms of the Purchase Agreement, the Purchasers are
acquiring from the Borrower, $600,000 in an aggregate principal
amount of the Borrower’s 10% Senior Secured Convertible Notes
(the “
Notes ”);
and
WHEREAS ,
the Grantors wish to grant security interests in favor of the
Purchasers as herein provided to secure the obligations of the
Borrower under the Notes;
NOW THEREFORE ,
in consideration of the promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
1.
Definitions
. All
capitalized terms used herein without definitions shall have the
respective meanings provided therefor in the Purchase Agreement or
the Notes. As used herein the term “
Obligations ”
shall mean all principal, interest (including interest accrued
after the filing of a bankruptcy or similar petition whether or not
a claim therefor is enforceable), fees, expenses and indemnities
payable from time to time by the Grantors under the Notes and the
other Transaction Documents, including reimbursements under Section
11. The term “
State ,”
as used herein, means the State of New York. All terms defined in
the Uniform Commercial Code of the State and used herein shall have
the same definitions herein as specified therein. However, if a
term is defined in Article 9 of the Uniform Commercial Code of the
State differently than in another Article of the Uniform Commercial
Code of the State, the term has the meaning specified in Article
9.
2.
Grant of Security Interest .
Each Grantor hereby grants to the Purchasers, to secure the payment
and performance in full of all of the Obligations, a security
interest in and so pledges to the Purchasers the following
properties, assets and rights of such Grantor, wherever located,
whether now owned or hereafter acquired or arising, and all
proceeds and products thereof (all of the same being hereinafter
called the “
Collateral ”):
(i)
goods
(including inventory, equipment and any accessions
thereto),
(ii)
instruments
(including promissory notes),
(iii)
documents,
(iv)
accounts,
(v)
chattel
paper (whether tangible or electronic),
(vi)
deposit
accounts,
(vii)
letter-of-credit
rights (whether or not the letter of credit is evidenced by a
writing),
(viii)
commercial
tort claims,
(ix)
securities
and all other investment property (“
Investment Property ”),
(x)
supporting
obligations,
(xi)
contract
rights or rights to the payment of money, insurance claims and
proceeds,
(xii)
general
intangibles including, without limitation, all payment
intangibles, patents, patent applications, trademarks,
trademark applications, trade names, copyrights, copyright
applications, software, engineering drawings, service marks,
customer lists, goodwill, and all licenses, permits,
agreements of any kind or nature pursuant to which the
Grantors possess, use or have authority to possess or use
property (whether tangible or intangible) of others or others
possess, use or have authority to possess or use property
(whether tangible or intangible) of the Grantors, and all
recorded data of any kind or nature, regardless of the medium
of recording including, without limitation, all software,
writings, plans, specifications and schematics;
and
(xiii)
all
now existing and hereafter acquired or arising (A) capital
stock, equity securities or interests or other Investment
Property (including the capital stock described on
Schedule A hereto),
(B) all cash dividends and cash distributions with respect to the
foregoing (“
Dividends ”),
(C) all non-cash dividends paid on capital securities, liquidating
dividends paid on capital securities, shares of capital securities
resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends,
mergers, consolidations, and all other distributions (whether
similar or dissimilar to the foregoing) on or with respect to any
capital securities constituting Collateral (excluding Dividends,
“
Distributions ”),
and (D) all certificates, agreements (including stockholders
agreements, partnership agreements, operating agreements and
limited liability company agreements), books, records, writings,
data bases, information and other property relating to, used or
useful in connection with, evidencing, embodying, incorporating or
referring to, any of the foregoing.
The
Purchasers acknowledge that the attachment of the security
interest in any commercial tort claim as original collateral
is subject to the Grantor’s compliance with
§4.7.
Notwithstanding
the foregoing, Collateral shall not include any of the
following (collectively, the “
Excluded Collateral ”)
(1) vehicles subject to a certificate of title statute, (2) rights
under licenses, permits and contracts in which a security interest
may not be granted except to the extent that such prohibition is
not enforceable under the applicable Uniform Commercial
Code,
provided ,
that the Grantors shall not permit any such prohibitions in any
contracts, licenses and permits entered into after the date hereof
except in the ordinary course consistent with past practice and (3)
the property listed on
Schedule 2 attached
hereto.
3.
Authorization to File Financing Statements
.
The Grantors hereby irrevocably authorize the Purchasers at any
time and from time to time to file in any applicable Uniform
Commercial Code jurisdiction any initial financing statements and
amendments thereto against each Grantor that (a) indicate the
Collateral (i) as all assets of such Grantor or words of similar
effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Uniform
Commercial Code of the State or such jurisdiction, or (ii) as being
of an equal or lesser scope or with greater detail, and (b) contain
any other information required by part 5 of Article 9 of the
Uniform Commercial Code of the State for the sufficiency or filing
office acceptance of any financing statement or amendment,
including (i) whether such Grantor is an organization, the type of
organization and any organization identification number issued to
such Grantor and, (ii) in the case of a financing statement filed
as a fixture filing or indicating Collateral as as-extracted
collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. The Grantors agree to
furnish any such information to the Purchasers promptly upon
request. Each Grantor also ratifies its authorization for the
Purchasers to have filed in any Uniform Commercial Code
jurisdiction any like initial financing statements or amendments
thereto if filed prior to the date hereof.
4.
Other Actions .
Further to insure the attachment, perfection and first priority
(subject to Permitted Liens) of, and the ability of the Purchasers
to enforce, the Purchasers’ security interest in the
Collateral, the Grantors agree, in each case at the Grantor’s
own expense, to take the following actions with respect to the
following Collateral:
4.1.
Promissory Notes and Tangible Chattel Paper
.
If any Grantor shall at any time hold or acquire any promissory
notes or tangible chattel paper, such Grantor shall forthwith
endorse, pledge and deliver the same to the Purchasers, accompanied
by such instruments of transfer or assignment duly executed in
blank as the Purchasers may from time to time specify.
4.2.
Deposit Accounts .
For each deposit account (each, a “
Deposit Account ”)
that any Grantor at any time opens or maintains at any depository
bank (each, a “
Depository Bank ”),
the Grantor shall, at the Purchasers’ request and option,
pursuant to an agreement in form and substance satisfactory to the
Purchasers (each, a “
Deposit Account Control Agreement ”),
upon an Event of Default either (a) cause the Depositary Bank to
agree to comply at any time with instructions from the Purchasers
to such Depositary Bank directing the disposition of funds from
time to time credited to such Deposit Account, without further
consent of the Grantor, or (b) arrange for the Purchasers to become
the customers of the Depositary Bank with respect to the Deposit
Account, with the Grantors being permitted, only with the consent
of the Purchasers, to exercise rights to withdraw funds from such
Deposit Account. The Purchasers agree with the Grantors that the
Purchasers shall not give any such instructions or withhold any
withdrawal rights from the Grantors, unless an Event of Default has
occurred and is continuing, or, after giving effect to any
withdrawal not otherwise permitted by the Transaction Documents,
would occur. The provisions of this paragraph shall not apply to
(i) any Deposit Account for which the Grantors, the Depositary Bank
and the Purchasers have entered into a cash collateral agreement
specially negotiated among any Grantor, the Depositary Bank and the
Purchasers for the specific purpose set forth therein (ii) Deposit
Accounts for which any Purchaser is the depositary, and (iii) items
on deposit in any Deposit Account constituting sales tax
remittances.
4.3.
Investment Property .
If any Grantor shall at any time hold or acquire any certificated
securities, the Grantor shall forthwith endorse, pledge and deliver
the same to the Purchasers, accompanied by such instruments of
transfer or assignment duly executed in blank as the Purchasers may
from time to time specify. If any securities now or hereafter
acquired by any Grantor are uncertificated and are issued to the
Grantor or its nominee directly by the issuer thereof, the Grantor
shall immediately notify the Purchasers thereof and, at the
Purchasers’ request and option, pursuant to an agreement in
form and substance satisfactory to the Purchasers, either (a) cause
the issuer to agree to comply with instructions from the Purchasers
as to such securities, without further consent of the Grantor or
such nominee, or (b) arrange for the Purchasers to become the
registered owners of the securities. If any securities, whether
certificated or uncertificated, or other investment property now or
hereafter acquired by any Grantor are held by the Grantor or its
nominee through a securities intermediary or commodity
intermediary, the Grantor shall immediately notify the Purchasers
thereof and, at the Purchasers’ request and option, pursuant
to an agreement in form and substance satisfactory to the
Purchasers, either (i) cause such securities intermediary or (as
the case may be) commodity intermediary to agree to comply with
entitlement orders or other instructions from the Purchasers to
such securities intermediary as to such securities or other
investment property, or (as the case may be) to apply any value
distributed on account of any commodity contract as directed by the
Purchasers to such commodity intermediary, in each case without
further consent of the Grantor or such nominee, or (ii) in the case
of financial assets or other investment property held through a
securities intermediary, arrange for the Purchasers to become the
entitlement holders with respect to such investment property, with
the Grantor being permitted, only with the consent of the
Purchasers, to exercise rights to withdraw or otherwise deal with
such investment property. The Purchasers agree with the Grantors
that the Purchasers shall not give any such entitlement orders or
instructions or directions to any such issuer, securities
intermediary or commodity intermediary, and shall not withhold its
consent to the exercise of any withdrawal or dealing rights by the
Grantors, unless an Event of Default has occurred and is
continuing, or, after giving effect to any such investment and
withdrawal rights not otherwise permitted by the Transaction
Documents, would occur. The provisions of this paragraph shall not
apply to any financial assets credited to a securities account for
which any Purchaser is the securities intermediary.
4.4.
Collateral in the Possession of a Bailee
.
If any goods are at any time in the possession of a bailee, the
Grantors shall promptly notify the Purchasers thereof and, if
requested by the Purchasers, shall promptly obtain an
acknowledgment from the bailee, in form and substance satisfactory
to the Purchasers, that the bailee holds such Collateral for the
benefit of the Purchasers and shall act upon the instructions of
the Purchasers, without the further consent of the Grantor. The
Purchasers agree with the Grantors that the Purchasers shall not
give any such instructions unless an Event of Default has occurred
and is continuing or would occur after taking into account any
action by the Grantors with respect to the bailee.
4.5.
Electronic Chattel Paper and Transferable
Records .
If any Grantor at any time holds or acquires an interest in any
electronic chattel paper or any “
transferable record ,”
as that term is defined in Section 201 of the federal Electronic
Signatures in Global and National Commerce Act, or in §16 of
the Uniform Electronic Transactions Act as in effect in any
relevant jurisdiction, the Grantor shall promptly notify the
Purchasers thereof and, at the request of the Purchasers, shall
take such action as the Purchasers may reasonably request to vest
in the Purchasers control, under §9-105 of the Uniform
Commercial Code, of such electronic chattel paper or control under
Section 201 of the federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, §16 of the
Uniform Electronic Transactions Act, as so in effect in such
jurisdiction, of such transferable record. The Purchasers agree
with the Grantors that the Purchasers will arrange, pursuant to
procedures satisfactory to the Purchasers and so long as such
procedures will not result in the Purchasers’ loss of
control, for the Grantors to make alterations to the electronic
chattel paper or transferable record permitted under UCC
§9-105 or, as the case may be, Section 201 of the federal
Electronic Signatures in Global and National Commerce Act or
§16 of the Uniform Electronic Transactions Act for a party in
control to make without loss of control, unless an Event of Default
has occurred and is continuing or would occur after taking into
account any action by the Grantors with respect to such electronic
chattel paper or transferable record.
4.6.
Letter-of-credit Rights .
If any Grantor is at any time a beneficiary under a letter of
credit now or hereafter issued in favor of the Grantor, the Grantor
shall promptly notify the Purchasers thereof and, at the request
and option of the Purchasers, the Grantor shall, pursuant to an
agreement in form and substance satisfactory to the Purchasers,
either (i) arrange for the issuer and any confirmer of such letter
of credit to consent to an assignment to the Purchasers of the
proceeds of any drawing under the letter of credit or (ii) arrange
for the Purchasers to become the transferee beneficiaries of the
letter of credit, with the Purchasers agreeing, in each case, that
the proceeds of any drawing under the letter to credit are to be
applied as provided in the Note.
4.7.
Commercial Tort Claims .
If any Grantor shall at any time hold or acquire a commercial tort
claim, the Grantor shall immediately notify the Purchasers in a
writing signed by the Grantor of the brief details thereof and
grant to the Purchasers 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
Purchasers.
5.
Other Actions as to any and all Collateral
. The
Grantors further agree to take any other action reasonably
requested by the Purchasers to insure the attachment, perfection
and first priority (subject to Permitted Liens) of, and the ability
of the Purchasers to enforce, the Purchasers’ security
interest in any and all of the Collateral including, without
limitation, (a) executing, delivering and, where appropriate,
filing financing statements and amendments relating thereto under
the Uniform Commercial Code, to the extent, if any, that any
Grantor’s signature thereon is required therefor, (b) causing
the Purchasers’ names to be noted as secured parties on any
certificate of title for a titled good if such notation is a
condition to attachment, perfection or priority of, or ability of
the Purchasers to enforce, the Purchasers’ security interest
in such Collateral, (c) complying with any provision of any
statute, regulation or treaty of the United States as to any
Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Purchasers
to enforce, the Purchasers’ security interest in such
Collateral, (d) obtaining governmental and other third party
consents and approvals, including without limitation any consent of
any licensor, lessor or other person obligated on Collateral, (e)
obtaining waivers from landlords in form and substance satisfactory
to the Purchasers, (f) taking all actions required by any earlier
versions of the Uniform Commercial Code or by other law, as
applicable in any relevant Uniform Commercial Code jurisdiction, or
by other law as applicable in any foreign jurisdiction, (g)
delivery to the Purchasers of stock certificates (and stock powers
duly executed in blank in favor of the Purchasers) covering all of
the capital stock described on
Schedule A ,
and (h) if the Maturity Date is extended, at the time of such
extension entering into with the Purchasers and a service company
reasonably acceptable to the Purchasers and Grantors, a contract
requiring (i) the service company to file continuation statements
and (ii) the Grantors to pay the cost of all filings and creation
of continuation and termination statements.
6.
Relation to Other Security Documents
.
The provisions of this Agreement supplement the provisions of the
other Transaction Documents. Nothing contained in any such
Transaction Document shall derogate from any of the rights or
remedies of the Purchasers hereunder. The provisions of this
Agreement shall be read and construed with the other Security
Documents referred to below in the manner so
indicated.
6.1.
Copyright Security Agreements .
If required by the Purchasers, concurrently herewith each Grantor
is also executing and delivering to the Purchasers the Copyright
Security Agreement (attached hereto as
Exhibit I )
pursuant to which the Grantor is granting to the Purchasers
security interests in certain Collateral consisting of copyrights,
and copyright registrations. The provisions of the Copyright
Security Agreement are supplemental to the provisions of this
Agreement, and nothing contained in the Copyright Security
Agreement shall derogate from any of the rights or remedies of the
Purchasers hereunder. Neither the delivery of, nor anything
contained in, the Copyright Security Agreement shall be deemed to
prevent or postpone the time of attachment or perfection of any
security interest in such Collateral created hereby.
6.2.
Trademark Security Agreements .
If required by the Purchasers, concurrently herewith each Grantor
is also executing and delivering to the Purchasers the Trademark
Security Agreement (attached hereto as
Exhibit II )
pursuant to which the Grantor is granting to the Purchasers
security interests in certain Collateral consisting of trademarks,
and trademark registrations. The provisions of the Trademark
Security Agreement are supplemental to the provisions of this
Agreement, and nothing contained in the Trademark Security
Agreement shall derogate from any of the rights or remedies of the
Purchasers hereunder. Neither the delivery of, nor anything
contained in, the Trademark Security Agreement shall be deemed to
prevent or postpone the time of attachment or perfection of any
security interest in such Collateral created hereby.
6.3.
Patent Security Agreements .
If required by the Purchasers, concurrently herewith each Grantor
is also executing and delivering to the Purchasers the Patent
Security Agreement (attached hereto as
Exhibit III )
pursuant to which the Grantor is granting to the Purchasers
security interests in certain Collateral consisting of patents, and
patent registrations. The provisions of the Patent Security
Agreement are supplemental to the provisions of this Agreement, and
nothing contained in the Patent Security Agreement shall derogate
from any of the rights or remedies of the Purchasers hereunder.
Neither the delivery of, nor anything contained in, the Patent
Security Agreement shall be deemed to prevent or postpone the time
of attachment or perfection of any security interest in such
Collateral created hereby.
7.
Representations and Warranties Concerning Grantor’s Legal
Status
. Each
Grantor has concurrently herewith delivered to the Purchasers a
certificate signed by each Grantor and entitled “Perfection
Certificate” (the “
Perfection Certificate ”).
Each Grantor represents and warrants to the Purchasers as follows:
(a) the Grantor’s exact legal name is that indicated on the
Perfection Certificate and on the signature page hereof, (b) the
Grantor is an organization of the type and organized in the
jurisdiction set forth in the Perfection Certificate, (c) the
Perfection Certificate accurately sets forth the Grantor’s
organizational identification number or accurately states that the
Grantor has none, (d) the Perfection Certificate accurately sets
forth the Grantor’s place of business or, if more than one,
its chief executive office as well as the Grantor’s mailing
address if different and (e) all other information set forth on the
Perfection Certificate pertaining to the Grantor is accurate and
complete in all material respects.
8.
Covenants Concerning Grantor’s Legal
Status .
Each Grantor covenants with the Purchasers as follows: (a) without
providing at least 30 days prior written notice to the Purchasers,
the Grantor will not change its name, its place of business or, if
more than one, chief executive office, or its mailing address or
organizational identification number if it has one, (b) if the
Grantor does not have an organizational identification number and
later obtains one, the Grantor shall forthwith notify the
Purchasers of such organizational identification number, and (c)
the Grantor will not change its type of organization, jurisdiction
of organization or other legal structure.
9.
Representations and Warranties Concerning
Collateral .
Each Grantor further represents and warrants to the Purchasers as
follows: (a) the Grantor is the owner of or has other rights in or
power to transfer the Collateral, free from any adverse lien,
security interest or other encumbrance, except for the security
interest created by this Agreement and the Permitted Liens, (b)
none of the Collateral constitutes, or is the proceeds of,
“
farm products ”
as defined in §9-102(a)(34) of the Uniform Commercial Code of
the State, (c) none of the account debtors or other persons
obligated on any of the Collateral is a governmental authority
subject to the Federal Assignment of Claims Act or like federal,
state or local statute or rule in respect of such Collateral, (d)
the Grantor holds no commercial tort claim except as indicated
on
Schedule B hereto
as modified from time to time, (e) except as described on
Schedule 9 ,
during the past five years the Grantor has at all times operated
its business in compliance with all applicable provisions of the
federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and
ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances and (f) all other information
set forth on the Perfection Certificate pertaining to the
Collateral is accurate and complete in all material
respects.
10.
Covenants Concerning Collateral Etc.
Each
Grantor further covenants with the Purchasers as follows: (a) the
Collateral, to the extent not delivered to the Purchasers pursuant
to §4, will be kept at those locations listed on the
Perfection Certificate and the Grantor will not remove the
Collateral from such locations, without providing at least 30 days
prior written notice to the Purchasers, (b) except for the security
interest herein granted
and
Permitted Liens, the Grantor shall be the owner of or have other
rights in the Collateral free from any lien, security interest or
other encumbrance, and the Grantor shall defend the same against
all claims and demands of all persons at any time claiming the same
or any interests therein adverse to the Purchasers, (c) the Grantor
shall not pledge, mortgage or create, or suffer to exist a security
interest in the Collateral in favor of any person other than the
Purchasers except for Permitted Liens, (d) the Grantor will not use
the Collateral in violation of any policy of insurance thereon, (e)
the Grantor will permit the Purchasers, or their designee, to
inspect the Collateral, wherever located, at any reasonable,
mutually agreeable time upon prior notice of at least three
Business Days (unless a Default or an Event of Default has occurred
and is continuing, in which event no prior notice shall be
required), (f) the Grantor will pay promptly when due all taxes,
assessments, governmental charges and levies upon the Collateral or
incurred in connection with the use or operation of such Collateral
or incurred in connection with this Agreement other than any taxes
contested in good faith and for which appropriate reserves have
been established by the Grantor, (g) the Grantor will operate its
business in compliance with all applicable provisions of the
federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and
ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances, and (h) the Grantor will not
sell or otherwise dispose, or offer to sell or otherwise dispose,
of the Collateral or any interest therein except for as permitted
by the Notes.
11.
Insurance .
11.1.
Maintenance of Insurance .
Each Grantor will maintain with financially sound and reputable
insurers insurance with respect to its properties and business
against such casualties and contingencies as shall be in accordance
with general practices of businesses engaged in similar activities
in similar geographic areas;
provided ,
however ,
that the Borrower shall at all times maintain with financially
sound and reputable insurers such insurance in amounts not less
than the insurance maintained by the Borrower as of the date
hereof. Such insurance shall be in such minimum amounts that the
Grantor will not be deemed a coinsurer under applicable insurance
laws, regulations and policies and otherwise shall be in such
amounts, contain such terms, be in such forms and be for such
periods as may be reasonably satisfactory to the Purchasers. In
addition, all such insurance shall be payable to the Purchasers, on
a pro rata basis, as additional loss payees. Without limiting the
foregoing, the Grantors will (i) keep all of its physical property
insured with casualty or physical hazard insurance on an “all
risks” basis, with broad form flood and earthquake coverages
and electronic data processing coverage, with a full replacement
cost endorsement and an “agreed amount” clause in an
amount equal to 100% of the full replacement cost of such property,
(ii) maintain all such workers’ compensation or similar
insurance as may be required by law and (iii) maintain, in amounts
and with deductibles equal to those generally maintained by
businesses engaged in similar activities in similar geographic
areas, general public liability insurance against claims of bodily
injury, death or property damage occurring, on, in or about the
properties of the Grantors; business interruption insurance; and
product liability insurance.
11.2.
Insurance Proceeds .
The proceeds of any casualty insurance in respect of any casualty
loss of any of the Collateral shall, subject to the rights, if any,
of other parties with a prior interest in the property covered
thereby, (i) so long as no Default or Event of Default has occurred
and is continuing and to the extent that the amount of such
proceeds is less than $300,000, be disbursed to the Grantor for
direct application by the Grantor solely to the repair or
replacement of the Grantor’s property so damaged or destroyed
and (ii) in all other circumstances, be held by the Purchasers as
cash collateral for the Obligations and (except to the extent
disbursed pursuant to the next sentence) may be applied to the
Obligations. The Purchasers may, at their sole option, disburse
from time to time all or any part of such proceeds so held as cash
collateral, upon such terms and conditions as the Purchasers may
reasonably prescribe, for direct application by the Grantor solely
to the repair or replacement of the Grantor’s property so
damaged or destroyed, or the Purchasers may apply all or any part
of such proceeds to the Obligations.
11.3.
Notice of Cancellation etc. All
policies of insurance shall provide for at least 30 days prior
written cancellation notice to the Purchasers, unless a shorter
period is mandated under applicable law. In the event of failure by
any Grantor to provide and maintain insurance as herein provided,
the Purchasers may, at their option, provide such insurance and
charge the amount thereof to the Grantor. Each Grantor shall
furnish the Purchasers with certificates of insurance and policies
evidencing compliance with the foregoing insurance
provision.
12.
Collateral Protection Expenses; Preservation of
Collateral .
12.1.
Expenses Incurred by Purchasers .
If any grantor fails or refuses to do so, in their discretion, the
Purchasers may discharge taxes and other encumbrances at any time
levied or placed on any of the Collateral, make repairs thereto and
pay any necessary filing fees or insurance premiums. Each Grantor
agrees to reimburse the Purchasers on demand for any and all
expenditures so made. The Purchasers shall have no obligation to
the Grantors to make any such expenditures, nor shall the making
thereof relieve the Grantor of any default. Any expenses incurred
under this Section 12 shall constitute Obligations.
12.2.
Purchasers’ Obligations and Duties
.
Anything herein to the contrary notwithstanding, each Grantor shall
remain liable under each contract or agreement comprised in the
Collateral to be observed or performed by the Grantor thereunder.
The Purchasers shall not 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 Purchasers of any payment relating
to any of the Collateral, nor shall the Purchasers be obligated in
any manner to perform any of the obligations of the Grantor under
or pursuant to any such contract or agreement, to make inquiry as
to the nature or sufficiency of any payment received by the
Purchasers 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 Purchasers or to which the Purchasers may be
entitled at any time or times. The Purchasers’ sole duty with
respect to the custody, safe keeping and physical preservation of
the Collateral in their possession, under §9-207 of the
Uniform Commercial Code of the State or otherwise, shall be to deal
with such Collateral in the same manner as the Purchasers deal with
similar property for their own accounts.
13.
Securities and Deposits .
The Purchasers may at any time following and during the continuance
of an Event of Default, at their option, transfer to themselves or
any nominee any securities constituting Collateral, receive any
income thereon and hold such income as additional Collateral or
apply it to the Obligations. Whether or not any Obligations are
due, the Purchasers may following and during the continuance of an
Event of Default demand, sue for, collect, or make any settlement
or compromise which it deems desirable with respect to the
Collateral. Regardless of the adequacy of Collateral or any other
security for the Obligations, any deposits or other sums at any
time credited by or due from the Purchasers to the Grantors may at
any time be applied to or set off against any of the Obligations
then due and owing.
14.
Notification to Account Debtors and Other Persons Obligated on
Collateral .
If an Event of Default shall have occurred and be continuing, the
Grantors shall, at the request of the Purchasers, notify account
debtors and other persons obligated on any of the Collateral of the
security interest of the Purchasers in any account, chattel paper,
general intangible, instrument or other Collateral and that payment
thereof is to be made directly to the Purchasers or to any
financial institution designated by the Purchasers as their agent
therefor, and the Purchasers may themselves, if an Event of Default
shall have occurred and be continuing, without notice to or demand
upon the Grantor, so notify account debtors and other persons
obligated on Collateral. After the making of such a request or the
giving of any such notification, the Grantors shall hold any
proceeds of collection of accounts, chattel paper, general
intangibles, instruments and other Collateral received by the
Grantor as trustee for the Purchasers without commingling the same
with other funds of the Grantor and shall turn the same over to the
Purchasers in the identical form received, together with any
necessary endorsements or assignments. The Purchasers shall apply
the proceeds of collection of accounts, chattel paper, general
intangibles, instruments and other Collateral received by the
Purchasers to the Obligations, such proceeds to be immediately
entered after final payment in cash or other immediately available
funds of the items giving rise to them.
15.
Investment Property .
(i) The Grantors, at their cost and expense (including the cost and
expense of any of the following referenced consents, approvals
etc.) will promptly execute and deliver or cause the execution and
delivery of all applications, certificates, instruments,
registration statements, and all other documents and papers the
Purchasers may request during the continuance of an Event of
Default in connection with the obtaining of any consent, approval,
registration, qualification, permit, license, accreditation, or
authorization of any other official body or other Person necessary
or appropriate for the effective exercise of any rights hereunder
or under the other Transaction Documents. Without limiting the
generality of the foregoing, the Grantors agree that in the event
the Purchasers shall exercise their rights hereunder or pursuant to
the other Transaction Documents during the continuance of an Event
of Default, to sell, transfer, or otherwise dispose of, or vote,
consent, operate, or take any other action in connection with any
of the Collateral, the Grantors shall execute and deliver (or cause
to be executed and delivered) all applications, certificates,
assignments and other documents that the Purchasers request to
facilitate such actions and shall otherwise promptly, fully, and
diligently cooperate with the Purchasers and any other Persons in
making any application for the prior consent or approval of any
official body or any other Person to the exercise by the Purchasers
of any such rights relating to all or any of the
Collateral.
(ii)
The
Grantors agree promptly upon the occurrence and continuance of
an Event of Default and without any request therefor by the
Purchasers, so long as such Event of Default shall continue,
(i) to deliver (properly endorsed where required hereby or
requested by Purchasers) to the Purchasers all Dividends and
Distributions with respect to Investment Property and all
proceeds of the Collateral, in each case thereafter received
by the Grantor, all of which shall be held by Purchasers as
additional Collateral; and (ii) with respect to Collateral
consisting of general partner interests or limited liability
company interests, to make modifications to all necessary
documents to admit the Purchasers as general partners or
members, respectively.
(iii)
Except
when an Event of Default has occurred and is continuing, the
Grantors may continue to vote all Investment Property included
in the Collateral except in a manner which is inconsistent or
in violation of the Transaction Documents. The Grantors agree
promptly upon the occurrence and during the continuance of an
Event of Default, (i) that Purchasers may exercise (to the
exclusion of the Grantor) the voting power and all other
incidental rights of ownership with respect to any Collateral
constituting Investment Property of the Grantor and the
Grantor hereby grants Purchasers an irrevocable proxy,
exercisable under such circumstances, to vote such Investment
Property; and (ii) that it shall promptly deliver to the
Purchasers such additional proxies and other documents as may
be necessary to allow the Purchasers to exercise such voting
power.
(iv)
All
Dividends, Distributions, interest, principal, cash payments,
payment intangibles and proceeds which may at any time and
from time to time be held by any Grantor but which the Grantor
is then obligated to deliver to the Purchasers, shall, until
delivery to the Purchasers, be held by the Grantor separate
and apart from its other property in trust for the Purchasers.
The Purchasers agree that unless an Event of Default shall
have occurred and be continuing, the Grantors will have the
exclusive voting power with respect to any Investment Property
constituting the Grantor’s Collateral and the Purchasers
will, upon the written request of any Grantor, promptly
deliver such proxies and other documents, if any, as shall be
reasonably requested by the Grantor which are necessary to
allow the Grantor to exercise that voting power;
provided that
no vote shall be cast, or consent, waiver, or ratification given,
or action taken by the Grantor that would violate any provision of
any Transaction Document.
The
Grantors hereby acknowledge that the sale by Purchasers of any
Investment Property pursuant to the terms hereof in compliance
with the Securities Act, as well as applicable “Blue
Sky” or other state securities laws may require strict
limitations as to the manner in which Purchasers or any
subsequent transferee of the Investment Property may dispose
thereof. The Grantors acknowledge and agree that, to protect
Purchasers’ interests, it may be necessary to sell the
Investment Property at a price less than the maximum price
attainable if a sale were delayed or made in another manner,
such as a public offering under the Securities Act. The
Grantors do not have an objection to a sale in such manner and
the Grantors agree that Purchasers do not have an obligation
to obtain the maximum possible price for all or any part of
the Investment Property. Without limiting the generality of
the foregoing, the Grantors agree that Purchasers may,
pursuant to the terms hereof and subject to applicable law,
from time to time attempt to sell all or any part of the
Investment Property by a private placement, restricting the
bidders and prospective purchasers to those Persons who will
represent and agree that they are purchasing for investment
only and not for distribution. In so doing, Purchasers may
solicit offers to buy the Investment Property or any part
thereof for cash from a limited number of investors deemed by
Purchasers, in their reasonable judgment, to be institutional
investors or other responsible Persons who might be interested
in purchasing the Investment Property. If Purchasers shall
solicit such offers, then acceptance by Purchasers of one of
the offers shall be deemed to be a commercially reasonable
method of disposition of the Collateral.
16.
Power of Attorney .
16.1.
Appointment and Powers of Purchasers
.
The Grantors hereby irrevocably constitute and appoint the
Purchasers and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the
Grantors or in the Purchasers’ own name, for the purpose of
carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of
the foregoing, hereby gives said attorney the power and right, on
behalf of the Grantors, without notice to or assent by the
Grantors, to do the following:
(a)
upon the occurrence and during the continuance of
an
Event of Default, generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the
Collateral in such manner as is consistent with the Uniform
Commercial Code of the State and as fully and completely as though
the Purchasers were the absolute owners thereof for all purposes,
and to do at the Grantors’ expense, at any time, or from time
to time, all acts and things which the Purchasers deem necessary to
protect, preserve or realize upon the Collateral and the
Purchasers’ security interest therein, in order to effect the
intent of this Agreement, all as fully and effectively as the
Grantor might do, including, without limitation, (i) the filing and
prosecuting of registration and transfer applications with the
appropriate federal or local agencies or authorities with respect
to trademarks, copyrights and patentable inventions and processes,
(ii) upon written notice to the Grantors, the exercise of voting
rights with respect to voting securities, which rights may be
exercised, if the Purchasers so elect, with a view to causing the
liquidation in a commercially reasonable manner of assets of the
issuer of any such securities and (iii) the execution, delivery and
recording, in connection with any sale or other disposition of any
Collateral, of the endorsements, assignments or other instruments
of conveyance or transfer with respect to such Collateral;
and
(b)
to the extent that the Grantors’ authorization given in
§3 is not sufficient, to file such financing statements
with respect hereto, with or without the Grantor’
signature, as the Purchasers may deem appropriate and to
execute in the Grantor’s name such financing statements
and amendments thereto and continuation statements which may
require the Grantor’s signature.
16.2.
Ratification by Grantors .
To the extent permitted by law, the Grantors hereby ratify all that
said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is a power coupled with an interest
and shall be irrevocable.
16.3.
No Duty on Purchasers .
The powers conferred on the Purchasers hereunder are solely to
protect its interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Purchasers shall be
accountable only for the amounts that they actually receive as a
result of the exercise of such powers and neither any Purchaser nor
any of its officers, directors, employees or agents shall be
responsible to the Grantor for any act or failure to act, except
for such Purchaser’s own gross negligence or willful
misconduct.
17.
Remedies .
If an Event of Default shall have occurred and be continuing, the
Purchasers may, without notice to or demand upon the Grantors,
declare this Agreement to be in default, and the Purchasers shall
thereafter have in any jurisdiction in which enforcement hereof is
sought, in addition to all other rights and remedies, the rights
and remedies of a purchaser under the Uniform Commercial Code of
the State or of any jurisdiction in which Collateral is located,
including, without limitation, the right to take possession of the
Collateral, and for that purpose the Purchasers may, so far as the
Grantors can give authority therefor, enter upon any premises on
which the Collateral may be situated and remove the same therefrom.
The Purchasers may in their discretion require the Grantors to
assemble all or any part of the Collateral at such location or
locations within the jurisdiction(s) of the Grantors’
principal office(s) or at such other locations as the Purchasers
may reasonably designate. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Purchasers shall give to the
Grantors at least ten Business Days prior written notice of the
time and place of any public sale of Collateral or of the time
after which any private sale or any other intended disposition is
to be made. The Grantors hereby acknowledge that ten Business Days
prior written notice of such sale or sales shall be reasonable
notice. In addition, the Grantors waive any and all rights that it
may have to a judicial hearing in advance of the enforcement of any
of the Purchasers’ rights hereunder, including, without
limitation, its right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights
with respect thereto.
18.
Standards for Exercising Remedies
. To
the extent that applicable law imposes duties on the Purchasers to
exercise remedies in a commercially reasonable manner, the Grantors
acknowledge and agree that it is not commercially unreasonable for
the Purchasers (a) to fail to incur expenses reasonably deemed
significant by the Purchasers to prepare Collateral for disposition
or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to
fail to obtain third party consents for access to Collateral to be
disposed of, or to obtain or, if not required by other law, to fail
to obtain governmental or third party consents for the collection
or disposition of Collateral to be collected or disposed of, (c) to
fail to exercise collection remedies against account debtors or
other persons obligated on Collateral or to remove liens or
encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against account debtors and other
persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media
of general circulation, whether or not the Collateral is of a
specialized nature, (f) to contact other persons, whether or not in
the same business as the Grantor, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or
more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized
nature, (h) to dispose of Collateral by utilizing Internet sites
that provide for the auction of assets of the types included in the
Collateral or that have the reasonable capability of doing so, or
that match buyers and sellers of assets, (i) to dispose of assets
in wholesale rather than retail markets, (j) to disclaim
disposition warranties, (k) to purchase insurance or credit
enhancements to insure the Purchasers against risks of loss,
collection or disposition of Collateral or to provide to the
Purchasers a guaranteed return from the collection or disposition
of Collateral, or (1) to the extent deemed appropriate by the
Purchasers, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the
Purchasers in the collection or disposition of any of the
Collateral. The Grantors acknowledge that the purpose of this
§18 is to provide non-exhaustive indications of what actions
or omissions by the Purchasers would not be commercially
unreasonable in the Purchasers’ exercise of remedies against
the Collateral and that other actions or omissions by the
Purchasers shall not be deemed commercially unreasonable solely on
account of not being indicated in this §18. Without limitation
upon the foregoing, nothing contained in this §18 shall be
construed to grant any rights to the Grantors or to impose any
duties on the Purchasers that would not have been granted or
imposed by this Agreement or by applicable law in the absence of
this §18.
19.
No Oral Change; Amendments; Security Agreement Supplements for
Additional Grantors .
No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Grantors and the
Purchasers, and no waiver of any provision of this Agreement, and
no consent to any departure by the Grantors therefrom, shall be
effective unless it is in writing and signed by the Purchasers, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Notwithstanding the foregoing, additional Persons may become
Grantors under this Agreement without consent of any other Grantor
through execution and delivery to the Purchasers of an Assumption
Agreement in the form of Annex 1 hereto or any other form of
supplement acceptable to the Purchasers. Nothing in this Section 19
shall be construed to permit any Grantor to form a Subsidiary
unless expressly permitted to do so under the Note.
20.
Suretyship Waivers by Grantors .
Each Grantor waives demand, notice, protest, notice of acceptance
of this Agreement, notice of loans made, credit extended,
Collateral received or delivered or other action taken in reliance
hereon and all other demands and notices of any description. With
respect to both the Obligations and the Collateral, the Grantors
assent to any extension or postponement of the time of payment or
any other indulgence, to any substitution, exchange or release of
or failure to perfect any security interest in any Collateral, to
the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon
and the settlement, compromising or adjusting of any thereof, all
in such manner and at such time or times as the Purchasers may deem
advisable. The Purchasers shall have no duty as to the collection
or protection of the Collateral or any income thereon, nor as to
the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto beyond the safe
custody thereof as set forth in §11.2. The Grantors further
waive any and all other suretyship defenses.
21.
Marshalling .
The Purchasers shall not be required to marshal any present or
future collateral security (including but not limited to this
Agreement and the Collateral) for, or other assurances of payment
of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order,
and all of its rights hereunder and in respect of such collateral
security and other assurances of paym
|
