SECURITY AGREEMENT

Execution Copy

 

SECURITY AGREEMENT

Dated as of September 22, 2008

between

FORTICELL BIOSCIENCE, INC.,

as Grantor,

and

PAUL ROYALTY FUND, L.P.,

as Grantee

 

 

TABLE OF CONTENTS

				Page
ARTICLE I DEFINITIONS				1
Section 1.1.		Certain Terms.		1
Section 1.2.		Sale Agreement Definitions.		2
Section 1.3.		UCC Definitions.		2
Section 1.4.		Other Interpretive Provisions.		3
ARTICLE II SECURITY INTEREST				3
Section 2.1.		Grant of Security.		3
Section 2.2.		Continuing Security Interest.		4
Section 2.3.		Grantor Remains Liable.		5
ARTICLE III REPRESENTATIONS AND WARRANTIES				5
Section 3.1.		Location of Collateral, etc.		5
Section 3.2.		Ownership; No Liens.		5
Section 3.3.		Validity.		6
Section 3.4.		Intellectual Property.		6
Section 3.5.		Authorization, Approval.		6
Section 3.6.		Enforceability.		6
ARTICLE IV COVENANTS				6
Section 4.1.		As to Receivables.		7
Section 4.2.		Insurance.		8
Section 4.3.		Intellectual Property.		8
Section 4.4.		Transfers and Other Liens.		8
Section 4.5.		Further Assurances.		9
Section 4.6.		General Covenants.		9
ARTICLE V RIGHTS AND DUTIES OF GRANTEE				10
Section 5.1.		Grantee Appointed Attorney-in-Fact.		10
Section 5.2.		Grantee May Perform.		10
Section 5.3.		Limitations on Duties of Grantee.		11
Section 5.4.		Reasonable Care.		11
ARTICLE VI REMEDIES				11
Section 6.1.		Certain Remedies.		11

Exhibits
Exhibit A	Form of Patent Security Agreement
Schedules
Schedule I	Locations of Certain Collateral
Schedule II	Offices For Filing Financing Statements
Schedule 3.1	Names and Corporate Reorganizations and Mergers
Schedule 3.2	Lien Exceptions

 

SECURITY AGREEMENT

SECURITY AGREEMENT (as amended, supplemented or otherwise modified from time to time, this " Security Agreement "), is dated as of September 22, 2008 and entered into between FORTICELL BIOSCIENCE, INC. , a Delaware corporation   (the " Grantor "), and PAUL ROYALTY FUND, L.P. , a Delaware limited partnership (the " Grantee ").

RECITALS

WHEREAS, Grantor and Grantee have entered into an Agreement dated as of September 22, 2008 (the " Sale Agreement ") pursuant to which Grantee is selling, and Grantor is purchasing and redeeming, the Securities (as defined in the Sale Agreement) for consideration, including payment by Grantor of the Deferred Purchase Price (as defined in the Sale Agreement), subject to the terms and conditions in the Sale Agreement;

WHEREAS, in order to induce Grantee to enter into the Sale Agreement, Grantor is entering into this Agreement as Security for the payment and performance by Grantor of its obligations under the Sale Agreement; and

WHEREAS, it is a condition precedent to Grantee's entering into the Sale Agreement and selling the Securities to Grantor that Grantor grant to Grantee the security interests contemplated by this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor hereby agrees, for the benefit of Grantee, as follows:

ARTICLE I

DEFINITIONS

Section 1.1.   Certain Terms .

The following terms (whether or not underscored) when used in this Security Agreement, including its preamble and recitals, shall have the following meanings:

" Account " shall have the meaning as provided in the UCC.

" Collateral " shall have the meaning set forth in Section 2.1.

" Event of Default " shall mean there has occurred a breach or default by Grantor of any of the Obligations.

" General Intangible " shall have the meaning as provided in the UCC.

" Grantee " shall have the meaning set forth in the preamble hereto.

 

" Grantor " shall have the meaning set forth in the preamble hereto.

" Instrument " shall have the meaning as provided in the UCC.

" Intellectual Property " shall have the meaning set forth in the Sale Agreement.

" Obligations " shall mean any and all obligations of Grantor under the Sale Agreement, including the obligation to pay the Deferred Purchase Price, and the Security Documents.

" Patent License " means any written agreement now or hereafter in existence granting to Grantor any right to use any invention on which a patent is in existence.

" Patent Security Agreement " means the Patent Security Agreement executed and delivered by Grantor to Grantee and attached hereto as Exhibit A, as such agreement may be amended, supplemented or otherwise modified from time to time.

" Proceeds " shall have the meaning as provided in the UCC.

" Receivables " shall have the meaning set forth in Section 2.1(c).

" Sale Agreement " shall have the meaning set forth in the recitals hereto.

" Security Agreement " shall have the meaning set forth in the preamble hereto.

" Security Documents " shall mean this Security Agreement and the Patent Security Agreement.

" UCC " means the Uniform Commercial Code as in effect on the date hereof in the State of New York, as amended from time to time, and any successor statute; provided that if by reason of mandatory provision of law, the perfection or the effect of perfection or non-perfection of the security interest in the Collateral is governed by the Uniform Commercial Code of another jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provision hereof relating to such perfection or effect of perfection or non-perfection.

Section 1.2.   Sale Agreement Definitions .

Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Sale Agreement.

Section 1.3.   UCC Definitions .

Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the UCC are used in this Security Agreement, including its preamble and recitals, with such meanings.

 

Section 1.4.   Other Interpretive Provisions .

(a)   The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)   The words "hereof," "herein," "hereunder" and similar words refer to this Security Agreement as a whole and not to any particular provision of this Security Agreement; and subsection, Section, Schedule, and Exhibit references are to this Security Agreement unless otherwise specified.

(c)          (i)   The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced.

(ii)   The term "including" is not limiting and means "including without limitation".

(iii)   The term "property" includes any kind of property or asset, personal or mixed, tangible or intangible, other than real property.

(d)   Unless otherwise expressly provided herein, (i) references to agreements (including this Security Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of this Security Agreement, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing, or interpreting the statute or regulation.

(e)   The captions and headings of this Security Agreement are for convenience of reference only and shall not affect the interpretation of this Security Agreement.

ARTICLE II

SECURITY INTEREST

 

Section 2.1.   Grant of Security .

As collateral security for the prompt, full and faithful payment and performance when due of the Obligations, Grantor hereby assigns, pledges, transfers and grants to Grantee a continuing lien on and a security interest in all of Grantor's right, title, and interest in and to the following property, wherever the same may be now or hereafter located, whether now owned or hereafter existing or acquired (the " Collateral "):

(a)   all Intellectual Property (but with respect to Patents and Patent applications and trademark applications and registrations, only those registered and filed in the United States);

 

(b)   all contracts, agreements, Patent Licenses, and any other documents relating thereto now or hereafter in effect, as they may be amended or otherwise modified from time to time, that relate to the Intellectual Property or cryo-preserved or fresh Orcel products (any and all such contracts, agreements, Patent Licenses and documents being the " Agreements ");

(c)   all Accounts, contract rights, payment intangibles, Instruments, and General Intangibles, in each case, constituting, comprising, evidencing or otherwise relating to any of the foregoing Collateral (any and all such Accounts, contract rights, payments intangibles, Instruments, and General Intangibles being the " Receivables ");

(d)    all books, records, data bases, and information, in each case, specifically relating to any of the foregoing Collateral;

(e)    all money now or at any time in the possession or under the control of, or in transit to Grantee or Grantor relating to any of the foregoing Collateral; and

(f)    all products and Proceeds of and from any and all of the foregoing Collateral, all proceeds which constitute property of the types described in clauses (a) through (e) and, to the extent not otherwise included, all payments under insurance (whether or not Grantee is the loss payee thereof), including return premiums with respect thereto, or any indemnity, warranty, or guaranty payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral;

provided , however , that the term "Collateral" shall not include, and Grantor shall not be deemed to have granted a security interest in, any of Grantor's right, title or interest in, or any rights under, any contract or other agreement existing on the Closing Date to the extent that such grant would result in a breach of a term of such contract or agreement prohibiting such grant without the consent of the other party thereto, other than to the extent that any such term would be rendered ineffective pursuant to Section 9-406 of the UCC.

Section 2.2.   Continuing Security Interest .

This Security Agreement shall create a continuing security interest in the Collateral and shall:

(a)   remain in full force and effect until the payment and performance in full of all the Obligations;

(b)   be binding upon Grantor and its successors, transferees and assigns; and

(c)   inure, together with the rights and remedies of Grantee, to the benefit of Grantee and its successors and assigns.

Upon the payment and performance in full of the Obligations, the security interest granted herein shall terminate and all rights to the Collateral shall revert to Grantor. Upon any such termination, Grantee will, at Grantor's sole expense, promptly execute and deliver to Grantor such instruments and documents necessary and as Grantor shall reasonably request to evidence such termination.

 

Section 2.3.   Grantor Remains Liable .

Anything herein to the contrary notwithstanding:

(a)   Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein and shall perform all of its duties and obligations under such contracts and agreements to the same extent as if this Security Agreement had not been executed;

(b)   the exercise by Grantee of any of its rights and remedies hereunder shall not release Grantor from any of its duties or obligations under any such contracts or agreements included in the Collateral; and

(c)   Grantee shall not have any obligation or liability under any such contracts or agreements included in the Collateral by reason of this Security Agreement, and Grantee shall not be obligated to perform or fulfill any of the obligations or duties of Grantor thereunder or to take any action to collect or (x) to make any inquiry as to the nature or sufficiency of any payment Grantor may be entitled to receive thereunder; (y) present or file and claim or (z) enforce any claim for payment assigned hereunder.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

Grantor represents and warrants to Grantee as follows:

Section 3.1.   Location of Collateral, etc .

(a)   On the date hereof, the place(s) of business and chief executive office of Grantor and the office(s) where Grantor keeps its records concerning the Receivables are located at the addresses set forth on Item A of Schedule I .

(b)   Grantor has no trade name.

(c)   Except as set forth on Schedule 3.1, during the past five years, Grantor has not been known by any name different from the one set forth on the signature page hereto, and Grantor has not been the subject of any merger or other corporate reorganization.

(d)   None of the Receivables is evidenced by a promissory note or other instrument.

 

Section 3.2.   Ownership; No Liens .

Grantor owns the Collateral free and clear of any Liens except for the security interest created by this Security Agreement and except as set forth on Schedule 3.2 . No effective security agreement, financing statement, assignment, equivalent security, lien or other instrument similar in effect covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed in favor of Grantee relating to this Security Agreement and except as set forth on Schedule 3.2 .

Section 3.3.   Validity .

This Security Agreement creates a valid security interest in the Collateral securing the payment and performance in full of the Obligations. Upon the filing of appropriate financing statements in the applicable filing offices in the jurisdictions listed in Schedule II , all filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the first priority security interest granted by Grantor to Grantee in the Collateral will have been accomplished and will create a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens.

Section 3.4.   Intellectual Property .

The Patents constitute all registered Intellectual Property owned or used by Grantor and the Agreements constitute all agreements relating to Intellectual Property owned or used by Grantor. The execution, delivery and performance of this Security Agreement by Grantor will not violate or cause a default under any of the Intellectual Property or any material agreement in connection therewith.

Section 3.5.   Authorization, Approval .

No authorization, approval, or other action by, and no notice to or filing with, any Government Authority or other Person is required either:

(a)   for the grant by Grantor of the security interest granted hereby or for the execution, delivery, and performance of this Security Agreement by Grantor; or

(b)   for the perfection of or exercise by Grantee of its rights and remedies hereunder, other than the filing of financing statements in the offices listed in Schedule II .

Section 3.6.   Enforceability . 

This Security Agreement is the legally valid and binding obligation of Grantor, enforceable against Grantor in accordance with its terms.

 

ARTICLE IV

COVENANTS

 

Grantor hereby covenants and agrees that, so long as this Security Agreement shall remain in effect, Grantor agrees to the following:

Section 4.1.   As to Receivables . 

(a)   Grantor shall keep its place(s) of business and its chief executive office and the office(s) where it keeps its books and records (including those concerning the Receivables) and all original copies of the Agreements located, in each case, at its address specified in Schedule I , or, upon 30 days' prior written notice to Grantee, at such other locations in a jurisdiction where all actions required by the first sentence of Section 4.4 shall have been taken with respect to the Receivables and the License Agreements; not change its name or its state or place of incorporation or organization except upon 30 days' prior written notice to Grantee; and hold and preserve such books and records.

(b)   Except as otherwise provided in this subsection (b), until an Event of Default has occurred and is continuing, Grantor shall continue to collect, at its own expense, all amounts due or to become due Grantor under the Agreements. In connection with such collections, provided no Event of Default shall have occur