Exhibit 10.3
SECURITY
AGREEMENT
1.
Identification.
This Security Agreement (the
"Agreement"), dated as of September 18 2009, is entered into by and
between Owlstone Nanotech Inc., a Delaware corporation ("Company"
or "Debtor"), and Ingalls & Snyder LLC, as collateral agent
acting in the manner and to the extent described in the Collateral
Agent Agreement defined below (the "Collateral Agent"), for the
benefit of the parties identified on Schedule A hereto
(collectively, the "Lenders").
2.
Recitals.
2.1 The
Lenders have made, are making and will be making loans to Advance
Nanotech, Inc., a
Delaware corporation ("AVNA") which
owns approximately 73% of the fully-diluted outstanding common
stock of the Company (the "Loans"). It is beneficial to Debtor that
the Loans were made and are being made.
2.2 The
Loans are and will be evidenced by certain Senior Secured Notes
(each, a "Note")
issued by AVNA and on or about the
date of this Agreement pursuant to one or more subscription
agreements (each, a "Subscription Agreement") to which Company and
Lenders are parties. The Notes are further identified on
Schedule A hereto and were or will be executed by Company as
"Borrower" for the benefit of each Lender as the "Holder" or
"Lender" thereof.
2.3 In
consideration of the Loans made and to be made by Lenders to AVNA
and for other good and valuable consideration, and as security (i)
for the performance by AVNA of its obligations under the Notes,
(ii) for the performance by AVNA of its obligations (the "April
Loans") under those certain Senior Secured Notes (the "April
Notes") issued to one or more Lenders as of April 9, 2009, as
amended, (iii) for the performance by AVNA of its obligations (the
"August Loans") under those certain Senior Secured Notes (the
"August Notes") issued to one or more Lenders as of August 10,
2009, as amended and (iv) for the repayment of the Loans, the April
Loans and the August Loans and all other sums due from AVNA and
Debtor to Lenders (collectively, the "Obligations") arising under
this Agreement, the Notes, the April Notes, the August Notes, the
Subscription Agreement and other agreements referred to therein
(collectively, the "Transaction Documents"), Debtor, for good and
valuable consideration, receipt of which is acknowledged, has
agreed to grant to the Collateral Agent, for the benefit of the
Lenders, a security interest in the Collateral (as such term
is hereinafter defined), on the terms and conditions hereinafter
set forth. Obligations include all future advances by Lenders to
Debtor made pursuant to the Subscription Agreement.
2.4 The
Lenders have appointed the Collateral Agent as collateral agent
pursuant to that certain Collateral Agent Agreement dated at or
about the date of this Agreement ("Collateral Agent Agreement"),
among the Lenders and Collateral Agent.
2.5 The
following defined terms which are defined in the Uniform Commercial
Code in effect in
the State of New York on the date hereof are
used herein as so defined: Instruments and Proceeds.
3.
Grant of General Security Interest in Collateral.
3.1 As
security for the Obligations, the Debtor hereby grants the
Collateral Agent, for the benefit of the Lenders, a security
interest in the Collateral, which security interest shall be a
first priority security interest except as set forth in Schedule
3.1 hereto.
3.2
"Collateral" shall mean all of the following property of
Debtor:
All now owned and hereafter acquired
right, title and interest of Debtor in, to and in respect of the
following:
(i) Intellectual
Property: All now owned and hereafter acquired right, title and
interest of Debtor in, to and in respect of all: registered and
unregistered patents (including but not limited to the patents,
patents pending and applications set forth on Schedule B
hereto), trademarks, service marks, intellectual property
certificates, copyrights, domain names, trade names, applications
for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists and licenses with respect to any of the
foregoing, whether as licensor or licensee (all of the foregoing
being sometimes hereinafter referred to as "Intellectual
Property");
(ii) Books and
Records: All present and future books and records relating to
any of the above, including, without limitation, all computer
programs, printed output and computer readable data in the
possession or control of the Debtor, any computer service bureau or
other third party; and
(iii) Products and
Proceeds: All Proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance
proceeds and all claims against third parties for loss or
destruction of or damage to any of the foregoing.
3.3 The
Collateral Agent is hereby specifically authorized, after the
Maturity Date (defined in the Notes) is accelerated if the Notes
are not repaid when such repayment is due (after all applicable
cure periods), or after the occurrence of an Event of Default (as
defined herein) and the expiration of any applicable cure period,
to transfer any Collateral into the name of the Collateral Agent
and to take any and all action deemed advisable to the Collateral
Agent to remove any transfer restrictions affecting the
Collateral.
4.
Perfection of Security Interest.
4.1 Debtor
shall prepare, execute and deliver to the Collateral Agent UCC-1
Financing
Statements (the "Financing
Statements"). The Collateral Agent is instructed to prepare and
file at Debtor's cost and expense, financing statements in such
jurisdictions deemed advisable to the Collateral Agent, including
but not limited to the State of Delaware and the U.S. Patent and
Trademark Office. The Financing Statements are deemed to have been
filed for the benefit of the Collateral Agent and Lenders
identified on Schedule A hereto.
4.2 All
Instruments constituting Collateral from time to time required to
be pledged to
Collateral Agent pursuant to the
terms hereof (the "Additional Collateral") shall be delivered to
Collateral Agent promptly upon receipt thereof by or on behalf of
the Debtor_ All such Instruments shall be held by or on behalf of
Collateral Agent pursuant hereto and shall be delivered in suitable
form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment, all in form and
substance satisfactory to Collateral Agent.
5.
Reserved.
6.
Further Action By Debtor; Covenants and
Warranties.
6.1
Collateral Agent at all times shall have a perfected security
interest in the Collateral. Each Debtor represents that it has and
will continue to have full title to the Collateral free from any
liens, leases, encumbrances, judgments or other claims. The
Collateral Agent's security interest in the Collateral
constitutes and will continue to constitute a
first, prior and indefeasible security interest in favor of
Collateral Agent, subject only to any security interest described
on Schedule 6.1. Debtor will do all acts and things, and
will execute and file all instruments (including, but not limited
to, security agreements, financing statements, continuation
statements, etc.) reasonably requested by Collateral Agent to
establish, maintain and continue the perfected security interest of
Collateral Agent in the perfected Collateral, and will promptly on
demand, pay all costs and expenses of filing and recording,
including the costs of any searches reasonably deemed necessary by
Collateral Agent from time to time to establish and determine the
validity and the continuing priority of the security interest of
Collateral Agent, and also pay all other claims and charges that,
in the opinion of Collateral Agent, exercised in good faith, are
reasonably likely to materially prejudice, imperil or otherwise
affect the Collateral or Collateral Agent's or Lenders' security
interests therein.
6.2 Except
(a) as provided in the second succeeding sentence and (b) in
connection with sales of Collateral, in the ordinary course of
business, for fair value and in cash, and except for Collateral
which is substituted by assets of identical or greater value (with
the consent of the Collateral Agent) or which is inconsequential in
value, Debtor will not sell, transfer, assign or pledge items of
Collateral (or allow any such items to be sold, transferred,
assigned or pledged), without the prior written consent of
Collateral Agent. Although Proceeds of Collateral are covered by
this Agreement, this shall not be construed to mean that Collateral
Agent expressly consents to any sale of the Collateral, except as
provided herein or as exempted from the requirement that such
consent be obtained. Notwithstanding the foregoing, transfers or
other dispositions of Collateral as follows shall be free of the
security interest of Lenders and Collateral Agent and Lenders and
Collateral Agent shall promptly execute such documents (including
without limitation releases and termination statements) as may be
required by Debtor to evidence or effectuate the same: (i) any
sale, transfer or other disposition of Collateral in the ordinary
course of business; provided, that any Proceeds of such sale,
transfer, or other disposition shall remain subject to the security
interests herein described; (ii) dispositions of Collateral or
interests therein directly or indirectly through licensing out or
entry into co-development, marketing or other commercialization
arrangements with regard to Collateral; or (iii) a transfer of the
Collateral to a United States formed and located subsidiary on
prior notice to Collateral Agent; provided, that the Collateral
remains subject to the security interests herein described. In this
connection, the Collateral Agent and the Lenders acknowledge and
agree that it is in the ordinary course of the Debtor's business to
develop and commercialize the Collateral and products and services
utilizing the same through licensing out, co-development, marketing
or other commercialization arrangements with regard to the
Collateral.
6.3 Debtor
will, at all reasonable times during regular business hours and
upon reasonable notice, allow Collateral Agent or its
representatives reasonable access to the Collateral and Debtor's
records which relate to the Collateral, for such inspection and
examination as Collateral Agent reasonably deems
necessary.
6.4 Debtor,
at its sole cost and expense, will protect and defend this
Agreement, all of the rights of Collateral Agent and Lenders
hereunder, and the Collateral against the claims and demands of all
other persons.
6.5 Debtor
will promptly notify Collateral Agent of any levy, distraint or
other seizure by legal process or otherwise of any part of the
Collateral, and of any threatened or filed claims or proceedings
that are reasonably likely to affect or impair any of the rights of
Collateral Agent under this Agreement in any material
respect.
6.6
Debtor, at its own expense, will obtain and maintain in force
insurance policies covering losses or damage to those items of
Collateral, if any, which constitute physical personal property,
which insurance shall be of the types customarily insured against
by companies in the same or similar business, similarly situated,
in such amounts (with such deductible amounts) as is customary for
such companies under the same or similar circumstances, similarly
situated. Debtor shall make the Collateral Agent a loss payee
thereon to the extent of its interest in the Collateral. Collateral
Agent is hereby irrevocably (until the Obligations are paid in
full) appointed Debtor's attorney-in-fact to endorse any check or
draft that may be payable to such Debtor so that Collateral Agent
may collect the proceeds payable for any loss under such insurance.
The proceeds of such insurance, less any costs and expenses
incurred or paid by Collateral Agent in the collection thereof,
shall be applied either toward the cost of the repair or
replacement of the items damaged or destroyed, or on account of any
sums secured hereby, whether or not then due or payable.
6.7 Collateral
Agent may, at its option, and without any obligation to do so, pay,
perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Debtor upon
Debtor's failure to do so. All amounts expended by Collateral Agent
in so doing shall become part of the Obligations secured hereby,
and shall be immediately due and payable by Debtor to Collateral
Agent upon demand and shall bear interest at the lesser of 15% per
annum or the highest legal amount from the dates of such
expenditures until paid.
6.8 Upon
the request of Collateral Agent, Debtor will furnish to Collateral
Agent within five (5) business days thereafter, or to any proposed
assignee of this Agreement, a written statement in form reasonably
satisfactory to Collateral Agent, duly acknowledged, certifying the
amount of the principal and interest and any other sum then owing
under the Obligations, whether to its knowledge any claims, offsets
or defenses exist against the Obligations or against this
Agreement, or any of the terms and provisions of any other
agreement of Debtor securing the Obligations. In connection with
any assignment by Collateral Agent
