EXHIBIT 10.3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this “
Agreement ”) is made and entered into as of October
19, 2009 by Alfacell Corporation, a Delaware corporation (the
“ Borrower ”), and in favor of James McCash (the
“ Agent ”) and each of the lenders whose names
appear on the signature pages hereof. Such lenders are each
referred to herein as a “ Secured Party ” and,
collectively, as the “ Secured Parties ”. This
Agreement is being executed and delivered by the Borrower and the
Secured Parties in connection with that certain Securities Purchase
Agreement dated concurrently herewith (the “ Purchase
Agreement ”) by and between the Borrower and each Secured
Party. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Purchase
Agreement.
WITNESSETH:
WHEREAS , pursuant to the terms of the Purchase Agreement,
the Secured Parties have agreed to purchase from the Borrower, and
the Borrower has agreed to sell to the Secured Parties, units (the
“ Units ”) consisting of Senior Secured
Convertible Promissory Notes (the “ Notes ”),
Series A Common Stock Purchase Warrants and Series B Common Stock
Purchase Warrants;
WHEREAS , the Borrower shall derive substantial direct and/or
indirect benefits from the transactions contemplated by the
Purchase Agreement and the sale of the Units;
WHEREAS , it is a condition to the obligation of the Secured
Parties to purchase the Units that the Borrower enter into this
Agreement; and
WHEREAS , pursuant to Purchase Agreement, the Secured Parties
and such other secured parties have designated the Agent as their
collateral agent.
NOW, THEREFORE , in consideration of the foregoing, the covenants
set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
Agent, Secured Parties and the Borrower hereby agree as
follows.
ARTICLE
I
COLLATERAL; OBLIGATION
SECURED
Section 1.1 Grant and
Description . As
security for the Borrower’s obligations under this Agreement,
the Purchase Agreement and the Notes (collectively, the “
Transaction Documents ”), the Borrower hereby grants
to each Secured Party a continuing first priority security interest
in and Lien (as defined in the Notes) upon, and pledges to each
Secured Party, all of the Borrower’s right, title and
interest in, to and under all of the Borrower’s assets (other
than Excluded Assets (as defined below), now owned or hereafter
acquired, including, without limitation, all of the following
property and interests in property of the Borrower (collectively
and each individually, the “ Collateral
”):
(a)
all of the Borrower’s tangible
personal property, including without limitation all present and
future goods, inventory and equipment (including items of equipment
which are or become fixtures), software and computer hardware and
software, now owned or hereafter acquired;
(b)
all of the Borrower’s intangible
personal property, including without limitation all present and
future accounts, securities, contract rights, permits, general
intangibles, chattel paper, investment property, intellectual
property, documents, instruments, deposit accounts,
letter-of-credit rights and supporting obligations, rights to the
payment of money or other forms of consideration of any kind, tax
refunds, insurance proceeds (including, without limitation,
proceeds of any life insurance policy), now owned or hereafter
acquired, and all intangible and tangible personal property
relating to or arising out of any of the foregoing; and
(c)
any and all additions to any of the
foregoing, and any and all replacements, products and proceeds
(including insurance proceeds) of any of the foregoing.
For purposes hereof, “ Excluded
Assets ” means any assets leased or licensed by the
Borrower if the granting or enforcement of a security interest in
those assets is prohibited by or otherwise would breach the terms
of that lease or license.
Section 1.2 Financing
Statements; Further Assurances . The Borrower hereby authorizes the Agent to
file, transmit or communicate, as applicable, Uniform Commercial
Code (“ UCC ”) financing statements and
amendments (collectively, “ Financing Statements
”) in order to perfect each Secured Party’s first
priority security interest in the Collateral without the
Borrower’s signature to the extent permitted by applicable
law, provided that the Agent shall concurrently copy the Borrower
on all such filings. In addition to the foregoing, at any time upon
the written request of the Agent, the Borrower shall promptly (i)
execute (or cause to be executed) and deliver to the Agent, any and
all agreements, Financing Statements, certificates, instruments and
other documents (the “ Additional Documents ”)
upon which the Borrower’s signature may be required and that
the Agent may reasonably request in form and substance satisfactory
to the Agent, and/or (ii) perform any acts; in each case, to
perfect and continue perfected or better perfect each Secured
Party’s security interest in the Collateral (whether now
owned or hereafter arising or acquired), and in order to fully
consummate all of the transactions contemplated hereby and under
the other Transaction Documents that the Agent reasonably believes
to be necessary as a result of any amendment to the UCC in effect
from time to time in any applicable jurisdiction, provided, that
any Additional Documents that require the Borrower to assume any
new obligations shall be subject to the review and approval of the
Borrower, such approval not to be unreasonably withheld or delayed.
The Borrower also hereby ratifies its authorization for the Agent
to have filed in any jurisdiction the Financing Statements or
amendments thereto filed prior to the date hereof (if any), copies
of which have previously been provided to the Borrower. The
Borrower shall not terminate, amend or file any correction
statement with respect to any Financing Statement filed pursuant to
this Agreement without obtaining the prior written consent of the
Required Holders (as defined in the Notes). The Borrower agrees
that it will join with the Agent in executing or authorizing and
will file and refile, or permit the Agent to file and refile such
financing statements, continuation statements and other documents
(including, without limitation, this Security Agreement and
licenses to use software and other property protected by
copyright), in such offices (including, without limitation, the
United States Patent and Trademark
2
Office, appropriate state trademark
offices, and the United States Copyright Office), as the Agent may
reasonably deem necessary or appropriate in order to perfect and
preserve the rights and interests granted to the Secured Parties
hereunder. T he Borrower appoints the Agent as the
Borrower’s attorney-in-fact, with a power of attorney to
execute and file in any appropriate filing office on behalf of the
Borrower, to the extent not performed by the Borrower within two
(2) Business Days of a request therefor by the Agent, such
Additional Documents and other similar instruments as the Agent may
from time to time deem necessary or desirable to protect or perfect
the security interest in the Collateral, provided, that any
Additional Documents that require the Borrower to assume any new
obligations shall be subject to the review and approval of the
Borrower, such approval not to be unreasonably withheld or delayed.
Such power of attorney is coupled with an interest and shall be
irrevocable.
Section 1.3 Obligations
Secured . The Collateral
and the power of collection pertaining thereto shall secure any and
all indebtedness, liabilities and obligations of the Borrower to
the Secured Parties evidenced by and/or arising pursuant to any of
the Transaction Documents now existing or hereafter arising,
whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several,
including, without limitation, the obligations of the Borrower to
repay principal outstanding under the Notes, to pay interest on the
Notes (including, without limitation, interest accruing after any
bankruptcy, insolvency, reorganization or other similar filing) and
to pay all fees, indemnities, costs and expenses (including
attorneys’ fees) provided for in any of the Transaction
Documents (collectively the “ Obligations
”).
ARTICLE
II
COVENANTS
Section 2.1 Duties of the
Borrower Regarding Collateral . At all times after the date hereof, the
Borrower agrees that it shall:
(a)
Preserve the Collateral in good condition
and order (ordinary wear and tear excepted) and not permit it to be
abused or misused; provided, however, that Agent and Secured
Parties shall be obligated to exercise reasonable care with respect
to any Collateral that comes into any of their
possession;
(b)
Not allow any of the Collateral to be
affixed to real estate, except for any property deemed to be
fixtures;
(c)
Maintain good and complete title to the
Collateral subject to Permitted Liens;
(d)
Keep the Collateral free and clear at all
times of all Liens other than Permitted Liens;
(e)
Take or cause to be taken such acts and
actions as shall be necessary or appropriate to assure that the
Secured Parties’ security interest in the Collateral shall
not become subordinate or junior to the security interests, liens
or claims of any other Person (other than Permitted
Liens);
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(f)
Refrain from selling, assigning or
otherwise disposing of any of the Collateral or moving or removing
any of the Collateral, without obtaining the prior written consent
of the Required Holders, or until all of the Obligations have been
fully performed and paid in full other than (i) sales or
dispositions of inventory in the ordinary course of business, (ii)
sales or dispositions of obsolete or unused assets, (iii) licenses
of the Borrower’s intellectual property approved by the
Borrower’s board of directors and (iv) sales or dispositions
of assets having an aggregate value (when combined with all other
assets sold or disposed of) less than or equal to $1 million made
in connection with sale-leaseback transactions; provided, however,
that concurrently with any disposition permitted by this Section
2.1(f), (x) the security interest granted hereby shall
automatically be released from the Collateral so disposed, and (y)
the security interest shall continue in the Proceeds (as defined in
the UCC) of such Collateral and such Proceeds shall be applied
against the Obligations in such order as the Agent shall determine
in its sole discretion; and provided further, that, Agent and
Secured Parties shall execute and deliver, at the Borrower’s
sole cost and expense, any releases or other documents reasonably
requested by the Borrower, that are in form and substance
reasonably acceptable to the executing party, confirming the
release of the security interest in that portion of the Collateral
that is the subject of a disposition permitted by this Section
2.1(f);
(g)
Promptly provide to Agent and each
Secured Party such financial statements, reports, lists and
schedules related to the Collateral and any other information
relating to the Collateral as Agent or such Secured Party may
reasonably request from time to time;
(h)
Upon reasonable notice, permit Agent or
any Secured Party to inspect all books and records of the Borrower
relating to the Collateral at such times and as often as Agent or
any such Secured Party may reasonably request; and
(i)
Promptly notify Agent and each Secured
Party if any Event of Default (as hereinafter defined)
occurs.
As used herein, the following definitions
shall apply:
“ Permitted Liens ”
shall mean the following: (i) Liens for taxes, assessments or other
governmental charges that are not delinquent or which are being
contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of
Property subject to such Liens, and for which adequate reserves (as
determined in accordance with GAAP) have been established; (ii)
Liens of mechanics, materialmen, warehousemen, carriers, landlords
or other similar statutory Liens securing obligations that are not
yet due and are incurred in the ordinary course of business or
which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or
sale of the Property subject to such Liens, for which adequate
reserves (as determined in accordance with GAAP) have been
established, (iii) any interest or title of a lessor under any
capitalized lease obligation provided that such Liens do not extend
to any property or assets which is not leased property subject to
such capitalized lease obligation and (iv) any Lien, license or
other right granted by the Company to a strategic partner, licensee
or distributor.
“ Property ” shall
mean property and/or assets of all kinds, whether real, personal or
mixed, tangible or intangible (including, without limitation, all
rights relating thereto).
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Section 2.2 Other
Encumbrances . At all times
after the date hereof, the Borrower shall: (i) defend its title to,
and the Secured Parties’ interest in, the Collateral against
all claims, (ii) take any action necessary to remove any
encumbrances on the Collateral other than Permitted Liens, and
(iii) defend the right, title and interest of the Secured Parties
in and to any of the Borrower’s rights in the
Collateral.
Section 2.3 Change Name or
Location . The Borrower shall
not, except upon 30 days’ prior written notice to Agent and
each Secured Party, change its company name or conduct its business
under any name other than that set forth herein or change its
jurisdiction of organization or incorporation, chief executive
office or place of b
