SECURITYAGREEMENT -- SUBSIDIARY

THIS SECURITY AGREEMENT (the “Agreement”) is made as of December 10, 2008 by and among ORGANIC GROWING SYSTEMS, INC., a Texas corporation, (the “Subsidiary”), and the secured party hereto and its respective endorsees, transferees and assigns (the “Secured Party”).

 

WHEREAS, pursuant to a Note Purchase Agreement, dated December 10, 2008, (the “Note Purchase Agreement”), ADVANCED GROWING SYSTEMS, INC., a Nevada corporation, (the “Company”) issued to the Secured Party certain 18% Subordinated Secured Notes (collectively, the “Notes”); and

 

WHEREAS, pursuant to the Note Purchase Agreement, the Subsidiary executed and delivered to the Secured Party a Guaranty (the “Guaranty”), guaranteeing the obligations of the Company to the Secured Party under the Note Purchase Agreement and the Notes

 

                      NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1. Certain Definitions.  As used in this Agreement, the following terms shall have the meanings set forth in this Section 1.  Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “general intangibles” and “proceeds”) shall have the respective meanings given such terms in Article 9 of the UCC.

 

a. “Collateral” means the collateral in which the Secured Party is granted a security interest by this Agreement and which shall include the following, whether presently owned or existing or hereafter acquired or coming into existence, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith:

 

i. All goods, including, without limitation, all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items, owned by the Subsidiary and used in connection with the Subsidiary’s businesses and all improvements thereto; and

 

ii. All inventory of the Subsidiary; and

 

iii. All of the Subsidiary’s contract rights and general intangibles, including, without limitation, all partnership interests, stock or other securities, licenses, distribution and other agreements, computer software development rights, employee non-compete, non-disclosure and assignment of rights agreements, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, deposit accounts, and income tax refunds; and

iv. All receivables of the Subsidiary including all insurance proceeds, and rights to refunds or indemnification whatsoever owing, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each receivable, including any right of stoppage in transit; and

 

v. All of the Subsidiary’s Intellectual Property; and

 

vi. All of Subsidiary’s equity interest in Organic Growing Systems, Inc., a Texas corporation, and certificates evidencing such equity interest, and any shares of stock (including, without limitation, a distribution in connection with any reclassification, increase or reduction of capital or in connection with any reorganization), or any option or right to acquire shares of stock, in substitution of, or in exchange for, any of such equity interest, or any stock dividend or split with respect to such equity interest, and any distributions, whether dividend or liquidating or otherwise, of any cash or property with respect to such equity interest; and

 

vii. All of the Subsidiary’s documents, instruments and chattel paper, files, records, books of account, business papers, computer programs and the products and proceeds of all of the foregoing Collateral set forth in paragraphs (i) through (vi), inclusive, above.

 

b. “Copyrights” shall mean all of the following in which the Subsidiary now holds or hereafter acquires any interest (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or any other country; (ii) registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any State thereof or any other country; (iii) any continuations, renewals or extensions thereof; (iv) any registrations to be issued in any pending applications; (v) prior versions of works covered by copyright and all works based upon, derived from or incorporating such works; (vi) income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to copyrights, including, without limitation, damages, claims and recoveries for past, present or future infringement; (vii) rights to sue for past, present and future infringements of any copyright; (viii) any rights in any material which is copyrightable or which is protected by common law, United States copyright laws or similar laws, or any law of any State, and (ix) any other rights corresponding to any of the foregoing rights throughout the world.

 

c. “Copyright License” shall mean any agreement, written or oral, in which the Subsidiary now holds or hereafter acquires any interest, granting any right in or to any Copyright or Copyright registration (whether the Subsidiary is the licensee or the licensor thereunder) including, without limitation, licenses pursuant to which the Subsidiary has obtained the exclusive right to use a copyright owned by a third party.

 

e. “Obligations” means all of the Subsidiary’s obligations under this Agreement and the Guaranty, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later decreased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time.

 

f. “Patents” shall mean all of the following in which the Subsidiary now holds or hereafter acquires any interest: (i) all patents of the United States or any other country, all registrations and recordings thereof and all applications for patents of the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (ii) all reissues, divisions, continuations, renewals, continuations in part or extensions thereof; (iii) all patents to issue in any such applications; (iv) income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to patents, including, without limitation, damages, claims and recoveries for past, present or future infringement; and (v) rights to sue for past, present and future infringements of any patent.

 

g. “Patent License” shall mean any agreement, whether written or oral, in which the Subsidiary now holds or hereafter acquires any interest, granting any right with respect to any Patent (whether the Subsidiary is the licensee or the licensor thereunder).

 

h. “Software Intellectual Property” shall mean (i) all software programs (including all source code, object code and all related applications and data files), whether now owned, upgraded, enhanced, licensed or leased or hereafter acquired by the Subsidiary; (ii) all computers and electronic data processing hardware and firmware associated therewith; (iii) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such software, hardware and firmware described in the preceding subclauses (i) and (ii); and (iv) all rights with respect to all of the foregoing, including, without limitation, any and all upgrades, modifications, copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and substitutions, replacements, additions, or model conversions of any of the foregoing.

 

i. “Trademarks” shall mean any of the following in which the Subsidiary now holds or hereafter acquires any interest: (i) any trademarks, tradenames, corporate names, company names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country (collectively, the “Marks”); (ii) any reissues, extensions or renewals thereof, (iii) the goodwill of the business symbolized by or associated with the Marks, (iv) income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to the Marks, including, without limitation, damages, claims and recoveries for past, present or future infringement and (v) rights to sue for past, present and future infringements of the Marks.

j. “Trademark License” shall mean any agreement, written or oral, in which the Subsidiary now holds or hereafter acquires any interest, granting any right in and to any Trademark or Trademark registration (whether the Subsidiary is the licensee or the licensor thereunder).

 

k. “Trade Secrets” shall mean common law and statutory trade secrets and all other confidential or proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of the Subsidiary (all of the foregoing being collectively called a “Trade Secret”), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret Licenses, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license.

 

l. “UCC” means the Uniform Commercial Code, as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Secured Party’s security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection of priority and for purposes of definitions related to such provisions.

 

2. Grant of Security Interest.  As an inducement for the Secured Party to purchase the Notes and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, the Subsidiary hereby, unconditionally and irrevocably, pledges, grants and hypothecates to the Secured Party, a continuing senior security interest in, a continuing first lien upon, an unqualified right to possession and disposition of, and a right of set-off against, in each case to the fullest extent permitted by law, all of the Subsidiary’s right, title and interest of whatsoever kind and nature in and to the Collateral (the “Security Interest”).

 

3. Representations, Warranties, Covenants and Agreements of the Subsidiary.  Except as set forth on Schedule A attached hereto, the Subsidiary represents and warrants to, and covenants and agrees with, the Secured Party as follows:

 

a. The Subsidiary has the requisite corporate power and authority to enter into this Agreement and otherwise carry out its obligations thereunder.  The execution, delivery and performance by the Subsidiary of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of the Subsidiary and no further action is required by the Subsidiary.  This Agreement constitutes a legal, valid and binding obligation of the Subsidiary enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally.

b. The Subsidiary represents and warrants that it has no place of business or offices where its respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where the Collateral is stored or located;

 

c. The Subsidiary is the sole owner of the Collateral (except for non-exclusive licenses granted by the Subsidiary in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and is fully authorized to grant the Security Interest in and to pledge the Collateral.  There is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that have been filed in favor of the Secured Party pursuant to this Agreement) covering or affecting any of the Collateral.  So long as this Agreement shall be in effect, without the prior consent of the Secured Party, which consent shall not be unreasonably withheld, the Subsidiary shall not execute and shall not knowingly permit to be on file in any such office or agency any such financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Party pursuant to the terms of this Agreement).

 

d. No part of the Collateral or rights in connection therewith has been judged, by any governmental body with proper jurisdiction, to be invalid or unenforceable.  No written claim has been received alleging the Subsidiary’s use of any Collateral violates the rights of any third party. There has been no adverse decision to the Subsidiary’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to the Subsidiary’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

 

e. The Subsidiary shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Party at least thirty (30) days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interest to create in favor of the Secured Party valid, perfected and continuing first priority liens in the Collateral.

 

f. This Agreement creates in favor of the Secured Party a valid security interest in the Collateral securing the payment and performance of the Obligations and, upon making the filings described in the immediately following sentence, a perfected first priority security interest in such Collateral and, to the extent that it can be perfected through such filings, the Intellectual Property.  Except for the filing of financing statements on Form-1 under the UCC with the jurisdictions indicated on Schedule A, attached hereto, no authorization or approval of or filing with or notice to any governmental authority or regulatory body is required either (i) for the grant by the Subsidiary of, or the effectiveness of, the Security Interest granted hereby or for the execution, delivery and performance of this Agreement by the Subsidiary or (ii) for the perfection of, or exercise by the Secured Party of, their rights and remedies hereunder.

g. Prior to or promptly after the closing of the Note Purchase Agreement, the Secured Party shall file or cause to be filed one or more executed UCC financing statements on Form-1 with respect to the Security Interest with the appropriate jurisdictions.  Furthermore, upon request of the Secured Party, the Subsidiary shall execute and deliver any and all agreements, instruments, documents, and papers as the Secured Party may reasonably request to evidence the Secured Party’ security interest in the Intellectual Property and the goodwill and general intangibles of the Subsidiary relating thereto or represented thereby.

 

h. The execution, delivery and performance of this Agreement does not conflict with or cause a material breach or default, or an event that with or without the passage of time or notice, shall constitute a material breach or default, under any agreement to which the Subsidiary is a party or by which the Subsidiary is bound.  No consent (including, without limitation, from stockholders or creditors of the Subsidiary) is required for the Subsidiary to enter into and perform its obligations hereunder.

 

i. The Subsidiary shall at all times safeguard, protect and maintain the Collateral for the account of the Secured Party until this Agreement and the Security Interest hereunder shall terminate pursuant to Section 12. Without limiting the generality of the foregoing, the Subsidiary shall pay all governmental fees and taxes necessary to maintain the Collateral and the Security Interest hereunder, and the Subsidiary shall obtain and furnish to the Secured Party from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interest hereunder.

 

j. The Subsidiary will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party.

 

k. The Subsidiary shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Party promptly, in sufficient detail, of any substantial change in the Collateral other than in the ordinary course of business, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Party’ security interest therein.

 

l. The Subsidiary shall promptly execute and deliver to the Secured Party such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Secured Party may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Security Interest.

 

m. The Subsidiary shall permit the Secured Party and its representatives and agents to inspect the Collateral at any time and to make copies of records pertaining to the Collateral as may be requested by the Secured Party from time to time.

n. The Subsidiary will take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

 

o. The Subsidiary shall promptly notify the Secured Party in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by the Subsidiary that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Party hereunder.

 

p. All information supplied to the Secured Party by or on behalf of the Subsidiary with respect to the Collateral is accurate and complete in all material respects as of the date hereof, and all information supplied after the date hereof to the Secured Party shall be accurate in all material respects.

 

q. With respect to any of the Subsidiary’s Intellectual Property:

 

i. such Intellectual Property is subsisting and the rights in connection with such Intellectual Property have not been adjudged invalid or unenforceable, in whole or in part;

 

ii. the rights in connection with such Intellectual Property are valid and enforceable;

 

iii. the Subsidiary has made all necessary filings and recordations necessary to protect its interest in such Intellectual Property, including, without limitation, recordations of all of its interests in the Patents, Patent Licenses, Trademarks and Trademark Licenses in the United States Patent and Trademark Office and its claims to the Copyrights and Copyright Licenses in the United States Copyright Office;

 

iv. the Subsidiary is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property and no claim has been made that the use of such Intellectual Property infringes on the asserted rights of any third party; and

 

v. the Subsidiary has performed and will continue to perform all acts and has paid all required fees and taxes to maintain its rights with respect to each and every item of Intellectual Property in full force and effect throughout the United States, as applicable.

 

r. Except with respect to any Trademark or Copyright that the Subsidiary shall reasonably determine is of negligible economic value to the Subsidiary, the Subsidiary shall:

 

i. maintain each Trademark and Copyright in full force free from any claim of abandonment for non-use, maintain as in the past the quality of products and services offered under such Trademark or Copyright; employ such Trademark or Copyright with the appropriate notice of registration; not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark or Copyright unless the Secured Party shall obtain a perfected security interest in such mark pursuant to this Agreement; and not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any Trademark or Copyright may become invalidated;

ii. not, except with respect to any Patent that it shall reasonably determine is of negligible economic value to it, do any act, or omit to do any act, whereby any Patent may become abandoned; and

 

iii. notify the Secured Party immediately if it knows, or has reason to know, that any application or registration relating to any Patent, Trademark or Copyright may become abandoned, or of any material adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in the United States) regarding its ownership of any Patent, Trademark or Copyright or its right to register the same or to keep and maintain the same.

 

s. Whenever the Subsidiary, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office or the United States Copyright Office or acquire rights to any new Patent, Trademark or Copyright whether or not registered, report such filing to the Secured Party within five (5) business days after the last day of the fiscal quarter in which such filing occurs.

 

t. The Subsidiary shall take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Patents, Trademarks and Copyrights, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability.

 

u. In the event that any Patent, Trademark or Copyright included in the Intellectual Property is infringed, misappropriated or diluted by a third party, the Subsidiary shall promptly notify the Secured Party after it learns thereof and shall, unless it shall reasonably determine that such Patent, Trademark or Copyright is of negligible economic value to it, which determination it shall promptly report to the Secured Party: promptly sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution, or take such other actions as it shall reasonably deem appropriate under the circumstances to protect such Patent, Trademark or Copyright.  If the Subsidiary lacks the financial resources to comply with this Section 3(v), the Subsidiary shall so notify the Secured Party and shall cooperate fully with any enforcement action undertaken by the Secured Party on behalf of the Subsidiary.

v. None of such Patents, Trademarks, Copyrights and Trade Secrets is the subject of any licensing or franchise agreement as of the date of this Agreement.  No holding, decision or judgment has been rendered by any governmental authority which would limit, cancel or question the validity of any License, Patent, Trademark, Copyright and Trade Secrets.  No action or proceeding is pending (i) seeking to limit, cancel or question the validity of any License, Patent, Trademark, Copyright or Trade Secret, or (ii) which, if adversely determined, would have a material adverse effect on the value of any License, Patent, Trademark, Copyright or Trade Secret.  The Subsidiary has used and will continue to use for the duration of this Agreement, proper statutory notice in connection with its use of the Patents, Trademarks and Copyrights and consistent standards of quality in products leased or sold under the Patents, Trademarks and Copyrights.

 

4. Defaults.  The following events shall be “Events of Default”:

 

a. The occurrence of an Event of Default as defined in the Note Purchase Agreement or the Guaranty;

 

b. If any representation or warranty of the Subsidiary in this Agreement proves to be incorrect in any material respect when made; and

 

c. The failure by the Subsidiary to observe or perform any of its obligations hereunder for twenty (20) business days after receipt by the Subsidiary of notice of such failure from the Secured Party.

 

5. Duty To Hold In Trust.  Upon the occurrence of an Event of Default, and at any time thereafter, the Subsidiary shall, upon receipt by it of any revenue, income or other sums subject to the Security Interest, whether payable pursuant to the Notes or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Party and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Party for application to the satisfaction of the Obligations.

 

6. Rights and Remedies Upon Default.  Upon occurrence and continuance of any Event of Default and at any time thereafter, the Secured Party shall have the right to exercise all of the remedies conferred to the Secured Party hereunder and under the Notes, and the Secured Party shall have all the rights and remedies of a secured party under the UCC and/or any other applicable law (including the Uniform Commercial Code of any jurisdiction in which any Collateral is then subject).  Without limitation, the Secured Party shall have the following rights and powers:

 

a. to have a third party custodian take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and the Subsidiary shall assemble the Collateral and make it available to the Secured Party for the benefit of the Secured Party at places which the Secured Party shall reasonably select, whether at the Subsidiary’s premises or elsewhere, and make available to the Secured Party, without rent, all of the Subsidiary’s respective premises and facilities for the purpose of the Secured Party taking possession of, removing or putting the Collateral in saleable or disposable form; and

b. to operate the business of the Subsidiary using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Secured Party may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to the Subsidiary or right of redemption of the Subsidiary, which are hereby expressly waived.  Upon each such sale, lease, assignment or other transfer of Collateral, the Secured Party may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of the Subsidiary, which are hereby waived and released.

 

7. Indemnification of the Secured Party.  Neither the Secured Party nor any of its affiliates or representatives will be liable for any action taken or omitted to be taken by it or them under this Agreement in good faith and believed by it or them to be within the discretion or power conferred upon it or them by this Agreement or be responsible for the consequences of any error of judgment (except for fraud, gross negligence, or willful misconduct).  The Subsidiary shall indemnify the Secured Party and its representatives and hold them harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses, and reasonable disbursements of any kind or nature whatsoever that may be imposed on, asserted against, or incurred by them in any way relating to or arising out of this Agreement or any action taken or omitted by them under this Agreement.

 

8. Applications of Proceeds.  The proceeds of any such sale, lease or other disposition of the Collateral hereunder shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Secured Party in enforcing its rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations, and to the payment of any other amounts required by applicable law, after which the Secured Party shall pay to the Subsidiary any surplus proceeds.  If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Party are legally entitled, then the Subsidiary will be liable for the deficiency, together with interest thereon, , plus interest at the Default Rate as set forth in the Note Purchase Agreement, and the reasonable fees of any attorneys employed by the Secured Party to collect such deficiency.  To the extent permitted by applicable law, the Subsidiary waives all claims, damages and demands against the Secured Party arising out of the repossession, removal, retention or sale of the Collateral.

 

9. Costs and Expenses.   The Subsidiary agrees to pay all out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Secured Party.  The Subsidiary shall also pay all other claims and charges which would reasonably be expected to prejudice, imperil or otherwise affect the Collateral or the Security Interest therein.  Upon the occurrence and continuance of an Event of Default, the Subsidiary shall upon demand, pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Secured Party incurs in connection with (a) the enforcement of this Agreement, (b) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (c) the exercise or enforcement of any of the rights of the Secured Party under the Notes, including costs of collection.  Until so paid, any fees payable hereunder shall be added to the principal amount of the Notes and shall bear interest as set forth in the Notes.

10. Responsibility for Collateral.  The Subsidiary assumes all liabilities and responsibility in connection with all Collateral, and the obligations of the Subsidiary hereunder or under the Notes shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason.

 

11. Security Interest Absolute.  All rights of the Secured Party and all Obligations of the Subsidiary hereunder, shall be absolute and unconditional, regardless of: (a) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Notes or any other agreement entered into in connection with the foregoing; (b) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guaranty, or any other security, for all or any of the Obligations; or (c) any action by the Secured Party to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral.  The Subsidiary expressly waives presentment, protest and notice of protest.  In the event that at any time any transfer of any Collateral or any payment received by the Secured Party hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Party, then, in any such event, the Subsidiary’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof.  The Subsidiary waives all right to require the Secured Party to proceed against any other person or to apply any Collateral which the Secured Party may hold at any time, or to marshal assets, or to pursue any other remedy.

 

12. Term of Agreement.  This Agreement and the Security Interest shall terminate on the date on which all payments under the Notes have been indefeasibly made in full and all other Obligations have been indefeasibly paid.

 

13. Power of Attorney; Further Assurances.

 

a. The Subsidiary authorizes the Secured Party, and does hereby make, constitute and appoint it, and its respective officers, agents, successors or assigns with full power of substitution, as the Subsidiary’s true and lawful attorney-in-fact, with power, in its own name or in the name of the Subsidiary, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Secured Party;

(ii) to sign and endorse any UCC financing statement or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; and (v) generally, to do, at the option of the Secured Party, and at the Subsidiary’s expense, at any time, or from time to time, all acts and things which the Secured Party deems necessary to protect, preserve and realize upon the Collateral and the Security Interest granted therein in order to effect the intent of this Agreement and the Notes, all as fully and effectually as the Subsidiary might or could do; and the Subsidiary hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

 

b. On a continuing basis, the Subsidiary will cooperate in good faith with the Secured Party to make, execute, acknowledge, deliver, file and record, as the case may be, in the proper filing and recording places in any applicable jurisdiction, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Secured Party, to perfect the Security Interest granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Secured Party the grant or perfection of a security interest in all the Collateral.

 

c. The Subsidiary hereby irrevocably appoints the Secured Party as the Subsidiary’s attorney-in-fact, with full authority in the place and stead of the Subsidiary and in the name of the Subsidiary, from time to time in the Secured Party’s discretion, to take any action and to execute any instrument which the Secured Party may deem necessary or advisable in order to perfect the Security Interest, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of the Subsidiary where permitted by law.

 

14. Notices.  All notices, requests, demands and other communications hereunder shall be in writing, with copies to all the other parties hereto, and shall be deemed to have been duly given (i) if delivered by hand, (ii) upon receipt of proof of sending thereof if sent by facsimile, (iii) upon receipt if sent by nationally recognized overnight delivery service (receipt requested), the next business day, or (iv) if mailed by first-class registered or certified mail, return receipt requested, postage prepaid, four days after posting in the U.S. mails, in each case if delivered to the following addresses: (A)  if to the Subsidiary, to the address set forth immediately below the Subsidiary’s name on the signature pages hereto; and (B) if to the Investor, to the address set forth immediately below the Investor’s name on the signature pages hereto.  Each party shall provide notice to all of the other parties of any change in address.

 

15. Other Security.  To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Secured Party shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Party’ rights and remedies hereunder.

a. No course of dealing between the Subsidiary and the Secured Party, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder or under the Notes shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

b. All of the rights and remedies of the Secured Party with respect to the Collateral, whether established hereby or by the Notes or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

 

c. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and is intended to supersede all prior negotiations, understandings and agreements with respect thereto, including the prior Agreement.  Any term of this Agreement may be terminated or amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with written consent of the Subsidiary and the holders of more than fifty percent (50%) of the then-outstanding principal amount of the Notes.  Any termination, amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of the Notes, each future holder of the Notes, their successors and assigns, and the Subsidiary.

 

d. In the event that any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction for any reason, unless such provision is narrowed by judicial construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid, prohibited or unenforceable.  If, notwithstanding the foregoing, any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction.

 

e. No waiver of any breach or default or any right under this Agreement shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default or right, whether of the same or similar nature or otherwise.

 

f. This Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns.

 

g. Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

h. The validity and interpretation of this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.  Each of the parties hereto hereby consents to the exclusive jurisdiction and venue of the Courts of the State of New York, located in the City and County of New York and the United States District Court, Southern District, for the State of New York with respect to any matter relating to this Agreement and performance of the parties’ obligations hereunder, the documents and instruments executed and delivered concurrently herewith or pursuant hereto and performance of the parties’ obligations thereunder and each of the parties hereto hereby consents to the personal jurisdiction of such courts and shall subject itself to such personal jurisdiction.  Any action, suit or proceeding relating to such matters shall be commenced, pursued, defended and resolved only in such courts and any appropriate appellate court having jurisdiction to hear an appeal from any judgment entered in such courts.  The parties irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding.  Service of process in any action, suit or proceeding relating to such matters may be made and served within or outside the State of New York by registered or certified mail to the parties and their representatives at their respective addresses specified in Section 14 hereof, provided that a reasonable time, not less than thirty (30) days, is allowed for response.  Service of process may also be made in such other manner as may be permissible under the applicable court rules.

 

i. Each party hereto hereby agrees to waive its respective rights to a jury trial of any claim or cause of action based upon or arising out of this Agreement.  The scope of this waiver is intended to be all encompassing of any disputes that may be filed in any court and that relate to the subject mater of this Agreement, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims.  Each party hereto acknowledges that this waiver is a material inducement for each party to enter into a business relationship, that each party has relied on this waiver in entering into this Agreement and that each party will continue to rely on this waiver in their related future dealings.  Each party further warrants and represents that it has reviewed this waiver with its legal counsel, and that such party has knowingly and voluntarily waives its rights to a jury trial following such consultation.  This waiver is irrevocable, meaning that, notwithstanding anything herein to the contrary, it may not be modified either orally or in writing, and this waiver shall apply to any subsequent amendments, renewals and supplements or modifications to this agreement.  In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.

 

17. Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.

 

18. Facsimile Signature.  In the event that any signature is delivered by facsimile transmission, PDF, electronic signature or other similar electronic means, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.