Exhibit 10.6

 

 

SECURITY AND PLEDGE AGREEMENT

 

SECURITY AND PLEDGE AGREEMENT, dated as of November 13, 2013 (this “Agreement”)
made by VeriTeQ Corporation, a Delaware corporation with offices located at 220
Congress Park Drive, Suite 200, Delray Beach, Florida 33445 (the “Company”), and
each of the undersigned subsidiaries of the Company from time to time, if any
(each a “Grantor” and collectively and together with the Company the
“Grantors”), in favor of Hudson Bay Master Fund Ltd., in its capacity as
collateral agent (in such capacity, the “Collateral Agent”) for the “Buyers” (as
defined below) party to the Securities Purchase Agreement, dated as of November
13, 2013 (as amended, restated or otherwise modified from time to time, the
“Securities Purchase Agreement”).

 

W I T N E S S E T H:

 

WHEREAS, the Company and each party listed as a “Buyer” on the Schedule of
Buyers attached to the Securities Purchase Agreement (collectively, the
“Buyers”) are parties to the Securities Purchase Agreement, pursuant to which
the Company shall be required to sell, and the Buyers shall purchase or have the
right to purchase, the “Notes” (as defined therein) issued pursuant thereto (as
such Notes may be amended, restated, replaced or otherwise modified from time to
time in accordance with the terms thereof, collectively, the “Notes”);

 

WHEREAS, certain Grantors from time to time (other than the Company)
(collectively, the “Guarantors”) may execute and deliver one or more guarantees
(each, a “Guaranty”) in form and substance acceptable to and in favor of the
Collateral Agent for the benefit of itself and the Buyers, with respect to the
Company’s obligations under the Securities Purchase Agreement, the Notes and the
other “Transaction Documents” (as defined in the Securities Purchase Agreement)
(collectively, the “Transaction Documents”);

 

WHEREAS, it is a condition precedent to the Buyers purchasing the Notes issued
pursuant to the Securities Purchase Agreement that the Grantors shall have
executed and delivered to the Collateral Agent this Agreement providing for the
grant to the Collateral Agent, for the benefit of the Buyers, to secure all of
the Company’s obligations under the Transaction Documents and the Guarantors’
obligations under any such Guaranty, as applicable, of (a) a first priority,
valid, enforceable, and perfected security interest in all personal property of
each Grantor other than the “Excluded Collateral”, “Excluded Intellectual
Property” and the “Master Restricted Accounts”, each as defined below, and (b) a
second priority, valid, enforceable, and perfected security interest in the
Excluded Intellectual Property and the Master Restricted Accounts; and

 

WHEREAS, the Grantors have determined that the execution, delivery and
performance of this Agreement directly benefits, and is in the best interest of,
the Grantors.

 

NOW, THEREFORE, in consideration of the premises and the agreements herein and
in order to induce the Buyers to perform under the Securities Purchase
Agreement, each Grantor agrees with the Collateral Agent, for the benefit of the
Buyers, as follows:

 

SECTION 1.     Definitions.

 

(a)     Reference is hereby made to the Securities Purchase Agreement and the
Notes for a statement of the terms thereof. All terms used in this Agreement and
the recitals hereto which are defined in the Securities Purchase Agreement, the
Notes or in Articles 8 or 9 of the Uniform Commercial Code as in effect from
time to time in the State of New York (the “Code”), and which are not otherwise
defined herein shall have the same meanings herein as set forth therein;
provided that terms used herein which are defined in the Code as in effect in
the State of New York on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as the
Collateral Agent may otherwise determine; provided, further that, if perfection
or the effect of perfection or non-perfection or the priority of any 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, “Code” means the
Uniform Commercial Code as in effect from time to time in such other
jurisdiction for purposes of the provisions hereof relating to such perfection,
effect of perfection or non-perfection or priority.

 

 
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(b)     The following terms shall have the respective meanings provided for in
the Code: “Accounts”, “Cash Proceeds”, “Certificate of Title”, “Chattel Paper”,
“Commercial Tort Claim”, “Commodity Account”, “Commodity Contracts”, “Deposit
Account”, “Documents”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”,
“Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Rights”,
“Noncash Proceeds”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”,
“Security”, “Record”, “Security Account”, “Software”, and “Supporting
Obligations”.

 

(c)     As used in this Agreement, the following terms shall have the respective
meanings indicated below, such meanings to be applicable equally to both the
singular and plural forms of such terms:

 

“Assignment for Security” means the form of assignment required to be delivered
pursuant to Section 5(h)(i) of this Agreement, attached hereto as Exhibit A.

 

“Capital Stock” means (i) with respect to any Person that is a corporation, any
and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, and (ii) with respect
to any Person that is not a corporation, any and all partnership, membership or
other equity interests of such Person.

 

“Collateral” has the meaning set forth in Section 2 of this Agreement.

 

“Controlled Accounts” means, collectively, (i) the Operating Accounts, and (ii)
all other Deposit Accounts, Securities Accounts, and Commodity Accounts of any
Grantor, other than the Master Restricted Accounts.

 

“Controlled Account Agreement” means a control agreement with respect to any
Controlled Account, in form and substance satisfactory to the Collateral Agent,
as may be amended, restated, supplemented, or otherwise modified from time to
time.

 

“Copyright Licenses” means all licenses, contracts or other agreements, whether
written or oral, naming any Grantor as licensee or licensor and providing for
the grant of any right to use or sell any works covered by any copyright
(including, without limitation, all copyright licenses set forth in Schedule II
hereto).

 

“Copyrights” means all domestic and foreign copyrights, whether registered or
not, including, without limitation, all copyright rights throughout the universe
(whether now or hereafter arising) in any and all media (whether now or
hereafter developed), in and to all original works of authorship fixed in any
tangible medium of expression, acquired or used by any Grantor (including,
without limitation, all copyrights described in Schedule II hereto), all
applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.

 

“Event of Default” shall have the meaning set forth in the Notes.

 

 
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“Excluded Intellectual Property” means the Intellectual Property described in
Schedule III hereto.

 

“Excluded Collateral” means (i) the Capital Stock of the Excluded Subsidiaries;
(ii) all personal property and assets of the Excluded Subsidiaries; and (iii)
the items listed on Schedule A-1.

 

“Excluded Subsidiary” means any company listed on Schedule A-2 hereto
(collectively, the “Excluded Subsidiaries”).

 

“Excluded Subsidiary Condition” means the time at which (i) any Excluded
Subsidiary (other than the VIP Sub), on or after the date hereof, either (x)
holds assets or incurs liabilities, as applicable, in an amount greater than or
equal to $10,000, or (y) engages in a business with projected (or actual) net
revenue (or loss) in an amount greater than or equal to $10,000 (as determined
in accordance with GAAP), or (ii) the VIP Sub has no further obligations under
the SNC Note.

 

“Foreign Currency Controlled Accounts” means any account of the Company or its
Subsidiaries holding non-United States dollar deposits.

 

“Foreign Subsidiary” has the meaning set forth in Section 2 of this Agreement.

 

“GAAP” has the meaning set forth in Section 4(c) of this Agreement.

 

“Governmental Authority” means any nation or government, any Federal, state,
city, town, municipality, county, local or other political subdivision thereof
or thereto and any department, commission, board, bureau, instrumentality,
agency or other entity exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to government.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of Chapter 11 of Title 11 of the United States Code or under
any other bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, or extensions generally
with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.

 

“Intellectual Property” means the Copyrights, Trademarks and Patents.

 

“Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent
Licenses.

 

“Lien” means any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights).

 

“Master Restricted Account” means account numbers 9136998999 and 9136988734 at
Citibank, N.A., 4071 W. Atlantic Ave., Delray Beach, Florida 33445.

 

“Master Controlled Account Agreement” means a control agreement with respect to
any Master Restricted Account, in form and substance satisfactory to the Buyer
party thereto, as may be amended, restated, supplemented, or otherwise modified
from time to time

 

“Obligations” has the meaning set forth in Section 3 of this Agreement.

 

“Operating Accounts” means account numbers 9136565296 at Citibank, N.A., 4071 W.
Atlantic Ave., Delray Beach, Florida 33445.

 

 
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“Paid in Full” or “Payment in Full” means the indefeasible payment in full in
cash of all of the Obligations (including, without limitation, by conversion
thereof into stock in accordance with the Securities Purchase Agreement and
Note).

 

“Patent Licenses” means all licenses, contracts or other agreements, whether
written or oral, naming any Grantor as licensee or licensor and providing for
the grant of any right to manufacture, use or sell any invention covered by any
Patent (including, without limitation, all Patent Licenses set forth in Schedule
II hereto).

 

“Patents” means all domestic and foreign letters patent, design patents, utility
patents, industrial designs, inventions, trade secrets, ideas, concepts,
methods, techniques, processes, proprietary information, technology, know-how,
formulae, rights of publicity and other general intangibles of like nature, now
existing or hereafter acquired (including, without limitation, all domestic and
foreign letters patent, design patents, utility patents, industrial designs,
inventions, trade secrets, ideas, concepts, methods, techniques, processes,
proprietary information, technology, know-how and formulae described in Schedule
II hereto), all applications, registrations and recordings thereof (including,
without limitation, applications, registrations and recordings in the United
States Patent and Trademark Office, or in any similar office or agency of the
United States or any other country or any political subdivision thereof), and
all reissues, reexaminations, divisions, continuations, continuations in part
and extensions or renewals thereof.

 

“Perfection Requirement” or “Perfection Requirements” has the meaning set forth
in Section 4(i) of this Agreement.

 

“Person” means an individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or other enterprise or entity or Governmental
Authority.

 

“Pledged Entity” means, each Person listed from time to time on Schedule V
hereto as a “Pledged Entity,” together with each other Person all or a portion
of whose Capital Stock is acquired or otherwise owned by a Grantor after the
date hereof.

 

“Pledged Equity” means all of each Grantor’s right, title and interest in and to
all of the Securities and Capital Stock now or hereafter owned by such Grantor,
regardless of class or designation, including all substitutions therefor and
replacements thereof, all proceeds thereof and all rights relating thereto, also
including any certificates representing the Securities and/or Capital Stock, the
right to receive any certificates representing any of the Securities and/or
Capital Stock, all warrants, options, share appreciation rights and other
rights, contractual or otherwise, in respect thereof, and the right to receive
dividends, distributions of income, profits, surplus, or other compensation by
way of income or liquidating distributions, in cash or in kind, and cash,
instruments, and other property from time to time received, receivable, or
otherwise distributed in respect of or in addition to, in substitution of, on
account of, or in exchange for any or all of the foregoing.

 

“Pledged Operating Agreements” means all of each Grantor’s rights, powers, and
remedies under the limited liability company operating agreements of each
Pledged Entity that are limited liability companies, as may be amended,
restated, supplemented, or otherwise modified from time to time.

 

“Pledged Partnership Agreements” means all of each Grantor’s rights, powers, and
remedies under the partnership agreements of each Pledged Entity that are
partnerships, as may be amended, restated, supplemented, or otherwise modified
from time to time.

 

“SNC” means SNC Holdings Corp, a Delaware corporation.

 

“SNC Note” means that certain Non-Negotiable Secured Convertible Subordinated
Promissory Note, dated as of December 3, 2012 (including any Convertible
Securities (as defined in the Notes) issued in exchange, transfer or replacement
thereof or any amendment thereto, whether then held, directly or indirectly, by
SNC or any other person), issued by VeriTeQ Acquisition Corporation, a Florida
corporation, to SNC and/or any related transaction documents.

 

 
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“Subsidiary” means any Person in which a Grantor directly or indirectly, (i)
owns any of the outstanding capital stock or holds any equity or similar
interest of such Person or (ii) controls or operates all or any part of the
business, operations or administration of such Person, and all of the foregoing,
collectively, “Subsidiaries”.

 

“Trademark Licenses” means all licenses, contracts or other agreements, whether
written or oral, naming any Grantor as licensor or licensee and providing for
the grant of any right concerning any Trademark, together with any goodwill
connected with and symbolized by any such trademark licenses, contracts or
agreements and the right to prepare for sale or lease and sell or lease any and
all Inventory now or hereafter owned by any Grantor and now or hereafter covered
by such licenses (including, without limitation, all Trademark Licenses
described in Schedule II hereto).

 

“Trademarks” means all domestic and foreign trademarks, service marks,
collective marks, certification marks, trade names, business names, d/b/a’s,
Internet domain names, trade styles, designs, logos and other source or business
identifiers and all general intangibles of like nature, now or hereafter owned,
adopted, acquired or used by any Grantor (including, without limitation, all
domestic and foreign trademarks, service marks, collective marks, certification
marks, trade names, business names, d/b/a’s, Internet domain names, trade
styles, designs, logos and other source or business identifiers described in
Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings 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 or any political
subdivision thereof), and all reissues, extensions or renewals thereof, together
with all goodwill of the business symbolized by such marks and all customer
lists, formulae and other Records of any Grantor relating to the distribution of
products and services in connection with which any of such marks are used.

 

“VIP Sub” shall mean VTQ IP Holding Corporation, a Delaware corporation.

 

SECTION 2.     Grant of Security Interest. As collateral security for all of the
“Obligations” (as defined in Section 3 hereof), each Grantor hereby pledges and
assigns to the Collateral Agent for itself and for the benefit of the Buyers,
and grants to the Collateral Agent for itself and for the benefit of the Buyers,
a continuing security interest in all personal property and assets of such
Grantor, wherever located and whether now or hereafter existing and whether now
owned or hereafter acquired, of every kind and description, tangible or
intangible, excluding the Excluded Collateral (collectively, the “Collateral”),
including, without limitation, the following:

 

(a)     all Accounts;

 

(b)     all Chattel Paper (whether tangible or electronic);

 

(c)     the Commercial Tort Claims specified on Schedule VIII hereto;

 

(d)     all Deposit Accounts (including, without limitation, the Controlled
Accounts and the Master Restricted Accounts), Securities Accounts, and Commodity
Accounts, all cash and other property from time to time deposited in any of the
foregoing, and all monies and property in the possession or under the control of
the Collateral Agent or any Buyer or any affiliate, representative, agent or
correspondent of the Collateral Agent or any such Buyer;

 

(e)     all Documents;

 

(f)     all Equipment;

 

 
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(g)     all Fixtures;

 

(h)     all General Intangibles (including, without limitation, all Payment
Intangibles);

 

(i)     all Goods;

 

(j)     all Instruments (including, without limitation, Promissory Notes and
each certificated Security);

 

(k)     all Inventory;

 

(l)     all Investment Property (and, regardless of whether classified as
Investment Property under the Code, all Pledged Equity, Pledged Operating
Agreements and Pledged Partnership Agreements);

 

(m)    all Copyrights, Patents, Trademarks and Licenses;

 

(n)     all Letter-of-Credit Rights;

 

(o)     all Supporting Obligations;

 

(p)     all other tangible and intangible personal property of each Grantor
(whether or not subject to the Code), including, without limitation, all bank
and other accounts and all cash and all investments therein, all proceeds,
products, offspring, accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of any Grantor described in the
preceding clauses of this Section 2 (including, without limitation, any proceeds
of insurance thereon and all causes of action, claims and warranties now or
hereafter held by each Grantor in respect of any of the items listed above), and
all books, correspondence, files and other Records, including, without
limitation, all tapes, desks, cards, Software, data and computer programs in the
possession or under the control of any Grantor or any other Person from time to
time acting for any Grantor, in each case, to the extent of such Grantor’s
rights therein, that at any time evidence or contain information relating to any
of the property described in the preceding clauses of this Section 2 or are
otherwise necessary or helpful in the collection or realization thereof; and

 

(q)     all Proceeds, including all Cash Proceeds and Noncash Proceeds, and
products of any and all of the foregoing Collateral;

 

in each case howsoever any Grantor’s interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).

 

Each Grantor has agreed not to further encumber any of its Copyrights, Copyright
applications, Copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any Licenses,
Patents, Patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, Trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of such Grantor connected with and
symbolized thereby, know-how, operating manuals, trade secret rights, rights to
unpatented inventions, and any claims for damage by way of any past, present, or
future infringement of any of the foregoing, without the Collateral Agent’s
prior written consent (which consent may be withheld or given in Collateral
Agent’s sole discretion).

 

The Grantors agree that the pledge of the shares of Capital Stock acquired by a
Grantor of any and all Persons now or hereafter existing who is a Subsidiary
organized under the laws of a jurisdiction other than the United States, any
states thereof or the District of Columbia (a “Foreign Subsidiary”) may be
supplemented by one or more separate pledge agreements, deeds of pledge, share
charges, or other similar agreements or instruments, executed and delivered by
the relevant Grantors in favor of the Collateral Agent, which pledge agreements
will provide for the pledge of such shares of Capital Stock in accordance with
the laws of the applicable foreign jurisdiction. With respect to such shares of
Capital Stock, the Collateral Agent may, at any time and from time to time, in
its sole discretion, take actions in such foreign jurisdictions that will result
in the perfection of the Lien created in such shares of Capital Stock.

 

 
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In addition, to secure the prompt and complete payment, performance and
observance of the Obligations and in order to induce the Buyers as aforesaid,
each Grantor hereby grants to Collateral Agent for itself and for the ratable
benefit of the Buyers, a right of set-off against the property of such Grantor
held by the Collateral Agent for itself and for the ratable benefit of the
Buyers, consisting of property described above in Section 2 now or hereafter in
the possession or custody of or in transit to the Collateral Agent, for any
purpose, including safekeeping, collection or pledge, for the account of such
Grantor, or as to which such Grantor may have any right or power; provided that
such right shall only to be exercised after an Event of Default has occurred and
is continuing.

 

SECTION 3.     Security for Obligations. The security interest created hereby in
the Collateral constitutes continuing collateral security for all of the
following obligations, whether direct or indirect, absolute or contingent, and
whether now existing or hereafter incurred (collectively, the “Obligations”):

 

(a)     for so long as the Notes are outstanding, (i) the payment by the
Company, as and when due and payable (by scheduled maturity, required
prepayment, acceleration, demand or otherwise), of all amounts from time to time
owing by it in respect of the Securities Purchase Agreement, this Agreement, the
Notes and the other Transaction Documents, and (ii) in the case of any
Guarantors, the payment by such Guarantors, as and when due and payable of all
“Guaranteed Obligations” under (and as defined in) each Guaranty (if any), as
applicable, including, without limitation, in both cases, (A) all principal of
and interest on the Notes (including, without limitation, all interest that
accrues after the commencement of any Insolvency Proceeding of any Grantor,
whether or not the payment of such interest is unenforceable or is not allowable
due to the existence of such Insolvency Proceeding), and (B) all fees, interest,
premiums, penalties, contract causes of action, costs, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under this Agreement or any of the Transaction Documents; and

 

(b)     for so long as the Notes are outstanding, the due performance and
observance by each Grantor of all of its other obligations from time to time
existing in respect of any of the Transaction Documents, including without
limitation, with respect to any conversion or redemption rights of the Buyers
under the Notes.

 

SECTION 4.     Representations and Warranties. Each Grantor represents and
warrants as of the date of this Agreement as follows:

 

(a)     Schedule I hereto sets forth (i) the exact legal name of each Grantor,
and (ii) the state of incorporation, organization or formation and the
organizational identification number of each Grantor in such state. The
information set forth in Schedule I hereto with respect to such Grantor is true
and accurate in all respects. Such Grantor has not previously changed its name,
jurisdiction of organization or organizational identification number from those
set forth in Schedule I hereto except as disclosed in Schedule I hereto.

 

(b)     There is no pending or, to its Knowledge, written notice threatening any
material action, suit, proceeding or claim affecting any Grantor before any
Governmental Authority or any arbitrator, or any order, judgment or award issued
by any Governmental Authority or arbitrator, in each case, that may adversely
affect the grant by any Grantor, or the perfection, of the security interest
purported to be created hereby in the Collateral, or the exercise by the
Collateral Agent of any of its rights or remedies hereunder.

 

 
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(c)     Except as set forth on Schedule I(c), all material Federal, state and
local tax returns and other reports required by applicable law to be filed by
any Grantor have been filed, or extensions have been obtained, and all taxes,
assessments and other governmental charges imposed upon any Grantor or any
property of any Grantor (including, without limitation, all federal income and
social security taxes on employees’ wages) and which have become due and payable
on or prior to the date hereof have been paid, except to the extent contested in
good faith by proper proceedings which stay the imposition of any penalty, fine
or Lien resulting from the non-payment thereof and with respect to which
adequate reserves have been set aside for the payment thereof in accordance with
generally accepted accounting principles consistently applied (“GAAP”).

 

(d)     All Equipment, Fixtures, Goods and Inventory of each Grantor now
existing are, and all Equipment, Fixtures, Goods and Inventory of each Grantor
hereafter existing will be, located and/or based at the addresses specified
therefor in Schedule IV hereto, except that each Grantor will give the
Collateral Agent written notice of any change in the location of any such
Collateral within twenty (20) days of such change, other than to locations set
forth on Schedule IV hereto (or a new Schedule IV delivered by Grantors to
Collateral Agent from time to time) and with respect to which the Collateral
Agent has filed financing statements and otherwise fully perfected its Liens
thereon or will take such actions pursuant to Section 5(m). Each Grantor’s chief
place of business and chief executive office, the place where each Grantor keeps
its Records concerning Accounts and all originals of all Chattel Paper are
located at the addresses specified therefor in Schedule IV hereto. None of the
Accounts is evidenced by Promissory Notes or other Instruments. Set forth in
Schedule VII hereto is a complete and accurate list, as of the date of this
Agreement, of (i) each Promissory Note, Security and other Instrument owned by
each Grantor, (ii) each Deposit Account, Securities Account and Commodities
Account of each Grantor, together with the name and address of each institution
at which each such account is maintained, the account number for each such
account and a description of the purpose of each such account and (iii) the name
of each Foreign Currency Controlled Account, together with the name and address
of each institution at which each such account is maintained and the amount of
cash or cash equivalents held in each such Foreign Currency Controlled Account.
Set forth in Schedule II hereto is a complete and correct list of each trade
name used by each Grantor and the name of, and each trade name used by, each
person from which each Grantor has acquired any substantial part of the
Collateral.

 

(e)     Each Grantor made available to the Collateral Agent copies of each
License described in Schedule II hereto, including all schedules and exhibits
thereto, which represent all of the Licenses existing on the date of this
Agreement. Each such License sets forth the entire agreement and understanding
of the parties thereto relating to the subject matter thereof, and there are no
other agreements, arrangements or understandings, written or oral, relating to
the matters covered thereby or the rights of such Grantor or any of its
affiliates in respect thereof. Each material License now existing is, and any
material License entered into in the future will be, the legal, valid and
binding obligation of the parties thereto, enforceable against such parties in
accordance with its terms. No default under any material License by any such
party has occurred, nor does any defense, offset, deduction or counterclaim
exist thereunder in favor of any such party.

 

(f)     Each Grantor owns and controls, or otherwise possesses adequate rights
to use, all Trademarks, Patents and Copyrights, which are the only trademarks,
patents, copyrights, inventions, trade secrets, proprietary information and
technology, know-how, formulae, and rights of publicity necessary to conduct its
business in substantially the same manner as conducted as of the date hereof.
Schedule II hereto sets forth a true and complete list of all registered
copyrights, issued patents, trademarks, and Licenses owned or used by each
Grantor as of the date hereof, and applications for grant or registration of
patents, trademarks and copyrights. To the Knowledge of each Grantor, all such
Intellectual Property of each Grantor is subsisting and in full force and
effect, has not been adjudged invalid or unenforceable, is valid and enforceable
and has not been abandoned in whole or in part. Except as set forth in
Schedule II, no such Intellectual Property is the subject of any licensing or
franchising agreement. Except as set forth in Schedule II, no Grantor has any
Knowledge of any infringement upon or conflict with the patent, trademark,
copyright, trade secret rights of others and, each Grantor is not now infringing
or in conflict with any patent, trademark, copyright, trade secret or similar
rights of others, and to the Knowledge of each Grantor, no other Person is now
infringing or in conflict in any material respect with any such properties,
assets and rights owned or used by each Grantor. No Grantor has received any
written notice that it is violating or has violated the trademarks, patents,
copyrights, inventions, trade secrets, proprietary information and technology,
know-how, formulae, rights of publicity or other intellectual property rights of
any third party.

 

 
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(g)     Each Grantor is and will be at all times the sole and exclusive owner
of, or otherwise has and will have adequate rights in, the Collateral free and
clear of any Liens, except for Permitted Liens. No effective financing statement
or other instrument similar in effect covering all or any part of the Collateral
is on file in any recording or filing office except such as (i) may have been
filed in favor of the Collateral Agent and/or the Buyers relating to this
Agreement or the other Transaction Documents, (ii) are securing Permitted Liens
as of the date hereof and disclosed on Schedule VI(ii), and (iii) are disclosed
on Schedule VI(iii).

 

(h)     The exercise by the Collateral Agent of any of its rights and remedies
hereunder will not contravene in any material respect any law or any contractual
restriction binding on or otherwise affecting each Grantor or any of its
properties and will not result in or require the creation of any Lien, upon or
with respect to any of its properties.

 

(i)     No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority, is required for (i) the grant by each
Grantor, or the perfection, of the security interest purported to be created
hereby in the Collateral, or (ii) the exercise by the Collateral Agent of any of
its rights and remedies hereunder, except (A) with respect to all Deposit
Accounts (including, without limitation, the Controlled Accounts and Master
Restricted Accounts), Securities Accounts, and Commodity Accounts, and all cash
and other property from time to time deposited therein, for the execution of an
Controlled Account Agreement (or, in the case of the Master Restricted Accounts,
a Master Controlled Account Agreement), with the depository institution with
which such account is maintained, as provided in Section 5(i), (B) with respect
to Commodity Contracts, for the execution of a control agreement with the
commodity intermediary with which such commodity contract is carried, as
provided in Section 5(i), (C) with respect to the perfection of the security
interest created hereby in the United States Intellectual Property and Licenses,
for the recording of the appropriate Assignment for Security, substantially in
the form of Exhibit A hereto in the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, (D)  with respect to the
perfection of the security interest created hereby in any Letter-of-Credit
Rights, for the consent of the issuer of the applicable letter of credit to the
assignment of proceeds as provided in the Uniform Commercial Code as in effect
in the applicable jurisdiction, (E) with respect to Investment Property
constituting uncertificated securities, the applicable Grantor will cause the
issuer thereof either (i) to register the Collateral Agent as the registered
owner of such security or (ii) to agree in an authenticated record with such
Grantor and the Collateral Agent that such issuer will comply with instructions
with respect to such security originated by the Collateral Agent without further
consent of such Grantor, such authenticated record to be in form and substance
satisfactory to the Collateral Agent, (F) with respect to Investment Property
constituting certificated securities or instruments, such items shall be
delivered to and held by or on behalf of the Collateral Agent pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Collateral Agent, (G) with respect to any action
that may be necessary to obtain control of Collateral constituting Deposit
Accounts, Commodity Contracts, Electronic Chattel Paper, or Letter of Credit
Rights, the taking of such actions, and (H) the Collateral Agent having
possession of all Documents, Chattel Paper, Instruments and cash constituting
Collateral (subclauses (A), (B), (C), (D), (E), (F), (G), and (H) each a
“Perfection Requirement” and collectively, the “Perfection Requirements”).

 

 
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(j)     This Agreement creates in favor of the Collateral Agent a legal, valid
and enforceable security interest in the Collateral, as security for the
Obligations. The performance of the Perfection Requirements results in the
perfection of such security interests in the Collateral. Such security interests
in the Collateral, are, or in the case of such Collateral in which each Grantor
obtains rights after the date hereof, will be, subject only to Permitted Liens
and the Perfection Requirements (i) first priority, valid, enforceable, and
perfected security interests in all personal property of each Grantor other than
the Excluded Intellectual Property and the Master Restricted Accounts and (ii)
second priority, valid, enforceable, and perfected security interests in the
Excluded Intellectual Property and the Master Restricted Accounts. Such
recordings and filings and all other action necessary to perfect and protect
such security interest have been duly taken or will be taken pursuant to
Section 5(m), and, in the case of Collateral in which any Grantor obtains rights
after the date hereof, will be duly taken, except for the Collateral Agent’s
having possession of all Documents, Chattel Paper, Instruments and cash
constituting Collateral after the date hereof and the other actions, filings and
recordations described above, including the Perfection Requirements.

 

(k)     As of the date hereof, no Grantor holds any Commercial Tort Claims or
has Knowledge of any pending material Commercial Tort Claims, except for such
Commercial Tort Claims described in Schedule VIII.

 

(l)     All of the Pledged Equity is presently owned by the applicable Grantor
as set forth in Schedule V, and is presently represented by the certificates
listed on Schedule V hereto. As of the date hereof, there are no existing
options, warrants, calls or commitments of any character whatsoever relating to
the Pledged Equity other than as contemplated and permitted by the Transaction
Documents. Each Grantor is the sole holder of record and the sole beneficial
owner of the Pledged Equity, as applicable. None of the Pledged Equity has been
issued or transferred in violation of the securities registration, securities
disclosure or similar laws of any jurisdiction to which such issuance or
transfer may be subject. The Pledged Equity constitutes 100% of the issued and
outstanding shares of Capital Stock of the applicable Pledged Entity.

 

(m)     Each Grantor hereby represents and warrants as of the date first written
above as follows:

 

(i)     Such Grantor (A) is a corporation, limited liability company or limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, (B) has all requisite corporate,
limited liability company or limited partnership power and authority to conduct
its business as now conducted and as presently contemplated and to execute and
deliver this Agreement and each other Transaction Document to which such Grantor
is a party, and to consummate the transactions contemplated hereby and thereby
and (C) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary
except where the failure to be so qualified would not result in a Material
Adverse Effect.

 

(ii)     The execution, delivery and performance by each Grantor of this
Agreement and each other Transaction Document to which such Grantor is a party
(A) have been duly authorized by all necessary corporate, limited liability
company or limited partnership action, (B) do not and will not contravene its
charter or by-laws, its limited liability company or operating agreement or its
certificate of partnership or partnership agreement, as applicable, or any
applicable law or any contractual restriction binding on such Grantor or its
properties, (C) do not and will not result in or require the creation of any
lien (other than pursuant to any Transaction Document) upon or with respect to
any of its properties, and (D) do not and will not result in any default,
noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of
any material permit, license, authorization or approval applicable to it or its
operations or any of its properties.

 

 
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(iii)     Each of this Agreement and the other Transaction Documents to which
any Grantor is or will be a party, when delivered, will be, a legal, valid and
binding obligation of the Grantor, enforceable against such Grantor in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, suretyship or
other similar laws and equitable principles (regardless of whether enforcement
is sought in equity or at law).

 

(iv)     There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.

 

SECTION 5.     Covenants as to the Collateral. So long as any of the Obligations
shall remain outstanding, unless the Collateral Agent shall otherwise consent in
writing:

 

(a)          Further Assurances. Each Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that the Collateral Agent may reasonably
request in order to: (i) perfect and protect the security interest purported to
be created hereby; (ii) enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder in respect of the Collateral, including, without
limitation, the Controlled Accounts and Master Restricted Accounts; or
(iii) otherwise effect the purposes of this Agreement, including, without
limitation: (A) marking conspicuously all Chattel Paper and each License and, at
the request of the Collateral Agent, each of its Records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Collateral
Agent, indicating that such Chattel Paper, License or Collateral is subject to
the security interest created hereby, (B) delivering and pledging to the
Collateral Agent each Promissory Note, Security (subject to the limitations set
forth in Section 2), Chattel Paper or other Instrument, now or hereafter owned
by any Grantor, duly endorsed and accompanied by executed instruments of
transfer or assignment, all in form and substance satisfactory to the Collateral
Agent, (C) executing and filing (to the extent, if any, that any Grantor’s
signature is required thereon) or authenticating the filing of, such financing
or continuation statements, or amendments thereto, as may be necessary or that
the Collateral Agent may reasonably request in order to perfect and preserve the
security interest purported to be created hereby, (D) furnishing to the
Collateral Agent from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral in each case as the Collateral Agent may reasonably request, all in
reasonable detail, (E) if any Collateral shall be in the possession of a third
party, notifying such Person of the Collateral Agent’s security interest created
hereby and obtaining a written acknowledgment from such Person that such Person
holds possession of the Collateral for the benefit of the Collateral Agent,
which such written acknowledgement shall be in form and substance reasonably
satisfactory to the Collateral Agent, (F) if at any time after the date hereof,
any Grantor acquires or holds any Commercial Tort Claim, promptly notifying the
Collateral Agent in a writing signed by such Grantor setting forth a brief
description of such Commercial Tort Claim and granting to the Collateral Agent a
security interest therein and in the proceeds thereof, which writing shall
incorporate the provisions hereof and shall be in form and substance
satisfactory to the Collateral Agent, (G) upon the acquisition after the date
hereof by any Grantor of any motor vehicle or other Equipment subject to a
certificate of title or ownership (other than a Motor Vehicle or Equipment that
is subject to a purchase money security interest), causing the Collateral Agent
to be listed as the lienholder on such certificate of title or ownership and
delivering evidence of the same to the Collateral Agent in accordance with
Section 5 hereof; and (H) taking all actions required by 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.

 

(b)          Location of Equipment and Inventory. Each Grantor will keep the
Equipment and Inventory (i) at the locations specified therefor on Schedule IV
hereto, or (ii) at such other locations set forth on Schedule IV and with
respect to which the Collateral Agent has filed financing statements and
otherwise fully perfected its Liens thereon, or (iii) at such other locations in
the United States, provided that within twenty (20) days following the
relocation of Equipment or Inventory to such other location or the acquisition
of Equipment or Inventory, Grantor shall deliver to the Collateral Agent a new
Schedule IV indicating such new locations.

 

 
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(c)          Condition of Equipment. Each Grantor will maintain or cause the
Equipment (necessary or useful to its business) to be maintained and preserved
in good condition, repair and working order, ordinary wear and tear excepted,
and will forthwith, or in the case of any loss or damage to any Equipment of any
Grantor within a commercially reasonable time after the occurrence thereof, make
or cause to be made all repairs, replacements and other improvements in
connection therewith which are necessary or desirable, consistent with past
practice, or which the Collateral Agent may request to such end. Any Grantor
will promptly furnish to the Collateral Agent a statement describing in
reasonable detail any such loss or damage in excess of $25,000 per occurrence to
any Equipment.

 

(d)          Taxes, Etc. Each Grantor agrees to pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Equipment and Inventory, except to the extent the validity thereof
is being contested in good faith by proper proceedings which stay the imposition
of any penalty, fine or Lien resulting from the non-payment thereof and with
respect to which adequate reserves in accordance with GAAP have been set aside
for the payment thereof.

 

(e)           Insurance.

 

(i)     Each Grantor will, at its own expense, maintain insurance (including,
without limitation, commercial general liability and property insurance) with
respect to the Equipment and Inventory in such amounts, against such risks, in
such form and with responsible and reputable insurance companies or associations
as is required by any Governmental Authority having jurisdiction with respect
thereto or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and in any event, in amount,
adequacy and scope reasonably satisfactory to the Collateral Agent. In addition
to and without limiting the foregoing, to the extent requested by the Collateral
Agent at any time and from time to time, each such policy shall in addition (A)
name the Collateral Agent as an additional insured party and/or loss payee, as
applicable, thereunder (without any representation or warranty by or obligation
upon the Collateral Agent) as its interests may appear, (B) contain an agreement
by the insurer that any loss thereunder shall be payable to the Collateral Agent
on its own account notwithstanding any action, inaction or breach of
representation or warranty by any Grantor, (C) provide that there shall be no
recourse against the Collateral Agent for payment of premiums or other amounts
with respect thereto, and (D) provide that at least thirty (30) days' prior
written notice of cancellation, lapse, expiration or other adverse change shall
be given to the Collateral Agent by the insurer. Any Grantor will, if so
requested by the Collateral Agent, deliver to the Collateral Agent original or
duplicate policies of such insurance and, as often as the Collateral Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Any Grantor will also, at the request of the Collateral Agent,
execute and deliver instruments of assignment of such insurance policies and
cause the respective insurers to acknowledge notice of such assignment.

 

(ii)     Reimbursement under any liability insurance maintained by any Grantor
pursuant to this Section 5(e) may be paid directly to the Person who shall have
incurred liability covered by such insurance. In the case of any loss involving
damage to Equipment or Inventory, to the extent paragraph (iii) of this Section
5(e) is not applicable, any proceeds of insurance maintained by any Grantor
pursuant to this Section 5(e) shall be paid to the Collateral Agent, any Grantor
will make or cause to be made the necessary repairs to or replacements of such
Equipment or Inventory, and any proceeds of insurance maintained by any Grantor
pursuant to this Section 5(e) (except as otherwise provided in paragraph (iii)
in this Section 5(e)) shall be paid by the Collateral Agent to any Grantor as
reimbursement for the costs of such repairs or replacements.

 

(iii)     Notwithstanding anything to the contrary in subsection 5(e)(ii) above,
following and during the continuance of an Event of Default, all insurance
payments in respect of such Equipment or Inventory shall be paid to the
Collateral Agent and applied as specified in Section 7(b) hereof.

 

 
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(f)            Provisions Concerning the Accounts and the Licenses.

 

(i)     Each Grantor will (A) give the Collateral Agent at least thirty (30)
days’ prior written notice of any change in such Grantor’s name, identity or
organizational structure, (B) maintain its jurisdiction of incorporation,
organization or formation as set forth in Schedule I hereto, (C) immediately
notify the Collateral Agent upon obtaining an organizational identification
number, if on the date hereof such Grantor did not have such identification
number, and (D) keep adequate records concerning the Accounts and Chattel Paper
and permit representatives of the Collateral Agent during normal business hours
on reasonable notice to such Grantor, to inspect and make abstracts from such
Records and Chattel Paper.

 

(ii)     Each Grantor will (except as otherwise provided in this
subsection (f)), in accordance with Section 12(q) and 12(r) of each Note,
continue to collect, at its own expense, all amounts due or to become due under
the Accounts. In connection with such collections, any Grantor may (and, at the
Collateral Agent’s direction, will) take such action as any Grantor or the
Collateral Agent may deem necessary or advisable to enforce collection or
performance of the Accounts; provided, however, that the Collateral Agent shall
have the right at any time following the occurrence and during the continuance
of an Event of Default to notify the account debtors or obligors under any
Accounts of the assignment of such Accounts to the Collateral Agent and to
direct such account debtors or obligors to make payment of all amounts due or to
become due to any Grantor thereunder directly to the Collateral Agent or its
designated agent and, upon such notification and at the expense of any Grantor
and to the extent permitted by applicable law, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as any Grantor might have done. After
receipt by any Grantor of a notice from the Collateral Agent that the Collateral
Agent has notified, intends to notify, or has enforced or intends to enforce any
Grantor’s rights against the account debtors or obligors under any Accounts as
referred to in the proviso to the immediately preceding sentence, (A) all
amounts and proceeds (including Instruments) received by any Grantor in respect
of the Accounts shall be received in trust for the benefit of the Collateral
Agent hereunder, shall be segregated from other funds of any Grantor and shall
be forthwith paid over to the Collateral Agent in the same form as so received
(with any necessary endorsement) to be applied as specified in Section 7(b)
hereof, and (B) no Grantor will adjust, settle or compromise the amount or
payment of any Account or release wholly or partly any account debtor or obligor
thereof or allow any credit or discount thereon. In addition, upon the
occurrence and during the continuance of an Event of Default, the Collateral
Agent may (in its sole and absolute discretion) direct any or all of the banks
and financial institutions with which any Grantor either maintains a Deposit
Account or a lockbox (including, without limitation, any Controlled Account or
Master Restricted Account) or deposits the proceeds of any Accounts to send
immediately to the Collateral Agent by wire transfer (to such account as the
Collateral Agent shall specify, or in such other manner as the Collateral Agent
shall direct) all or a portion of such securities, cash, investments and other
items held by such institution. Any such securities, cash, investments and other
items so received by the Collateral Agent shall be applied as specified in
accordance with Section 7(b) hereof.

 

(iii)     Upon the occurrence and during the continuance of any breach or
default under any material License referred to in Schedule II hereto by any
party thereto other than any Grantor, each Grantor party thereto will, promptly
after obtaining knowledge thereof, give the Collateral Agent written notice of
the nature and duration thereof, specifying what action, if any, it has taken
and proposes to take with respect thereto and thereafter will take reasonable
steps to protect and preserve its rights and remedies in respect of such breach
or default, or will obtain or acquire an appropriate substitute License.

 

(iv)     Each Grantor will, at its expense, promptly deliver to the Collateral
Agent a copy of each notice or other communication received by it by which any
other party to any material License referred to in Schedule II hereto purports
to exercise any of its rights or affect any of its obligations thereunder,
together with a copy of any reply by such Grantor thereto.

 

 
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(v)     Each Grantor will exercise promptly and diligently each and every right
which it may have under each material License (other than any right of
termination) and will duly perform and observe in all respects all of its
obligations under each material License and will take all action reasonably
necessary to maintain such Licenses in full force and effect. No Grantor will,
without the prior written consent of the Collateral Agent, cancel, terminate,
amend or otherwise modify in any respect, or waive any provision of, any
material License referred to in Schedule II hereto.

 

(g)           Transfers and Other Liens.

 

(i)     Except as set forth on Schedule IX or expressly permitted in Section
12(f) of the Notes, no Grantor will sell, assign (by operation of law or
otherwise), lease, license, exchange or otherwise transfer or dispose of any of
the Collateral, except (A) Inventory in the ordinary course of business, and
(B) worn out or obsolete assets, not necessary to the business. The Grantors
shall not, and the Grantors shall cause each of their Subsidiaries to not,
directly or indirectly, sell, lease, license, assign, transfer, spin-off,
split-off, close, convey or otherwise dispose of any Collateral or any
Subsidiary owned or hereafter acquired whether in a single transaction or a
series of related transactions to any Excluded Subsidiary or other Subsidiary
that has not executed and delivered this Agreement and a Guaranty and all other
Security Documents (as defined in the Securities Purchase Agreement) requested
by the Collateral Agent. Upon any sale of any shares of MGT Capital Investments,
Inc. held by a Grantor after the date hereof, the net proceeds of such sale
shall be deposited, pro rata, into the Master Restricted Accounts.

 

(ii)     No Grantor will create, suffer to exist or grant any Lien upon or with
respect to any Collateral other than a Permitted Lien.

 

(h)           Intellectual Property.

 

(i)     If applicable, each Grantor shall duly execute and deliver the
applicable Assignment for Security in the form attached hereto as Exhibit A.
Each Grantor (either itself or through licensees) will, and will cause each
licensee thereof to, take all action necessary to maintain all of the
Intellectual Property in full force and effect, including, without limitation,
using the proper statutory notices, numbers and markings (relating to patent,
trademark and copyright rights) and using the Trademarks on each applicable
trademark class of goods in order to so maintain the Trademarks in full force
and free from any claim of abandonment for non-use, and each Grantor will not
(nor permit any licensee thereof to) do any act or knowingly omit to do any act
whereby any Intellectual Property may become abandoned, cancelled or
invalidated; provided, however, that so long as no Event of Default has occurred
and is continuing, no Grantor shall have an obligation to use or to maintain any
Intellectual Property (A) that relates solely to any product or work, that has
been, or is in the process of being, discontinued, abandoned or terminated in
the ordinary course of business and consistent with the exercise of reasonable
business judgment, (B) that is being replaced with Intellectual Property
substantially similar to the Intellectual Property that may be abandoned or
otherwise become invalid, so long as the failure to use or maintain such
Intellectual Property does not materially adversely affect the validity of such
replacement Intellectual Property and so long as such replacement Intellectual
Property is subject to the Lien created by this Agreement and does not have a
material adverse effect on the business of any Grantor or (C) that is
substantially the same as another Intellectual Property that is in full force,
so long the failure to use or maintain such Intellectual Property does not
materially adversely affect the validity of such replacement Intellectual
Property and so long as such other Intellectual Property is subject to the Lien
and security interest created by this Agreement and does not have a material
adverse effect on the business of any Grantor. Each Grantor will cause to be
taken all necessary steps in any proceeding before the United States Patent and
Trademark Office and the United States Copyright Office or any similar office or
agency in any other country or political subdivision thereof to maintain each
registration of the Intellectual Property and application for registration of
Intellectual Property (other than the Intellectual Property described in the
proviso to the immediately preceding sentence), including, without limitation,
filing of renewals, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings and payment of maintenance
fees, filing fees, taxes or other governmental fees. If any Intellectual
Property (other than Intellectual Property described in the proviso to the
second sentence of subsection (i) of this clause (h)) is infringed,
misappropriated, diluted or otherwise violated in any material respect by a
third party, each Grantor shall (x) upon learning of such infringement,
misappropriation, dilution or other violation, promptly notify the Collateral
Agent and (y) promptly sue for infringement, misappropriation, dilution or other
violation, seek injunctive relief where appropriate and recover any and all
damages for such infringement, misappropriation, dilution or other violation, or
take such other actions as such Grantor shall deem appropriate under the
circumstances to protect such Intellectual Property. Each Grantor shall furnish
to the Collateral Agent from time to time upon its request statements and
schedules further identifying and describing the Intellectual Property and
Licenses and such other reports in connection with the Intellectual Property and
Licenses as the Collateral Agent may reasonably request, all in reasonable
detail and promptly upon request of the Collateral Agent, following receipt by
the Collateral Agent of any such statements, schedules or reports, each Grantor
shall modify this Agreement by amending Schedule II hereto, as the case may be,
to include any Intellectual Property and License, as the case may be, which is
or hereafter becomes part of the Collateral under this Agreement and shall
execute and authenticate such documents and do such acts as shall be necessary
or, in the reasonable judgment of the Collateral Agent, desirable to subject
such Intellectual Property and Licenses to the Lien and security interest
created by this Agreement. Notwithstanding anything herein to the contrary, upon
the occurrence and during the continuance of an Event of Default, no Grantor may
abandon, surrender or otherwise permit any Intellectual Property to become
abandoned, cancelled or invalid without the prior written consent of the
Collateral Agent, and if any Intellectual Property is infringed,
misappropriated, diluted or otherwise violated in any material respect by a
third party, each Grantor will take such reasonable action as the Collateral
Agent shall deem appropriate under the circumstances to protect such
Intellectual Property consistent with the exercise of reasonable business
judgment.

 

 
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(ii)     In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for the registration of any
Patent, Trademark or Copyright or the United States Copyright Office or the
United States Patent and Trademark Office, as applicable, or in any similar
office or agency of the United States or any country or any political
subdivision thereof unless it gives the Collateral Agent prior written notice
thereof. Upon request of the Collateral Agent, any Grantor shall execute,
authenticate and deliver any and all assignments, agreements, instruments,
documents and papers as the Collateral Agent may reasonably request to evidence
the Collateral Agent’s security interest hereunder in such Intellectual Property
and the General Intangibles of any Grantor relating thereto or represented
thereby, and each Grantor hereby appoints the Collateral Agent its
attorney-in-fact to execute and/or authenticate and file all such writings for
the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed, and such power (being coupled with an interest) shall be irrevocable
until all Obligations are Paid in Full.

 

(i)     Deposit Accounts, Securities Accounts, and Commodities Accounts.

 

(i)     As of the date hereof, the Grantors shall establish and maintain a
Controlled Account Agreement for each Controlled Account referred to in Schedule
VII hereto, in form and substance satisfactory to the Collateral Agent, duly
executed by each Grantor and the applicable bank or financial institution,
pursuant to which the parties to such Controlled Account Agreement shall
irrevocably agree, inter alia, subject to Section 12(q) of each Note, with
respect to each Controlled Account, that (i) any time an “Event of Default” (as
such term is defined in the Note), has occurred or is continuing, the bank or
financial institution will comply at any time with the instructions originated
by the Collateral Agent to such bank or financial institution directing the
disposition of cash, Commodity Contracts, securities, Investment Property and
other items from time to time credited to such account, without further consent
of each Grantor, (ii) all Commodity Contracts, securities, Investment Property
and other items of Collateral deposited in a Controlled Account shall be subject
to a perfected, first priority security interest in favor of the Collateral
Agent, (iii) such bank of financial institutions will waive, subordinate or
agree not to exercise any rights of setoff or recoupment or any other claim
against the applicable Controlled Account other than for payment of its service
fees and other charges directly related to the administration of such Controlled
Account and for returned checks or other items of payment and (iv) upon receipt
of written notice from the Collateral Agent during the continuance of an Event
of Default, such bank or financial institution shall immediately send to the
Collateral Agent, by wire transfer (to such account as the Collateral Agent
shall specify, or in such other manner as the Collateral Agent shall direct),
all such cash, the value of any Commodity Contracts, securities, Investment
Property and other items of Collateral held by it.

 

 
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(ii)     As of the date hereof, each Grantor shall establish and maintain a
Master Controlled Account Agreement with each Buyer for the Master Restricted
Accounts referred to in Schedule V hereto at a bank or financial institution
satisfactory to such Buyer, pursuant to which the parties thereto shall
irrevocably agree, inter alia, subject to Section 12(r) of each Note, with
respect to such Master Restricted Account, that (i) such bank or financial
institution will comply with any and all instructions originated by such Buyer
directing the disposition of cash, Commodity Contracts, securities, Investment
Property and other items from time to time credited to such account, without
further consent of each Grantor (x) until such Buyer has been paid in full, by
such Buyer and (y) thereafter, by the Collateral Agent, (ii) all Commodity
Contracts, securities, Investment Property and other items of Collateral
deposited in a Master Restricted Account shall be subject to a perfected, first
priority security interest in favor of such Buyer and a perfected, second
priority security interest in favor of the Collateral Agent (subject only to the
security interest of such Buyer until such Buyer is paid in full), (iii) such
bank of financial institutions will waive, subordinate or agree not to exercise
any rights of setoff or recoupment or any other claim against the applicable
Master Restricted Account other than for payment of its service fees and other
charges directly related to the administration of such Master Restricted Account
and for returned checks or other items of payment and (iv) such bank of
financial institution shall not comply with any instructions, directions or
orders of any form with respect to such Master Restricted Account other than
instructions, directions or orders originated by the applicable Buyer (or, if
such Buyer is paid in full, the Collateral Agent).

 

(iii)     Without the prior written consent of the Collateral Agent, no Grantor
shall create or maintain any Deposit Account, Commodity Account or Securities
Account (other than the Controlled Accounts and Master Restricted Accounts set
forth on Schedule V as of the date hereof) without (a) the prior written consent
of the Collateral Agent, and (b) compliance with Sections 12(q) and (r) of the
Notes in connection therewith.

 

(j)            Motor Vehicles.

 

(i)     Upon the Collateral Agent’s written request, each Grantor shall deliver
to the Collateral Agent originals of the certificates of title or ownership for
all motor vehicles with a value in excess of $10,000, owned by it with the
Collateral Agent listed as lienholder, for the benefit of the Buyers.

 

(ii)     Each Grantor hereby appoints the Collateral Agent as its
attorney-in-fact, effective the date hereof and terminating upon the termination
of this Agreement, for the purpose of (A) executing on behalf of such Grantor
title or ownership applications for filing with appropriate state agencies to
enable motor vehicles now owned or hereafter acquired by such Grantor to be
retitled and the Collateral Agent listed as lienholder thereof, (B) filing such
applications with such state agencies, and (C) executing such other documents
and instruments on behalf of, and taking such other action in the name of, such
Grantor as the Collateral Agent may deem necessary or advisable to accomplish
the purposes hereof (including, without limitation, for the purpose of creating
in favor of the Collateral Agent a perfected Lien on the motor vehicles and
exercising the rights and remedies of the Collateral Agent hereunder). This
appointment as attorney-in-fact is coupled with an interest and is irrevocable
until all of the Obligations are Paid in Full.

 

(iii)     Any certificates of title or ownership delivered pursuant to the terms
hereof shall be accompanied by odometer statements for each motor vehicle
covered thereby.

 

 
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(iv)     So long as no Event of Default shall have occurred and be continuing,
upon the request of any Grantor, the Collateral Agent shall execute and deliver
to any Grantor such instruments as such Grantor shall reasonably request to
remove the notation of the Collateral Agent as lienholder on any certificate of
title for any motor vehicle; provided, however, that any such instruments shall
be delivered, and the release effective, only upon receipt by the Collateral
Agent of a certificate from any Grantor stating that such motor vehicle is to be
sold or has suffered a casualty loss (with title thereto in such case passing to
the casualty insurance company therefor in settlement of the claim for such
loss) and the amount that any Grantor will receive as sale proceeds or insurance
proceeds. Any proceeds of such sale or casualty loss shall be paid to the
Collateral Agent hereunder immediately upon receipt, to be applied to the
Obligations then outstanding.

 

(k)     Control. Each Grantor hereby agrees to take any or all action that may
be necessary or that the Collateral Agent may reasonably request in order for
the Collateral Agent to obtain control in accordance with Sections 9-105 – 9-107
of the Code with respect to the following Collateral: (i) Electronic Chattel
Paper, (ii) Investment Property, and (iii) Letter-of-Credit Rights.

 

(l)      Inspection and Reporting. Each Grantor shall permit the Collateral
Agent, or any agent or representatives thereof or such professionals or other
Persons as the Collateral Agent may designate (at Grantors’ sole cost and
expense) (i) to examine and make copies of and abstracts from any Grantor’s
records and books of account, (ii) to visit and inspect its properties, (iii) to
verify materials, leases, Instruments, Accounts, Inventory and other assets of
any Grantor from time to time, (iii) to conduct audits, physical counts,
appraisals and/or valuations, examinations at the locations of any Grantor. Each
Grantor shall also permit the Collateral Agent, or any agent or representatives
thereof or such professionals or other Persons as the Collateral Agent may
designate to discuss such Grantor’s affairs, finances and accounts with any of
its directors, officers, managerial employees, independent accountants or any of
its other representatives. Without limiting the foregoing, the Collateral Agent
may, at any time, in the Collateral Agent’s own name, in the name of a nominee
of the Collateral Agent, or in the name of any Grantor communicate (by mail,
telephone, facsimile or otherwise) with the account debtors of such Grantor,
parties to contracts with such Grantor and/or obligors in respect of Instruments
of such Grantor to verify with such Persons, to the Collateral Agent’s
satisfaction, the existence, amount, terms of, and any other matter relating to,
Accounts, Instruments, Chattel Paper, payment intangibles and/or other
receivables.

 

(m)    Future Subsidiaries. If any Grantor hereafter creates or acquires any
Subsidiary, simultaneously with the creation or acquisition of such Subsidiary,
such Grantor shall (i) cause such Subsidiary to become a party to this Agreement
as an additional “Grantor” hereunder, (ii) deliver to Collateral Agent revised
Schedules to this Agreement, as appropriate (including, without limitation, a
revised Schedule V to reflect the grant by such Grantor of a lien on all Pledged
Equity now or hereafter owned by such Grantor), (iii) cause such Subsidiary to
duly execute and deliver a guaranty of the Obligations in favor of the
Collateral Agent in form and substance acceptable to the Collateral Agent, and
(iv) duly execute and/or cause to be delivered such opinions of counsel and
other documents, in form and substance acceptable to the Collateral Agent, as
the Collateral Agent shall request with respect thereto. Each Grantor hereby
authorizes Collateral Agent to attach such revised Schedules to this Agreement
and agrees that all Pledged Equity listed on any revised Schedule delivered to
Collateral Agent shall for all purposes hereunder be considered Collateral. The
Grantors agree that the pledge of the shares of Capital Stock acquired by a
Grantor of Foreign Subsidiary may be supplemented by one or more separate pledge
agreements, deeds of pledge, share charges, or other similar agreements or
instruments, executed and delivered by the relevant Grantor in favor of the
Collateral Agent, which pledge agreements will provide for the pledge of such
shares of Capital Stock in accordance with the laws of the applicable foreign
jurisdiction. With respect to such shares of Capital Stock, the Collateral Agent
may, at any time and from time to time, in its sole discretion, take actions in
such foreign jurisdictions that will result in the perfection of the Lien
created in such shares of Capital Stock.

 

 
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(n)     Excluded Subsidiary Condition. If the Excluded Subsidiary Condition
occurs hereafter with respect to any Excluded Subsidiary, such Excluded
Subsidiary shall be deemed a “Subsidiary” hereunder (provided, that,
notwithstanding the foregoing, (1) Signature Industries Limited shall remain an
Excluded Subsidiary unless the Company shall have obtained the prior written
consent of the Collateral Agent and (2) the Collateral Agent shall have the
right, in its sole discretion, to permit any Excluded Subsidiary with
liabilities in excess of assets to remain an Excluded Subsidiary for all
purposes hereunder and pursuant to the other Transaction Documents), and
simultaneously with the occurrence of the Excluded Subsidiary Condition,
Grantors shall (i) cause such Subsidiary to become a party to this Agreement as
an additional “Grantor” hereunder, (ii) deliver to Collateral Agent revised
Schedules to this Agreement, as appropriate (including, without limitation, a
revised Schedule V to reflect the grant by such Grantor of a lien on all Pledged
Equity now or hereafter owned by such Grantor), (iii) cause such Subsidiary to
duly execute and deliver a guaranty of the Obligations in favor of the
Collateral Agent in form and substance acceptable to the Collateral Agent, and
(iv) duly execute and/or cause to be delivered such opinions of counsel and
other documents, in form and substance acceptable to the Collateral Agent, as
the Collateral Agent shall request with respect thereto. Each Grantor hereby
authorizes Collateral Agent to attach such revised Schedules to this Agreement
and agrees that all Pledged Equity listed on any revised Schedule delivered to
Collateral Agent shall for all purposes hereunder be considered Collateral.

 

SECTION 6.     Additional Provisions Concerning the Collateral.

 

(a)     To the maximum extent permitted by applicable law, and for the purpose
of taking any action that the Collateral Agent may deem necessary or advisable
to accomplish the purposes of this Agreement, each Grantor hereby (i) authorizes
the Collateral Agent to execute any such agreements, instruments or other
documents in such Grantor’s name and to file such agreements, instruments or
other documents in such Grantor’s name and in any appropriate filing office,
(ii) authorizes the Collateral Agent at any time and from time to time to file,
one or more financing or continuation statements, and amendments thereto,
relating to the Collateral (including, without limitation, any such financing
statements that (A) describe the Collateral as “all assets” or “all personal
property” (or words of similar effect) or that describe or identify the
Collateral by type or in any other manner as the Collateral Agent may determine
regardless of whether any particular asset of such Grantor falls within the
scope of Article 9 of the Uniform Commercial Code or whether any particular
asset of such Grantor constitutes part of the Collateral, and (B) contain any
other information required by Part 5 of Article 9 of the Code for the
sufficiency or filing office acceptance of any financing statement, continuation
statement or amendment, including, without limitation, whether such Grantor is
an organization, the type of organization and any organizational identification
number issued to such Grantor) and (iii) ratifies such authorization to the
extent that the Collateral Agent has filed any such financing or continuation
statements, or amendments thereto, prior to the date hereof. A photocopy or
other reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.

 

(b)     Upon an Event of Default, each Grantor hereby irrevocably appoints the
Collateral Agent as its attorney-in-fact and proxy, with full authority in the
place and stead of such Grantor and in the name of such Grantor or otherwise,
from time to time in the Collateral Agent’s discretion, to take any action and
to execute any instrument which the Collateral Agent may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation, (i) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any Collateral, (ii) to receive, endorse, and collect any
drafts or other instruments, documents and chattel paper in connection with
clause (i) above, (iii) to file any claims or take any action or institute any
proceedings which the Collateral Agent may deem necessary or desirable for the
collection of any Collateral or otherwise to enforce the rights of the
Collateral Agent and the Buyers with respect to any Collateral, (iv) to execute
assignments, licenses and other documents to enforce the rights of the
Collateral Agent and the Buyers with respect to any Collateral and (v) to verify
any and all information with respect to any and all Accounts. This power is
coupled with an interest and is irrevocable until all of the Obligations are
Paid in Full.

 

 
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(c)     For the purpose of enabling the Collateral Agent to exercise rights and
remedies hereunder, at such time as the Collateral Agent shall be lawfully
entitled to exercise such rights and remedies, and for no other purpose, upon an
Event of Default, each Grantor hereby grants to the Collateral Agent, to the
extent assignable, an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to any Grantor) to use, assign, license
or sublicense any Intellectual Property now owned or hereafter acquired by such
Grantor, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
Notwithstanding anything contained herein to the contrary, but subject to the
provisions of the Securities Purchase Agreement that limit the right of any
Grantor to dispose of its property, and Section 5(g) and Section 5(h) hereof, so
long as no Event of Default shall have occurred and be continuing, any Grantor
may exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of
or take other actions with respect to the Intellectual Property in the ordinary
course of its business. In furtherance of the foregoing, unless an Event of
Default shall have occurred and be continuing, the Collateral Agent shall from
time to time, upon the request of any Grantor, execute and deliver any
instruments, certificates or other documents, in the form so requested, which
such Grantor shall have certified are appropriate (in such Grantor’s judgment)
to allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Intellectual Property).
Further, upon the indefeasible Payment in Full of all of the Obligations, the
Collateral Agent (subject to Section 10(e) hereof) shall release and reassign to
any Grantor all of the Collateral Agent’s right, title and interest in and to
the Intellectual Property, and the Licenses, all without recourse,
representation or warranty whatsoever. The exercise of rights and remedies
hereunder by the Collateral Agent shall not terminate the rights of the holders
of any licenses or sublicenses theretofore granted by each Grantor in accordance
with the second sentence of this clause (c). Each Grantor hereby releases the
Collateral Agent from any claims, causes of action and demands at any time
arising out of or with respect to any actions taken or omitted to be taken by
the Collateral Agent under the powers of attorney granted herein other than
actions taken or omitted to be taken through the Collateral Agent’s gross
negligence or willful misconduct, as determined by a final determination of a
court of competent jurisdiction.

 

(d)     If any Grantor fails to perform any agreement or obligation contained
herein, the Collateral Agent may itself perform, or cause performance of, such
agreement or obligation, in the name of such Grantor or the Collateral Agent,
and the expenses of the Collateral Agent incurred in connection therewith shall
be payable by such Grantor pursuant to Section 8 hereof and shall be secured by
the Collateral.

 

(e)     The powers conferred on the Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Collateral Agent shall have no duty as to any Collateral or as to the taking of
any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.

 

(f)     Anything herein to the contrary notwithstanding (i) each Grantor shall
remain liable under the Licenses and otherwise with respect to any of the
Collateral to the extent set forth therein to perform all of its obligations
thereunder to the same extent as if this Agreement had not been executed,
(ii) the exercise by the Collateral Agent of any of its rights hereunder shall
not release any Grantor from any of its obligations under the Licenses or
otherwise in respect of the Collateral, and (iii) the Collateral Agent shall not
have any obligation or liability by reason of this Agreement under the Licenses
or with respect to any of the other Collateral, nor shall the Collateral Agent
be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

 

 
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(g)     As long as no Event of Default shall have occurred and be continuing and
until written notice shall be given to the applicable Grantor:

 

(i)     Each Grantor shall have the right, from time to time, to vote and give
consents with respect to the Pledged Equity, or any part thereof for all
purposes not inconsistent with the provisions of this Agreement, the Securities
Purchase Agreement or any other Transaction Document; provided, however, that no
vote shall be cast, and no consent shall be given or action taken, which would
have the effect of impairing the position or interest of Collateral Agent in
respect of the Pledged Equity or which would authorize, effect or consent to
(unless and to the extent expressly permitted by the Securities Purchase
Agreement):

 

(A)     the dissolution or liquidation, in whole or in part, of a Pledged
Entity;

 

(B)     the consolidation or merger of a Pledged Entity with any other Person;

 

(C)     the sale, disposition or encumbrance of all or substantially all of the
assets of a Pledged Entity, except for Liens in favor of Collateral Agent;

 

(D)     any change in the authorized number of shares, the stated capital or the
authorized share capital of a Pledged Entity or the issuance of any additional
shares of its Capital Stock; or

 

(E)     the alteration of the voting rights with respect to the Capital Stock of
a Pledged Entity.

 

(h)           (i)     Each Grantor shall be entitled, from time to time, to
collect and receive for its own use all cash dividends and interest paid in
respect of the Pledged Equity to the extent not in violation of the Securities
Purchase Agreement other than any and all: (A) dividends and interest paid or
payable other than in cash in respect of any Pledged Equity, and instruments and
other property received, receivable or otherwise distributed in respect of, or
in exchange for, any Pledged Equity; (B) dividends and other distributions paid
or payable in cash in respect of any Pledged Equity in connection with a partial
or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in capital of a Pledged Entity; and (C) cash
paid, payable or otherwise distributed, in respect of principal of, or in
redemption of, or in exchange for, any Pledged Equity; provided, however, that
until actually paid all rights to such distributions shall remain subject to the
Lien created by this Agreement; and

 

(ii)     all dividends and interest (other than such cash dividends and interest
as are permitted to be paid to any Grantor in accordance with clause (i) above)
and all other distributions in respect of any of the Pledged Equity, whenever
paid or made, shall be delivered to Collateral Agent to hold as Pledged Equity
and shall, if received by any Grantor, be received in trust for the benefit of
Collateral Agent, be segregated from the other property or funds of such
Grantor, and be forthwith delivered to Collateral Agent as Pledged Equity in the
same form as so received (with any necessary endorsement).

 

 
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SECTION 7.     Remedies Upon Event of Default. If any Event of Default shall
have occurred and be continuing:

 

(a)     The Collateral Agent may exercise in respect of the Collateral, in
addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under the Code (whether or not the Code applies to the affected Collateral), and
also may (i) take absolute control of the Collateral, including, without
limitation, transfer into the Collateral Agent’s name or into the name of its
nominee or nominees (to the extent the Collateral Agent has not theretofore done
so) and thereafter receive, for the benefit of the Buyers, all payments made
thereon, give all consents, waivers and ratifications in respect thereof and
otherwise act with respect thereto as though it were the outright owner thereof,
(ii) require each Grantor to, and each Grantor hereby agrees that it will at its
expense and upon request of the Collateral Agent forthwith, assemble all or part
of its respective Collateral as directed by the Collateral Agent and make it
available to the Collateral Agent at a place or places to be designated by the
Collateral Agent that is reasonably convenient to both parties, and the
Collateral Agent may enter into and occupy any premises owned or leased by any
Grantor where the Collateral or any part thereof is located or assembled for a
reasonable period in order to effectuate the Collateral Agent’s rights and
remedies hereunder or under law, without obligation to any Grantor in respect of
such occupation, and (iii) without notice except as specified below and without
any obligation to prepare or process the Collateral for sale, (A) sell the
Collateral or any part thereof in one or more parcels at public or private sale
(including, without limitation, by credit bid), at any of the Collateral Agent’s
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Collateral Agent may deem
commercially reasonable and/or (B) lease, license or dispose of the Collateral
or any part thereof upon such terms as the Collateral Agent may deem
commercially reasonable. Each Grantor agrees that, to the extent notice of sale
or any other disposition of its respective Collateral shall be required by law,
at least ten (10) days’ notice to any Grantor of the time and place of any
public sale or the time after which any private sale or other disposition of its
respective Collateral is to be made shall constitute reasonable notification.
The Collateral Agent shall not be obligated to make any sale or other
disposition of any Collateral regardless of notice of sale having been given.
The Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. Each
Grantor hereby waives any claims against the Collateral Agent and the Buyers
arising by reason of the fact that the price at which its respective Collateral
may have been sold at a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Collateral Agent accepts the first offer received and
does not offer such Collateral to more than one offeree, and waives all rights
that any Grantor may have to require that all or any part of such Collateral be
marshaled upon any sale (public or private) thereof. Each Grantor hereby
acknowledges that (i) any such sale of its respective Collateral by the
Collateral Agent shall be made without warranty, (ii) the Collateral Agent may
specifically disclaim any warranties of title, possession, quiet enjoyment or
the like, and (iii) such actions set forth in clauses (i) and (ii) above shall
not adversely affect the commercial reasonableness of any such sale of
Collateral. In addition to the foregoing, (1) upon written notice to any Grantor
from the Collateral Agent after and during the continuance of an Event of
Default, such Grantor shall cease any use of the Intellectual Property or any
trademark, patent or copyright similar thereto for any purpose described in such
notice; (2) the Collateral Agent may, at any time and from time to time after
and during the continuance of an Event of Default, upon ten (10) days’ prior
notice to such Grantor, license, whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis, any of the Intellectual
Property, throughout the universe for such term or terms, on such conditions,
and in such manner, as the Collateral Agent shall in its sole discretion
determine; and (3) the Collateral Agent may, at any time, pursuant to the
authority granted in Section 6 hereof or otherwise (such authority being
effective upon the occurrence and during the continuance of an Event of
Default), execute and deliver on behalf of such Grantor, one or more instruments
of assignment of the Intellectual Property (or any application or registration
thereof), in form suitable for filing, recording or registration in any country.

 

(b)     Any cash held by the Collateral Agent as Collateral and all Cash
Proceeds received by the Collateral Agent in respect of any sale of or
collection from, or other realization upon, all or any part of the Collateral
shall be applied (after payment of any amounts payable to the Collateral Agent
pursuant to Section 8 hereof) by the Collateral Agent against, all or any part
of the Obligations in such order as the Collateral Agent shall elect, consistent
with the provisions of the Securities Purchase Agreement. Any surplus of such
cash or Cash Proceeds held by the Collateral Agent and remaining after the
indefeasible payment in full in cash of all of the Obligations shall be paid
over to whomsoever shall be lawfully entitled to receive the same or as a court
of competent jurisdiction shall direct.

 

(c)     In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent
and the Buyers are legally entitled, each Grantor shall be liable for the
deficiency, together with interest thereon at the highest rate specified in the
Notes for interest on overdue principal thereof or such other rate as shall be
fixed by applicable law, together with the costs of collection and the
reasonable fees, costs, expenses and other client charges of any attorneys
employed by the Collateral Agent to collect such deficiency.

 

 
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(d)     To the extent that applicable law imposes duties on the Collateral Agent
to exercise remedies in a commercially reasonable manner, each Grantor
acknowledges and agrees that it is commercially reasonable for the Collateral
Agent (i) to fail to incur expenses deemed significant by the Collateral Agent
to prepare Collateral for disposition or otherwise to transform raw material or
work in process into finished goods or other finished products for disposition,
(ii) 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, (iii) to fail to exercise collection
remedies against account debtors or other persons obligated on Collateral or to
remove Liens on or any adverse claims against Collateral, (iv) 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, (v) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (vi) to contact other Persons, whether or not in the
same business as any Grantor, for expressions of interest in acquiring all or
any portion of such Collateral, (vii) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the
Collateral is of a specialized nature, (viii) 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 capacity of doing so, or
that match buyers and sellers of assets, (ix) to dispose of assets in wholesale
rather than retail markets, (x) to disclaim disposition warranties, such as
title, possession or quiet enjoyment, (xi) to purchase insurance or credit
enhancements to insure the Collateral Agent against risks of loss, collection or
disposition of Collateral or to provide to the Collateral Agent a guaranteed
return from the collection or disposition of Collateral, or (xii) to the extent
deemed appropriate by the Collateral Agent, to obtain the services of brokers,
investment bankers, consultants, attorneys and other professionals to assist the
Collateral Agent in the collection or disposition of any of the Collateral. Each
Grantor acknowledges that the purpose of this section is to provide
non-exhaustive indications of what actions or omissions by the Collateral Agent
would be commercially reasonable in the Collateral Agent’s exercise of remedies
against the Collateral and that other actions or omissions by the Collateral
Agent shall not be deemed commercially unreasonable solely on account of not
being indicated in this section. Without limitation upon the foregoing, nothing
contained in this section shall be construed to grant any rights to any Grantor
or to impose any duties on the Collateral Agent that would not have been granted
or imposed by this Agreement or by applicable law in the absence of this
section.

 

(e)     The Collateral Agent 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 the Collateral Agent’s rights hereunder and
in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To
the extent that any Grantor lawfully may, each Grantor hereby agrees that it
will not invoke any law relating to the marshaling of collateral which might
cause delay in or impede the enforcement of the Collateral Agent’s rights under
this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, each Grantor hereby irrevocably waives the
benefits of all such laws.

 

SECTION 8.     Indemnity and Expenses.

 

(a)     Each Grantor agrees, jointly and severally, to defend, protect,
indemnify and hold the Collateral Agent and each of the Buyers, jointly and
severally, harmless from and against any and all claims, damages, losses,
liabilities, obligations, penalties, fees, costs and expenses (including,
without limitation, reasonable legal fees, costs, expenses, and disbursements of
such Person’s counsel) to the extent that they arise out of or otherwise result
from this Agreement (including, without limitation, enforcement of this
Agreement), except to the extent resulting from such Person’s gross negligence
or willful misconduct, as determined by a final judgment of a court of competent
jurisdiction.

 

 
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(b)     Each Grantor agrees, jointly and severally, to pay to the Collateral
Agent upon demand the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and disbursements of counsel for the Collateral
Agent and of any experts and agents (including, without limitation, any
collateral trustee which may act as agent of the Collateral Agent), which the
Collateral Agent may incur in connection with (i) the preparation, negotiation,
execution, delivery, recordation, administration, amendment, waiver or other
modification or termination of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder, or (iv) the failure by any Grantor to perform or
observe any of the provisions hereof.

 

SECTION 9.     Notices, Etc. All notices and other communications provided for
hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), telecopied, e-mailed or delivered, if to
any Grantor, to the Company’s address, or if to the Collateral Agent or any
Buyer, to it at its respective address, each as set forth in Section 9(f) of the
Securities Purchase Agreement; or as to any such Person, at such other address
as shall be designated by such Person in a written notice to all other parties
hereto complying as to delivery with the terms of this Section 9. All such
notices and other communications shall be effective (a) if sent by certified
mail, return receipt requested, when received, (b) if telecopied or e-mailed,
when transmitted (during normal business hours) and confirmation is received,
and otherwise, the day after the notice or communication was transmitted and
confirmation is received, or (c) if delivered in person, upon delivery.

 

SECTION 10.     Miscellaneous.

 

(a)     No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by each Grantor and the Collateral Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
each Grantor therefrom, shall be effective unless it is in writing and signed by
each Grantor and the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

 

(b)     No failure on the part of the Collateral Agent to exercise, and no delay
in exercising, any right hereunder or under any of the other Transaction
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of the Collateral Agent or
any Buyer provided herein and in the other Transaction Documents are cumulative
and are in addition to, and not exclusive of, any rights or remedies provided by
law. The rights of the Collateral Agent or any Buyer under any of the other
Transaction Documents against any party thereto are not conditional or
contingent on any attempt by such Person to exercise any of its rights under any
of the other Transaction Documents against such party or against any other
Person, including but not limited to, any Grantor.

 

(c)     Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

 

(d)     This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the Payment in
Full of the Obligations, and (ii) be binding on each Grantor and all other
Persons who become bound as debtor to this Agreement in accordance with Section
9-203(d) of the Code and shall inure, together with all rights and remedies of
the Collateral Agent and the Buyers hereunder, to the benefit of the Collateral
Agent and the Buyers and their respective permitted successors, transferees and
assigns. Without limiting the generality of clause (ii) of the immediately
preceding sentence, without notice to any Grantor, the Collateral Agent and the
Buyers may assign or otherwise transfer their rights and obligations under this
Agreement and any of the other Transaction Documents, to any other Person and
such other Person shall thereupon become vested with all of the benefits in
respect thereof granted to the Collateral Agent and the Buyers herein or
otherwise. Upon any such assignment or transfer, all references in this
Agreement to the Collateral Agent or any such Buyer shall mean the assignee of
the Collateral Agent or such Buyer. None of the rights or obligations of any
Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent, and any such assignment or transfer
without the consent of the Collateral Agent shall be null and void.

 

 
23

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(e)    Upon the Payment in Full of the Obligations, (i) this Agreement and the
security interests created hereby shall terminate and all rights to the
Collateral shall revert to the respective Grantor that granted such security
interests hereunder, and (ii) the Collateral Agent will, upon any Grantor’s
request and at such Grantor’s expense, (A) return to such Grantor such of the
Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof, (B) execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination,
all without any representation, warranty or recourse whatsoever and (C)
authorize the filing of a UCC-3 termination statement.

 

(f)     THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
THEREIN WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. FURTHER, THE LAW OF THE
STATE OF ILLINOIS SHALL APPLY TO ALL DISPUTES OR CONTROVERSIES ARISING OUT OF OR
CONNECTED TO OR WITH THIS AGREEMENT WITHOUT REGARD TO CONFLICT OF LAW
PRINCIPLES.

 

(g)     CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT RELATED
HERETO SHALL BE BROUGHT EXCLUSIVELY IN THE OF THE STATE OR FEDERAL COURTS
SITTING IN CHICAGO, ILLINOIS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH GRANTOR HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE FOREGOING COURTS. EACH GRANTOR
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE FOREGOING
COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT ITS ADDRESS FOR NOTICES AS SET
FORTH ON THE SIGNATURE PAGE HERETO AND TO THE SECRETARY OF STATE OF THE STATE OF
ILLINOIS, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT TO SERVE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST EACH GRANTOR IN ANY OTHER JURISDICTION. ANY GRANTOR
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING
OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY OF THE FOREGOING COURTS REFERRED
TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT ANY GRANTOR HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH GRANTOR
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS.

 

 
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(h)     WAIVER OF JURY TRIAL, ETC. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS
UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, OR UNDER ANY AMENDMENT,
WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN
THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM
ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR THE
OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH GRANTOR
CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE COLLATERAL
AGENT OR ANY BUYER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT COLLATERAL
AGENT OR ANY BUYER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR
COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH GRANTOR HEREBY
ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL
AGENT ENTERING INTO THIS AGREEMENT.

 

(i)     Each Grantor irrevocably consents to the service of process of any of
the aforesaid courts in any such action, suit or proceeding by the mailing of
copies thereof by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to any Grantor at its address provided herein,
such service to become effective ten (10) days after such mailing.

 

(j)     Nothing contained herein shall affect the right of the Collateral Agent
to serve process in any other manner permitted by law or commence legal
proceedings or otherwise proceed against any Grantor or any property of any
Grantor in any other jurisdiction.

 

(k)    Each Grantor irrevocably and unconditionally waives any right it may have
to claim or recover in any legal action, suit or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.

 

(l)     Section headings herein are included for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.

 

(m)   This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original, but all of which taken together constitute one and the same
Agreement. Delivery of any executed counterpart of a signature page of this
Agreement by pdf, facsimile or other electronic transmission shall be effective
as delivery of a manually executed counterpart of this Agreement.

 

(n)    This Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by Collateral Agent, any Buyer or any other Person
(upon (i) the occurrence of any Insolvency Proceeding of any of the Company or
any Grantor or (ii) otherwise, in all cases as though such payment had not been
made.

 

 
25

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SECTION 11.     Material Non-Public Information. Upon receipt or delivery by the
Company of any notice in accordance with the terms of this Agreement, unless the
Company has in good faith determined that the matters relating to such notice do
not constitute material, non-public information relating to the Company or any
of its Subsidiaries, the Company shall within two (2) Business Day after any
such receipt or delivery publicly disclose such material, non-public information
on a Current Report on Form 8-K or otherwise. In the event that the Company
believes that a notice contains material, non-public information relating to the
Company or any of its Subsidiaries, the Company so shall indicate to the
Collateral Agent and any applicable Buyer contemporaneously with delivery of
such notice, and in the absence of any such indication, the Collateral Agent and
each Buyer shall be allowed to presume that all matters relating to such notice
do not constitute material, non-public information relating to the Company or
its Subsidiaries. Nothing contained in this Section 11 shall limit any
obligations of the Company, or any rights of the Collateral Agent or any Buyer,
under Section 4(i) of the Securities Purchase Agreement.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

 
26

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IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.

 

GRANTORS:

 

VERITEQ CORPORATION

 

 

 

By:     /s/ Scott R. Silverman                               

           Name: Scott R. Silverman
           Title: Chief Executive Officer
     

Veriteq acquisition corporation

 

 

 

By:     /s/ Scott R. Silverman                                

           Name: Scott R. Silverman
           Title: Chief Executive Officer
     

positiveid animal health corporation

 

 

 

By:     /s/ Scott R. Silverman                                

           Name: Scott R. Silverman
           Title: Chief Executive Officer

 

 

Acknowledged and agreed to by:

 

 

VTQ IP HOLDING CORPORATION

 

 

By:     /s/ Allison Tomek                                

Name: Allison Tomek
Title: Secretary

 

 

--------------------------------------------------------------------------------

 

 

ACCEPTED BY:

HUDSON BAY MASTER FUND LTD.,
as Collateral Agent

 

 

 

By:     /s/ Yoav Roth                                      

Name: Yoav Roth
Title: Authorized Signatory

 

 
 

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EXHIBIT A

 

Assignment For Security
[Trademarks] [Patents] [Copyrights]

 

WHEREAS, ______________________________ (the “Assignor”) [has adopted, used and
is using, and owns the trademarks and service marks listed on the annexed
Schedule 1A in which it is referenced as the owner of record, which trademarks
and service marks are registered or applied for in the United States Patent and
Trademark Office (the “Trademarks”)] [owns the letter patents, design patents
and utility patents listed on the annexed Schedule 1A in which it is referenced
as the owner of record, which patents are issued or applied for in the United
States Patent and Trademark Office (the “Patents”)] [owns the copyrights listed
on the annexed Schedule 1A in which it is referenced as the owner of record,
which copyrights are registered in the United States Copyright Office (the
“Copyrights”)];

 

WHEREAS, the Assignor has entered into a Security and Pledge Agreement, dated as
of November 13, 2013 (as amended, restated or otherwise modified from time to
time the “Security Agreement”), in favor of Hudson Bay Master Fund Ltd., as
collateral agent for certain purchasers (the “Assignee”);

 

WHEREAS, pursuant to the Security Agreement, the Assignor has assigned to the
Assignee and granted to the Assignee for the benefit of the Buyers (as defined
in the Security Agreement) a continuing security interest in all right, title
and interest of the Assignor in, to and under the [Trademarks, together with,
among other things, the good-will of the business symbolized by the Trademarks]
[Patents] [Copyrights] and the applications and registrations thereof, and all
proceeds thereof, including, without limitation, any and all causes of action
which may exist by reason of infringement thereof and any and all damages
arising from past, present and future violations thereof (the “Collateral”), to
secure the payment, performance and observance of the “Obligations” (as defined
in the Security Agreement);

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Assignor does hereby pledge, convey, sell,
assign, transfer and set over unto the Assignee and grants to the Assignee for
the benefit of the Buyers a continuing security interest in the Collateral to
secure the prompt payment, performance and for the benefit of the Buyers
observance of the Obligations.

 

The Assignor does hereby further acknowledge and affirm that the rights and
remedies of the Assignee with respect to the Collateral are more fully set forth
in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.

 

 
 

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IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly executed
by its officer thereunto duly authorized as of _____________, 2013

 

 

[GRANTORS]

 

By:     ______________________________

Name:
Title:

 

 
 

--------------------------------------------------------------------------------

 

 

STATE OF____________

COUNTY OF __________

 
ss.:

 

On this ____ day of _______________, 2013, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that s/he is
the                                          of                                                        
, a                                           , and that s/he executed the
foregoing instrument in the firm name of
_______________________________________, and that s/he had authority to sign the
same, and s/he acknowledged to me that he executed the same as the act and deed
of said firm for the uses and purposes therein mentioned.

 

 

 

 

 

 

 
 

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SCHEDULE 1A TO ASSIGNMENT FOR SECURITY

 

[Trademarks and Trademark Applications]
[Patent and Patent Applications]
[Copyright and Copyright Applications]
Owned by ______________________________