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Exhibit 10.3

Execution Copy

 

 

SECURITY AGREEMENT

Dated April 21, 2008

From

TURBOSONIC TECHNOLOGIES, INC.,

as Grantor

to

CANADIAN IMPERIAL BANK OF COMMERCE,

as Lender

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TABLE OF CONTENTS

　

Page

SECTION 1.

Grant of Security

2

SECTION 2.

Security for Obligations

3

SECTION 3.

Grantor Remain Liable

3

SECTION 4.

Delivery and Control of Intercompany Notes

3

SECTION 5.

Maintaining Letter-of-Credit Rights

3

SECTION 6.

Representations and Warranties

3

SECTION 7.

Further Assurances

6

SECTION 8.

Post-Closing Changes; Collections on Receivables and Related Contracts

7

SECTION 9.

Letters of Credit

8 SECTION 10. Transfers and Other Liens 8 SECTION 11. Lender May Perform 8
SECTION 12. Remedies 8 SECTION 13. Indemnity and Expenses 10 SECTION 14.
Amendments; Waivers 10 SECTION 15. Notices, Etc 10 SECTION 16. Continuing
Security Interest; Assignments under the Banking Agreement 11 SECTION 17.
Release; Termination 11 SECTION 18. Execution in Counterparts 12 SECTION 19.
Limitation of Liability 12 SECTION 20. Governing Law 12 SECTION 21. Submission
to Jurisdiction and Waiver 12 SECTION 22. Conflicts 13

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Schedules

Schedule I - Location, Chief Executive Office, Place Where Agreements Are
Maintained, Type Of Organization, Jurisdiction Of Organization And
Organizational Identification Number Schedule II - Other Names, Etc.

 

 

 

 

 

 

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SECURITY AGREEMENT

SECURITY AGREEMENT (this “Agreement”) dated April 21, 2008 made by Turbosonic
Technologies, Inc., a Delaware corporation (the “Grantor”), in favor of Canadian
Imperial Bank of Commerce (the “Lender”).

PRELIMINARY STATEMENTS

(1)

A Subsidiary of the Grantor, Turbosonic Inc. has entered into a Banking
Agreement dated January 14, 2008 (said agreement including all schedules
attached thereto, as amended, amended and restated, supplemented or otherwise
modified from time to time, being the “Banking Agreement”; terms defined therein
and not otherwise defined herein shall have the meanings specified therein) with
the Lender.

(2)

In order to induce the Lender to enter into the Banking Agreement, the Grantor
has agreed to (a) enter into a Guaranty dated as of the date hereof (as amended,
amended and restated, supplemented or otherwise modified from time to time, the
“Guaranty”) in favor of the Lender and (b) grant a continuing security interest
in and to the Collateral (as hereinafter defined) to the Lender to secure the
Obligations (as such term is defined in the Guaranty) of the Grantor under the
Guaranty.

(3)

It is a condition precedent to the issuance of the Credits and letters of credit
by the Lender (the “Letters of Credit”), that the Grantor shall have granted the
security interest and made the pledge contemplated by this Agreement.

(4)

The Lender has agreed to accept the pledge and the grant of a security interest
under this Agreement as security for the Secured Obligations (as defined below)
secured thereby.

(5)

The Grantor will derive substantial direct and indirect benefit from the
transactions contemplated by the Banking Agreement.

(6)

Unless otherwise defined in this Agreement or the Banking Agreement, terms
defined in Article 8 or 9 of the UCC (as defined below) are used in this
Agreement as such terms are defined in such Article 8 or 9.  “UCC” means the
Uniform Commercial Code as in effect, from time to time, in the State of New
York; provided 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, “UCC” 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.

NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to issue the Credits and the Letters of Credit, the Grantor hereby agrees
with the Lender as follows:

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SECTION 1.

Grant of Security.  The Grantor, in order to secure the Secured Obligations (as
defined below), hereby grants and pledges to the Lender a lien on and security
interest in, its right, title and interest in and to the following, in each
case, as to each type of property described below, whether now owned or
hereafter acquired by the Grantor, wherever located, and whether now or
hereafter existing or arising (collectively, the “Collateral”):

(a)

all accounts, chattel paper (including, without limitation, tangible chattel
paper and electronic chattel paper), instruments (including, without limitation,
promissory notes), general intangibles (including, without limitation, payment
intangibles), and other obligations of any kind, whether or not arising out of
or in connection with the sale or lease of goods or the rendering of services
and whether or not earned by performance, and all rights now or hereafter
existing in and to all supporting obligations and in and to all security
agreements, mortgages, Liens, leases, letters of credit and other contracts
securing or otherwise relating to the foregoing property (any and all of such
accounts, chattel paper, instruments, general intangibles and other obligations,
to the extent not referred to in clause (b) or (c) below, being the
“Receivables”, and any and all such supporting obligations, security agreements,
mortgages, Liens, leases, letters of credit and other contracts being the
“Related Contracts”);

(b)

all intercompany notes and all certificates or instruments evidencing such
intercompany notes; and

(c)

all documents, letter of credit rights (whether or not the letter of credit is
evidenced by a writing), money and books and records;

(d)

all goods, of any nature whatsoever, including but not limited to, all
equipment, inventory and fixtures, and any accessions thereto;

(e)

all property and interest in property now or after the date of this Agreement
coming into possession, custody or control of the Lender in any way and for any
purpose (whether for safekeeping, deposit, custody, pledge, transmission,
collection or otherwise);

(f)

all other property and interests in property of the Grantor constituting
personal property or fixtures; and

(g)

all proceeds of, products of, collateral for, income, and other payments now or
hereafter due and payable with respect to, and supporting obligations relating
to, any and all of the Collateral (including, without limitation, proceeds,
collateral and supporting obligations that constitute property of the types
described in clauses (a) through (f) of this Section 1 and this clause (g)) and,
to the extent not otherwise included, all (A) contract rights and rights to the
payment of money and payments under insurance (whether or not the Lender is the
loss payee thereof), and any indemnity, warranty or guaranty, payable by reason
of loss or damage to or otherwise with respect to any of the foregoing
Collateral, (B) tort claims, including, without limitation, all commercial tort
claims and (C) cash.

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Notwithstanding anything to the contrary contained herein, the security
interests granted under this Agreement shall not extend to any permit, lease,
license, contract or other instrument of the Grantor if the grant of a security
interest in such permit, lease, license, contract or other instrument in the
manner contemplated by this Agreement, under the terms thereof or under
applicable law, is expressly prohibited and would result in the termination,
breach, revocation or voidness  thereof or give the other parties thereto the
right to terminate, revoke, void, accelerate or otherwise alter the Grantor’s
rights, titles and interests thereunder (including upon the giving of notice or
the lapse of time or both); provided that any such limitation on the security
interests granted hereunder shall only apply to the extent that any such
prohibition would not be rendered ineffective pursuant to the UCC or any other
applicable law or principles of equity.

SECTION 2.

Security for Obligations.  This Agreement secures the payment and performance in
full when due, whether at demand, stated maturity, by acceleration or otherwise
of all the Obligations of the Grantor under the Guaranty (the “Secured
Obligations”), whether now existing or arising after the date of this Agreement.

SECTION 3.

Grantor Remain Liable.  Anything herein to the contrary notwithstanding, (a) the
Grantor shall remain liable under the contracts and agreements included in the
Grantor’s Collateral to the extent set forth therein to perform all of its
duties and obligations thereunder to the same extent as if this Agreement had
not been executed, (b) the exercise by the Lender of any of the rights hereunder
shall not release the Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral and (c) the Lender shall not
have any obligation or liability under the contracts and agreements included in
the Collateral by reason of this Agreement or the Guaranty, nor shall the Lender
be obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder or thereunder.

SECTION 4.

Delivery and Control of Intercompany Notes.  All certificates or instruments
representing or evidencing intercompany notes shall be delivered to and held by
or on behalf of the Lender pursuant to this Agreement 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
reasonably satisfactory to the Lender.  If an Event of Default shall have
occurred and be continuing, the Lender shall have the right, at any time after
the occurrence and during the continuance of such Event of Default, in its
reasonable discretion and without notice to the Grantor other than as required
by law, to transfer to or to register in the name of the Lender or any of its
nominees any or all of the intercompany notes.  In addition, the Lender shall
have the right at any time, after the occurrence and during the continuance of
an Event of Default, to exchange certificates or instruments representing or
evidencing intercompany notes for certificates or instruments of smaller or
larger denominations.

SECTION 5.

Maintaining Letter-of-Credit Rights.  Prior to the Termination Date, the Grantor
will maintain all letter-of-credit rights assigned to the Lender so that the
Lender has control of the letter-of-credit rights in the manner specified in
Section 9-107 of the UCC.

SECTION 6.

Representations and Warranties.  The Grantor represents and warrants, and in the
case of clauses (l) and (m), covenants as follows:

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(a)

The Grantor is duly organized and validly existing under the laws of the
jurisdiction of its incorporation or formation and is a “registered
organization” within the meaning of the Uniform Commercial Code, as in effect in
such jurisdiction.  The Grantor is not organized under the laws of any other
state, and is qualified to do business and in good standing in all states and
other jurisdictions in which the failure to be so qualified and in good standing
would have a Material Adverse Effect or a material adverse effect on the ability
of the Grantor to enforce the collection of Receivables due from customers
residing in such locations.

(b)

This Agreement has been duly authenticated and delivered by the Grantor and
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors’ rights generally and by general principles of equity
(whether enforcement is sought by proceedings in equity or at law) (such
limitations, the “Bankruptcy Exceptions”).  

(c)

The Grantor’s exact legal name, as defined in Section 9-503(a) of the UCC, is
correctly set forth in Schedule I hereto.  The Grantor is located (within the
meaning of Section 9-307 of the UCC) in the state or jurisdiction set forth on
Schedule I hereto.  The Grantor has its chief executive office and the office in
which it maintains the original copies of each Related Contract to which the
Grantor is a party and originals of all chattel paper that evidence Receivables,
in the state or jurisdiction set forth in Schedule I hereto.  The information
set forth in Schedule I hereto with respect to the Grantor is true and accurate
in all material respects.  In the five years prior to the date hereof, the
Grantor has not previously changed its name, location, chief executive office,
place where it maintains its agreements, type of organization, jurisdiction of
organization or organizational identification number from those set forth in
Schedule I hereto except as disclosed in Schedule II hereto.

(d)

The Grantor is the legal and beneficial owner of the Collateral free and clear
of any Lien, claim, option or right of others, except for the security interest
created under this Agreement or permitted under the Banking Agreement.  No
effective financing statement or other instrument similar in effect covering all
or any part of such Collateral or listing the Grantor or any trade name of the
Grantor as debtor is on file in any recording office, except such as may have
been filed in favor of the Lender relating to the Banking Agreement, this
Agreement or the Guaranty (collectively, the “Loan Documents”) or with respect
to Liens of others permitted under the Banking Agreement.

(e)

Except as disclosed on Schedule II hereto, the Grantor conducts no business
under any name or trade name other than its exact legal name as set forth in
Schedule I hereto.  

(f)

Except for any inventory in transit in the ordinary course of the Grantor’s
business, the Grantor has exclusive possession and control of its inventory and
equipment.

(g)

This Agreement creates, as of its date, a continuing Lien in the Grantor’s
Collateral, securing the payment of the Secured Obligations.

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(h)

There is no action, suit or proceeding pending or, to the Grantor’s knowledge,
threatened against or otherwise affecting the Grantor before any court or other
governmental authority or before any arbitrator or mediator the result of which,
either singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

(i)

All filings and other actions (including, without limitation, actions necessary
to obtain control of Collateral as provided in Sections 9-104, 9-106 of the UCC)
necessary to perfect the security interest in the Collateral created under this
Agreement have been duly made or taken and are in full force and effect, and
this Agreement creates in favor of the Lender a valid and, together with such
filings and other actions, perfected first priority security interest (subject
to prior Liens permitted under the Banking Agreement) in the Collateral,
securing the payment of the Secured Obligations.

(j)

(i)  The execution, delivery, recordation, filing or performance by the Grantor
of this Agreement, (ii) the grant by the Grantor of the Liens pursuant to this
Agreement, (iii) the perfection or maintenance of the Liens created under this
Agreement (including the first priority, subject to prior Liens permitted under
the Banking Agreement, nature thereof), (iv) the exercise by the Lender of its
voting or other rights provided for in this Agreement and (v) the exercise by
the Lender of its remedies in respect of the Collateral pursuant to this
Agreement and the other Loan Documents, will not require any consent, approval,
authorization or other order of, or any notice to or filing with, any court,
regulatory body, administrative agency or other governmental body (other (x)
than such filings required in order to perfect any security interest granted by
this Agreement, and (y) any other consent, approval, authorization, order,
notice or filing, the failure of which to make or obtain could not reasonably be
expected to have a Material Adverse Effect), and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter, by-laws or similar governing documents of the Grantor or any
agreement, indenture or other instrument to which the Grantor is a party or by
which the Grantor or any of the Grantor’s respective property is bound, or
violate or conflict with any laws, administrative regulations or rulings or
court decrees applicable to the Grantor or the Grantor’s respective property,
except for any violation, breach, conflict or default that could not reasonably
be expected to have a Material Adverse Effect and except that in each of the
foregoing cases, any foreclosure or other exercise of remedies by the Lender
will require additional approvals and consents that have not been obtained from
foreign and domestic regulators and from lenders to, and suppliers, customers or
other contractual counterparties of the Grantor, and the failure to obtain such
approval or consent could result in a default under, or breach of, agreements or
other legal obligations of the Grantor.

(k)

None of the Collateral constitutes, or is the Proceeds of, farm products.

(l)

If any amount payable under or in connection with any of the Collateral shall be
evidenced by any “electronic chattel paper” (as defined in the UCC) or any
“transferable record,” as that term is defined in Section 201 of the Federal
Electronic Signatures in Global and National Commerce Act, or in § 16 of the
Uniform Electronic Transactions Act as in effect in any relevant jurisdiction,
the Grantor shall promptly notify the Lender thereof and, at the request of the
Lender, shall take such action as the Lender may reasonably request to vest in
the Lender control under UCC § 9 105 of such Electronic Chattel Paper or control
under Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or, as the case may be, § 16 of the Uniform Electronic Transactions
Act, as so in effect in such jurisdiction, of such transferable record.  The
Lender agrees with the Grantor that the Lender will arrange, pursuant to
procedures reasonably satisfactory to the Lender and so long as such procedures
will not result in the Lender’s loss of control, for the Grantor to make
alterations to the Electronic Chattel Paper or transferable record permitted
under UCC § 9 105 or, as the case may be, Section 201 of the Federal Electronic
Signatures in Global and National Commerce Act of § 16 of the Uniform Electronic
Transactions Act for a party in control to allow alterations without loss of
control, unless an Event of Default has occurred and is continuing.

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(m)

Upon reasonable request and notice to the Grantor, the Lender shall have full
and free access during normal business hours to all of the books, correspondence
and records of the Grantor relating to the Collateral, and the Lender and its
representatives may examine the same, take extracts therefrom and make
photocopies thereof, in each case at the Lender’s own expense.

SECTION 7.

Further Assurances.

(a)

The Grantor agrees that from time to time, at the expense of the Grantor, the
Grantor will promptly execute and deliver, or otherwise authenticate, all
further instruments and documents, and take all further action that may be
necessary, or that the Lender may reasonably request and that is within the
power of the Grantor, consistent with its currently existing contractual and
other legal obligations, in order to perfect any pledge, assignment or security
interest granted or purported to be granted by the Grantor hereunder or to
enable the Lender to exercise and enforce its rights and remedies hereunder with
respect to any Collateral.  Without limiting the generality of the foregoing,
the Grantor will promptly with respect to Collateral: (i) upon the request of
the Lender mark conspicuously each chattel paper included in Receivables, each
Related Contract and each of its records pertaining to such Collateral with a
legend, in form and substance reasonably satisfactory to the Lender, indicating
that such chattel paper, Related Contract or Collateral is subject to the
security interest granted hereby; provided, however, that no such legend shall
be required if such Collateral is delivered to the Lender pursuant to clause
(ii) below, (ii) if any such Collateral having value in excess of $10,000 shall
be evidenced by a promissory note or other instrument or chattel paper, deliver
and pledge to the Lender hereunder such note or instrument or chattel paper duly
indorsed or accompanied by duly executed instruments of transfer or assignment,
all in form and substance reasonably satisfactory to the Lender, (iii) execute
or authenticate and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary,
or as the Lender may reasonably request, in order to perfect the security
interest granted or purported to be granted by the Grantor hereunder, (iv) take
all action necessary to ensure that the Lender has control of Collateral
consisting of letter-of-credit rights and transferable records as provided in
Sections 9-104, 9-105, 9-106 and 9-107 of the UCC, and (v) deliver to the Lender
evidence that all other action that the Lender may deem reasonably necessary in
order to perfect the security interest created by the Grantor under this
Agreement and the other Loan Documents has been taken.

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(b)

(i)

The Grantor hereby authorizes the Lender to file one or more financing or
continuation statements relating to all or any part of the Collateral, and
amendments thereto to correct the name and address of the Grantor or the Lender
or to correct the description of the Collateral contained therein to be
consistent with the description of the Collateral contained in this Agreement,
in each case without the signature of the Grantor where permitted by law and
which shall be filed on behalf of the Lender.  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.

(ii)

The Grantor ratifies its authorization for the Lender to have filed such
financing statements, continuation statements or amendments, to the extent such
amendments are permitted pursuant to clause (i) above, filed prior to the date
hereof.

(c)

The Grantor will furnish to the Lender from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with such Collateral as the Lender may reasonably request,
all in reasonable detail.

SECTION 8.

Post-Closing Changes; Collections on Receivables and Related Contracts.

(a)

If the Grantor changes its name, type of organization, jurisdiction of
organization or organizational identification number from those set forth in
Section 6(c) of this Agreement, the Grantor will furnish written notice within
10 Business Days to the Lender and will take all action reasonably required by
the Lender for the purpose of perfecting or protecting the security interest
granted by this Agreement.  The Grantor will hold and preserve its records
relating to the Collateral, including, without limitation, the Related
Contracts, and will permit representatives of the Lender at any time and at the
Lender’s expense during normal business hours to inspect and make abstracts from
such records and other documents.  If the Grantor does not have an
organizational identification number and later obtains one, it will forthwith
notify the Lender of such organizational identification number.  

(b)

Except as otherwise provided in this subsection (b), the Grantor will continue
to collect, at its own expense, all amounts due or to become due under the
Receivables and Related Contracts.  In connection with such collections, the
Grantor may take such action as it may deem necessary to enforce collection of
the Receivables and Related Contracts; provided, however, that the Lender shall
have the right at any time, upon the occurrence and during the continuance of an
Event of Default and upon written notice to the Grantor of its intention to do
so, to notify the obligors under any Receivables and Related Contracts of the
security interest in such Receivables and Related Contracts of the Lender and to
direct such obligors to make payment of all amounts due or to become due to the
Grantor thereunder directly to the Lender and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Receivables and
Related Contracts, to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as the Grantor might have
done, and to otherwise exercise all rights with respect to such Receivables and
Related Contracts, including, without limitation, those set forth in Section
9-607 of the UCC.  After receipt by the Grantor of the notice from the Lender
referred to in the proviso to the preceding sentence, (i) all amounts and
proceeds (including, without limitation, instruments) received by the Grantor in
respect of the Receivables and Related Contracts shall be received in trust for
the benefit of the Lender hereunder, shall be segregated from other funds of the
Grantor and shall be forthwith paid over to the Lender in the same form as so
received (with any necessary indorsement) to be held by the Lender and either
(A) released to the Grantor so long as no Event of Default shall have occurred
and be continuing or (B) upon the occurrence and during the continuance of an
Event of Default, the Lender shall apply such cash collateral to the Secured
Obligations outstanding under the Loan Documents and secured thereby and (ii)
the Grantor will not adjust, settle or compromise the amount or payment of any
Receivable or amount due on any Related Contract, release wholly or partly any
obligor thereof, or allow any credit or discount thereon.  The Grantor will not
permit or consent to the subordination of its right to payment under any of the
Receivables and Related Contracts to any other indebtedness or obligations of
the obligor thereof.

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SECTION 9.

Letters of Credit. If the Grantor is at any time a beneficiary under a letter of
credit now or hereafter issued in favor of the Grantor, the Grantor shall
promptly notify the Lender thereof, and upon the occurrence and during the
continuance of an Event of Default, the Grantor will, promptly upon request by
the Lender, either (i) request that the issuer and any confirmer of such letter
of credit consent to an assignment to the Lender of the proceeds of any drawing
under the letter of credit or (ii) make commercially reasonable efforts to
arrange for the Lender to become the transferee beneficiary of the letter of
credit, to the extent such letter of credit is by its terms transferable, and in
each case under clause (i) and (ii), the Lender shall apply the proceeds of any
drawing under such letter of credit to the outstanding balances of the Secured
Obligations.

SECTION 10.

Transfers and Other Liens.  The Grantor agrees that it will not (i) sell, assign
or otherwise dispose of, or grant any option with respect to, any of the
Collateral, other than sales, assignments and other dispositions of Collateral
permitted under the terms of the Loan Documents or (ii) create or suffer to
exist any Lien upon or with respect to any of the Collateral except for the
pledge, assignment and security interest created under this Agreement, or
permitted under the Banking Agreement or any other Loan Documents.

SECTION 11.

Lender May Perform.  If the Grantor fails to perform any agreement contained
herein, the Lender may, but without any obligation to do so and without notice,
itself perform, or cause performance of, such agreement, and the expenses of the
Lender incurred in connection therewith shall be payable by the Grantor under
Section 13; provided that the Lender shall notify the Grantor of any such action
taken by the Lender within a reasonable period of time following such action.

SECTION 12.

Remedies.  If an Event of Default shall have occurred and be continuing:

(a)

The Lender may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party upon default under the UCC (whether or
not the UCC applies to the affected Collateral) and also may:  (i) require the
Grantor to, and the Grantor hereby agrees that it will at its expense and upon
request of the Lender forthwith, assemble all or part of the Collateral as
directed by the Lender and make it available to the Lender at a place and time
to be designated by the Lender that is reasonably convenient to all parties,
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Lender’s
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable, and (iii) exercise
any and all rights and remedies of the Grantor under or in connection with the
Collateral, or otherwise in respect of the Collateral, including, without
limitation, (A) any and all rights of the Grantor to demand or otherwise require
payment of any amount under, or performance of any provision of, the
Receivables, the Related Contracts and the other Collateral, and (B) exercise
all other rights and remedies with respect to the Receivables, the Related
Contracts and the other Collateral, including, without limitation, those set
forth in Section 9-607 of the UCC.  The Grantor agrees that, to the extent
notice of sale shall be required by law, at least twenty days’ notice to the
Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification.  The Lender
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given.  The Lender 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.

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(b)

Any cash held by or on behalf of the Lender and all cash proceeds received by or
on behalf of the Lender in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the reasonable
discretion of the Lender, be held by the Lender as collateral for, and/or then
or at any time thereafter applied (after payment of any amounts payable to the
Lender pursuant to Section 13) in whole or in part by the Lender against, all or
any part of the Secured Obligations secured thereby, in the order specified in
clause (e) of this Section 12.

(c)

All payments received by the Grantor under or in connection with any assigned
agreement or otherwise in respect of the Collateral shall be received in trust
for the benefit of the Lender, shall be segregated from other funds of the
Grantor and shall be forthwith paid over to the Lender in the same form as so
received (with any necessary indorsement).

(d)

The Lender may, without notice to the Grantor except as required by law and at
any time or from time to time, charge, set-off and otherwise apply all or any
part of the Secured Obligations against any funds held by the Lender or in any
other deposit account of the Grantor held with the Lender in accordance with
clause (b) above.

(e)

All proceeds received by the Lender in respect of any sale, any collection from,
or other realization upon all or any part of the Collateral shall be applied in
full or in part by the Lender against, the Secured Obligations secured thereby
in the following order of priority:  first, to the payment of all reasonable
out-of-pocket costs and expenses of such sale, collection or other realization,
including reasonable out-of-pocket compensation to the Lender’s agents and
counsel, and all other reasonable out-of-pocket expenses, liabilities and
advances made or incurred by the Lender in connection therewith, and all amounts
for which the Lender is entitled to indemnification hereunder and all advances
made by the Lender hereunder for the account of the Grantor, and to the payment
of all costs and expenses paid or incurred by the Lender in connection with the
exercise of any right or remedy hereunder or under the Banking Agreement, all in
accordance with the terms hereof or thereof; second, to the extent of any excess
of such proceeds, to the payment of all other Secured Obligations secured
thereby for the benefit of the Lender; third, to the extent of any excess of
such proceeds, to the cash collateralization of outstanding Letters of Credit;
and fourth, to the extent of any excess of such proceeds, to the payment to or
upon the order of the Grantor or to whosoever may be lawfully entitled to
receive the same or as a court of competent jurisdiction may direct.

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SECTION 13.

Indemnity and Expenses.

(a)

The Grantor agrees to indemnify, defend and save and hold harmless the Lender
and each of its respective Affiliates, officers, directors, employees, agents
and advisors (each, an “Indemnified Party”) from and against, and shall pay on
demand, any and all claims, damages, losses, liabilities and reasonable
out-of-pocket expenses (including, without limitation, fees and expenses of
counsel) that may be incurred by or asserted or awarded against any Indemnified
Party, in each case arising out of or in connection with or resulting from this
Agreement (including, without limitation, enforcement of this Agreement) except
to the extent such claim, damage, loss, liability or expense is found in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party’s gross negligence or willful misconduct.

(b)

The Grantor will upon demand pay to the Lender the amount of any and all
reasonable expenses, including, without limitation, the reasonable out-of-pocket
fees and expenses of its counsel and of any experts and agents, that the Lender
may incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Lender hereunder or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.

SECTION 14.

Amendments; Waivers.  No amendment or waiver of any provision of this Agreement,
and no consent to any departure by the Grantor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender and, in
the case of an amendment, the Grantor, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.  No failure on the part of the Lender to exercise, and no delay in
exercising any right hereunder, 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.

SECTION 15.

Notices, Etc.  All notices, demands, requests, and other communications provided
for hereunder shall be in writing (including telegraphic, telecopier or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to, (i)
in the case of the Lender, addressed to its respective address specified in the
Banking Agreement or (ii) in the case of the Grantor, addressed to its
respective address specified in the Guaranty, or (iii) in each case, at such
other address as shall be designated by such party in a written notice to the
other parties.  Each such notice, request or other communication shall be
effective (a) if given by telex, when such telex is transmitted to the telex
number specified in or pursuant to this Section 15 and the appropriate
answerback is received, (b) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, (c) when telecopied with confirmation or (d) if given by any other
means, when delivered at the address specified in or pursuant to this Section
15; except that notices and other communications to the Lender shall not be
effective until received by the Lender.  Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or of
any Schedule hereto shall be effective as delivery of an original executed
counterpart thereof.

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SECTION 16.

Continuing Security Interest; Assignments under the Banking Agreement.  This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the Termination Date (as defined
below in Section 17), (b) be binding upon the Grantor, its successors and
assigns and (c) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its respective successors,
transferees and assigns.  Without limiting the generality of the foregoing
clause (c), the Lender may assign or otherwise transfer all or any portion of
its rights and obligations under the Banking Agreement to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to the Lender in the Loan Documents or otherwise, in each case
subject to the provisions of the Banking Agreement.  

SECTION 17.

Release; Termination.

(a)

On the Termination Date with respect to the Grantor, this Agreement shall
terminate (provided that all indemnities set forth herein including, without
limitation in Section 13 hereof, shall survive such termination) and the Lender,
at the request and expense of the Grantor, will promptly execute and deliver to
the Grantor a proper instrument or instruments (including Uniform Commercial
Code termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement (and any ancillary security or perfection
documents), and will duly assign, transfer and deliver to the Grantor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Lender and as has not theretofore been sold or
otherwise applied or released pursuant to this Agreement.  As used in this
Agreement, “Termination Date” shall mean the date upon which (i) no Secured
Obligations of the Grantor remain outstanding under any Loan Document to which
it is a party, and (ii) all Credits or Letters of Credit under the Banking
Agreement which would comprise Secured Obligations have been terminated.

(b)

In the event that (i) any part of the Collateral is sold or otherwise disposed
of (to a Person other than the Grantor) at any time prior to the Termination
Date, in connection with a sale or disposition permitted by the Banking
Agreement or is otherwise released at the direction of the Lender, and (ii) the
proceeds of such sale or disposition (or from such release) are applied at the
time of such disposition in accordance with the terms of the Banking Agreement,
to the extent required to be so applied, then the Lender, at the request and
expense of the Grantor, will duly release from the security interest created
hereby (and will execute and deliver such documentation, including termination
or partial release statements and the like in connection therewith) and assign,
transfer and deliver to the Grantor (without recourse and without any
representation or warranty) such of the Collateral as is then being (or has
been) so sold or otherwise disposed of, or released, and as may be in the
possession of the Lender and has not theretofore been released pursuant to this
Agreement.  

(c)

The obligations of the Grantor under this Agreement are independent of the
Secured Obligations under or in respect of the Loan Documents, and a separate
action or actions may be brought and prosecuted against the Grantor to enforce
this Agreement, irrespective of whether any action is brought against any other
Credit Party or whether the Grantor or any other Credit Party is joined in any
such action or actions.

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(d)

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 Secured Obligations is rescinded or
must otherwise be returned by the Lender upon the insolvency, bankruptcy or
reorganization of the Grantor or otherwise, all as though such payment had not
been made.

SECTION 18.

Execution in Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
 Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of an original executed counterpart of
this Agreement.

SECTION 19.

Limitation of Liability.  The Grantor and, by its acceptance of this Agreement,
the Lender, hereby confirms that it is the intention of all such Persons that
this Agreement and the Secured Obligations hereunder not constitute a fraudulent
conveyance for purposes of bankruptcy law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or
state law to the extent applicable to this Agreement and the Secured Obligations
hereunder.  To effectuate the foregoing intention, the Lender and the Grantor
hereby irrevocably agree that the Secured Obligations under this Agreement at
any time shall be limited to the maximum amount as will result in the
Obligations of the Grantor under this Agreement not constituting a fraudulent
transfer or conveyance.

SECTION 20.

Governing Law.  This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.

SECTION 21.

Submission to Jurisdiction and Waiver.

(a)

The Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement and the other Loan Documents to which it is or is to
be a party, or for recognition or enforcement of any judgment, and the Grantor
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court.  The Grantor
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.  Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement in the courts of any jurisdiction.

(b)

The Grantor irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection that it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement to which it is or is to be a party in any New York
State or federal court.  The Grantor hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such suit, action or proceeding in any such court.

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(c)

THE GRANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE LOANS OR THE ACTIONS OF THE
LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

SECTION 22.

Conflicts.  In the event of a conflict between the Banking Agreement and this
Security Agreement, the Banking Agreement will prevail.

[SIGNATURE PAGES IMMEDIATELY FOLLOW]

 

 

 

 

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the date first
above written.

TURBOSONIC TECHNOLOGIES, INC., as Grantor

By: /s/ Edward F. Spink
Name: Edward F. Spink
Title: Chief Executive Officer

CANADIAN IMPERIAL BANK OF COMMERCE, as Lender

By: /s/ Mark Berlingieri
Name: Mark Berlingieri
Title: Authorized Signatory

Address:

1 King St. E.

Kitchener, ON N2G 2K4

Telephone:
Telecopy:

 

 

 

 

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Schedule I

Grantor’s exact legal name:  Turbosonic Technologies, Inc.

Grantor’s organizational identification number:  0565804

Grantor’s location:  Delaware

Grantor’s chief executive office is:
550 Parkside Drive, Suite A-14
Waterloo, Ontario, N2L 5V4 Canada

 

 

 

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Schedule II

Other names:
Turbotak Inc.
Turbotak Technologies Inc.

 

 

 

 

 

 

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