Exhibit 10.5

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of December 28, 2018 (this “Agreement”), is by
and among Enertec Systems 2001 Ltd., an Israeli corporation (the “Company”), any
subsidiary of the Company that is a signatory hereto either now joined or joined
in the future (such subsidiaries, the “Guarantors” and, together with the
Company, the “Debtors”) and the holder of that certain Secured Promissory Note
in the principal amount of $500,000 (the “Note”), signatory hereto, its
endorsees, transferees and assigns (collectively, the “Secured Lender”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to each of that certain (i) Securities Purchase Agreement,
dated as of May 15, 2018, by and between DPW Holdings, Inc., a Delaware
corporation and the parent company of the Company (“DPW”), and the Secured
Lender (the “May Agreement”), (ii) Securities Purchase Agreement, dated as of
July 2, 2018, by and between DPW and the Secured Lender (the “July Agreement”)
and (iii) Securities Purchase Agreement, dated as of September 2, 2018, by and
between DPW and the Secured Lender (the “September Agreement,” and collectively
with the May Agreement and the July Agreement, the “DPW Purchase Agreements”),
the Secured Lender extended credit to DPW pursuant to certain senior secured
convertible promissory notes issued by DPW to the Secured Lender (collectively,
the “DPW Notes”);

 

WHEREAS, pursuant to that certain Amendment No. 10 Agreement, dated as of
December 20, 2018, by and among DPW, the Secured Lender and Ault & Company, Inc.
(“Ault & Company”), (i) the parties thereto agreed to amend certain provisions
of the DPW Purchase Agreements and DPW Notes and (ii) the Secured Lender agreed
to extend credit to the Company pursuant to the Note;

  

WHEREAS, pursuant to that certain Performance Guaranty, dated as of December 28,
2018, by and among DPW, the Company, Microphase Corporation, Ault & Company and
the Secured Lender (the “Performance Guaranty”), Ault & Company, as principal,
agreed to guarantee the performance of the obligations of the Company under the
Note;

 

WHEREAS, pursuant to that certain Personal Guaranty, dated as of December 28,
2018, between Milton C. Ault III and the Secured Lender (the “Personal
Guaranty,” and together with this Agreement, the Note and the Performance
Guaranty, the “Transaction Documents”), Milton C. Ault III agreed to personally
guarantee the payment of the obligations of the Company under the Note;

 

WHEREAS, in order to induce the Secured Lender to fund the Company with respect
to the issuance of the Note, each Debtor has agreed to execute and deliver to
the Secured Lender this Agreement and to grant the Secured Lender a security
interest in certain property of such Debtor to secure the prompt payment,
performance and discharge in full of all of the Company’s obligations under the
Transaction Documents and the obligations required by any guarantors under any
guarantee that now or hereinafter may come into effect; 

 

   

 

 

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

 

1.       Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1.  Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”,
“document”, “equipment”, “fixtures”, “general intangibles”, “goods”,
“instruments”, “inventory”, “investment property”, “letter-of-credit rights”,
“proceeds” and “supporting obligations”) shall have the respective meanings
given such terms in Article 9 of the UCC.

(a)       “Collateral” means the collateral in which the Secured Lender is
granted a security interest by this Agreement and which shall comprise all the
assets of the Debtors, including, without limitation, the following personal
property of the Debtors, whether presently owned or existing or hereafter
acquired or coming into existence, wherever situated, and all additions and
accessions thereto and all substitutions and replacements thereof, and all
proceeds, products and accounts thereof, including, without limitation, all
proceeds from the sale or transfer of the Collateral and of insurance covering
the same and of any tort claims in connection therewith, and all dividends,
interest, cash, notes, securities, equity interest or other property at any time
and from time to time acquired, receivable or otherwise distributed in respect
of, or in exchange for, any or all of the Pledged Securities (as defined below):

 

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

 

(ii)       All contract rights and other general intangibles, including, without
limitation, all partnership interests, membership interests, stock or other
securities of the Debtors, rights under any of the Organizational Documents (as
defined below), agreements related to the Pledged Securities, licenses,
distribution and other agreements, computer software (whether “off-the-shelf”,
licensed from any third party or developed by any Debtor), computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, Intellectual Property and income tax
refunds;

 

(iii)       All accounts, together with all instruments, all documents of title
representing any of the foregoing, all rights in any merchandising, goods,
equipment, motor vehicles and trucks which any of the same may represent, and
all right, title, security and guaranties with respect to each account,
including any right of stoppage in transit;

 

(iv)       All documents, letter-of-credit rights, instruments and chattel
paper;

 

(v)       All commercial tort claims;

 

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(vi)       All deposit accounts and all cash (whether or not deposited in such
deposit accounts);

 

(vii)       All investment property;

 

(viii) All supporting obligations;

  

(ix)       All files, records, books of account, business papers, and computer
programs; and

 

(x)       the products and proceeds of all of the foregoing Collateral set forth
in clauses (i)-(ix) above.

 

Without limiting the generality of the foregoing, the “Collateral” shall include
all investment property and any general intangibles respecting ownership and/or
other equity interests of any Guarantor, including, without limitation, the
shares of capital stock and the other equity interests listed on Schedule H
attached hereto (as the same may be modified from time to time pursuant to the
terms hereof), and any other shares of capital stock and/or other equity
interests of any other direct or indirect subsidiary of any Debtor obtained in
the future, and, in each case, all certificates representing such shares and/or
equity interests and, in each case, all rights, options, warrants, stock, other
securities and/or equity interests that may hereafter be received, receivable or
distributed in respect of, or exchanged for, any of the foregoing and all rights
arising under or in connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.

 

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an
assignment of any asset which, in the event of an assignment, becomes void by
operation of applicable law or the assignment of which is otherwise prohibited
by applicable law (in each case to the extent that such applicable law is not
overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar
applicable law); provided, however, that, to the extent permitted by applicable
law, this Agreement shall create a valid security interest in such asset and, to
the extent permitted by applicable law, this Agreement shall create a valid
security interest in the proceeds of such asset.

 

(b)       “Event of Default” shall have the meaning ascribed to such term in
Section 6 hereof.

 

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(c)       “Intellectual Property” means the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, (i) all copyrights arising under the laws of the United
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, (ii) all letters patent of
the United States, any other country or any political subdivision thereof, all
reissues and extensions thereof, and all applications for letters patent of the
United States or any other country and all divisions, continuations and
continuations-in-part thereof, (iii) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade dress,
service marks, logos, domain names and other source or business identifiers, and
all goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether 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, or otherwise, and all
common law rights related thereto, (iv) all trade secrets arising under the laws
of the United States, any other country or any political subdivision thereof,
(v) all rights to obtain any reissues, renewals or extensions of the foregoing,
(vi) all licenses for any of the foregoing, and (vii) all causes of action for
infringement of the foregoing.

 

(d)       “Liens” means a lien, charge, pledge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.

 

(e)       “Necessary Endorsement” means undated stock powers endorsed in blank
or other proper instruments of assignment duly executed and such other
instruments or documents as the Secured Lender (as that term is defined below)
may reasonably request.

 

(f)       “Obligations” means all of the liabilities and obligations (primary,
secondary, direct, contingent, sole, joint or several) due or to become due, or
that are now or may be hereafter contracted or acquired, or owing to, of any
Debtor to the Secured Lender pursuant to this Agreement, the Note, the other
Transaction Documents, and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith, in each case,
whether now or hereafter existing, voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Secured Lender as a
preference, fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time.  Without
limiting the generality of the foregoing, the term “Obligations” shall include,
without limitation: (i) principal of, interest, and any other amounts owed on
the Note as set forth in the Note; (ii) any and all obligations due under the
Transaction Documents, (iii) any and all other fees, indemnities, costs,
obligations and liabilities of the Debtors from time to time under or in
connection with this Agreement, the Note, the other Transaction Documents and
any other instruments, agreements or other documents executed and/or delivered
in connection herewith or therewith; and (iv) all amounts (including but not
limited to post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.

 

(g)       “Organizational Documents” means, with respect to any Debtor, the
documents by which such Debtor was organized (such as articles of incorporation,
certificate of incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of designation
for preferred stock or other forms of preferred equity) and which relate to the
internal governance of such Debtor (such as bylaws, a partnership agreement or
an operating, limited liability or members agreement).

 

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(h)       “Permitted Liens” means the following:

 

(i)       Liens imposed by law for taxes that are not yet due or are being
contested in good faith, which in each case, have been appropriately reserved
for;

 

(ii)       carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and
other like Liens imposed by law, arising in the ordinary course of business and
securing obligations that are not overdue by more than thirty (30) days or are
being contested in good faith;

 

(iii)       pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations;

 

(iv) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;

 

(v)       Liens under this Agreement; and

 

(vi)       any other Liens in favor of the Secured Lender and any senior secured
creditors of the Company existing on the date hereof and disclosed on the
Disclosure Schedules (as defined below) hereto.

 

(i)       “Person” means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

 

(j)       “Pledged Interests” shall have the meaning ascribed to such term in
Section 4(k).

 

(k)       “Pledged Securities” shall have the meaning ascribed to such term in
Section 4(j).

 

(l)       “UCC” means the Uniform Commercial Code of the State of New York and
any other applicable law of any state or states that has jurisdiction with
respect to all, or any portion of, the Collateral or this Agreement, from time
to time.  It is the intent of the parties that defined terms in the UCC should
be construed in their broadest sense so that the term “Collateral” will be
construed in its broadest sense.  Accordingly, if there are, from time to time,
changes to defined terms in the UCC that broaden the definitions, they are
incorporated herein and if existing definitions in the UCC are broader than the
amended definitions, the existing ones shall be controlling.

 

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2.       Grant of Security Interest in Collateral. As an inducement for the
Secured Lender to fund the Company with respect to the issuance of the Note and
to secure the complete and timely payment, performance and discharge in full, as
the case may be, of all of the Obligations, each Debtor hereby unconditionally
and irrevocably pledges, grants and hypothecates to the Secured Lender a
perfected, security interest in and to, a Lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and
nature in and to, the Collateral (a “Security Interest” and, collectively, the
“Security Interests”).

 

3.       Delivery of Certain Collateral.  Subject to the rights of any senior
secured creditors to the Debtors existing on the date hereof and disclosed on
the Disclosure Schedules (as defined below) hereto, within ten (10) days after
the execution of this Agreement, each Debtor shall deliver or cause to be
delivered to the Secured Lender (a) any and all certificates and other
instruments representing or evidencing the Pledged Securities, and (b) any and
all certificates and other instruments or documents representing any of the
other Collateral, in each case, together with all Necessary Endorsements.  The
Debtors are, contemporaneously with the execution hereof, delivering to the
Secured Lender, or have previously delivered to the Secured Lender, a true and
correct copy of each Organizational Document governing any of the Pledged
Securities.

 

4.       Representations, Warranties, Covenants and Agreements of the Debtors.
Except as set forth under the corresponding Section of the disclosure schedules
delivered to the Secured Lender concurrently herewith (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof, and
subject to the rights of any senior secured creditors to the Debtors existing on
the date hereof and disclosed on the Disclosure Schedules hereto with respect to
delivery of the Collateral to the Secured Lender, each Debtor represents and
warrants to, and covenants and agrees with, the Secured Lender as follows:

 

(a)       Each Debtor has the requisite corporate, partnership, limited
liability company or other power and authority to enter into this Agreement and
the other Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution, delivery and performance by each Debtor
of this Agreement and the other Transaction Documents and the filings
contemplated herein have been duly authorized by all necessary action on the
part of such Debtor and no further action is required by such Debtor.  This
Agreement and the other Transaction Documents have been duly executed by each
Debtor.  Each of this Agreement and the other Transaction Documents constitutes
the legal, valid and binding obligation of each Debtor, enforceable against each
Debtor in accordance with its terms except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors and by
general principles of equity.

 

(b)       The Debtors have no place of business or offices where their
respective books of account and records are kept (other than temporarily at the
offices of its attorneys or accountants) or places where Collateral is stored or
located, except as set forth on Schedule A attached hereto.  Except as
specifically set forth on Schedule A, each Debtor is the record owner of the
real property where such Collateral is located, and there exist no mortgages or
other Liens on any such real property except for Permitted Liens as set forth on
Schedule A.  Except as disclosed on Schedule A, none of such Collateral is in
the possession of any consignee, bailee, warehouseman, agent or processor.

 

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(c)       Except for Permitted Liens and as set forth on Schedule B attached
hereto, the Debtors are the sole owners of the Collateral (except for
non-exclusive licenses granted by any Debtor in the ordinary course of
business), free and clear of any Liens, security interests, encumbrances, rights
or claims, and are fully authorized to grant the Security Interests.  Except as
set forth on Schedule C attached hereto, there is not on file in any
governmental or regulatory authority, agency or recording office an effective
financing statement, security agreement, license or transfer or any notice of
any of the foregoing (other than those that will be filed in favor of the
Secured Lender pursuant to this Agreement) covering or affecting any of the
Collateral.   Except as set forth on Schedule C attached hereto and except
pursuant to this Agreement, as long as this Agreement shall be in effect, the
Debtors shall not execute and shall not knowingly permit to be on file in any
such office or agency any other financing statement or other document or
instrument (except to the extent filed or recorded in favor of the Secured
Lender pursuant to the terms of this Agreement).

 

(d)       No written claim has been received that any Collateral or any Debtor’s
use of any Collateral violates the rights of any third party. There has been no
adverse decision to any Debtor’s claim of ownership rights in or exclusive
rights to use the Collateral in any jurisdiction or to any Debtor’s right to
keep and maintain such Collateral in full force and effect, and there is no
proceeding involving said rights pending or, to the best knowledge of any
Debtor, threatened before any court, judicial body, administrative or regulatory
agency, arbitrator or other governmental authority.

 

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

 

(f)       This Agreement creates in favor of the Secured Lender a valid security
interest in the Collateral, subject only to Permitted Liens, securing the
payment and performance of the Obligations.  Upon making the filings described
in the immediately following paragraph, all security interests created hereunder
in any Collateral which may be perfected by filing UCC financing statements
shall have been duly perfected.  Except for (i) the filing of the UCC financing
statements referred to in the immediately following paragraph, (ii) the
recordation of the Intellectual Property Security Agreement (as defined in
Section 4(q) hereof) with respect to copyrights and copyright applications in
the United States Copyright Office referred to in Section 4(nn) hereof,
(iii) the recordation of the Intellectual Property Security Agreement (as
defined in Section 4(q) hereof) with respect to patents and trademarks of the
Debtors in the United States Patent and Trademark Office referred to in Section
4(pp) hereof, (iv) the execution and delivery of deposit account control
agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with
respect to each deposit account of the Debtors, (v) if there is any investment
property or deposit account included as Collateral that can be perfected by
“control” through an account control agreement, the execution and delivery of
securities account control agreements satisfying the requirements of 9-106 of
the UCC with respect to each such investment property of the Debtors, and
(vi) the delivery of the certificates and other instruments provided in
Section 3, Section 4(bb) and Section 4(dd), no action is necessary to create,
perfect or protect the security interests created hereunder.  Without limiting
the generality of the foregoing, except for the foregoing, no consent of any
third parties and no authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
(x) the execution, delivery and performance of this Agreement, (y) the creation
or perfection of the Security Interests created hereunder in the Collateral or
(z) the enforcement of the rights of the Secured Lender hereunder.

 

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(g)       Each Debtor hereby authorizes the Secured Lender to file one or more
financing statements under the UCC, with respect to the Security Interests, with
the proper filing and recording agencies in any jurisdiction reasonably deemed
proper by it.

 

(h)       The execution, delivery and performance of this Agreement and the
other Transaction Documents by the Debtors do not (i) violate any of the
provisions of any Organizational Documents of any Debtor or any judgment,
decree, order or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to any Debtor or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing any Debtor’s debt or otherwise) or other understanding to which any
Debtor is a party or by which any property or asset of any Debtor is bound or
affected. If any, all required consents (including, without limitation, from
stockholders or creditors of any Debtor) necessary for any Debtor to enter into
and perform its obligations under this Agreement and the other Transaction
Documents have been obtained.

 

(i) [Reserved].

 

(j)       The capital stock and other equity interests listed
on Schedule H hereto (the “Pledged Securities”) represent all capital stock and
other equity interests of the Guarantors and represent all capital stock and
other equity interests owned, directly or indirectly, by the Company.  All of
the Pledged Securities are validly issued, fully paid and nonassessable, and the
Company is the legal and beneficial owner of the Pledged Securities, free and
clear of any Lien, security interest or other encumbrance except for the
security interests created by this Agreement and other Permitted Liens.

 

(k)       The ownership and other equity interests in partnerships and limited
liability companies (if any) included in the Collateral (the “Pledged
Interests”) by their express terms provide that they are securities governed by
Article 8 of the UCC.

 

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(l)       Except for Permitted Liens, each Debtor shall at all times maintain
the Liens and Security Interests provided for hereunder as valid and perfected,
Liens and security interests in the Collateral in favor of the Secured Lender
until this Agreement and the Security Interest hereunder shall be terminated
pursuant to Section 14 hereof.  Each Debtor hereby agrees to defend the same
against the claims of any and all persons and entities. Each Debtor shall
safeguard and protect all Collateral for the account of the Secured Lender.  At
the request of the Secured Lender, each Debtor will sign and deliver to the
Secured Lender at any time or from time to time one or more financing statements
pursuant to the UCC in form reasonably satisfactory to the Secured Lender and
will pay the cost of filing the same in all public offices wherever filing is,
or is deemed by the Secured Lender to be, necessary or desirable to effect the
rights and obligations provided for herein. Without limiting the generality of
the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary
to maintain the Collateral and the Security Interests hereunder, and each Debtor
shall obtain and furnish to the Secured Lender from time to time, upon demand,
such releases and/or subordinations of claims and Liens which may be required to
maintain the priority of the Security Interests hereunder.

  

(m)       No Debtor will transfer, pledge, hypothecate, encumber, license, sell
or otherwise dispose of any of the Collateral (except for non-exclusive licenses
granted by a Debtor in its ordinary course of business, sales of inventory by a
Debtor in its ordinary course of business and the replacement of worn-out or
obsolete equipment by a Debtor in its ordinary course of business) without the
prior written consent of the Secured Lender.

 

(n)       Each Debtor shall keep and preserve its equipment, inventory and other
tangible Collateral in good condition, repair and order and shall not operate or
locate any such Collateral (or cause to be operated or located) in any area
excluded from insurance coverage.

 

(o)       Each Debtor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral, including Collateral
hereafter acquired, against loss or damage of the kinds and in the amounts
customarily insured against by entities of established reputation having similar
properties similarly situated and in such amounts as are customarily carried
under similar circumstances by other such entities and otherwise as is prudent
for entities engaged in similar businesses but in any event sufficient to cover
the full replacement cost thereof.   If no Event of Default hereunder exists and
if the proceeds arising out of any claim or series of related claims do not
exceed $100,000, loss payments in each instance will be applied by the
applicable Debtor to the repair and/or replacement of property with respect to
which the loss was incurred to the extent reasonably feasible, and any loss
payments or the balance thereof remaining, to the extent not so applied, shall
be payable to the applicable Debtor; provided, however, that payments received
by any Debtor after an Event of Default hereunder occurs and is continuing or in
excess of $100,000 for any occurrence or series of related occurrences, upon
approval by Secured Lender, which approval shall not be unreasonably withheld,
delayed, denied or conditioned, loss payments in each instance will be applied
by the applicable Debtor to the repair and/or replacement of property with
respect to which the loss was incurred to the extent reasonably feasible, and
any loss payments or the balance thereof remaining, to the extent not so
applied, shall be paid to the Secured Lender on behalf of the Secured Lender
and, if received by such Debtor, shall be held in trust for the Secured Lender
and immediately paid over to the Secured Lender unless otherwise directed in
writing by the Secured Lender.  Copies of such policies or the related
certificates, in each case, naming the Secured Lender as lender-loss-payee and
additional insured shall be delivered to the Secured Lender at least annually
and at the time any new policy of insurance is issued.

 

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(p)       Each Debtor shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Lender, in sufficient detail, of any material
adverse change in the Collateral, and of the occurrence of any event that would
have a material adverse effect on the value of the Collateral or on the Secured
Lender’s security interest therein.

  

(q)       Each Debtor shall promptly execute and deliver to the Secured Lender
such further deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and assurances and take
such further action as the Secured Lender may from time to time request and may
in its sole discretion deem necessary to perfect, protect or enforce the Secured
Lender’s security interest in the Collateral, including, without limitation, if
applicable, the execution and delivery of a separate security agreement with
respect to each Debtor’s Intellectual Property in which the Secured Lender has
been granted a security interest hereunder, substantially in a form reasonably
acceptable to the Secured Lender (the “Intellectual Property Security
Agreement”), which Intellectual Property Security Agreement, other than as
stated therein, shall be subject to all of the terms and conditions hereof.

 

(r)       Upon reasonable prior notice (so long as no Event of Default or a
breach under any of the Transaction Documents has occurred or continuing, which
in either such event, no prior notice is required), each Debtor shall permit the
Secured Lender and its representatives and agents to inspect the Collateral
during normal business hours and to make copies of records pertaining to the
Collateral as may be reasonably requested by the Secured Lender from time to
time.

 

(s)       Each Debtor shall take all steps reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights, claims, causes of
action and accounts receivable in respect of the Collateral.

 

(t)       Each Debtor shall promptly notify the Secured Lender in sufficient
detail upon becoming aware of any attachment, garnishment, execution or other
legal process levied against any Collateral and of any other information
received by such Debtor that may materially affect the value of the Collateral,
the Security Interest or the rights and remedies of the Secured Lender
hereunder.

 

(u)       All information heretofore, herein or hereafter supplied to the
Secured Lender by or on behalf of any Debtor with respect to the Collateral is
accurate and complete in all material respects as of the date furnished.

 

(v)       The Debtors shall at all times preserve and keep in full force and
effect their respective valid existence and good standing and any rights and
franchises material to its business.

 

(w)       No Debtor will change its name, type of organization, jurisdiction of
organization, organizational identification number (if it has one), legal or
corporate structure, or identity, or add any new fictitious name unless it
provides at least thirty (30) days’ prior written notice to the Secured Lender
of such change and, at the time of such written notification, such Debtor
provides any financing statements or fixture filings necessary to perfect and
continue the perfection of the Security Interests granted and evidenced by this
Agreement.

  

  10 

 

 

(x)       Except in the ordinary course of business, no Debtor may consign any
of its inventory or sell any of its inventory on bill-and-hold, sale-or-return,
sale-on-approval, or other conditional terms of sale without the consent of the
Secured Lender, which shall not be unreasonably withheld, delayed, denied, or
conditioned.

 

(y)       No Debtor may relocate its chief executive office to a new location
without providing thirty (30) days’ prior written notification thereof to the
Secured Lender and so long as, at the time of such written notification, such
Debtor provides any financing statements or fixture filings necessary to perfect
and continue the perfection of the Security Interests granted and evidenced by
this Agreement.

 

(z)       Each Debtor was organized and remains organized solely under the laws
of the state set forth next to such Debtor’s name in Schedule D attached hereto,
which Schedule D sets forth each Debtor’s organizational identification number
or, if any Debtor does not have one, states that one does not exist.

 

(aa) (i) The actual name of each Debtor is the name set forth
in Schedule D attached hereto; (ii) no Debtor has any trade names except as set
forth on Schedule E attached hereto; (iii) no Debtor has used any name other
than that stated in the preamble hereto or as set forth on Schedule E for the
preceding five (5) years; and (iv) no entity has merged into any Debtor or been
acquired by any Debtor within the past five years except as set forth
on Schedule E.

 

(bb) At any time and from time to time that any Collateral consists of
instruments, certificated securities or other items that require or permit
possession by the secured party to perfect the security interest created hereby,
the applicable Debtor shall deliver such Collateral to the Secured Lender.

 

(cc) Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto,
each Debtor, in its capacity as issuer, hereby agrees to comply with any and all
orders and instructions of Secured Lender regarding the Pledged Interests
consistent with the terms of this Agreement without the further consent of any
Debtor as contemplated by Section 8-106 (or any successor section) of the
UCC.  Further, each Debtor agrees that it shall not enter into a similar
agreement (or one that would confer “control” within the meaning of Article 8 of
the UCC) with any other person or entity.

 

(dd) Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto,
each Debtor shall cause all tangible chattel paper constituting Collateral to be
delivered to the Secured Lender, or, if such delivery is not possible, then to
cause such tangible chattel paper to contain a legend noting that it is subject
to the security interest created by this Agreement.  To the extent that any
Collateral consists of electronic chattel paper, the applicable Debtor shall
cause the underlying chattel paper to be “marked” within the meaning of
Section 9-105 of the UCC (or successor Section thereto).

 

  11 

 

 

(ee) If there is any investment property or deposit account included as
Collateral that can be perfected by “control” through an account control
agreement, the applicable Debtor shall cause such an account control agreement,
in form and substance in each case satisfactory to the Secured Lender, to be
entered into and delivered to the Secured Lender.

 

(ff) To the extent that any Collateral consists of letter-of-credit rights, the
applicable Debtor shall cause the issuer of each underlying letter of credit to
consent to an assignment of the proceeds thereof to the Secured Lender.

 

(gg) To the extent that any Collateral is in the possession of any third party,
the applicable Debtor shall join with the Secured Lender in notifying such third
party of the Secured Lender’s security interest in such Collateral and shall use
its best efforts to obtain an acknowledgement and agreement from such third
party with respect to the Collateral, in form and substance reasonably
satisfactory to the Secured Lender.

 

(hh) If any Debtor shall at any time hold or acquire a commercial tort claim,
such Debtor shall promptly notify the Secured Lender in a writing signed by such
Debtor of the particulars thereof and grant to the Secured Lender in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
satisfactory to the Secured Lender.

 

(ii)       Each Debtor shall immediately provide written notice to the Secured
Lender of any and all accounts which arise out of contracts with any
governmental authority and, to the extent necessary to perfect or continue the
perfected status of the Security Interests in such accounts and proceeds
thereof, shall execute and deliver to the Secured Lender an assignment of claims
for such accounts and cooperate with the Secured Lender in taking any other
steps required, in its judgment, under the Federal Assignment of Claims Act or
any similar federal, state or local statute or rule to perfect or continue the
perfected status of the Security Interests in such accounts and proceeds
thereof.

 

(jj) Each Debtor shall cause each subsidiary of such Debtor to immediately
become a party hereto (an “Additional Debtor”), by executing and delivering an
Additional Debtor Joinder in substantially the form of Annex A attached hereto
and comply with the provisions hereof applicable to the Debtors.  Concurrently
therewith, the Additional Debtor shall deliver replacement schedules for, or
supplements to all other Disclosure Schedules to (or referred to in) this
Agreement, as applicable, which replacement schedules shall supersede, or
supplements shall modify, the Disclosure Schedules then in effect.  The
Additional Debtor shall also deliver such opinions of counsel, authorizing
resolutions, good standing certificates, incumbency certificates, organizational
documents, financing statements and other information and documentation as the
Secured Lender may reasonably request.  Upon delivery of the foregoing to the
Secured Lender, the Additional Debtor shall be and become a party to this
Agreement with the same rights and obligations as the Debtors, for all purposes
hereof as fully and to the same extent as if it were an original signatory
hereto and shall be deemed to have made the representations, warranties and
covenants set forth herein as of the date of execution and delivery of such
Additional Debtor Joinder, and all references herein to the “Debtors” shall be
deemed to include each Additional Debtor.

  

  12 

 

 

(kk) Each Debtor shall vote the Pledged Securities to comply with the covenants
and agreements set forth herein and in the Transaction Documents.

 

(ll) Each Debtor shall register the pledge of the applicable Pledged Securities
on the books of such Debtor.  Each Debtor shall notify each issuer of Pledged
Securities to register the pledge of the applicable Pledged Securities in the
name of the Secured Lender on the books of such issuer.  Further, except with
respect to certificated securities delivered to the Secured Lender, the
applicable Debtor shall deliver to Secured Lender an acknowledgement of pledge
(which, where appropriate, shall comply with the requirements of the relevant
UCC with respect to perfection by registration) signed by the issuer of the
applicable Pledged Securities, which acknowledgement shall confirm that: (a) it
has registered the pledge on its books and records; and (b) at any time directed
by Secured Lender during the continuation of an Event of Default, such issuer
will transfer the record ownership of such Pledged Securities into the name of
any designee of Secured Lender, will take such steps as may be necessary to
effect the transfer, and will comply with all other instructions of Secured
Lender regarding such Pledged Securities without the further consent of the
applicable Debtor.

 

(mm) In the event that, upon an occurrence of an Event of Default, Secured
Lender shall sell all or any of the Pledged Securities to another party or
parties (herein called the “Transferee”) or shall purchase or retain all or any
of the Pledged Securities, each Debtor shall, to the extent applicable: (i)
deliver to Secured Lender or the Transferee, as the case may be, the articles of
incorporation, bylaws, minute books, stock certificate books, corporate seals,
deeds, leases, indentures, agreements, evidences of indebtedness, books of
account, financial records and all other Organizational Documents and records of
the Debtors and their direct and indirect subsidiaries (but not including any
items subject to the attorney-client privilege related to this Agreement or any
of the transactions hereunder); (ii) use its best efforts to obtain resignations
of the persons then serving as officers and directors of the Debtors and their
direct and indirect subsidiaries, if so requested; and (iii) use its best
efforts to obtain any approvals that are required by any governmental or
regulatory body in order to permit the sale of the Pledged Securities to the
Transferee or the purchase or retention of the Pledged Securities by Secured
Lender and allow the Transferee or Secured Lender to continue the business of
the Debtors and their direct and indirect subsidiaries.

 

(nn) Without limiting the generality of the other obligations of the Debtors
hereunder, each Debtor shall promptly (i) cause to be registered at the United
States Copyright Office all of its material copyrights, (ii) cause the security
interest contemplated hereby with respect to all Intellectual Property
registered at the United States Copyright Office or United States Patent and
Trademark Office to be duly recorded at the applicable office, and (iii) give
the Secured Lender notice whenever it acquires (whether absolutely or by
license) or creates any additional material Intellectual Property.

  

  13 

 

 

(oo)       Each Debtor will from time to time, at the joint and several expense
of the Debtors, promptly execute and deliver all such further instruments and
documents, and take all such further action as may be necessary or desirable, or
as the Secured Lender may reasonably request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable the
Secured Lender to exercise and enforce their rights and remedies hereunder and
with respect to any Collateral or to otherwise carry out the purposes of this
Agreement.

 

(pp) Schedule F attached hereto lists all of the patents, patent applications,
trademarks, trademark applications, registered copyrights, and domain names
owned by any of the Debtors as of the date hereof.  Schedule F lists all
material licenses in favor of any Debtor for the use of any patents, trademarks,
copyrights and domain names as of the date hereof.  All material patents and
trademarks of the Debtors have been duly recorded at the United States Patent
and Trademark Office and all material copyrights of the Debtors have been duly
recorded at the United States Copyright Office.

 

(qq) Except as set forth on Schedule G attached hereto, none of the account
debtors or other persons or entities obligated on any of the Collateral is a
governmental authority covered by the Federal Assignment of Claims Act or any
similar federal, state or local statute or rule in respect of such Collateral.

 

5.       Effect of Pledge on Certain Rights.  If any of the Collateral subject
to this Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of certain events
(including, without limitation, upon the transfer of all or any of the other
stock or assets of the issuer), it is agreed by Debtors that the pledge of such
equity or ownership interests pursuant to this Agreement or the enforcement of
any of Secured Lender’s rights hereunder shall not be deemed to be the type of
event which would trigger such conversion rights notwithstanding any provisions
in the Organizational Documents or agreements to which any Debtor is subject or
to which any Debtor is party.

 

6.       Defaults. The following events shall be “Events of Default” under this
Agreement:

 

(a)       The occurrence of an Event of Default (as defined in the Note);

  

(b)       The occurrence of an event of default or breach under any of the
Transaction Documents;

 

(c)       Any representation or warranty of any Debtor in this Agreement shall
prove to have been incorrect in any material respect when made;

 

(d)       The failure by any Debtor to observe or perform any of its obligations
hereunder for five (5) Trading Days after delivery to such Debtor of notice of
such failure by or on behalf of the Secured Lender unless such default is
capable of cure but cannot be cured within such time frame and such Debtor is
using best efforts to cure same in a timely fashion; or

 

  14 

 

 

(e)       If any provision of this Agreement shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by
any governmental authority having jurisdiction over any Debtor, seeking to
establish the invalidity or unenforceability thereof, or any Debtor shall deny
that any Debtor has any liability or obligation purported to be created under
this Agreement.

 

7.       Duty to Hold in Trust.

 

(a)       Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto,
upon the occurrence of any Event of Default and at any time thereafter, each
Debtor shall, upon receipt of any revenue, income, dividend, interest or other
sums subject to the Security Interests, whether payable pursuant to the
Transaction Documents or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Lender and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Lender.

 

(b)       Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto, if
any Debtor shall become entitled to receive or shall receive any securities or
other property (including, without limitation, shares of Pledged Securities or
instruments representing Pledged Securities acquired after the date hereof, or
any options, warrants, rights or other similar property or certificates
representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of capital, or
issued in connection with any reorganization of such Debtor or any of its direct
or indirect subsidiaries) in respect of the Pledged Securities (whether as an
addition to, in substitution of, or in exchange for, such Pledged Securities or
otherwise), such Debtor agrees to (i) accept the same as the agent of the
Secured Lender; (ii) hold the same in trust on behalf of and for the benefit of
the Secured Lender and (iii) to deliver any and all certificates or instruments
evidencing the same to Secured Lender on or before the close of business on the
fifth (5th) business day following the receipt thereof by such Debtor, in the
exact form received together with the Necessary Endorsements, to be held by
Secured Lender subject to the terms of this Agreement as Collateral.

  

8.       Rights and Remedies Upon Default.

 

(a)       Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto,
during the occurrence of any Event of Default, the Secured Lender shall have the
right to exercise all of the remedies conferred hereunder and under the
Transaction Documents, and the Secured Lender shall have all the rights and
remedies of a secured party under the UCC.  Subject to the rights of any senior
secured creditors to the Debtors existing on the date hereof and disclosed on
the Disclosure Schedules hereto, without limitation, the Secured Lender shall
have the following rights and powers:

 

  15 

 

 

(i)       Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto,
the Secured Lender shall have the right to take possession of the Collateral
and, for that purpose, enter, with the aid and assistance of any person, any
premises where the Collateral, or any part thereof, is or may be placed and
remove the same, and each Debtor shall assemble the Collateral and make it
available to the Secured Lender at places which the Secured Lender shall
reasonably select, whether at such Debtor’s premises or elsewhere, and make
available to the Secured Lender, without rent, all of such Debtor’s respective
premises and facilities for the purpose of the Secured Lender taking possession
of, removing or putting the Collateral in saleable or disposable form.

 

(ii)       Upon notice to the Debtors by Secured Lender, all rights of each
Debtor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise and all rights of each Debtor to receive the
dividends and interest which it would otherwise be authorized to receive and
retain, shall cease.  Upon such notice, the Secured Lender shall have the right
to receive any interest, cash dividends or other payments on the Collateral and,
at the option of Secured Lender, to exercise in the Secured Lender’s discretion
all voting rights pertaining thereto.  Without limiting the generality of the
foregoing, the Secured Lender shall have the right (but not the obligation) to
exercise all rights with respect to the Collateral as it were the sole and
absolute owner thereof, including, without limitation, to vote and/or to
exchange, at its sole discretion, any or all of the Collateral in connection
with a merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the Collateral or any Debtor or any of its
direct or indirect subsidiaries.

 

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

 

(iv)       The Secured Lender shall have the right (but not the obligation) to
notify any account debtors and any obligors under instruments or accounts to
make payments directly to the Secured Lender, on behalf of the Secured Lender,
and to enforce the Debtors’ rights against such account debtors and obligors.

 

(v)       The Secured Lender may (but is not obligated to) direct any financial
intermediary or any other person or entity holding any investment property to
transfer the same to the Secured Lender or its designee.

 

(vi)       The Secured Lender may (but is not obligated to) transfer any or all
Intellectual Property registered in the name of any Debtor at the United States
Patent and Trademark Office and/or Copyright Office into the name of the Secured
Lender or any designee or any purchaser of any Collateral.

 

  16 

 

 

(b)       The Secured Lender shall comply with any applicable law in connection
with a disposition of Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the
Collateral.  The Secured Lender may sell the Collateral without giving any
warranties and may specifically disclaim such warranties.  If the Secured Lender
sells any of the Collateral on credit, the Debtors will only be credited with
payments actually made by the purchaser.  In addition, each Debtor waives
(except as shall be required by applicable statute and cannot be waived) any and
all rights that it may have to a judicial hearing in advance of the enforcement
of any of the Secured Lender’s rights and remedies hereunder, including, without
limitation, its right following an Event of Default to take immediate possession
of the Collateral and to exercise its rights and remedies with respect thereto.

 

(c)       For the purpose of enabling the Secured Lender to further exercise
rights and remedies under this Section 8 or elsewhere provided by agreement or
applicable law, each Debtor hereby grants to the Secured Lender an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to such Debtor) to use, license or sublicense during the occurrence
of an Event of Default, any Intellectual Property now owned or hereafter
acquired by such Debtor, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof.

 

9.       Applications of Proceeds. The proceeds of any such sale, lease or other
disposition of the Collateral hereunder or from payments made on account of any
insurance policy insuring any portion of the Collateral shall be applied first,
to the expenses of retaking, holding, storing, processing and preparing for
sale, selling, and the like (including, without limitation, any taxes, fees and
other costs incurred in connection therewith) of the Collateral, to the
reasonable attorneys’ fees and expenses incurred by the Secured Lender in
enforcing the Secured Lender’s rights hereunder and in connection with
collecting, storing and disposing of the Collateral, and then to satisfaction of
the Obligations pro rata among the Secured Lender (based on then issued and
outstanding Securities at the time of any such determination), and to the
payment of any other amounts required by applicable law, after which the Secured
Lender shall pay to the applicable Debtor any surplus proceeds. If, upon the
sale, license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Secured Lender is legally entitled,
the Debtors will be liable for the deficiency, together with interest thereon,
at the rate of 12.5% per annum or the lesser amount permitted by applicable law
(the “Default Rate”), and the reasonable fees of any attorneys employed by the
Secured Lender to collect such deficiency.  To the extent permitted by
applicable law, each Debtor waives all claims, damages and demands against the
Secured Lender arising out of the repossession, removal, retention or sale of
the Collateral, unless due solely to the gross negligence or willful misconduct
of the Secured Lender as determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction.

 

  17 

 

 

10.       Securities Law Provision.  Each Debtor recognizes that Secured Lender
may be limited in its ability to effect a sale to the public of all or part of
the Pledged Securities by reason of certain prohibitions in the Securities Act
of 1933, as amended, or other federal or state securities laws (collectively,
the “Securities Laws”), and may be compelled to resort to one or more sales to a
restricted group of purchasers who may be required to agree to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or resale thereof.  Each Debtor agrees that sales so made may
be at prices and on terms less favorable than if the Pledged Securities were
sold to the public, and that Secured Lender has no obligation to delay the sale
of any Pledged Securities for the period of time necessary to register the
Pledged Securities for sale to the public under the Securities Laws.  Each
Debtor shall cooperate with Secured Lender in its attempt to satisfy any
requirements under the Securities Laws (including, without limitation,
registration thereunder if requested by Secured Lender) applicable to the sale
of the Pledged Securities by Secured Lender.

 

11.       Costs and Expenses. Each Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto, or any expenses of any searches
reasonably required by the Secured Lender.  The Debtors shall also pay all other
claims and charges which in the reasonable opinion of the Secured Lender is
reasonably likely to prejudice, imperil or otherwise affect the Collateral or
the Security Interests therein.  The Debtors will also, upon demand, pay to the
Secured Lender the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
the Secured Lender may incur in connection with the creation, perfection,
protection, satisfaction, foreclosure, collection or enforcement of the Security
Interest and the preparation, administration, continuance, amendment or
enforcement of this Agreement and pay to the Secured Lender the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Secured Lender may incur in
connection with (i) the enforcement of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, or (iii) the exercise or enforcement of any of the rights of
the Secured Lender under the Transaction Documents. Until so paid, any fees
payable hereunder shall be added to the amounts owed under the Transaction
Documents and shall bear interest at the Default Rate.

 

12.       Responsibility for Collateral. The Debtors assume all liabilities and
responsibility in connection with all Collateral, and the Obligations shall in
no way be affected or diminished by reason of the loss, destruction, damage or
theft of any of the Collateral or its unavailability for any reason.  Without
limiting the generality of the foregoing and except as required by applicable
law, (a) the Secured Lender does not (i) have any duty (either before or after
an Event of Default) to collect any amounts in respect of the Collateral or to
preserve any rights relating to the Collateral, or (ii) have any obligation to
clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall
remain obligated and liable under each contract or agreement included in the
Collateral to be observed or performed by such Debtor thereunder. The Secured
Lender shall not have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the receipt by the
Secured Lender of any payment relating to any of the Collateral, nor shall the
Secured Lender be obligated in any manner to perform any of the obligations of
any Debtor under or pursuant to any such contract or agreement, to make inquiry
as to the nature or sufficiency of any payment received by the Secured Lender in
respect of the Collateral or as to the sufficiency of any performance by any
party under any such contract or agreement, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Secured Lender or to which the
Secured Lender may be entitled at any time or times.

 

  18 

 

 

13.       Security Interests Absolute. All rights of the Secured Lender and all
obligations of each Debtor hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Note, the Transaction Documents, or any agreement entered into in connection
with the foregoing, or any portion hereof or thereof, against any other Debtor;
(b) any change in the time, manner or place of payment or performance of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Transaction Documents or any
other agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Collateral, or any release or amendment
or waiver of or consent to departure from any other collateral for, or any
guarantee, or any other security, for all or any of the Obligations; (d) any
action by the Secured Lender to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to a Debtor, or a discharge of all or
any part of the Security Interests granted hereby.  Until the Obligations shall
have been paid and performed in full, the rights of the Secured Lender shall
continue even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations.  Each Debtor expressly
waives presentment, protest, notice of protest, demand, notice of nonpayment and
demand for performance. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Lender hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Lender, then, in any such event, each Debtor’s
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof.  Each Debtor waives all
right to require the Secured Lender to proceed against any other person or
entity or to apply any Collateral which the Secured Lender may hold at any time,
or to marshal assets, or to pursue any other remedy. Each Debtor waives any
defense arising by reason of the application of the statute of limitations to
any obligation secured hereby.

 

14.       Term of Agreement. This Agreement shall terminate on the date on which
all payments under the Note and the Transaction Documents have been indefeasibly
paid in full and all other Obligations have been paid or discharged; provided,
however, that all indemnities of the Debtors contained in this Agreement shall
survive and remain operative and in full force and effect regardless of the
termination of this Agreement.

 

  19 

 

 

15.       Power of Attorney; Further Assurances.

 

(a)       Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto,
each Debtor authorizes the Secured Lender, and does hereby make, constitute and
appoint the Secured Lender and its officers, agents, successors or assigns with
full power of substitution, as such Debtor’s true and lawful attorney-in-fact,
with power, in the name of the Secured Lender or such Debtor, to, after the
occurrence and during the continuance of an Event of Default, (i) endorse any
note, checks, drafts, money orders or other instruments of payment (including
payments payable under or in respect of any policy of insurance) in respect of
the Collateral that may come into possession of the Secured Lender; (ii) to sign
and endorse any financing statement pursuant to the UCC or any invoice, freight
or express bill, bill of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts, and
other documents relating to the Collateral; (iii) to pay or discharge taxes,
Liens, security interests or other encumbrances at any time levied or placed on
or threatened against the Collateral; (iv) to demand, collect, receipt for,
compromise, settle and sue for monies due in respect of the Collateral; (v) to
transfer any Intellectual Property or provide licenses respecting any
Intellectual Property; and (vi) generally, at the option of the Secured Lender,
and at the expense of the Debtors, at any time, or from time to time, to execute
and deliver any and all documents and instruments and to do all acts and things
which the Secured Lender deems necessary to protect, preserve and realize upon
the Collateral and the Security Interests granted therein in order to effect the
intent of this Agreement and the Transaction Documents all as fully and
effectually as the Debtors might or could do; and each Debtor hereby ratifies
all that said attorney shall lawfully do or cause to be done by virtue
hereof.  This power of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter as long as any of the
Obligations shall be outstanding.  The designation set forth herein shall be
deemed to amend and supersede any inconsistent provision in the Organizational
Documents or other documents or agreements to which any Debtor is subject or to
which any Debtor is a party.  Subject to the rights of any senior secured
creditors to the Debtors existing on the date hereof and disclosed on the
Disclosure Schedules hereto, without limiting the generality of the foregoing,
after the occurrence and during the continuance of an Event of Default, the
Secured Lender is specifically authorized to execute and file any applications
for or instruments of transfer and assignment of any patents, trademarks,
copyrights or other Intellectual Property with the United States Patent and
Trademark Office and the United States Copyright Office.

 

(b)       On a continuing basis, each Debtor will make, execute, acknowledge,
deliver, file and record, as the case may be, with the proper filing and
recording agencies in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule C attached hereto, all such instruments, and
take all such action as may reasonably be deemed necessary or advisable, or as
reasonably requested by the Secured Lender, to perfect the Security Interests
granted hereunder and otherwise to carry out the intent and purposes of this
Agreement, or for assuring and confirming to the Secured Lender the grant or
perfection of a perfected security interest in all the Collateral under the UCC.

 

  20 

 

 

(c)       Subject to the rights of any senior secured creditors to the Debtors
existing on the date hereof and disclosed on the Disclosure Schedules hereto,
each Debtor hereby irrevocably appoints the Secured Lender as such Debtor’s
attorney-in-fact, with full authority in the place and instead of such Debtor
and in the name of such Debtor, from time to time in the Secured Lender’s
discretion, to take any action and to execute any instrument which the Secured
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of such Debtor where permitted by law,
which financing statements may (but need not) describe the Collateral as “all
assets” or “all personal property” or words of like import, and ratifies all
such actions taken by the Secured Lender.  This power of attorney is coupled
with an interest and shall be irrevocable for the term of this Agreement and
thereafter as long as any of the Obligations shall be outstanding.

 

16.       Notices. Any and all notices, service of process or other
communications or deliveries required or permitted to be given or made pursuant
to any of the provisions of this Agreement shall be in writing and shall be
deemed given and effective on the earliest of: (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
or by email attachment at the email address set forth below at or prior to 5:30
p.m. (Eastern Time) on a business day, (ii) the next business day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number or by email attachment at the email address set forth below
on a day that is not a business day or later than 5:30 p.m. (Eastern Time) on
any business day, (iii) the second (2nd) business day following the date of
mailing, if sent by a U.S. nationally recognized overnight courier service or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be:

 

 

If to the Secured Lender, at:

 

Dominion Capital LLC

256 West 38th Street

15th Floor

New York, NY 10018

Attn: Mikhail Gurevich, Managing Member

Tel: (212) 785-4681

Fax: (708) 844-2883

Email: mikhail@domcapllc.com

 

If to a Debtor, at:

 

Enertec Systems 2001 Ltd.

Hanapach 8

Industrial Area 5

Karmiel, Israel

Attn: Nissim Ovadia

Tel: +972 (4) 958-5680

+972 (4) 988-0603Email: nissim@enertec.co.il

 

or such other facsimile number, email address or address as may be given by the
parties in accordance with the notice provisions hereof.

 

  21 

 

 

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

 

18.       [Reserved.]

 

19.       Miscellaneous.

 

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

 

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

 

(c)       This Agreement, together with the exhibits and schedules hereto,
contains the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into this Agreement and the exhibits and schedules hereto. No provision
of this Agreement may be waived, modified, supplemented or amended except in a
written instrument signed, in the case of an amendment, by the Debtors and the
Secured Lender, or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought.

  

(d)       If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

 

(e)       No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.

 

  22 

 

 

(f)       This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.  The Debtors may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Secured Lender (other than by merger).  The Secured Lender may
assign any or all of its rights under this Agreement to any Person to whom the
Secured Lender assigns or transfers any Obligations, provided such transferee
agrees in writing to be bound, with respect to the transferred Obligations, by
the provisions of this Agreement that apply to the “Secured Lender.”

 

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

 

(h)       Except to the extent mandatorily governed by the jurisdiction or situs
where the Collateral is located, all questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof.  Except
to the extent mandatorily governed by the jurisdiction or situs where the
Collateral is located, each Debtor agrees that all proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and the Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced exclusively in the
state and federal courts sitting in the City of New York, Borough of
Manhattan.  Except to the extent mandatorily governed by the jurisdiction or
situs where the Collateral is located, each Debtor hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such proceeding is improper.   Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby.

 

(i)       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. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

 

(j)       All Debtors shall jointly and severally be liable for the obligations
of each Debtor to the Secured Lender hereunder.

 

  23 

 

 

(k)       Each Debtor shall indemnify, reimburse and hold harmless the Secured
Lender and its partners, members, shareholders, officers, directors, employees
and agents (and any other persons with other titles that have similar functions)
(collectively, “Indemnitees”) from and against any and all losses, claims,
liabilities, damages, penalties, suits, costs and expenses, of any kind or
nature, (including fees relating to the cost of investigating and defending any
of the foregoing) imposed on, incurred by or asserted against such Indemnitee in
any way related to or arising from or alleged to arise from this Agreement or
the Collateral, except any such losses, claims, liabilities, damages, penalties,
suits, costs and expenses which result from the gross negligence or willful
misconduct of the Indemnitee as determined by a final, nonappealable decision of
a court of competent jurisdiction.  This indemnification provision is in
addition to, and not in limitation of, any other indemnification provision in
the Transaction Documents, or any other agreement, instrument or other document
executed or delivered in connection herewith or therewith.

 

(l)       Nothing in this Agreement shall be construed to subject the Secured
Lender to liability as a partner in any Debtor or any of its direct or indirect
subsidiaries that is a partnership or as a member in any Debtor or any of its
direct or indirect subsidiaries that is a limited liability company, nor shall
the Secured Lender be deemed to have assumed any obligations under any
partnership agreement or limited liability company agreement, as applicable, of
any such Debtor or any of its direct or indirect subsidiaries or otherwise,
unless and until the Secured Lender exercises its right to be substituted for
such Debtor as a partner or member, as applicable, pursuant hereto.

 

(m)       To the extent that the grant of the security interest in the
Collateral and the enforcement of the terms hereof require the consent, approval
or action of any partner or member, as applicable, of any Debtor or any direct
or indirect subsidiary of any Debtor or compliance with any provisions of any of
the Organizational Documents, the Debtors hereby represent that all such
consents and approvals have been obtained.

 

 

[SIGNATURE PAGE OF DEBTORS FOLLOWS]

 

  24 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed on the day and year first above written.

 

 

enertec systems 2001 Ltd.

 

 

By: __________________________________________

Name: Amos Kohn

Title:  Chairman of the Board of Directors

 

 

 

 

[SIGNATURE PAGE OF HOLDER FOLLOWS] 

 

  25 

 

[SIGNATURE PAGE OF HOLDER TO SECURITY AGREEMENT]

 

 

Name of Secured Lender: Dominion Capital LLC

 

Signature of Authorized Signatory of Secured Lender: _________________________

 

Name of Authorized Signatory: _________________________

 

Title of Authorized Signatory: __________________________

 

  26 

 

 

DISCLOSURE SCHEDULES

 

(Security Agreement)

 

The following are the Disclosure Schedules (the “Disclosure Schedules”) referred
to in that certain Security Agreement, dated as of December 28, 2018 (the
“Agreement”), by and among Enertec Systems 2001 Ltd., an Israeli corporation
(the “Company”), any subsidiary of the Company that is a signatory hereto either
now or joined in the future (such subsidiaries, the “Guarantors”, and, together
with the Company, the “Debtors”) and the holder of the Note (as defined in the
Agreement), its endorsees, transferees and assigns (collectively, the “Secured
Lender”).

 

  27 

 

 

SCHEDULE A

 

Principal Place of Business of Debtors:

Locations Where Collateral is Located or Stored

 

 

 

Enertec Systems 2001 Ltd.

Hanapach 8

Industrial Area 5

Karmiel 20101

Israel

 

  28 

 

 

SCHEDULE B

 

Liens on Assets

 

 

1.EFFICIENT FINANCE factoring for IAI collections

 

 

 

2.Credit line without guarantee:

 

a.Bank Hapoalim: $1,100K

 

b.First International Bank of Israel (FIBI): $610K

 

 

 

3.Secured bank guarantee:

 

a.Bank Hapoalim: $3,000K

 

b.First International Bank of Israel (FIBI): $60K

 

  29 

 

 

SCHEDULE C

 

Governmental or regulatory filing evidencing Liens on collateral

 

Not applicable

 

  30 

 

 

SCHEDULE D

 

Organizational Information on Subsidiaries of Enertec Systems 2001 Ltd.

 

 

 

 

 

Subsidiary Legal Name

 

State of

Organization

 

Type of

Organization

Entity

Organizational

ID #

Enertec Systems 2001 Ltd Israel

Israel Corporation

513144261        

 

  31 

 

 

SCHEDULE E

 

Merger Information on Subsidiaries of Enertec Systems 2001 Ltd.

 

 

 

Not applicable

 

  32 

 

 

SCHEDULE F

 

Patents and Trademarks Listing

 

 

 

None

 

  33 

 

 

SCHEDULE G

 

Account debtors’ governmental authority

 

 

 

Not applicable

 

  34 

 

 

SCHEDULE H

 

Pledged ownership and equity interests in entities

 

 

 

Subsidiary Legal Name

 

State of

Organization

 

Type of

Organization

 

Percentage
ownedby

Enertec

Systems 2001

Ltd.

 

Not applicable

 

     

  

  35 

 

 

ANNEX A

to

SECURITY AGREEMENT

 

FORM OF ADDITIONAL DEBTOR JOINDER

 

Reference is hereby made to the Security Agreement, dated as of December 28,
2018, made by and among Enertec Systems 2001 Ltd. and its subsidiaries party
thereto from time to time, as Debtors to and in favor of the Secured Lender
identified therein (the “Security Agreement”). Capitalized terms used herein and
not otherwise defined herein shall have the meanings given to such terms in, or
by reference in, the Security Agreement.

 

The undersigned hereby agrees that, upon delivery of this Additional Debtor
Joinder to the Secured Lender referred to above, the undersigned shall (a) be an
Additional Debtor under the Security Agreement, (b) have all the rights and
obligations of the Debtors under the Security Agreement as fully and to the same
extent as if the undersigned was an original signatory thereto and (c) be deemed
to have made the representations and warranties set forth therein as of the date
of execution and delivery of this Additional Debtor Joinder.  WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE
SECURED LENDER A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN
THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL
PROVISIONS SET FORTH THEREIN.

 

Attached hereto are supplemental and/or replacement Disclosure Schedules to the
Security Agreement, as applicable.

 

An executed copy of this Additional Debtor Joinder shall be delivered to the
Secured Lender, and the Secured Lender may rely on the matters set forth herein
on or after the date hereof.  This Additional Debtor Joinder shall not be
modified, amended or terminated without the prior written consent of the Secured
Lender.

 

IN WITNESS WHEREOF, the undersigned has caused this Additional Debtor Joinder to
be executed in the name and on behalf of the undersigned.

  

 

  [Name of Additional Debtor]       By:   Name:   Title:       Address:

 Dated:

 

 

36