Exhibit 10.39

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (as amended, restated, supplemented or otherwise
modified from time to time, this “Agreement”) dated as of March 1, 2019, between
Helix TCS, Inc., a Delaware corporation (“Company”), Helix TCS, LLC, (“LLC”),
Security Consultants Group, LLC (“SCG”), Boss Security Solutions, Inc. (“Boss”),
Security Grade Protective Services, Ltd. (“SG”), Bio-Tech Medical Software, Inc.
(“THC”), and Engeni LLC (“Engeni”, and together with LLC, SCG, Boss, SG and THC,
each a “Subsidiary” and collectively the “Subsidiaries”) (the Company, the
Subsidiaries, and each other Person who becomes a party to this Agreement by
execution of a joinder in the form of Exhibit A attached hereto, which shall
include all wholly-owned or majority-owned subsidiaries of the Company acquired
after the date hereof for so long as this Agreement remains in effect, are
hereinafter sometimes referred to individually as a “Debtor” and, collectively,
as the “Debtors”), Rose Capital Fund I, LP, a Delaware limited partnership, in
its capacity as Collateral Agent for the benefit of itself and each of the Rose
Purchasers (as hereinafter defined) and DiamondRock LLC (“Rock”, and together
with the Collateral Agent, each Rose Purchaser and the respective successors and
assigns of Rock, the Collateral Agent and each Rose Purchaser, each a “Secured
Party” and collectively, the “Secured Parties”).

 

W I T N E S S E T H:

 

WHEREAS, the purchasers as from time to time parties to the Rose Purchase
Agreement (as hereafter defined), together with their successors and assigns,
and each other purchaser of a Note (as defined) together with their respective
successors and assigns, (the “Rose Purchasers”), will purchase from the Company
certain senior secured notes each made by the Company and dated as of the date
hereof in an initial aggregate principal amount of $1,500,000 (all such notes,
together with any promissory notes or other securities issued in exchange or
substitution therefor or replacement thereof, and as any of the same may be
amended, supplemented, restated or modified and in effect from time to time, the
“Rose Notes”), and receive certain Common Stock Purchase Warrants (all such
Warrants, together with any promissory notes or other securities issued in
exchange or substitution therefor or replacement thereof, and as any of the same
may be amended, supplemented, restated or modified and in effect from time to
time, the “Rose Warrants”);

 

WHEREAS, the Company delivered a convertible promissory note (the “Existing
RedDiamond Note”) in the aggregate principal amount of $208,333.33 to RedDiamond
Partners, LLC (“RD”) and Common Stock Purchase Warrants (the “Existing
RedDiamond Warrants”), in each case pursuant to that certain Securities Purchase
Agreement by and between the Company and RD, dated as of February 13, 2017 (the
“Existing RedDiamond Purchase Agreement”);

 

WHEREAS, as of the date hereof the principal amount outstanding on the Existing
RedDiamond Note is $116,780;

 

WHEREAS, RD transferred the Existing RedDiamond Note to Rock;

 

 

 

 

WHEREAS, the Existing RedDiamond Note is secured pursuant to that certain
security agreement by and among the Company, all the subsidiaries of the Company
and RD, dated as of February 14, 2017 (the “RedDiamond Security Agreement”);

 

WHEREAS, Rock desires to terminate the RedDiamond Security Agreement and to
become a party to this Agreement, and the Company desires to permit Rock to
terminate the RedDiamond Security Agreement and become a party to this
Agreement;

 

WHEREAS, Rock will purchase a secured convertible promissory note (the “New Rock
Note” and, with the Existing RedDiamond Note and the Rose Notes, collectively,
the “Notes”) in the aggregate principal amount of $450,000.00, and Common Stock
Purchase Warrants (the “New Rock Warrants” and, with the Existing RedDiamond
Warrants and the Rose Warrants, collectively, the “Warrants”), in each case
pursuant to that certain Securities Purchase Agreement by and between the
Company and Rock, dated as of the date hereof (the “New Rock Purchase
Agreement”);

 

WHEREAS, the Rose Notes are being acquired by the Secured Parties other than
Rock, and the Secured Parties other than Rock have made certain financial
accommodations to the Company pursuant to a Securities Purchase Agreement, dated
as of the date hereof, by and among the Company and the Secured Parties other
than Rock (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the “Rose Purchase Agreement”, and together with the
Existing RedDiamond Purchase Agreement and the New Rock Purchase Agreement, the
“Purchase Agreements”). Capitalized terms used herein but not otherwise defined
shall have the meanings set forth in the Rose Purchase Agreement;

 

WHEREAS, each Debtor will derive substantial benefit and advantage from the
financial accommodations to the Company set forth in the Purchase Agreements and
the Notes, and it will be to each such Debtor’s direct interest and economic
benefit to assist the Company in procuring said financial accommodations from
the Secured Parties;

 

WHEREAS, to induce the Secured Parties to enter into the Rose Purchase Agreement
and New Rock Purchase Agreement, and to purchase the Rose Notes and the New Rock
Note, and in order to obtain additional investment in the Company in the form of
the Rose Notes and the New Rock Note and thereby make the investment in the
Company made by Rock pursuant to the RedDiamond Note more secure, (i) each
Debtor (other than the Company) will guaranty the Obligations (as hereinafter
defined) of the Company pursuant to the terms of one or more guaranties by each
such Debtor in favor of the Secured Parties (such guaranties, as amended,
restated, modified or supplemented and in effect from time to time,
individually, a “Subsidiary Guaranty”, and collectively, the “Subsidiary
Guaranties”) and (ii) each Debtor will pledge and grant a security interest in
all of its right, title and interest in and to the Collateral (as hereinafter
defined) as security for its Obligations for the benefit of the Secured Parties.

 

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NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

Section 1. Definitions. Capitalized terms used herein without definition and
defined in the Purchase Agreement are used herein as defined therein. In
addition, as used herein:

 

“Accounts” means any “account,” as such term is defined in the UCC, and, in any
event, shall include, without limitation, “supporting obligations” as defined in
the UCC.

 

“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC.

 

“Collateral” shall have the meaning ascribed thereto in Section 3 hereof.

 

“Collateral Agent” shall mean Rose Capital Fund I, LP.

 

“Commercial Tort Claims” means “commercial tort claims”, as such term is defined
in the UCC.

 

“Contracts” means all contracts, undertakings, or other agreements (other than
rights evidenced by Chattel Paper, Documents or Instruments) in or under which a
Debtor may now or hereafter have any right, title or interest, including,
without limitation, with respect to an Account, any agreement relating to the
terms of payment or the terms of performance thereof.

 

“Copyrights” means any copyrights, rights and interests in copyrights, works
protectable by copyrights, copyright registrations and copyright applications,
including, without limitation, the copyright registrations and applications
listed on Schedule III attached hereto (if any), and all renewals of any of the
foregoing, all income, royalties, damages and payments now and hereafter due
and/or payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.

 

“Deposit Accounts” means all “deposit accounts” as such term is defined in the
UCC, now or hereafter held in the name of a Debtor.

 

“Documents” means any “documents,” as such term is defined in the UCC, and shall
include, without limitation, all documents of title (as defined in the UCC),
bills of lading or other receipts evidencing or representing Inventory or
Equipment.

 

“Equipment” means any “equipment,” as such term is defined in the UCC and, in
any event, shall include, Motor Vehicles.

 

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

 

“Excluded Assets” means any lease, license or other agreement or any property
subject to a capital lease, purchase money security interest or similar
arrangement, to the extent that a grant of a Lien thereon in favor of an
applicable Secured Party would violate or invalidate such lease, license,
agreement or capital lease, purchase money security interest or similar
arrangement, violate applicable law or create a right of termination in favor of
any other party thereto (other than the Debtors), so long as such provision
exists and so long as such lease, license or agreement was not entered into in
contemplation of circumventing the obligation to provide Collateral hereunder or
in violation of the Purchase Agreement or applicable law, other than to the
extent that any such term would be rendered ineffective pursuant to Sections
9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or
provisions) of any relevant jurisdiction or any other applicable law including
the bankruptcy code, or principles of equity.

 

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“General Intangibles” means any “general intangibles,” as such term is defined
in the UCC, and, in any event, shall include, without limitation, all right,
title and interest in or under any Contract, models, drawings, materials and
records, claims, literary rights, goodwill, rights of performance, Copyrights,
Trademarks, Patents, warranties, rights under insurance policies and rights of
indemnification.

 

“Goods” means any “goods”, as such term is defined in the UCC, including,
without limitation, fixtures and embedded Software to the extent included in
“goods” as defined in the UCC.

 

“Governmental Authority” means the government of the United States of America or
any other nation, or any political subdivision thereof, whether state or local,
or any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administration powers or functions of or pertaining to government over any
Debtor or any of its subsidiaries, or any of their respective properties, assets
or undertakings.

 

“Instruments” means any “instrument,” as such term is defined in the UCC, and
shall include, without limitation, promissory notes, drafts, bills of exchange,
trade acceptances, letters of credit, letter of credit rights (as defined in the
UCC), and Chattel Paper.

 

“Inventory” means any “inventory,” as such term is defined in the UCC.

 

“Investment Property” means any “investment property”, as such term is defined
in the UCC.

 

“Obligations” means all obligations, liabilities and indebtedness of every
nature of Debtors from time to time owed or owing under or in respect of the
Transaction Documents, including, without limitation, the principal amount of
all debts, claims and indebtedness, accrued and unpaid interest and all fees,
costs and expenses, whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable whether before or after the filing of a bankruptcy, insolvency or
similar proceeding under applicable federal, state, foreign or other law and
whether or not an allowed claim in any such proceeding.

 

“Lien” has the meaning set forth in the Rose Purchase Agreement.

 

“Motor Vehicles” shall mean motor vehicles, tractors, trailers and other like
property, whether or not the title thereto is governed by a certificate of title
or ownership.

 

“Patents” means any patents and patent applications, including, without
limitation, the inventions and improvements described and claimed therein, all
patentable inventions and those patents and patent applications listed on
Schedule IV attached hereto (if any), and the reissues, divisions,
continuations, renewals, extensions and continuations-in-part of any of the
foregoing, and all income, royalties, damages and payments now or hereafter due
and/or payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.

 

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“Permitted Indebtedness” has the meaning set forth in the Rose Notes.

 

“Permitted Lien” has the meaning set forth in the Rose Notes.

 

“Proceeds” means “proceeds,” as such term is defined in the UCC and, in any
event, includes, without limitation, (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable with respect to any of the Collateral,
(b) any and all payments (in any form whatsoever) made or due and payable from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any Governmental
Authority (or any person acting under color of Governmental Authority), and (c)
any and all other amounts from time to time paid or payable under, in respect of
or in connection with any of the Collateral.

 

“Representative” means any Person acting as agent, representative or trustee on
behalf of the Collateral Agent from time to time.

 

“Security Documents” means this Agreement, the Subsidiary Guaranty, the Pledge
Agreement, and any other documents securing the Lien of the Collateral Agent
hereunder.

 

“Software” means all “software” as such term is defined in the UCC, now owned or
hereafter acquired by a Debtor, other than software embedded in any category of
Goods, including, without limitation, all computer programs and all supporting
information provided in connection with a transaction related to any program.

 

“Trademarks” means any trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos,
other business identifiers, prints and labels on which any of the foregoing have
appeared or appear, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation, the
trademarks and applications listed in Schedule V attached hereto (if any) and
renewals thereof, and all income, royalties, damages and payments now or
hereafter due and/or payable under or with respect to any of the foregoing,
including, without limitation, damages and payments for past, present and future
infringements of any of the foregoing and the right to sue for past, present and
future infringements of any of the foregoing.

 

“Transaction Documents” means the Purchase Agreements, the Notes, the Security
Documents, the Warrants, and any other related agreements.

 

“UCC” shall mean the Uniform Commercial Code as in effect from time to time in
the State of New York; provided, that to the extent that the Uniform Commercial
Code is used to define any term herein and such term is defined differently in
different Articles or Divisions of the Uniform Commercial Code, the definition
of such term contained in Article or Division 9 shall govern.

 

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Section 2. Representations, Warranties and Covenants of Debtors. Each Debtor
represents and warrants to, and covenants with, the Collateral Agent and each
Secured Party as follows:

 

(a) Subject to the Permitted Liens, such Debtor has or will have rights in and
the power to transfer the Collateral in which it purports to grant a security
interest pursuant to Section 3 hereof (subject, with respect to after acquired
Collateral, to such Debtor acquiring the same) and no Lien other than a
Permitted Lien exists or will exist upon such Collateral at any time.

 

(b) Subject to the Permitted Liens, this Agreement is effective to create in
favor of the Collateral Agent a valid security interest in and Lien upon all of
such Debtor’s right, title and interest in and to the Collateral, and upon (i)
the filing of appropriate UCC financing statements in the jurisdictions of
formation listed on Schedule I attached hereto, (ii) creation of each Deposit
Account, (iii) filings in the United States Patent and Trademark Office, or
United States Copyright Office with respect to Collateral that constitutes
Patents and Trademarks, or Copyrights, as the case may be, (iv) the filing of
the Mortgages in the jurisdictions listed on Schedule I hereto, (v) the delivery
to the Collateral Agent of the Pledged Collateral together with assignments in
blank, (vi) the security interest created hereby being noted on each certificate
of title evidencing the ownership of any Motor Vehicle in accordance with
Section 4.1(d) hereof and (v) delivery to the Collateral Agent or its
Representative of Instruments duly endorsed by such Debtor or accompanied by
appropriate instruments of transfer duly executed by such Debtor with respect to
Instruments not constituting Chattel Paper, such security interest will be a
duly perfected first priority perfected security interest (subject to Permitted
Indebtedness) in all of the Collateral.

 

(c) All of the Equipment, Inventory and Goods owned by such Debtor is located at
the places as specified on Schedule I attached hereto. Except as disclosed on
Schedule I, none of the Collateral is in the possession of any bailee,
warehousemen, processor or consignee. Schedule I discloses such Debtor’s name as
of the date hereof as it appears in official filings in the state or province,
as applicable, of its incorporation, formation or organization, the type of
entity of such Debtor (including corporation, partnership, limited partnership
or limited liability company), organizational identification number issued by
such Debtor’s state of incorporation, formation or organization (or a statement
that no such number has been issued), such Debtor’s state or province, as
applicable, of incorporation, formation or organization and the chief place of
business, chief executive office and the office where such Debtor keeps its
books and records and the states in which such Debtor conducts its business.
Such Debtor has only one state or province, as applicable, of incorporation,
formation or organization. Such Debtor does not do business and has not done
business during the past five (5) years under any trade name or fictitious
business name except as disclosed on Schedule II attached hereto.

 

(d) No Copyrights, Patents or Trademarks listed on Schedules III, IV and V,
respectively, if any, have been adjudged invalid or unenforceable or have been
canceled, in whole or in part, or are not presently subsisting. Each of such
Copyrights, Patents and Trademarks (if any) is valid and enforceable. Subject to
the Permitted Lien, such Debtor is the sole and exclusive owner of the entire
and unencumbered right, title and interest in and to each of such Copyrights,
Patents and Trademarks, identified on Schedules III, IV and V, as applicable, as
being owned by such Debtor, free and clear of any liens (subject to the
Permitted Lien), charges and encumbrances, including without limitation
licenses, shop rights and covenants by such Debtor not to sue third persons.
Such Debtor has adopted, used and is currently using, or has a current bona fide
intention to use, all of such Trademarks and Copyrights. Such Debtor has no
notice of any suits or actions commenced or threatened with reference to the
Copyrights, Patents or Trademarks owned by it.

 

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(e) Each Debtor agrees to deliver to the Collateral Agent an updated Schedule I,
II, III, IV and/or V within five Business Days after any change thereto.

 

(f) All depositary and other accounts including, without limitation, Deposit
Accounts, securities accounts, brokerage accounts and other similar accounts,
maintained by each Debtor are described on Schedule VI hereto, which description
includes for each such account the name of the Debtor maintaining such account,
the name, address and telephone and telecopy numbers of the financial
institution at which such account is maintained, the account number and the
account officer, if any, of such account. No Debtor shall open any new Deposit
Accounts, securities accounts, brokerage accounts or other accounts unless such
Debtor shall have given the Collateral Agent 10 Business Days’ prior written
notice of its intention to open any such new accounts. Each Debtor shall deliver
to the Collateral Agent a revised version of Schedule VI showing any changes
thereto within five Business Days of any such change. Each Debtor hereby
authorizes the financial institutions at which such Debtor maintains an account
to provide the Collateral Agent with such information with respect to such
account as the Collateral Agent from time to time reasonably may request, and
each Debtor hereby consents to such information being provided to the Collateral
Agent. In addition, all of such Debtor’s depositary, security, brokerage and
other accounts including, without limitation, Deposit Accounts shall be subject
to the provisions of Section 2 hereof.

 

(g) Such Debtor does not own any Commercial Tort Claim except for those
disclosed on Schedule VII hereto (if any).

 

(h) Such Debtor does not have any interest in real property with respect to real
property except as disclosed on Schedule VIII (if any). Each Debtor shall
deliver to the Collateral Agent a revised version of Schedule VIII showing any
changes thereto within 10 Business Days of any such change. Except as otherwise
agreed to by the Collateral Agent, all such interests in real property with
respect to such real property are subject to a mortgage and deed of trust (in
form and substance satisfactory to the Collateral Agent) in favor of the
Collateral Agent (hereinafter, a “Mortgage”).

 

(i) Each Debtor shall duly and properly record each interest in real property
held by such Debtor, except with respect to easements, rights of way, access
agreements, surface damage agreements, surface use agreements or similar
agreements that such Debtor, using prudent customs and practices in the industry
in which it operates, does not believe are of material value or material to the
operation of such Debtor’s business or, with respect to state and federal rights
of way, are not capable of being recorded as a matter of state and federal law.

 

(j) All Equipment (including, without limitation, Motor Vehicles) owned by a
Debtor and subject to a certificate of title or ownership statute is described
on Schedule IX hereto.

 

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Section 3. Collateral. As collateral security for the prompt payment in full
when due (whether at stated maturity, by acceleration or otherwise) of the
Obligations, each Debtor hereby pledges and grants to the Collateral Agent, for
the benefit of itself and each Secured Party, a Lien on and security interest in
and to all of such Debtor’s right, title and interest in the following
properties and assets of such Debtor, whether now owned by such Debtor or
hereafter acquired and whether now existing or hereafter coming into existence
and wherever located (all being collectively referred to herein as
“Collateral”):

 

(a) all Instruments, together with all payments thereon or thereunder:

 

(b) all Accounts;

 

(c) all Inventory;

 

(d) all General Intangibles (including payment intangibles (as defined in the
UCC) and Software);

 

(e) all Equipment;

 

(f) all Documents;

 

(g) all Contracts;

 

(h) all Goods;

 

(i) all Investment Property, including without limitation all equity interests
now owned or hereafter acquired by such Debtor;

 

(j) all Deposit Accounts, including, without limitation, the balance from time
to time in all bank accounts maintained by such Debtor;

 

(k) all Commercial Tort Claims specified on Schedule VII;

 

(l) all Trademarks, Patents and Copyrights; and

 

(m) all other tangible and intangible property of such Debtor, including,
without limitation, all interests in real property, Proceeds, tort claims,
products, accessions, rents, profits, income, benefits, substitutions, additions
and replacements of and to any of the property of such Debtor described in the
preceding clauses of this Section 3 (including, without limitation, any proceeds
of insurance thereon, insurance claims and all rights, claims and benefits
against any Person relating thereto), other rights to payments not otherwise
included in the foregoing, and all books, correspondence, files, records,
invoices and other papers, including without limitation all tapes, cards,
computer runs, computer programs, computer files and other papers, documents and
records in the possession or under the control of such Debtor, or any computer
bureau or service company from time to time acting for such Debtor.

 

Notwithstanding anything to the contrary contained herein or in any Transaction
Document, the Excluded Assets are expressly excluded from the Collateral, and in
no event shall either the security interest granted herein or therein attach to
any Excluded Assets.

 

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Section 4. Covenants; Remedies. In furtherance of the grant of the pledge and
security interest pursuant to Section 3 hereof, each Debtor hereby agrees as
follows:

 

4.1 Delivery and Other Perfection; Maintenance, etc.

 

(a) Delivery of Instruments, Documents, Etc. Each Debtor shall deliver and
pledge to the Collateral Agent or its Representative any and all Instruments,
negotiable Documents, Chattel Paper and certificated securities (accompanied by
stock powers executed in blank, which stock powers may be filled in and
completed at any time upon the occurrence of any Event of Default) duly endorsed
and/or accompanied by such instruments of assignment and transfer executed by
such Debtor in such form and substance as the Collateral Agent or its
Representative may request; provided, that so long as no Event of Default shall
have occurred and be continuing, each Debtor may retain for collection in the
ordinary course of business any Instruments, negotiable Documents and Chattel
Paper received by such Debtor in the ordinary course of business, and the
Collateral Agent or its Representative shall, promptly upon request of a Debtor,
make appropriate arrangements for making any other Instruments, negotiable
Documents and Chattel Paper pledged by such Debtor available to such Debtor for
purposes of presentation, collection or renewal (any such arrangement to be
effected, to the extent deemed appropriate by the Collateral Agent or its
Representative, against a trust receipt or like document). If a Debtor retains
possession of any Chattel Paper, negotiable Documents or Instruments pursuant to
the terms hereof, such Chattel Paper, negotiable Documents and Instruments shall
be marked with the following legend: “This writing and the obligations evidenced
or secured hereby are subject to the security interest of Rose Capital Fund I,
LP, in its capacity as Collateral Agent for the benefit of the Purchasers, as
Secured Parties.”

 

(b) Other Documents and Actions. Each Debtor shall give, execute, deliver, file
and/or record any financing statement, registration, notice, instrument,
document, agreement, Mortgage or other papers that may be necessary or desirable
(in the reasonable judgment of the Collateral Agent or its Representative) to
create, preserve, perfect or validate the security interest granted pursuant
hereto (or any security interest or mortgage contemplated or required hereunder,
including with respect to Section 2(h) of this Agreement) or to enable the
Collateral Agent or its Representative to exercise and enforce the rights of the
Secured Parties hereunder with respect to such pledge and security interest,
provided that notices to account debtors in respect of any Accounts or
Instruments shall be subject to the provisions of clause (e) below.
Notwithstanding the foregoing each Debtor hereby irrevocably authorizes the
Collateral Agent at any time and from time to time to file in any filing office
in any jurisdiction any initial financing statements (and other similar filings
or registrations under other applicable laws and regulations pertaining to the
creation, attachment, or perfection of security interests) and amendments
thereto that (a) indicate the Collateral (i) as all assets of such Debtor or
words of similar effect, regardless of whether any particular asset comprised in
the Collateral falls within the scope of Article 9 of the UCC, or (ii) as being
of an equal or lesser scope or with greater detail, and (b) contain any other
information required by part 5 of Article 9 of the UCC for the sufficiency or
filing office acceptance of any financing statement or amendment, including (i)
whether such Debtor is an organization, the type of organization and any
organization identification number issued to such Debtor, and (ii) in the case
of a financing statement filed as a fixture filing, a sufficient description of
real property to which the Collateral relates. Each Debtor agrees to furnish any
such information to the Collateral Agent promptly upon request. Each Debtor also
ratifies its authorization for the Collateral Agent to have filed in any
jurisdiction any like initial financing statements or amendments thereto if
filed prior to the date hereof.

 

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(c) Books and Records. Each Debtor shall maintain at its own cost and expense
complete and accurate books and records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the Collateral. Upon the
occurrence and during the continuation of any Event of Default, each Debtor
shall deliver and turn over any such books and records (or true and correct
copies thereof) to the Collateral Agent or its Representative at any time on
demand. Each Debtor shall permit the Collateral Agent or any Representative of
the Collateral Agent to inspect such books and records at any time during
reasonable business hours and will provide photocopies thereof at such Debtor’s
expense to the Collateral Agent or its Representative upon request of the
Collateral Agent or its Representative.

 

(d) Motor Vehicles. Each Debtor shall, promptly upon acquiring same, cause the
Collateral Agent to be listed as the lienholder on each certificate of title or
ownership covering any items of Equipment, including Motor Vehicles, having a
value in excess of $50,000 individually or in the aggregate for all such items
of Equipment of the Debtor, or otherwise comply with the certificate of title or
ownership laws of the relevant jurisdiction issuing such certificate of title or
ownership in order to properly evidence and perfect the Collateral Agent’s
security interest in the assets represented by such certificate of title or
ownership.

 

(e) Notice to Account Debtors; Verification. (i) Upon the occurrence and during
the continuance of any Event of Default (or if any rights of set-off (other than
set-offs against an Account arising under the Contract giving rise to the same
Account) or contra-accounts may be asserted, upon request of the Collateral
Agent or its Representative, each Debtor shall promptly notify (and each Debtor
hereby authorizes the Collateral Agent and its Representative so to notify) each
account debtor in respect of any Accounts or Instruments or other Persons
obligated on the Collateral that such Collateral has been assigned to the
Collateral Agent hereunder, and that any payments due or to become due in
respect of such Collateral are to be made directly to the Collateral Agent, and
(ii) the Collateral Agent and its Representative shall have the right at any
time or times to make direct verification with the account debtors or other
Persons obligated on the Collateral of any and all of the Accounts or other such
Collateral.

 

(f) Intellectual Property. Each Debtor represents and warrants that the
Copyrights, Patents and Trademarks listed on Schedules III, IV and V,
respectively (if any), constitute all of the registered Copyrights and all of
the Patents and Trademarks now owned by such Debtor. If such Debtor shall (i)
obtain rights to any new patentable inventions, any registered Copyrights or any
Patents or Trademarks, or (ii) become entitled to the benefit of any registered
Copyrights or any Patents or Trademarks or any improvement on any Patent, the
provisions of this Agreement above shall automatically apply thereto and such
Debtor shall give to the Collateral Agent prompt written notice thereof. Each
Debtor hereby authorizes the Collateral Agent to modify this Agreement by
amending Schedules III, IV and V, as applicable, to include any such registered
Copyrights or any such Patents and Trademarks. Each Debtor shall have the duty
(i) to prosecute diligently any patent, trademark, or service mark applications
pending as of the date hereof or hereafter, (ii) to preserve and maintain all
rights in the Copyrights, Patents and Trademarks, to the extent material to the
operations of the business of such Debtor and (iii) to ensure that the
Copyrights, Patents and Trademarks are and remain enforceable, to the extent
material to the operations of the business of such Debtor. Any expenses incurred
in connection with such Debtor’s obligations under this Section 4.1(f) shall be
borne by such Debtor. Except for any such items that a Debtor reasonably
believes (using prudent industry customs and practices) are no longer necessary
for the on-going operations of its business, no Debtor shall abandon any
material right to file a patent, trademark or service mark application, or
abandon any pending patent, trademark or service mark application or any other
Copyright, Patent or Trademark without the prior written consent of the
Collateral Agent.

 

10

 

 

(g) Further Identification of Collateral. Each Debtor will, when and as often as
requested by the Collateral Agent or its Representative, furnish to the
Collateral Agent or such Representative, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Collateral Agent or its Representative may reasonably
request, all in reasonable detail.

 

(h) Investment Property. Each Debtor will take any and all actions required or
requested by the Collateral Agent or its Representative, from time to time, to
(i) cause the Collateral Agent to obtain exclusive control of any Investment
Property owned by such Debtor in a manner acceptable to the Collateral Agent and
(ii) obtain from any issuers of Investment Property and such other Persons
written confirmation of the Collateral Agent’s control over such Investment
Property. For purposes of this Section 4.1(h), the Collateral Agent shall have
exclusive control of Investment Property if (i) such Investment Property
consists of certificated securities and a Debtor delivers such certificated
securities to the Collateral Agent (with appropriate endorsements if such
certificated securities are in registered form); (ii) such Investment Property
consists of uncertificated securities and either (x) a Debtor delivers such
uncertificated securities to the Collateral Agent or (y) the issuer thereof
agrees, pursuant to documentation in form and substance satisfactory to the
Collateral Agent, that it will comply with instructions originated by the
Collateral Agent without further consent by such Debtor, and (iii) such
Investment Property consists of security entitlements and either (x) the
Collateral Agent becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to the documentation in form and
substance satisfactory to the Collateral Agent, that it will comply with
entitlement orders originated by the Collateral Agent without further consent by
any Debtor.

 

(i) Commercial Tort Claims. Each Debtor shall promptly notify the Collateral
Agent of any Commercial Tort Claim acquired by it that concerns a claim in
excess of $50,000 and unless otherwise consented to by the Collateral Agent,
such Debtor shall enter into a supplement to this Agreement granting to the
Secured Parties a Lien on and security interest in such Commercial Tort Claim.

 

4.2 Other Liens. Other than Permitted Liens as defined in the Notes, Debtors
will not create, permit or suffer to exist, and will defend the Collateral
against and take such other action as is necessary to remove, any Lien on the
Collateral except Permitted Indebtedness, and will defend the right, title and
interest of the Secured Parties in and to the Collateral and in and to all
Proceeds thereof against the claims and demands of all Persons whatsoever.

 

4.3 Preservation of Rights. Whether or not any Event of Default has occurred or
is continuing, the Collateral Agent and its Representative may, but shall not be
required to, take any steps the Collateral Agent or its Representative deems
necessary or appropriate to preserve any Collateral or any rights against third
parties to any of the Collateral, including obtaining insurance for the
Collateral at any time when such Debtor has failed to do so, and Debtors shall
promptly pay, or reimburse the Collateral Agent for, all expenses incurred in
connection therewith.

 

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4.4 Formation of Subsidiaries; Name Change; Location; Bailees.

 

(a) No Debtor shall form or acquire any subsidiary unless (i) such Debtor
pledges all of the stock or equity interests of such subsidiary to the Secured
Parties pursuant to an agreement in a form agreed to by the Collateral Agent,
(ii) such subsidiary becomes a party to this Agreement and all other applicable
Transaction Documents and (iii) the formation or acquisition of such subsidiary
is not prohibited by the terms of the Transaction Documents.

 

(b) No Debtor shall (i) reincorporate or reorganize itself under the laws of any
jurisdiction other than the jurisdiction in which it is incorporated or
organized as of the date hereof, or (ii) otherwise change its name, identity or
corporate structure, in each case, without the prior written consent of the
Collateral Agent, which consent shall not be unreasonably withheld. Each Debtor
will notify the Collateral Agent promptly in writing prior to any such change in
the proposed use by such Debtor of any tradename or fictitious business name
other than any such name set forth on Schedule II attached hereto.

 

(c) Except for the sale of Inventory in the ordinary course of business and
other sales of assets expressly permitted by the terms of the Purchase
Agreement, each Debtor will keep the Collateral at the locations specified in
Schedule I. Each Debtor will give the Collateral Agent thirty (30) day’s prior
written notice of any change in such Debtor’s chief place of business or of any
new location for any of the Collateral.

 

(d) If any Collateral is at any time in the possession or control of any
warehousemen, bailee, consignee or processor, such Debtor shall, upon the
request of the Collateral Agent or its Representative, notify such warehousemen,
bailee, consignee or processor of the Lien and security interest created hereby
and shall instruct such Person to hold all such Collateral for Secured Parties
account(s) subject to the Collateral Agent’s instructions.

 

(e) Each Debtor acknowledges that it is not authorized to file any financing
statement or amendment or termination statement with respect to any financing
statement without the prior written consent of the Collateral Agent and agrees
that it will not do so without the prior written consent of the Collateral
Agent, subject to such Debtor’s rights under Section 9-509(d)(2) to the UCC.

 

(f) No Debtor shall enter into any Contract that restricts or prohibits the
grant to any Secured Party of a security interest in Accounts, Chattel Paper,
Instruments or payment intangibles or the proceeds of the foregoing.

 

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4.5 Reserved.

 

4.6 Events of Default, Etc. During the period during which an Event of Default
shall have occurred and be continuing subject to the Permitted Lien:

 

(a) each Debtor shall, at the request of the Collateral Agent or its
Representative, assemble the Collateral and make it available to the Collateral
Agent or its Representative at a place or places designated by the Collateral
Agent or its Representative which are reasonably convenient to the Collateral
Agent or its Representative, as applicable, and such Debtor;

 

(b) the Collateral Agent or its Representative may make any reasonable
compromise or settlement deemed desirable with respect to any of the Collateral
and may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, any of the Collateral;

 

(c) the Collateral Agent shall have all of the rights and remedies with respect
to the Collateral of a secured party under the UCC (whether or not said UCC is
in effect in the jurisdiction where the rights and remedies are asserted) and
such additional rights and remedies to which a secured party is entitled under
the laws in effect in any jurisdiction where any rights and remedies hereunder
may be asserted, including, without limitation, the right, to the maximum extent
permitted by law, to: (i) exercise all voting, consensual and other powers of
ownership pertaining to the Collateral as if the Collateral Agent were the sole
and absolute owner thereof (and each Debtor agrees to take all such action as
may be appropriate to give effect to such right) and (ii) the appointment of a
receiver or receivers for all or any part of the Collateral or business of a
Debtor, whether such receivership be incident to a proposed sale or sales of
such Collateral or otherwise and without regard to the value of the Collateral
or the solvency of any person or persons liable for the payment of the
Obligations secured by such Collateral. Each Debtor hereby consents to the
appointment of such receiver or receivers, waives any and all defenses to such
appointment and agrees that such appointment shall in no manner impair,
prejudice or otherwise affect the rights of the Collateral Agent or any Secured
Party under this Agreement. Each Debtor hereby expressly waives notice of a
hearing for appointment of a receiver and the necessity for bond or an
accounting by the receiver;

 

(d) the Collateral Agent or its Representative in its discretion may, in the
name of the Collateral Agent or in the name of a Debtor or otherwise, demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but shall be
under no obligation to do so;

 

(e) the Collateral Agent or its Representative may take immediate possession and
occupancy of any premises owned, used or leased by a Debtor and exercise all
other rights and remedies which may be available to the Collateral Agent or a
Secured Party;

 

(f) the Collateral Agent may, upon reasonable notice (such reasonable notice to
be determined by the Collateral Agent in its sole and absolute discretion, which
shall not be less than 10 days), with respect to the Collateral or any part
thereof which shall then be or shall thereafter come into the possession,
custody or control of the Collateral Agent or its Representative, sell, lease,
license, assign or otherwise dispose of all or any part of such Collateral, at
such place or places as the Collateral Agent deems best, and for cash or for
credit or for future delivery (without thereby assuming any credit risk), at
public or private sale, without demand of performance or notice of intention to
effect any such disposition or of the time or place thereof (except such notice
as is required above or by applicable statute and cannot be waived), and the
Collateral Agent or anyone else may be the purchaser, lessee, licensee, assignee
or recipient of any or all of the Collateral so disposed of at any public sale
(or, to the extent permitted by law, at any private sale) and thereafter hold
the same absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of Debtors, any such
demand, notice and right or equity being hereby expressly waived and released.
The Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for the sale, and such sale may be made at any time
or place to which the sale may be so adjourned; and

 

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(g) the rights, remedies and powers conferred by this Section 4.6 are in
addition to, and not in substitution for, any other rights, remedies or powers
that the Collateral Agent or any Secured Party may have under any Transaction
Document, at law, in equity or by or under the UCC or any other statute or
agreement. The Collateral Agent may proceed by way of any action, suit or other
proceeding at law or in equity and no right, remedy or power of the Collateral
Agent will be exclusive of or dependent on any other. The Collateral Agent may
exercise any of its rights, remedies or powers separately or in combination and
at any time.

 

The proceeds of each collection, sale or other disposition under this Section
4.6 shall be applied in accordance with Section 4.9 hereof.

 

4.7 Deficiency. If the proceeds of sale, collection or other realization of or
upon the Collateral are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Debtors shall remain
jointly and severally liable for any deficiency.

 

4.8 Private Sale. Each Debtor recognizes that the Collateral Agent may be unable
to effect a public sale of any or all of the Collateral consisting of securities
by reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the “Act”), and applicable state securities laws, but may be compelled
to resort to one or more private sales thereof to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment and not with a view to the
distribution or resale thereof. Each Debtor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and each Debtor agrees that it is
not commercially unreasonable for the Collateral Agent to engage in any such
private sales or dispositions under such circumstances. The Collateral Agent
shall be under no obligation to delay a sale of any of the Collateral to permit
a Debtor to register such Collateral for public sale under the Act, or under
applicable state securities laws, even if Debtors would agree to do so. The
Collateral Agent shall not incur any liability as a result of the sale of any
such Collateral, or any part thereof, at any private sale provided for in this
Agreement conducted in a commercially reasonable manner, and so long as the
Collateral Agent conducts such sale in a commercially reasonable manner each
Debtor hereby waives any claims against the Collateral Agent or any Secured
Party arising by reason of the fact that the price at which the Collateral may
have been sold at such a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Collateral Agent accepts the first offer received and
does not offer the Collateral to more than one offeree.

 

14

 

 

Each Debtor further agrees to do or cause to be done all such other acts and
things as may be necessary to make such sale or sales of any portion or all of
any such Collateral valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales, all at such Debtor’s
expense. Each Debtor further agrees that a breach of any of the covenants
contained in this Section 4.8 will cause irreparable injury to the Secured
Parties, that the Secured Parties have no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and every covenant contained
in this Section 4.8 shall be specifically enforceable against Debtors by
Collateral Agent of behalf of each Secured Party, and each Debtor hereby waives
and agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred and
is continuing.

 

4.9 Application of Proceeds. The proceeds of any collection, sale or other
realization of all or any part of the Collateral, and any other cash at the time
held by the Collateral Agent under this Agreement, shall be applied to the
Obligations in accordance with the Pro Rata Portion of each Purchaser. “Pro Rata
Portion” shall mean the ratio of (x) the subscription amount of the Notes
purchased by a Purchaser participating under this Section 4.9 and (y) the sum of
the aggregate subscription amounts of the Notes purchased by all Purchasers
participating under this Section 4.9.

 

4.10 Attorney-in-Fact. Each Debtor hereby irrevocably constitutes and appoints
the Collateral Agent, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Debtor and in the name of such Debtor or in its own name, from
time to time in the discretion of the Collateral Agent, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute and deliver any and all documents and instruments which may be
necessary or desirable to perfect or protect any security interest granted
hereunder, to maintain the perfection or priority of any security interest
granted hereunder, or to otherwise accomplish the purposes of this Agreement,
and, without limiting the generality of the foregoing, hereby gives the
Collateral Agent the power and right, on behalf of such Debtor, without notice
to or assent by such Debtor (to the extent permitted by applicable law), to do
the following:

 

(a) to take any and all appropriate action and to execute and deliver any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement;

 

(b) upon the occurrence and during the continuation of an Event of Default, to
ask, demand, collect, receive and give acquittance and receipts for any and all
moneys due and to become due under any Collateral and, in the name of such
Debtor or its own name or otherwise, to take possession of and endorse and
collect any checks, drafts, notes, acceptances or other Instruments for the
payment of moneys due under any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any and all
such moneys due under any Collateral whenever payable and to file any claim or
to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Collateral whenever payable;

 

15

 

 

(c) to pay or discharge charges or liens levied or placed on or threatened
against the Collateral, to effect any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums therefor;

 

(d) to direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due, and to become due thereunder, directly
to the Collateral Agent or as the Collateral Agent shall direct, and to receive
payment of and receipt for any and all moneys, claims and other amounts due, and
to become due at any time, in respect of or arising out of any Collateral;

 

(e) upon the occurrence and during the continuation of an Event of Default, to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other Documents
constituting or relating to the Collateral;

 

(f) upon the occurrence and during the continuation of an Event of Default, to
commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral;

 

(g) upon the occurrence and during the continuation of an Event of Default, to
defend any suit, action or proceeding brought against a Debtor with respect to
any Collateral;

 

(h) upon the occurrence and during the continuation of an Event of Default, to
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, to give such discharges or releases as the Collateral
Agent may deem appropriate;

 

(i) to the extent that a Debtor’s authorization given in Section 4.1(b) of this
Agreement is not sufficient to file such financing statements with respect to
this Agreement, with or without such Debtor’s signature, or to file a photocopy
of this Agreement in substitution for a financing statement, as the Collateral
Agent may deem appropriate and to execute in such Debtor’s name such financing
statements and amendments thereto and continuation statements which may require
such Debtor’s signature;

 

(j) upon the occurrence and during the continuation of an Event of Default,
generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Collateral Agent were the absolute owners thereof for all purposes; and

 

(k) to do, at the Collateral Agent’s option and at such Debtor’s expense, at any
time, or from time to time, all acts and things which the Collateral Agent
reasonably deems necessary to protect or preserve or, upon the occurrence and
during the continuation of an Event of Default, realize upon the Collateral and
the Secured Parties’ Liens therein, in order to effect the intent of this
Agreement, all as fully and effectively as such Debtor might do.

 

16

 

 

Each Debtor hereby ratifies, to the extent permitted by law, all that such
attorneys lawfully do or cause to be done by virtue hereof provided the same is
performed in a commercially reasonable manner. The power of attorney granted
hereunder is a power coupled with an interest and shall be irrevocable until the
Obligations are indefeasibly paid in full in cash and this Agreement is
terminated in accordance with Section 4.12 hereof.

 

Each Debtor also authorizes the Collateral Agent, at any time from and after the
occurrence and during the continuation of any Event of Default, (x) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of such Debtor in and under the
Contracts hereunder and other matters relating thereto and (y) to execute, in
connection with any sale of Collateral provided for in Section 4.6 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.

 

4.11 Perfection. Prior to or concurrently with the execution and delivery of
this Agreement, each Debtor shall:

 

(a) file such financing statements, assignments for security and other documents
in such offices as may be necessary or as the Collateral Agent or the
Representative may request to perfect the security interests granted by Section
3 of this Agreement;

 

(b) at the Collateral Agent’s request, deliver to the Collateral Agent or its
Representative the originals of all Instruments together with, in the case of
Instruments constituting promissory notes, allonges attached thereto showing
such promissory notes to be payable to the order of a blank payee;

 

(c) deliver to the Collateral Agent or its Representative the originals of all
Motor Vehicle titles, duly endorsed indicating the Secured Parties’ interests
therein as lienholders, together with such other documents as may be required
consistent with Section 4.1(d) hereof to perfect the security interest granted
by Section 3 in all such Motor Vehicles (if any).

 

(d) If the Debtor has not done so, the Collateral Agent may do so at any later
time at the sole cost of the Debtors.

 

4.12 Termination; Partial Release of Collateral. This Agreement and the Liens
and security interests granted hereunder shall not terminate until the full and
complete performance and indefeasible satisfaction of all of the Obligations
(including, without limitation, the indefeasible payment in full in cash of all
such Obligations) (i) in respect of the Transaction Documents, and (ii) with
respect to which claims have been asserted by Collateral Agent and/or a Secured
Party, whereupon the Collateral Agent shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral to or on the order of
Debtors. The Collateral Agent shall also execute and deliver to Debtors upon
such termination and at Debtors’ expense such UCC termination statements,
certificates for terminating the liens on the Motor Vehicles (if any) and such
other documentation as shall be reasonably requested by Debtors to effect the
termination and release of the Liens and security interests in favor of the
Collateral Agent affecting the Collateral. Notwithstanding anything to the
contrary in this Agreement, upon full and complete satisfaction of the Notes
Debtors obligations under this Agreement shall terminate and any Liens shall
thereupon be void.

 

17

 

 

4.13 Further Assurances. At any time and from time to time, upon the written
request of the Collateral Agent or its Representative, and at the sole expense
of Debtors, Debtors will promptly and duly execute and deliver any and all such
further instruments, documents and agreements and take such further actions as
the Collateral Agent or its Representative may reasonably require in order for
the Collateral Agent to obtain the full benefits of this Agreement and of the
rights and powers herein granted in favor of the Collateral Agent, including,
without limitation, using Debtors’ best efforts to secure all consents and
approvals necessary or appropriate for the assignment to the Collateral Agent of
any Collateral held by Debtors or in which a Debtor has any rights not
heretofore assigned, the filing of any financing or continuation statements
under the UCC with respect to the liens and security interests granted hereby,
transferring Collateral to the Collateral Agent’s possession (if a security
interest in such Collateral can be perfected by possession), placing the
interest of the Collateral Agent as lienholder on the certificate of title of
any Motor Vehicle, and obtaining waivers of liens from landlords and mortgagees.
Each Debtor also hereby authorizes the Collateral Agent and its Representative
to file any such financing or continuation statement without the signature of
such Debtor to the extent permitted by applicable law.

 

4.14 Limitation on Duty of Secured Party. The powers conferred on the Collateral
Agent under this Agreement are solely to protect the Collateral Agent’s interest
on behalf of itself and the other Secured Parties in the Collateral and shall
not impose any duty upon it to exercise any such powers. The Collateral Agent
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and neither the Collateral Agent nor its
Representative nor any of their respective officers, directors, employees or
agents shall be responsible to Debtors for any act or failure to act, except for
gross negligence or willful misconduct. Without limiting the foregoing, the
Collateral Agent and any Representative shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in their
possession if such Collateral is accorded treatment substantially equivalent to
that which the Collateral Agent or any Representative, in its individual
capacity, accords its own property consisting of the type of Collateral
involved, it being understood and agreed that neither the Collateral Agent nor
any Representative shall have any responsibility for taking any necessary steps
(other than steps taken in accordance with the standard of care set forth above)
to preserve rights against any Person with respect to any Collateral.

 

Also without limiting the generality of the foregoing, neither the Collateral
Agent nor any Representative shall have any obligation or liability under any
Contract or license by reason of or arising out of this Agreement or the
granting to the Collateral Agent of a security interest therein or assignment
thereof or the receipt by the Collateral Agent or any Representative of any
payment relating to any Contract or license pursuant hereto, nor shall the
Collateral Agent or any Representative be required or obligated in any manner to
perform or fulfill any of the obligations of Debtors under or pursuant to any
Contract or license, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under any Contract or license, or to present or
file any claim, or to take any action to collect or enforce any performance or
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.

 

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Section 5. Miscellaneous.

 

5.1 No Waiver. No failure on the part of the Collateral Agent or any of its
Representatives to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Collateral Agent
or any of its Representatives of any right, power or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law.

 

5.2 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.

 

5.3 Notices. All notices, approvals, requests, demands and other communications
hereunder shall be delivered or made in the manner set forth in, and shall be
effective in accordance with the terms of, the Purchase Agreement. Debtors and
Collateral Agent may change their respective notice addresses by written notice
given to each other party five days prior to the effectiveness of such change.

 

5.4 Amendments, Etc. The terms of this Agreement may be waived, altered or
amended only by an instrument in writing duly executed by the Debtor sought to
be charged or benefited thereby and the Secured Parties holding a majority of
the outstanding principal of the Notes. Any such amendment or waiver shall be
binding upon all the Secured Parties (including the Collateral Agent in its
capacity as a Secured Party) and the Debtor(s) sought to be charged or benefited
thereby and their respective successors and assigns.

 

5.5 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of each of the parties
hereto, provided, that no Debtor shall assign or transfer its rights hereunder
without the prior written consent of each Secured Party. Any Secured Party,
including the Collateral Agent in its capacity as a
Secured Party, may assign its rights hereunder without the consent of Debtors,
in which event such assignee shall be deemed to be a Secured Party and/or
Collateral Agent, as applicable, hereunder with respect to such assigned rights.

 

5.6 Counterparts; Headings. This Agreement may be authenticated in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may authenticate this Agreement by
signing any such counterpart. This Agreement may be authenticated by manual
signature or facsimile, .pdf or similar electronic signature, all of which shall
be equally valid. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.

 

5.7 Severability. If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Collateral Agent, its
Representative and each other Secured Party (and all of their respective
successors and assigns) in order to carry out the intentions of the parties
hereto as nearly as may be possible and (b) the invalidity or unenforceability
of any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.

 

19

 

 

5.8 SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS. EACH DEBTOR
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK COUNTY, NEW YORK, IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND EACH
DEBTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF A SECURED PARTY TO
BRING PROCEEDINGS AGAINST ANY DEBTOR IN THE COURTS OF ANY OTHER JURISDICTION.
ANY JUDICIAL PROCEEDING BY A DEBTOR AGAINST A SECURED PARTY ANY AFFILIATE
THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT
IN NEW YORK COUNTY, NEW YORK (AND EACH SECURED PARTY HEREBY SUBMITS TO THE
JURISDICTION OF SUCH COURT). EACH DEBTOR HERETO HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
ACTION OR PROCEEDING BY MAILING BY REGISTERED OR CERTIFIED MAIL A COPY THEREOF
TO SUCH DEBTOR AT THE ADDRESS FOR NOTICES TO IT IN ACCORDANCE WITH SECTION 5.3
OF THIS AGREEMENT AND AGREES THAT SUCH NOTICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL
BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT OF A SECURED PARTY TO SERVE PROCESS IN
ANY MANNER PERMITTED BY LAW.

 

5.9 WAIVER OF RIGHT TO TRIAL BY JURY. EACH DEBTOR AND EACH SECURED PARTY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH DEBTOR AND EACH
SECURED PARTY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION 5.9 AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS,
IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS
AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.

 

20

 

 

5.10 Joint and Several. The obligations, covenants and agreements of Debtors
hereunder shall be the joint and several obligations, covenants and agreements
of each Debtor, whether or not specifically stated herein without preferences or
distinction among them.

 

5.11 Collateral Agent and Secured Parties Indemnification.

 

(a) Each Rose Purchaser has, pursuant to the Securities Purchase Agreement,
designated and appointed the Collateral Agent as the administrative agent of
such Secured Party under this Agreement and the related agreements. Rock hereby
appoints the Collateral Agent as collateral agent hereunder and under the Pledge
Agreement and Subsidiary Guaranty.

 

(b) Nothing in this Section 5.11 shall be deemed to limit or otherwise affect
the rights of the Collateral Agent to exercise any remedy provided in this
Agreement or any other Transaction Document.

 

(c) If pursuant to any Transaction Document a Secured Party (including the
Collateral Agent) is given the discretion to allocate proceeds received by such
Secured Party (including the Collateral Agent) pursuant to the exercise of
remedies under the Transaction Documents or at law or in equity (including
without limitation with respect to any secured creditor remedies exercised
against the Collateral and any other collateral security provided for under any
Transaction Document), the Collateral Agent shall apply such proceeds to the
then outstanding Obligations in the following order of priority (with amounts
received being applied in the numerical order set forth below until exhausted
prior to the application to the next succeeding category and each Secured Party
entitled to payment shall receive an amount equal to its Pro Rata Portion of
amounts available to be applied pursuant to clauses second, third and fourth
below):

 

first, to payment of fees, costs and expenses (including reasonable attorney’s
fees) owing to the Collateral Agent;

 

second, to payment of all accrued unpaid interest and fees (other than fees
owing to Collateral Agent) on the Obligations;

 

third, to payment of principal of the Obligations;

 

fourth, to payment of any other amounts owing constituting Obligations; and

 

fifth, any remainder shall be for the account of and paid to whoever may be
lawfully entitled thereto.

 

21

 

 

(d) Each Debtor agrees, jointly and severally, to indemnify, defend and hold
harmless the Collateral Agent (both in its capacity as collateral agent
hereunder and as a Secured Party), every other Secured Party, their respective
successors and assigns and all of their respective officers, directors,
shareholders, members, managers, partners, employees, attorneys and agents, and
any Person in control of any thereof, from and against any claims, debts,
liabilities, losses, demands, obligations, actions, causes of action, fines,
penalties, costs and expenses (including attorneys’ fees and consultants’ fees),
of every nature, character and description (each, an “Indemnified Liability” and
collectively the “Indemnified Liabilities”), under federal and state securities
laws or otherwise insofar as such Indemnified Liability arises out of or is
based upon any of the transactions contemplated by this Agreement, any other
Transaction Document, any of the Obligations, or any other cause or thing
whatsoever occurred, done, omitted or suffered to be done by a Debtor relating
to any Secured Party or the Obligations (except any such amounts sustained or
incurred solely as the result of the gross negligence or willful misconduct of
such Secured Party(ies), as finally determined by a court of competent
jurisdiction). If and to the extent that the foregoing undertakings in this
paragraph may be unenforceable for any reason, each Debtor agrees to jointly and
severally make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law. The
obligations of each Debtor under this Section 5.11(d) shall survive any
termination of this Agreement or any other Transaction Document.

 

5.12 No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

5.13 ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, SUPERSEDES ALL OTHER PRIOR ORAL OR WRITTEN AGREEMENTS
BETWEEN THE SECURED PARTIES, THE COLLATERAL AGENT, THE DEBTORS, THEIR AFFILIATES
AND PERSONS ACTING ON THEIR BEHALF WITH RESPECT TO THE MATTERS DISCUSSED HEREIN,
AND THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS AND THE OTHER
INSTRUMENTS REFERENCED HEREIN AND THEREIN, CONTAIN THE ENTIRE UNDERSTANDING OF
THE PARTIES WITH RESPECT TO THE MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT
AS SPECIFICALLY SET FORTH HEREIN OR THEREIN, NEITHER THE SECURED PARTY NOR ANY
DEBTOR MAKES ANY REPRESENTATION, WARRANTY, COVENANT OR UNDERTAKING WITH RESPECT
TO SUCH MATTERS. AS OF THE DATE OF THIS AGREEMENT, THERE ARE NO UNWRITTEN
AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS DISCUSSED HEREIN. NO
PROVISION OF THIS AGREEMENT MAY BE AMENDED, MODIFIED OR SUPPLEMENTED OTHER THAN
BY AN INSTRUMENT IN WRITING SIGNED BY THE DEBTORS AND THE SECURED PARTY.

 

5.14 Termination of RedDiamond Security Agreement. The Company and Rock hereby
agree to terminate the RedDiamond Security Agreement, effective as of the date
hereof. Notwithstanding the foregoing, the termination of the RedDiamond
Security Agreement shall not terminate, amend or have any effect upon the
RedDiamond Purchase Agreement, the RedDiamond Note, the RedDiamond Warrant or
any other agreement, documents or understandings between the parties arising out
of or related thereto, and the defined term “Security Agreement” as set forth in
the RedDiamond Purchase Agreement and all other agreements and documents related
thereto shall hereinafter mean this Agreement.

 

- Remainder of Page Intentionally Left Blank; Signature Page Follows -

 

22

 

 

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

 

DEBTORS:       Helix TCS, Inc.       By:                    Name:     Title:    
    Helix TCS, LLC       By:     Name:     Title:         Security Consultants
Group, LLC         By     Name:     Title:         Boss Security Solutions, Inc.
        By:     Name:     Title:           Security Grade Protective Services,
Ltd.         By:     Name:     Title:           Bio-Tech Medical Software, Inc.
        By:     Name:     Title:           Engeni LLC       By:     Name:    
Title:    

 

23

 

 

  COLLATERAL AGENT:       ROSE CAPITAL FUND I, LP       By: Rose Capital Fund I
GP, LLC       Its: General Partner       By: Rose Management Group LLC      
Its: Manager       By:     Name: Jonathan Rosenthal   Title: Member         By:
    Name: Andrew Schweibold   Title: Member       ROSE PURCHASER:       ROSE
CAPITAL FUND I, LP       By: Rose Capital Fund I GP, LLC       Its: General
Partner       By: Rose Management Group LLC       Its: Manager       By:    
Name: Jonathan Rosenthal   Title: Member         By:     Name: Andrew Schweibold
  Title: Member

 

24

 

 

  DIAMONDROCK LLC         By:                         Name:     Title:  

 

25

 

 

EXHIBIT A

 

Form of Joinder

 

Joinder to Security Agreement

 

The undersigned, ______________________________, hereby joins in the execution
of that certain Security Agreement dated as of March 1, 2019 (as amended,
restated, supplemented or otherwise modified from time to time, the “Security
Agreement”) by Helix TCS, Inc., a Delaware corporation, the Debtors (as defined
therein), the Secured Parties (as defined therein), and each other Person that
becomes a Debtor or a Secured Party thereunder after the date thereof and hereof
and pursuant to the terms thereof, to and in favor Rose Capital Fund I, LP, a
Delaware limited partnership, in its capacity as Collateral Agent for the
Secured Parties. By executing this Joinder, the undersigned hereby agrees that
it is a Debtor thereunder and agrees to be bound by all of the terms and
provisions of the Security Agreement. The undersigned represents and warrants
that the representations and warranties set forth in the Security Agreement are,
with respect to the undersigned, true and correct as of the date hereof.

 

The undersigned represents and warrants to Secured Party that:

 

(a) all of the Equipment, Inventory and Goods owned by such Debtor is located at
the places as specified on Schedule I and such Debtor conducts business in the
jurisdiction set forth on Schedule I;

 

(b) except as disclosed on Schedule I, none of such Collateral is in the
possession of any bailee, warehousemen, processor or consignee;

 

(c) the chief place of business, chief executive office and the office where
such Debtor keeps its books and records are located at the place specified on
Schedule I;

 

(d) such Debtor (including any Person acquired by such Debtor) does not do
business or has not done business during the past five years under any tradename
or fictitious business name, except as disclosed on Schedule II;

 

(e) all Copyrights, Patents and Trademarks owned or licensed by the undersigned
are listed in Schedules III, IV and V, respectively;

 

(f) all Deposit Accounts, securities accounts, brokerage accounts and other
similar accounts maintained by such Debtor, and the financial institutions at
which such accounts are maintained, are listed on Schedule VI;

 

(g) all Commercial Tort Claims of such Debtor are listed on Schedule VII;

 

(h) all interests in real property and mining rights held by such Debtor are
listed on Schedule VIII;

 

(i) all Equipment (including Motor Vehicles) owned by such debtor are listed on
Schedule IX.

 

 ________________, a ________    By:                        Title:   FEIN:
______________

 

 

 

 

SCHEDULE I

 

Jurisdictions and Debtor’s Information

 

Corporate Information:

  

Debtor’s Legal Name   Jurisdiction of Formation   Other Jurisdictions   FEIN  
State Org. ID Helix TCS, Inc.     Delaware   Colorado   81-4046024   5498129
Helix TCS, LLC   Delaware   Pennsylvania   47-3748821   5718659 Security
Consultants Group, LLC   Colorado   Colorado   38-3972837   20151383420 Security
Grade Protective Services, Ltd.   Colorado   Colorado   46-1899749   20131068349
Boss Security Solutions, Inc.     Colorado   Colorado   46-3610250     BioTech
Medical Software Inc.     Florida   Colorado   20-8551162     Engeni LLC    
Delaware   Colorado   81-0687467     Engeni S.A.     Republic of Argentina   N/A
  N/A   N/A

 

Locations:

 

Debtor   Locations of
Equipment,
Inventory and
Goods   Owned, Leased,
or Bailment?   Lessor/Bailee
Name   Mortgaged
(Y/N) Helix TCS Inc.     None   N/A   N/A   N Helix TCS LLC   None   N/A   N/A  
N Security Consultants Group LLC   10200 E. Girard Avenue, Suite B420, Denver,
CO   Owned and Leased   Automated Business Products   N Security Grade
Protective Services Ltd     10200 E. Girard Avenue, Suite B420, Denver, CO  
Owned   N/A   N Boss Security Solutions Inc.     None   N/A   N/A   N BioTech
Medical Software Inc.     6750 N. Andrews Avenue, Suite 325, Ft. Lauderdale, FL
          N Engeni LLC     None   N/A   N/A   N Engeni S.A.     Av. Del
Libertador 88, 4th Floor, B1638 Vicente Lopez, Buenos Aires, Argentina   Owned  
N/A   N

 

 

 

 

SCHEDULE II

 

Trade Names

 

Cannabase

 

BioTrackTHC

 

Helix Security

 

Security Grade Protective Services

 

Engeni

 

 

 

SCHEDULE III

 

Copyrights

 

 

 

 

SCHEDULE IV

 

Patents

 

U.S. Patent #8,086,470 B2 dated 12/27/11

 

U.S. Patent #8,335,697 B2 dated 12/18/12

 

Canadian Patent 2715969

 

 

 

 

SCHEDULE V

 

Trademarks

 

US Trademark 4754616. BioTrackTHC Logo Trademark

 

Cannalytics 86617890

 

TAP Reg. No. 5,099,248

 

Cannabase 86617897

 

 

 

 

SCHEDULE VI

 

Depository and Other Accounts

 

Bank name, account name, and account number

 

Bank of America, Bio-Tech Medical Software Inc., Checking Account, Account
Number: 898015394450

 

Wells Fargo, Bio-Tech Medical Software Inc., Checking Account, Account Number:
9178117942

 

Wells Fargo, Bio-Tech Medical Software Inc., Savings Account, Account Number:
3315176390

 

Chase Bank, Bio-Tech Medical Software Inc., Checking Account, Account Number:
229906398

 

Chase Bank, Security Consultants Group, LLC, Checking Account, Account Number:
000000831301788

 

Wells Fargo, Boss Security Solutions Inc., Checking Account, Account Number:
8413359566

 

Wells Fargo, Boss Security Solutions Inc., Savings Account, Account Number:
7321091188

 

Citizens Bank, Helix TCS LLC, Checking Account, Account Number 630070-076-7

 

FirstBank, Helix TCS Inc, Checking Account, Account Number 3665751160

 

 

 

 

SCHEDULE VII

 

Commercial Tort Claim

 

None.

 

 

 

 

SCHEDULE VIII

 

Real Property Interests

 

The Debtors lease real property at the following locations:

 

●10200 E. Girard Avenue, Suite B420, Denver, CO

 

●10200 E. Girard Avenue, Suite B420, Denver, CO

 

●6750 N. Andrews Avenue, Suite 325, Ft. Lauderdale, FL

 

●Av. Del Libertador 88, 4th Floor, B1638 Vicente Lopez, Buenos Aires, Argentina

 

 

 

 

SCHEDULE IX

 

Debtor’s Equipment

 

Date  Supplier  Description  Cost (US)  11/4/14  Ricoh  MP C4503 and MP4002SP
copiers (leased)  Approx. $20,000  3/29/16  Automated Business Products  1-
Okidata 4242 all in one (leased)  Approx. $5,000  2/23/17  Ford  Cargo Van Vin
NM0LE7E72G1258079  $24,452  1/31/18  Ford  Van Vin NM0LS7E73H1334404  $28,175 
1/31/18  Ford  Van Vin NM0LS6E75J1347140  $26,748  6/15/17  Ford  Van Vin
NM0LS7E73H1315254  $26,271  1/17/17  Nissan  NV Van Vin 3N6CM0KN1GK701639 
$23,815  1/17/17  Nissan  NV Van Vin 3N6CM0KN7GK701371  $26,070