ex4-2.htm


     

     

     

     

    
      

    

     

     

    Exhibit
      4.2

    


      
 

      SECURITY
        AGREEMENT

      (AROTECH
        CORPORATION)

      
 

      THIS
        AGREEMENT made and entered into as of the  day
        of December,  2007, by and between AROTECH CORPORATION, a
        Delaware corporation, (hereinafter called "Grantor") and KEYBANK NATIONAL
        ASSOCIATION, a national banking association, (herein­after called
        "the Secured Party").

      
 

      W
        I T N E S S E T H:

      
 

      WHEREAS,
        the Secured Party and FAAC Incorporated (“Borrower”) along with Related Parties
        have entered into a Loan Agreement of even date herewith (the "Loan Agreement");
        and

      
 

      WHEREAS,
        pursuant to the provisions of the Loan Agreement, the Grantor has guaranteed
        the
        obligations of Borrower to Secured Party and has agreed to give the Secured
        Party a first security interest in and to all domestic U.S. assets of the
        Grantor as hereinafter set forth;

      
 

      NOW
        THEREFORE, in consideration of the covenants hereinafter set forth, and for
        other good and valuable consideration, the receipt and sufficiency of which
        is
        hereby acknowledged, the parties agree as follows:

      
 

      1.           
        Granting
        of Security Interest.

      
 

      A.           
        The Grantor hereby grants to the Secured Party a security interest in all
        Domestic U.S. Assets (as defined in the Loan Agreement) of Grantor, whether
        now
        owned or hereafter acquired, now existing or hereafter arising, and wherever
        located, including without limitation all of the following:

      
 

      All
        domestic U.S. inventory, machinery, fixtures and equipment, accounts, accounts
        receivable (including but not limited to all health care insurance receivables),
        contract rights, documents, chattel paper, instruments, deposit accounts
        and
        general intangibles (including but not limited to all software and all payment
        intangibles, all goodwill, trade names, trademarks, patents, copyrights,
        trade
        secrets, formulae, designs, customer lists, licenses and permits), beneficial
        interests in trusts, minute books, records and data and embedded software
        relating to all of the foregoing and all equipment, inventory and software
        to
        utilize, create, maintain and process any such records and data on electronic
        media and all supporting obligations relating to the foregoing property,
        together with all replacements thereof, attachments, accessories, parts,
        equipment, tools and proceeds of any and all of the foregoing property
        (including without limitation all insurance proceeds).

      
 

      All
        of the foregoing property is hereafter collectively referred to as the
        "Collateral".  The security interest granted hereby shall secure the
        payment when due of all Indebtedness, including without limitation all
        indebtedness and obligations of Borrower and Grantor to Secured Party, whether
        now existing or hereafter arising, and all renewals, modifications and
        extensions thereof (hereafter collectively called the
        "Indebtedness").  The Grantor expressly acknowledges and agrees that
        the security interest given hereby is in addition to and not the exclusion
        of
        any and all other security interests at any time given by the Grantor to
        the
        Secured Party.

      
 

      B.           
        As a part of granting the above-referenced security interest and as a part
        of
        the above described Collateral, the Grantor does hereby assign, transfer
        and set
        over to the Secured Party as to Grantor all monies and claims for money due
        or
        to become due to Grantor under all of the foregoing accounts,
        contract


      
        
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      rights,
        chattel paper, instruments and general intangibles, and choses in action
        of
        Grantor (hereafter collectively the "Accounts Receivable").  Until the
        Secured Party shall give notice to the Grantor to the contrary, the Grantor
        will, in the usual course of Grantor’s business and at the Grantor’s own cost
        and expense, but as the agent of the Secured Party, demand and receive and
        use
        its best efforts to collect all monies due or to become due on such Accounts
        Receivable.  The Grantor agrees and covenants that upon the occurrence
        and  continuance of an Event of Default  any and all sums of
        money that shall be received by the Grantor on account of or in payment or
        settlement of such Accounts Receivable shall be held by the Grantor as trustee
        for the Secured Party.  Upon the occurrence and continuance of an
        Event of Default, all such monies received shall be segregated and not
        commingled with any of Grantor’s other funds, and shall be forthwith delivered
        to the Secured Party with endorsement to the Secured Party's order of any
        checks
        or similar instruments.  It is agreed that, upon the occurrence and
        continuance of an Event of Default, the Secured Party shall be entitled at
        any
        time, in its own name or in the name of the Grantor or otherwise, but at
        the
        expense and cost of the Grantor, to collect, demand, receive, sue for or
        compromise any and all such Accounts Receivable, and to give good and sufficient
        releases therefore, to endorse any checks, drafts or other orders for the
        payment of money payable to the Grantor in payment thereof and, in its
        discretion, to file any claims or take any action or proceeding, either in
        its
        own name or in the name of the Grantor or otherwise, which the Secured Party
        may
        deem necessary or advisable.  It is expressly understood and agreed,
        however, that the Secured Party shall not be required or obligated in any
        manner
        to make any demand or make any inquiry as to the nature or sufficiency of
        any
        payment received by it or to present or file any claim or take any other
        action
        to collect or enforce the payment of any amounts which may have been assigned
        to
        it or to which it may be entitled hereunder at any time.

      
 

      C.           
        Unless otherwise expressly provided in this Agreement, all capitalized terms
        shall have the same meaning as defined in the Loan
        Agreement.

      
 

      2.           
        Warranties
        and Covenants.

      
 

      A.           
        The Grantor hereby warrants and covenants that:

      
 

      (i) Except
        for the Junior Liens (as such term is defined in the Loan Agreement), the
        Grantor is the owner of the Collateral free from any adverse liens, security
        interest or encumbrance; and that the Grantor will defend the Collateral
        against
        all claims and demands of all other persons at any time claiming the same
        or any
        interest therein.

       

      (ii) Except
        for any financing statement of the Secured Party and any Permitted Lien,
        no
        financing statement covering the Collateral is on file in any public
        office.  Grantor expressly agrees to promptly deliver to Secured Party
        at such place or places as Secured Party shall designate from time to time
        all
        documents, instruments and writings of any kind and Grantor expressly authorizes
        Secured Party to execute, file and record all financing statements deemed
        reasonably necessary or desirable by Secured Party or its counsel to evidence
        and perfect the security interest in all of the Grantor’s assets.  The
        Grantor acknowledges, warrants and covenants that the financing statement(s)
        on
        file are sufficient to perfect the security interest given
        hereby.  Nevertheless, if requested by Secured Party, the Grantor
        hereby agrees to immediately execute and/or deliver if requested such other
        documents in form reasonably satisfactory to counsel for the Secured Party
        in
        order to perfect the security interest given hereby, and for filing any
        financing statements in all public offices where filing is deemed necessary
        or
        desirable.

       

      (iii) The
        Grantor will not sell or offer to sell or otherwise transfer, dispose of
        or
        convey any interest in the Collateral or any interest therein without securing
        the prior written consent

       


      
        
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      (iv) of
        the Secured Party except for inventory and farm products sold in the ordinary
        course of Grantor’s business.

       

      (v) At
        all times the Grantor will have and maintain insurance with respect to that
        portion of the Collateral that is insurable against risk of loss by fire
        (including so-called extended coverage), theft and other risk of loss as
        the
        Secured Party may require, containing such terms, in such form, for such
        periods
        and written by such companies as are commercially reasonable and customary
        and
        otherwise reasonably satisfactory to the Secured Party, such insurance to
        be
        payable to the Secured Party as “Loss Payee” or as the Secured Party shall
        otherwise designate; that all policies of insurance shall provide for thirty
        (30) days minimum written cancellation notice to the Secured Party and, at
        the
        request of the Secured Party, shall be delivered to and held by
        it.  The Secured Party is hereby appointed attorney in fact for the
        Grantor, and shall have the right, but not the obligation, to settle and
        compromise any and all claims under any of the policies required to be
        maintained by Borrower hereunder; to demand, receive and receipt for all
        monies
        payable thereunder; and to execute in the name of Borrower or Secured Party
        or
        both any proof of loss, notice, or any other instruments in connection with
        such
        policies or any loss thereunder.  The Grantor acknowledges that the
        foregoing power of attorney is coupled with an interest and may not be revoked
        until the Indebtedness is satisfied in full.

       

      (vi) Except
        for any Permitted Lien, the Grantor will keep the Collateral free from any
        adverse lien, security interest or encumbrance, and in good order and repair,
        and will not waste or destroy the Collateral or any part thereof; and the
        Grantor will not use the Collateral in violation of any statute or ordinance;
        and the Secured Party may examine and inspect the Collateral or any portion
        thereof at any reasonable time.

       

      (vii) The
        Grantor will pay promptly when due any and all taxes and assessments upon
        the
        Collateral.  At its option, if the Grantor is in default hereunder,
        the Secured Party may discharge any taxes, liens or security interests or
        any
        other encumbrances at any time levied or placed on the Collateral, may pay
        any
        insurance on the Collateral and may pay for any maintenance and preservation
        of
        the Collateral all of which shall be added to the Indebtedness and shall
        accrue
        interest at the highest lawful rate.  The Grantor agrees to reimburse
        the Secured Party on demand for any payments made, or any expense incurred
        by
        the Secured Party pursuant to the foregoing authorization.

       

      (viii) The
        Grantor will perform and observe each and every covenant, term, obligation
        or
        provision contained in the Related Loan Documents.

       

      (ix) Where
        applicable, the Collateral will at all times be kept at the business premises
        of
        the Grantor and will not be removed from said premises without securing the
        written consent of the Secured Party except when done so in the ordinary
        course
        of business.

       

      B.           
        Until default, the Grantor may have possession of the Collateral and use
        it in
        any lawful manner not inconsistent with this Agreement and not inconsistent
        with
        any policy of insurance thereon.

      
 

      3.           
        Default
        and Remedies.

      
 

      A.           
        The Grantor shall be in default under this Agreement upon the happening and
        continuance of any one or more of the following events or conditions (“Event of
        Default”):


      
        
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      (i) Grantor
        shall fail to make any payments required under the terms of any of the
        Indebtedness, including but not limited to those required in any of the Related
        Loan Documents on the date such payment is due or demanded;

       

      (ii) The
        occurrence and continuance of any event of default under the Loan Agreement
        or
        in one or more of the other Related Loan Documents, including without limitation
        this Security Agreement, or any agreement whether now existing or hereafter
        arising between or including both Grantor and Secured Party.

       

      B.           
        Upon the occurrence and continuance of an Event of Default for a period of
        seven
        (7) business days after notice, all of the Indebtedness secured hereby shall,
        without notice, become immediately due and payable in full, and Secured Party
        shall have all of the following rights and remedies:

      
 

      (i) At
        the request of the Secured Party, the Grantor shall assemble the Collateral
        and
        make it available to the Secured Party at a place to be designated by the
        Secured Party which is reasonably convenient to both parties.  The
        Secured Party will give the Grantor reasonable notice of the time and place
        of
        any public sale thereof or of the time after which any private sale or any
        other
        intended disposition thereof is to be made.  The requirements of
        reasonable notice shall be met if such notice is mailed, by certified mail,
        to
        the address of the Grantor shown at the beginning of this Agreement, at least
        ten (10) days before the time of the sale or disposition.  Expenses of
        retaking, holding, preparing for sale, selling, or the like, shall be paid
        by
        Grantor and shall include the Secured Party's reasonable attorneys' fees
        and
        legal expenses; and

       

      (ii) The
        Secured Party shall have, in addition to any other rights and remedies set
        forth
        in this Agreement, and those contained in any of the Related Loan Documents
        and
        any other agreements, guarantees, notes, instruments and documents now or
        at any
        time hereafter executed by Grantor and delivered to Secured Party, all of
        the
        rights and remedies of a secured party under applicable law, including without
        limitation the Michigan Uniform Commercial Code, as amended.

       

      In
        addition to all of the foregoing, the Secured Party shall have at any time
        prior
        to or after the occurrence and continuance of an Event of Default by the
        Grantor
        the right to set-off, without notice to Grantor, any and all deposits or
        other
        sums at any time or times credited by or due from the Secured Party to the
        Grantor, whether in a special account or other account or represented by
        a
        certificate of deposit (whether or not matured), which deposits and other
        sums
        shall at all times constitute additional security for the
        Indebtedness.

      
 

      All
        of the foregoing rights and remedies afforded to the Secured Party shall
        be
        cumulative and nonexclusive.

      
 

      C.           
        No waiver by the Secured Party of any Event of Default shall be deemed a
        waiver
        of any other then existing or subsequent default. No delay or omission by
        the
        Secured Party in exercising any right or remedy under this Agreement or any
        of
        the other Related Loan Documents shall impair such right to be construed
        as a
        waiver thereof or an acquiescence therein, nor shall any single or partial
        exercise right, preclude other or further exercise thereof, or the exercise
        of
        any other right under this Agreement or any of the other Related Loan Documents
        or otherwise. Any waiver, consent or approval of any kind or character on
        the
        part of the Secured Party of any provision of this Agreement or of any of
        the
        other Related Loan Documents shall be in writing and shall be effective only
        to
        the extent specifically set forth in such writing.

      
 

      4.           
        Miscellaneous.

      
 

      A.           
        The rights and obligations of the parties hereto shall be binding upon and
        inure
        to the benefit of their respective succes­sors and
        assigns.


      
        
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      B.           
        This Agreement constitutes the complete understanding of the parties hereto
        regarding the matters set forth herein, and may not be altered, amended or
        modified in any way unless done so in writing and signed by the parties
        hereto.

      
 

      C.           
        This Agreement shall be governed by and construed according to the internal
        laws
        of the State of Michigan.

      
 

      D.           
        The headings included in this Agreement are for purposes of convenience only
        and
        shall not be construed to be a part of the Agreement.

      
 

      E.           
        Wherever possible, each provision of this Agreement shall be interpreted
        in such
        manner as to be effective and valid under applicable law, and should any
        portion
        of this Agreement be declared invalid for any reason, such declaration shall
        have no effect on the remaining portions of this Agreement.

      
 

      F.           
        THE GRANTOR AND SECURED PARTY ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY
        IS A
        CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. NOTWITHSTANDING ANYTHING TO
        THE
        CONTRARY CONTAINED IN THIS AGREEMENT, THE RELATED LOAN DOCUMENTS OR ANY OTHER
        AGREEMENT BETWEEN OR INCLUDING THE GRANTOR AND THE SECURED PARTY, AFTER BEING
        PROVIDED THE OPPORTUNITY TO CONSULT WITH COUNSEL OF CHOICE, BORROWER HEREBY
        KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT
        OF
        LITIGATION AS TO ANY AND ALL ISSUES ARISING FROM OR OUT OF THIS AGREEMENT,
        THE
        RELATED LOAN DOCUMENTS AND/OR ANY OTHER AGREEMENTS BETWEEN OR INCLUDING THE
        GRANTOR AND THE SECURED PARTY, INCLUDING WITHOUT LIMITATION ANY ISSUE RELATED
        TO
        THE PERFORMANCE OR ENFORCEMENT OF ANY OR ALL OF THE SAME.

      
 

      G.           
        Unless otherwise indicated, all capitalized terms used herein shall have
        the
        same meaning as defined in the Loan Agreement.

      
 

      IN
        WITNESS WHEREOF, the parties hereto have set their hands and seals as of
        the day
        and year first above written.

      GRANTOR:

      
 

      AROTECH
        CORPORATION

      A
        Delaware corporation

      
 

      
        	
                 

              	
                By:
                  _______________________________ 

              


      

      
 

      Its:____________________________

      
 

      SECURED
        PARTY

      
 

      KEYBANK
        NATIONAL
        ASSOCIATION,

      a
        national banking association

      
 

      By:
        _____________________________

      
 

                            
        Its: _____________________________


      
        
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