EXHIBIT 10.1
 


SECURITY AGREEMENT


 


1.                                       Identification.


 


This Security
Agreement (the “Agreement”), dated as of November 18, 2005, is entered
into by and between Force Protection, Inc., a Nevada corporation (“Parent”),
Force Protection Industries, Inc., a Nevada corporation (“Guarantor” and
together with Parent, each a “Debtor” and collectively the “Debtors”), and
Barbara R. Mittman, as collateral agent acting in the manner and to the extent
described in the Collateral Agent Agreement defined below (the “Collateral
Agent”), for the benefit of the parties identified on Schedule A hereto
(collectively, the “Lenders”).


 


2.                                       Recitals.


 


2.1                                 The
Lenders have made, are making and will be making loans to Parent (the “Loans”).  It is beneficial to each Debtor that the Loans
were made and are being made.


 


2.2                                 The Loans
are and will be evidenced by certain promissory notes (each a “Note”) issued by
Parent on or about the date of and after the date of this Agreement pursuant to
subscription agreements (each a “Subscription Agreement”) to which Parent and
Lenders are parties.  The Notes are
further identified on Schedule A hereto and were and will be executed by
Parent as “Borrower” or “Debtor” for the benefit of each Lender as the “Holder”
or “Lender” thereof.  Schedule A hereto
may be amended to include such other Lenders who become parties hereto and sign
this Agreement, the Collateral Agent Agreement and any other agreement
reasonably requested by the Collateral Agent, who will have purchased Notes
pursuant to the Subscription Agreement.


 


2.3                                 In
consideration of the Loans made and to be made by Lenders to Parent and for
other good and valuable consideration, and as security for the performance by
Parent of its obligations under the Notes and as security for the repayment of the
Loans and all other sums due from Debtors to Lenders arising under the
Transaction Documents (as defined in the Subscription Agreement), and any other
agreement between or among them (collectively, the “Obligations”), each Debtor,
for good and valuable consideration, receipt of which is acknowledged, has
agreed to grant to the Collateral Agent, for the benefit of the Lenders, a
security interest in the Collateral (as such term is hereinafter defined), on
the terms and conditions hereinafter set forth. 
Obligations include all future advances by Lenders to Debtor made
pursuant to the Subscription Agreement.


 


2.4                                 The
Lenders have appointed Barbara R. Mittman as Collateral Agent pursuant to that
certain Collateral Agent Agreement dated at or about November 16, 2005 (“Collateral
Agent Agreement”), among the Lenders and Collateral Agent.


 


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2.5                                 The
following defined terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined:  Accounts, Chattel Paper,
Documents, Equipment, General Intangibles, Instruments, Inventory and Proceeds.


 


3.                                       Grant of
General Security Interest in Collateral.


 


3.1                                 As
security for the Obligations of Debtors, each Debtor hereby grants the
Collateral Agent, for the benefit of the Lenders, a security interest in the
Collateral.


 


“Collateral” shall mean
all of the following property of Debtors:


 


(A)                              All now owned and hereafter
acquired right, title and interest of Debtors in, to and in respect of all
Accounts, Goods, real or personal property, all present and future books and
records relating to the foregoing and all products and Proceeds of the
foregoing, and as set forth below:


 


(i)                                     All now owned and hereafter acquired
right, title and interest of Debtors in, to and in respect of all: Accounts,
interests in goods represented by Accounts, returned, reclaimed or repossessed
goods with respect thereto and rights as an unpaid vendor; contract rights;
Chattel Paper; investment property; General Intangibles (including but not
limited to, tax and duty claims and refunds, registered and unregistered
patents, trademarks, service marks, certificates, copyrights trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, chooses
in action and other claims, and existing and future leasehold interests in
equipment, real estate and fixtures); Documents; Instruments; letters of credit,
bankers’ acceptances or guaranties; cash moneys, deposits; securities, bank
accounts, deposit accounts, credits and other property now or hereafter owned
or held in any capacity by Debtors, as well as agreements or property securing
or relating to any of the items referred to above; provided however that
notwithstanding anything to the contrary contained herein or in the Transaction
Documents, the “Collateral” shall not mean and shall not include the Debtors’
U.S. Government accounts receivables under contract M67854-05-D-5091
which are made the subject of that certain Purchase & Sale Agreement
between the Debtors and GC Financial Services Inc.


 


(ii)                                  Goods:  All now owned and hereafter acquired right,
title and interest of Debtors in, to and in respect of goods, including, but
not limited to:


 


(a)          All
Inventory, wherever located, whether now owned or hereafter acquired, of
whatever kind, nature or description, including all raw materials,
work-in-process, finished goods, and materials to be used or consumed in
Debtors’ business; finished goods, timber cut or to be cut, oil, gas,
hydrocarbons, and minerals extracted or to be extracted, and all names or marks
affixed to or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof and all Inventory which may be
returned to any Debtor by its customers or repossessed by any Debtor and all of
Debtors’ right, title and interest in and to the foregoing (including all of a
Debtor’s rights as a seller of goods);


 


(b)         All Equipment and fixtures, wherever located, whether now owned or
hereafter acquired, including, without limitation, all machinery, furniture and
fixtures, and any and all additions, substitutions, replacements (including
spare parts), and accessions thereof and thereto (including, but not limited to
Debtors’ rights to acquire any of the foregoing, whether by exercise of a
purchase option or otherwise);


 


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(iii)                               Property:  All now owned and hereafter acquired right,
title and interests of Debtors in, to and in respect of any other personal
property in or upon which a Debtor has or may hereafter have a security
interest, lien or right of setoff;


 


(iv)                              Books and
Records:  All present and future
books and records relating to any of the above including, without limitation,
all computer programs, printed output and computer readable data in the
possession or control of the Debtors, any computer service bureau or other
third party; and


 


(v)                                 Products
and Proceeds:  All products and Proceeds
of the foregoing in whatever form and wherever located, including, without
limitation, all insurance proceeds and all claims against third parties for
loss or destruction of or damage to any of the foregoing.


 


(B)                                All now
owned and hereafter acquired right, title and interest of Debtors in, to and in
respect of the following:


 


(i)                                     the shares of stock, partnership
interests, member interests or other equity interests at any time and from time
to time acquired by Debtors of any and all entities now or hereafter existing,
(such entities, being hereinafter referred to collectively as the “Pledged
Issuers” and individually as a “Pledged Issuer”), the certificates representing
such shares, partnership interests, member interests or other interests all
options and other rights, contractual or otherwise, in respect thereof and all
dividends, distributions, cash, instruments, investment property and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, partnership interests,
member interests or other interests; provided, however, that the Collateral
shall exclude the interest of the Debtor in the securities of its wholly-owned
subsidiary Global Alaska Industries, Inc. and its wholly-owned subsidiary
Alaska Bingo Supply, Inc. unless Global Alaska Industries, Inc. and
Alaska Bingo Supply, Inc. are direct or indirect Subsidiaries of the
Debtors at any time after February 1, 2006;


 


(ii)                                  all additional shares of stock, partnership
interests, member interests or other equity interests from time to time
acquired by Debtors, of any Pledged Issuer, the certificates representing such
additional shares, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, distributions, cash, instruments, investment
property and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, interests or equity; and


 


(iii)                               all security entitlements of
Debtors in, and all Proceeds of any and all of the foregoing in each case,
whether now owned or hereafter acquired by a Debtor and howsoever its interest
therein may arise or appear (whether by ownership, security interest, lien,
claim or otherwise).


 


Notwithstanding anything
to the contrary contained herein or any Transaction Document, Collateral shall
not include any personal property which is, or at the time of a Debtor’s
acquisition thereof shall be subject to a purchase money mortgage or other
purchase money lien or security interest (including capital leases).


 


3.3                                 The
Collateral Agent is hereby specifically authorized, after the Maturity Date
(defined in the Notes) accelerated or otherwise, or after an Event of Default
(as defined herein) and the expiration of any applicable cure period, to
transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed advisable to the Collateral Agent to remove any transfer
restrictions affecting the Collateral.


 


4.                                       Perfection of Security Interest.


 


4.1                                 Each Debtor shall prepare, execute
and deliver to the Collateral Agent UCC-1 Financing Statements.  The Collateral Agent is instructed to prepare
and file at each Debtor’s cost and expense, financing statements in such


 


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jurisdictions deemed
advisable to the Collateral Agent, including but not limited to the State of
Nevada.  The Financing Statements are
deemed to have been filed for the benefit of the Collateral Agent and Lenders
identified on Schedule A hereto.


 


4.2                                 The Parent shall deliver to
Collateral Agent promptly stock certificates representing all of the shares of
outstanding capital stock of the Guarantor (the “Securities”).  All such certificates shall be held by or on
behalf of Collateral Agent pursuant hereto and shall be delivered in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment or undated stock powers executed in blank,
all in form and substance satisfactory to Collateral Agent.


 


4.3                                 All other certificates and
instruments constituting Collateral from time to time required to be pledged to
Collateral Agent pursuant to the terms hereof (the “Additional Collateral”)
shall be delivered to Collateral Agent promptly upon receipt thereof by or on
behalf of Debtors.  All such certificates
and instruments shall be held by or on behalf of Collateral Agent pursuant
hereto and shall be delivered in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment or
undated stock powers executed in blank, all in form and substance satisfactory
to Collateral Agent.  If any Collateral
consists of uncertificated securities, unless the immediately following
sentence is applicable thereto, Debtors shall cause Collateral Agent (or its
custodian, nominee or other designee) to become the registered holder thereof,
or cause each issuer of such securities to agree that it will comply with instructions
originated by Collateral Agent with respect to such securities without further
consent by Debtors.  If any Collateral
consists of security entitlements, Debtors shall transfer such security
entitlements to Collateral Agent (or its custodian, nominee or other designee)
or cause the applicable securities intermediary to agree that it will comply
with entitlement orders by Collateral Agent without further consent by Debtors.


 


4.4                                 Within five (5) days after the
receipt by a Debtor of any Additional Collateral having an aggregate value of
$25,000 ore more, a Pledge Amendment, duly executed by such Debtor, in
substantially the form of Annex I hereto (a “Pledge Amendment”), shall be
delivered to Collateral Agent in respect of the Additional Collateral to be
pledged pursuant to this Agreement. Each Debtor hereby authorizes Collateral
Agent to attach each Pledge Amendment to this Agreement and agrees that all
certificates or instruments listed on any Pledge Amendment delivered to
Collateral Agent shall for all purposes hereunder constitute Collateral.


 


4.5                                 If Debtor shall receive, by virtue
of Debtor being or having been an owner of any Collateral, any (i) stock
certificate (including, without limitation, any certificate representing a
stock dividend or distribution in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets, combination
of shares, stock split, spin-off or split-off), promissory note or other
instrument, (ii) option or right, whether as an addition to, substitution
for, or in exchange for, any Collateral, or otherwise, (iii) dividends
payable in cash (except such dividends permitted to be retained by Debtor
pursuant to Section 5.2 hereof) or in securities or other property or (iv) dividends
or other distributions in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, Debtor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of
Collateral Agent, shall segregate it from Debtor’s other property and shall
deliver it forthwith to Collateral Agent, in the exact form received, with any
necessary endorsement and/or appropriate stock powers duly executed in blank,
to be held by Collateral Agent as Collateral and as further collateral security
for the Obligations.


 


5.                                       Distribution.


 


5.1                                 So long
as no Event of Default exists, Debtors shall be entitled (i) to exercise
all voting power pertaining to any of the Collateral, provided such exercise is
not contrary to the interests of the Lenders and does not impair the
Collateral, and (ii) may receive and retain any and all proceeds,
dividends, interest payments or other distributions paid in respect of the
Collateral.


 


5.2.                              At any
time an Event of Default exists or if an Event of Default has occurred, all
rights of Debtors, upon notice given by Collateral Agent, to exercise the
voting power and receive payments, which it would otherwise be entitled to
pursuant to Section 5.1, shall cease and all such rights shall thereupon
become vested in Collateral Agent, which shall thereupon have the sole right to
exercise such voting power and receive such payments.


 


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5.3                                 All
dividends, distributions, interest and other payments which are received by
Debtors contrary to the provisions of Section 5.2 shall be received in
trust for the benefit of Collateral Agent as security and Collateral for
payment of the Obligations shall be segregated from other funds of Debtors, and
shall be forthwith paid over to Collateral Agent as Collateral in the exact
form received with any necessary endorsement and/or appropriate stock powers
duly executed in blank, to be held by Collateral Agent as Collateral and as
further collateral security for the Obligations.


 


6.                                       Further
Action By Debtors; Covenants and Warranties.


 


6.1                                 Except as
described on Schedule B hereto, Collateral Agent at all times shall have a
perfected security interest in (a) the Collateral to the extent a security
interest can be perfected by the filing of a financial statement under the
Uniform Commercial Code of the relevant jurisdiction (b) the Securities
and  (c) Additional Collateral (the “Perfected
Collateral”).  Each Debtor has and will
continue to have full title to the Collateral free from any liens, leases,
encumbrances, judgments or other claims. 
Collateral Agent’s security interest in the Collateral constitutes and
will continue to constitute a first, prior and indefeasible security interest
in favor of Collateral Agent.  Each
Debtor will do all acts and things, and will execute and file all instruments
(including, but not limited to, security agreements, financing statements,
continuation statements, etc.) reasonably requested by Collateral Agent to
establish, maintain and continue the perfected security interest of Collateral
Agent in the Perfected Collateral, and will promptly on demand, pay all costs
and expenses of filing and recording, including the costs of any searches
reasonably deemed necessary by Collateral Agent from time to time to establish
and determine the validity and the continuing priority of the security interest
of Collateral Agent, and also pay all other claims and charges that, in the
opinion of Collateral Agent, exercised in good faith, are reasonably likely to
materially prejudice, imperil or otherwise affect the Collateral or Collateral
Agent’s or Lenders’ security interests therein.


 


6.2                                 Other
than in the ordinary course of business, and except for Collateral which is
substituted by assets of identical or greater value or which has become
obsolete or is of inconsequential in value, each Debtor will not sell,
transfer, assign or pledge those items of Collateral (or allow any such items
to be sold, transferred, assigned or pledged), without the prior written
consent of Collateral Agent other than a transfer of the Collateral to a
wholly-owned subsidiary or to another Debtor on prior notice to Collateral
Agent, and provided the Collateral remains subject to the security interest
herein described.  Although Proceeds of
Collateral are covered by this Agreement, this shall not be construed to mean
that Collateral Agent consents to any sale of the Collateral, except as
provided herein.  Sales of Collateral in
the ordinary course of business shall be free of the security interest of
Lenders and Collateral Agent and Lenders and Collateral Agent shall promptly
execute such documents (including without limitation releases and termination
statements) as may be required by Debtors to evidence or effectuate the same.


 


6.3                                 Each
Debtor will, at all reasonable times during regular business hours and upon
reasonable notice, allow Collateral Agent or its representatives free and
complete access to the Collateral and all of such Debtor’s records which in any
way relate to the Collateral, for such inspection and examination as Collateral
Agent reasonably deems necessary.


 


6.4                                 Each
Debtor, at its sole cost and expense, will protect and defend this Security Agreement,
all of the rights of Collateral Agent and Lenders hereunder, and the Collateral
against the claims and demands of all other persons.


 


6.5                                 Debtors
will promptly notify Collateral Agent of any levy, distraint or other seizure
by legal process or otherwise of any part of the Collateral, and of any
threatened or filed claims or proceedings that are reasonably likely to affect
or impair any of the rights of Collateral Agent under this Security Agreement
in any material respect.


 


6.6                                 Each
Debtor, at its own expense, will obtain and maintain in force insurance
policies covering losses or damage to those items of Collateral which
constitute physical personal property, which insurance shall be of the types
customarily insured against by companies in the same or similar business,
similarly situated, in such amounts (with such deductible amounts) as is
customary for such companies under the same or similar circumstances, similarly
situated.  Debtors shall make the Collateral
Agent a loss payee thereon to the extent of its interest in the Collateral.
Collateral Agent is hereby irrevocably (until the Obligations are paid in full)
appointed each Debtor’s attorney-in-fact to endorse any check or draft that may
be payable to such Debtor so that Collateral Agent may collect the proceeds
payable for any loss under such insurance. 
The proceeds of such insurance, less any costs and expenses incurred or
paid by Collateral Agent in the


 


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collection thereof, shall be applied
either toward the cost of the repair or replacement of the items damaged or
destroyed, or on account of any sums secured hereby, whether or not then due or
payable.


 


6.7                                 Collateral
Agent may, at its option, and without any obligation to do so, pay, perform and
discharge any and all amounts, costs, expenses and liabilities herein agreed to
be paid or performed by Debtor.  Upon
Debtor’s
failure to do so, all amounts expended by Collateral Agent in so doing shall
become part of the Obligations secured hereby, and shall be immediately due and
payable by Debtor to Collateral Agent upon demand and shall bear interest at
the lesser of 15% per annum or the highest legal amount from the dates of such
expenditures until paid.


 


6.8                                 Upon the
request of Collateral Agent, Debtors will furnish to Collateral Agent within
five (5) business days thereafter, or to any proposed assignee of this
Security Agreement, a written statement in form reasonably satisfactory to
Collateral Agent, duly acknowledged, certifying the amount of the principal and
interest and any other sum then owing under the Obligations, whether to its
knowledge any claims, offsets or defenses exist against the Obligations or
against this Security Agreement, or any of the terms and provisions of any
other agreement of Debtors securing the Obligations.  In connection with any assignment by
Collateral Agent of this Security Agreement, each Debtor hereby agrees to cause
the insurance policies required hereby to be carried by such Debtor, if any, to
be endorsed in form satisfactory to Collateral Agent or to such assignee, with
loss payable clauses in favor of such assignee, and to cause such endorsements
to be delivered to Collateral Agent within ten (10) calendar days after
request therefor by Collateral Agent.


 


6.9                                 Each
Debtor will, at its own expense, make, execute, endorse, acknowledge, file
and/or deliver to the Collateral Agent from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports
and other reasonable assurances or instruments and take further steps relating
to the Collateral and other property or rights covered by the security interest
hereby granted, as the Collateral Agent may reasonably require to perfect its
security interest hereunder.


 


6.10                           Debtors
represent and warrant that they are the true and lawful exclusive owners of the
Collateral, free and clear of any liens and encumbrances except as described on
Schedule B hereto.


 


6.11                           Each
Debtor hereby agrees not to divest itself of any right under the Collateral
except as permitted herein absent prior written approval of the Collateral
Agent, except to a subsidiary organized and located in the United States on
prior notice to Collateral Agent provided the Collateral remains subject to the
security interest herein described.


 


6.12                           Each
Debtor shall cause each Subsidiary of such Debtor in existence on the date
hereof and each Subsidiary not in existence on the date hereof to execute and
deliver to Collateral Agent promptly and in any event within 10 days after the
formation, acquisition or change in status thereof (A) a guaranty
guaranteeing the Obligations and (B) if requested by Collateral Agent, a
security and pledge agreement substantially in the form of this Agreement
together with (x) certificates evidencing all of the capital stock of each
Subsidiary of and any entity owned by such Subsidiary, (y) undated stock powers
executed in blank with signatures guaranteed, and (z) such opinion of counsel
and such approving certificate of such Subsidiary as Collateral Agent may
reasonably request in respect of complying with any legend on any such
certificate or any other matter relating to such shares and (C) such other
agreements, instruments, approvals, legal opinions or other documents
reasonably requested by Collateral Agent in order to create, perfect, establish
the first priority of or otherwise protect any lien purported to be covered by
any such pledge and security agreement or otherwise to effect the intent that
all property and assets of such Subsidiary shall become Collateral for the
Obligations.  For purposes of this
Agreement, “Subsidiary” means, with respect to any entity at any date,
any corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity) of
which more than 50% of (A) the outstanding capital stock having (in the
absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (B) in the case
of a partnership or limited liability company, the interest in the capital or
profits of such partnership or limited liability company or (C) in the
case of a trust, estate, association, joint venture or other entity, the
beneficial interest in such trust, estate, association or other entity business
is, at the time of determination, owned or controlled directly or indirectly
through one or more intermediaries, by such entity.  Annex I annexed hereto contains a list of all
Subsidiaries of the Debtors as of the date of this Agreement.


 


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7.                                       Power of
Attorney.


 


At any time an
Event of Default exists or has occurred, each Debtor hereby irrevocably constitutes
and appoints the Collateral Agent as the true and lawful attorney of such
Debtor, with full power of substitution, in the place and stead of such Debtor
and in the name of such Debtor or otherwise, at any time or times, in the
discretion of the Collateral Agent, to take any action and to execute any
instrument or document which the Collateral Agent may deem necessary or
advisable to accomplish the purposes of this Agreement.  This power of attorney is coupled with an
interest and is irrevocable until the Obligations are satisfied.


 


8.                                       Performance
By The Collateral Agent.


 


If a Debtor
fails to perform any material covenant, agreement, duty or obligation of such
Debtor under this Agreement, the Collateral Agent may, after any applicable
cure period, at any time or times in its discretion, take action to effect
performance of such obligation.  All
reasonable expenses of the Collateral Agent incurred in connection with the
foregoing authorization shall be payable by Debtors as provided in Paragraph
12.1 hereof.  No discretionary right,
remedy or power granted to the Collateral Agent under any part of this
Agreement shall be deemed to impose any obligation whatsoever on the Collateral
Agent with respect thereto, such rights, remedies and powers being solely for
the protection of the Collateral Agent.


 


9.                                       Event of
Default.


 


An event of
default (“Event of Default”) shall be deemed to have occurred hereunder upon
the occurrence of any event of default as defined and described in this
Agreement, in the Notes, the Subscription Agreement, and any other agreement to
which Debtor and a Lender are parties.  
Upon and after any Event of Default, after the applicable cure period,
if any, any or all of the Obligations shall become immediately due and payable
at the option of the Collateral Agent, for the benefit of the Lenders, and the
Collateral Agent may dispose of Collateral as provided below.  A default by Debtor of any of its material
obligations pursuant to this Agreement and any of the Transaction Documents (as
defined in the Subscription Agreement) shall be an Event of Default hereunder
and an “Event of Default” as defined in the Notes, and Subscription Agreement.


 


10.                                 Disposition
of Collateral.


 


Upon and after
the occurrence of any Event of Default that has not been cured during the
applicable cure period,


 


10.1                           The
Collateral Agent may exercise its rights with respect to each and every
component of the Collateral, without regard to the existence of any other
security or source of payment for the Obligations.  In addition to other rights and remedies
provided for herein or otherwise available to it, the Collateral Agent shall
have all of the rights and remedies of a lender on default under the Uniform
Commercial Code then in effect in the State of New York.


 


10.2                           If any
notice to Debtors of the sale or other disposition of Collateral is required by
then applicable law, five business (5) days prior written notice (which
Debtors agree is reasonable notice within the meaning of Section 9.612(a) of
the Uniform Commercial Code) shall be given to Debtors of the time and place of
any sale of Collateral which Debtors hereby agree may be by private sale.  The rights granted in this Section are
in addition to any and all rights available to Collateral Agent under the
Uniform Commercial Code.


 


10.3                           The
Collateral Agent is authorized, at any such sale, if the Collateral Agent deems
it advisable to do so, in order to comply with any applicable securities laws,
to restrict the prospective bidders or purchasers to persons who will represent
and agree, among other things, that they are purchasing the Collateral for
their own account for investment, and not with a view to the distribution or
resale thereof, or otherwise to restrict such sale in such other manner as the
Collateral Agent deems advisable to ensure such compliance.  Sales made subject to such restrictions shall
be deemed to have been made in a commercially reasonable manner.


 


10.4                           All
proceeds received by the Collateral Agent for the benefit of the Lenders in
respect of any sale, collection or other enforcement or disposition of
Collateral, shall be applied (after deduction of any amounts payable to the
Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations pro
rata among the Lenders in proportion


 


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to their interests in the
Obligations.   Upon payment in full of
all Obligations, Debtors shall be entitled to the return of all Collateral,
including cash, which has not been used or applied toward the payment of
Obligations or used or applied to any and all costs or expenses of the
Collateral Agent incurred in connection with the liquidation of the Collateral
(unless another person is legally entitled thereto).  Any assignment of Collateral by the
Collateral Agent to Debtors shall be without representation or warranty of any
nature whatsoever and wholly without recourse. 
To the extent allowed by law, each Lender may purchase the Collateral
and pay for such purchase by offsetting up to such Lender’s pro rata portion of
the purchase price with sums owed to such Lender by Debtors arising under the
Obligations or any other source.


 


11.                                 Waiver of
Automatic Stay.   Debtor acknowledges and
agrees that should a proceeding under any bankruptcy or insolvency law be commenced
by or against Debtor, or if any of the Collateral should become the subject of
any bankruptcy or insolvency proceeding, then the Collateral Agent should be
entitled to, among other relief to which the Collateral Agent or Lenders may be
entitled under the Note, Subscription Agreement and any other agreement to
which the Debtor, Lenders or Collateral Agent are parties, (collectively “Loan
Documents”) and/or applicable law, an order from the court granting immediate
relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit
the Collateral Agent to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. 
Debtor EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11
U.S.C. SECTION 362.  FURTHERMORE,
Debtor EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE
COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN
DOCUMENTS AND/OR APPLICABLE LAW.  Debtor
hereby consents to any motion for relief from stay which may be filed by the
Collateral Agent in any bankruptcy or insolvency proceeding initiated by or
against Debtor, and further agrees not to file any opposition to any motion for
relief from stay filed by the Collateral Agent. 
Debtor represents, acknowledges and agrees that this provision is a
specific and material aspect of this Agreement, and that the Collateral Agent
would not agree to the terms of this Agreement if this waiver were not a part
of this Agreement.  Debtor further
represents, acknowledges and agrees that this waiver is knowingly,
intelligently and voluntarily made, that neither the Collateral Agent nor any
person acting on behalf of the Collateral Agent has made any representations to
induce this waiver, that Debtor has been represented (or has had the
opportunity to be represented) in the signing of this Agreement and in the
making of this waiver by independent legal counsel selected by Debtor and that
Debtor has had the opportunity to discuss this waiver with counsel.   Debtor further agrees that any bankruptcy or
insolvency proceeding initiated by Debtor will only be brought in the Federal
Court within the Southern District of New York.


 


12.                                 Miscellaneous.


 


12.1                           Expenses.  Debtors shall pay to the Collateral Agent, on
demand, the amount of any and all reasonable expenses, including, without limitation,
attorneys’ fees, legal expenses and brokers’ fees, which the Collateral Agent
may incur in connection with (a) sale, collection or other enforcement or
disposition of Collateral; (b) exercise or enforcement of any the rights,
remedies or powers of the Collateral Agent hereunder or with respect to any or
all of the Obligations upon breach or threatened breach; or (c) failure by
Debtors to perform and observe any agreements of Debtors contained herein which
are performed by the Collateral Agent.


 


12.2                           Waivers,
Amendment and Remedies. 
No course of dealing by the Collateral Agent and no failure by the
Collateral Agent to exercise, or delay by the Collateral Agent in exercising,
any right, remedy or power hereunder shall operate as a waiver thereof, and no
single or partial exercise thereof shall preclude any other or further exercise
thereof or the exercise of any other right, remedy or power of the Collateral
Agent.  No amendment, modification or
waiver of any provision of this Agreement and no consent to any departure by
Debtors therefrom, shall, in any event, be effective unless contained in a
writing signed by the Collateral Agent, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for which
given.  The rights, remedies and powers
of the Collateral Agent, not only hereunder, but also under any instruments and
agreements evidencing or securing the Obligations and under applicable law are
cumulative, and may be exercised by the Collateral Agent from time to time in
such order as the Collateral Agent may elect.


 


8





















 


12.3                           Notices.  All notices or other communications given or
made hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being faxed (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give
to the other by notice duly made under this Section:


 


	
  To Debtors:

  	
  Force Protection, Inc.

  
	
   

  	
  9801 Highway 78, #3

  
	
   

  	
  Ladson, SC 29456

  
	
   

  	
  Fax: (843) 553-3832

  
	
   

  	
   

  
	
  With a copy by telecopier only to:

  
	
   

  	
  Amy Trombly, Esq.

  
	
   

  	
  Trombly Business Law

  
	
   

  	
  1320 Centre Street, Suite 202

  
	
   

  	
  Newton Center, MA 02459

  
	
   

  	
  Fax: (617) 243-0066

  
	
   

  	
   

  
	
  To Lenders:

  	
  To the addresses and
  telecopier numbers set forth on Schedule A

  
	
   

  	
   

  
	
  To the Collateral Agent:

  	
  Barbara R. Mittman, Esq.

  
	
   

  	
  Grushko & Mittman, P.C.

  
	
   

  	
  551 Fifth Avenue, Suite 1601

  
	
   

  	
  New York, NY 10176

  
	
   

  	
  Fax: (212) 697-3575

  
	
   

  	
   

  
	
  With a copy by telecopier only
  to:

  
	
   

  	
   

  
	
   

  	
  Grushko & Mittman, P.C.

  
	
   

  	
  551 Fifth Avenue, Suite 1601

  
	
   

  	
  New York, New York 10176

  
	
   

  	
  Fax: (212) 697-3575

  



 


Any party may change its address by
written notice in accordance with this paragraph.


 


12.4                           Term;
Binding Effect.  This Agreement shall (a) remain
in full force and effect until payment and satisfaction in full of all of the
Obligations; (b) be binding upon each Debtor, and its successors and
permitted assigns; and (c) inure to the benefit of the Collateral Agent,
for the benefit of the Lenders and their respective successors and assigns.


 


12.5                           Captions.  The captions of Paragraphs, Articles and
Sections in this Agreement have been included for convenience of reference
only, and shall not define or limit the provisions hereof and have no legal or
other significance whatsoever.


 


12.6                           Governing
Law; Venue; Severability. 
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to conflicts of laws principles that
would result in the application of the substantive laws of another
jurisdiction, except to the extent that the perfection of the security interest
granted hereby in respect of any item of Collateral may be governed by the law
of another jurisdiction.  Any legal
action or proceeding against a Debtor with respect to this Agreement may be
brought in the courts in the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this
Agreement, each Debtor hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts.  Each Debtor hereby irrevocably
waives any objection which they may now or hereafter have to the laying of
venue of any of the aforesaid actions or proceedings arising out of or in
connection with this Agreement brought


 


9





















 


in the aforesaid courts and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum.  If any provision of
this Agreement, or the application thereof to any person or circumstance, is
held invalid, such invalidity shall not affect any other provisions which can
be given effect without the invalid provision or application, and to this end
the provisions hereof shall be severable and the remaining, valid provisions
shall remain of full force and effect.


 


12.7                           Entire
Agreement.  This Agreement contains
the entire agreement of the parties and supersedes all other agreements and
understandings, oral or written, with respect to the matters contained herein.


 


12.8                           Counterparts/Execution.  This Agreement may be executed in any number
of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile
signature and delivered by facsimile transmission.


 


13.                                 Intercreditor
Terms.   As between the Lenders,
any distribution under paragraph 10.4 shall be made proportionately based upon
the remaining principal amount (plus accrued and unpaid interest) to each as to
the total amount then owed to the Lenders as a whole.  The rights of each Lender hereunder are pari
passu to the rights of the other Lenders hereunder.  Any recovery hereunder shall be shared
ratably among the Lenders according to the then remaining principal amount owed
to each (plus accrued and unpaid interest) as to the total amount then owed to
the Lenders as a whole.


 


14.                                 Termination;
Release.  When the Obligations have
been indefeasibly paid and performed in full, this Agreement shall terminate,
and the Collateral Agent, at the request and sole expense of the Debtors, will
execute and deliver to the Debtors the proper instruments (including UCC
termination statements) acknowledging the termination of the Security
Agreement, and duly assign, transfer and deliver to the Debtors, without
recourse, representation or warranty of any kind whatsoever, such of the
Collateral, including, without limitation, Securities and any Additional
Collateral, as may be in the possession of the Collateral Agent.


 


15.                                 Collateral
Agent.


 


15.1                           Collateral
Agent Powers.  The powers conferred on
the Collateral Agent hereunder are solely to protect its interest (on behalf of
the Lenders) in the Collateral and shall not impose any duty on it to exercise
any such powers.


 


15.2                           Reasonable
Care.  The Collateral Agent is
required to exercise reasonable care in the custody and preservation of any
Collateral in its possession; provided, however, that the Collateral Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of any of the Collateral if it takes such action for that purposes
as any owner thereof reasonably requests in writing at times other than upon
the occurrence and during the continuance of any Event of Default, but failure
of the Collateral Agent, to comply with any such request at any time shall not
in itself be deemed a failure to exercise reasonable care.


 


 


[THIS
SPACE INTENTIONALLY LEFT BLANK]


 


10





















 


IN
WITNESS WHEREOF, the undersigned have executed and
delivered this Security Agreement, as of the date first written above.


 


	
  “DEBTOR”

  	
  “THE COLLATERAL
  AGENT”

  
	
  FORCE PROTECTION, INC.

  	
  BARBARA R. MITTMAN

  
	
  a Nevada corporation

  	
   

  
	
   

  	
   

  
	
  /s/ Gordon McGilton

  	
   

  	
  /s/ Barbara R. Mittman

  	
   

  
	
  By: Gordon McGilton

  	
   

  
	
  Its: Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  “SUBSIDIARY”

  	
   

  
	
  FORCE PROTECTION INDUSTRIES, INC.

  	
   

  
	
  a Nevada corporation

  	
   

  
	
   

  	
   

  
	
  /s/ Ted McQuinn

  	
   

  	
   

  
	
  By: Ted McQuinn

  	
   

  
	
  Its: President

  	
   

  



 


 


APPROVED BY “LENDERS”:


 


	
  Wayne H. Coleson

  	
   

  	
  S. Michael Rudolph

  	
   

  
	
  LONGVIEW EQUITY FUND, L.P.

  	
  LONGVIEW FUND, L.P.

  



 


 


This Security Agreement may be signed by facsimile signature
and


delivered by confirmed facsimile transmission.


 


11





















 


SCHEDULE A TO SECURITY AGREEMENT


 


	
  ARTICLE 1LENDER

  	
   

  	
  PURCHASE
  PRICE

  	
   

  
	
  LONGVIEW EQUITY FUND, LP

  600 Montgomery Street, 44th Floor

  San Francisco, CA 94111
Fax: (415) 981-5301

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LONGVIEW FUND, LP

  600 Montgomery Street, 44th Floor

  San Francisco, CA 94111
Fax: (415) 981-5301

  	
   

  	
  $

  	
  6,500,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  $

  	
  7,500,000.00

  	
   

  



 


SCHEDULE B


 


U.S. Government accounts
receivables under contract M67854-05-D-5091 are subject to a
Purchase & Sale Agreement between the Debtors and GC Financial
Services Inc.  The Purchase and Sale Agreement
between Force Protection Industries, Inc. and GC Financial Services, Inc.,
dated June 29, 2005, was included as Exhibit 10.1 to the Form 8-K
filed July 8, 2005.  The Agreement is filed on EDGAR at
http://www.sec.gov/Archives/edgar/data/1032863/000129707705000105/ew8-k frpt70805.htm.  Additionally, on October 21, 2005, the
parties agreed to modify the June 2005 Purchase and Sale Agreement to
provide: “GC Financial Services shall have no obligation to purchase any
Receivables from the Company from and after the date hereof under the terms of
that certain Purchase and Sale Agreement dated June 2005 unless and until
GC Financial Services shall, in its discretion, determine otherwise.”  The modified language was included on a Form 8-K
filed on EDGAR on October 27, 2005 at
http://www.sec.gov/Archives/edgar/data/1032863/000110465905050687/a05-19149 18k.htm.


 


Force Protection entered into a Bridge Facility with GC Financial on June 29,
2005.  The Facility was included as
Exhibits 4.1 and 4.2 to the Form 8-K filed July 8, 2005.  The Agreement is filed on EDGAR at
http://www.sec.gov/Archives/edgar/data/1032863/000129707705000105/ew8-k frpt70805.htm.
  At the Closing, the Debtors
shall provide a “Pay Off Letter” from GC Financial Services Inc. (“GC”) in
substantially the form attached as Exhibit B to the Funds Escrow Agreement
providing for the release of GC’s existing security interest in the assets of
the Company and its Subsidiary (as defined in Section 5(a) of this
Agreement) upon payment to GC of the amount set forth in the Pay Off Letter.


 


Pursuant to a UCC
Financing Statement filed April 27, 2005, Caterpillar Financial Services
Corporation has a lien against Force Protection, Inc. that is limited to
one leased forklift.


 


12





















 


ANNEX I


 


TO


 


SECURITY AGREEMENT


 


PLEDGE AMENDMENT


 


This Pledge Amendment, dated          
   200 , is delivered pursuant to Section 4.3 of the
Security Agreement referred to below. 
The undersigned hereby agrees that this Pledge Amendment may be attached
to the Security Agreement, dated November 15, 2005, as it may heretofore
have been or hereafter may be amended, restated, supplemented or otherwise
modified from time to time and that the shares listed on this Pledge Amendment
shall be hereby pledged and assigned to Collateral Agent and become part of the
Collateral referred to in such Security Agreement and shall secure all of the
Obligations referred to in such Security Agreement.


 


	
  Name of Issuer

  	
   

  	
  Number

  of Shares

  	
   

  	
  Class

  	
   

  	
  Certificate

  Number(s)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


	
   

  	
  FORCE PROTECTION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  



 


13