Document:

ecig_ex101.htm

Exhibit 10.1

 

PLEDGE AND SECURITY AGREEMENT

 

THIS PLEDGE AND SECURITY AGREEMENT (as modified, amended, renewed, extended or restated from time to time, this “Security Agreement”) is entered into as of October [__], 2014 by and among Electronic Cigarettes International Group, Ltd. (f/k/a Victory Electronic Cigarettes Corp.), a Nevada corporation (“Borrower”), VCIG LLC, a Delaware limited liability company (“VCIG”), FIN Branding Group, LLC, an Illinois limited liability company (“FIN”), Hardwire Interactive Acquisition Company, a Delaware limited liability company (“Hardwire”) (together with each other Person that guarantees all or any portion of the Obligations from time to time, and together with Borrower, VCIG, FIN and each other Person that executes a supplement hereto and becomes an additional Grantor hereunder, each a "Grantor" and collectively, the "Grantors"), and JGB (Cayman) Cambridge Ltd., a company organized under the laws of the Cayman Islands (the “Lender”).

 

RECITALS

 

WHEREAS, Lender is the holder of a 6% Senior Convertible Note, dated April 22, 2014 (as amended, supplemented or restated from time to time, the “Note”) issued pursuant to that certain Securities Purchase Agreement, dated April 22, 2014 (as amended, supplemented or restated from time to time, the “SPA”). Pursuant to the Note and the SPA, Lender will extend certain financial accommodations to or for the benefit of Borrower.

 

WHEREAS, FIN is party to a Continuing Guarantee, dated as of even date hereof, (the “FIN Guarantee”), under which FIN has agreed to guarantee Borrower’s obligations under the Note.

 

WHEREAS, VCIG is party to a Continuing Guarantee, dated as of even date hereof, (the “VCIG Guarantee”), under which VCIG has agreed to guarantee Borrower’s obligations under the Note.

 

WHEREAS, Hardwire is party to a Continuing Guarantee, dated as of even date hereof, under which Hardwire has agreed to guarantee Borrower’s obligations under the Note, (the “Hardwire Guarantee”, and together with the Note, the SPA, the FIN Guarantee, the VCIG Guarantee and any other agreement, instrument and other document executed and delivered pursuant hereto or thereto or otherwise evidencing or relating to the extension of credit by Lender to Borrower under the Note and the SPA, the “Note Agreements”).

 

WHEREAS, as a prerequisite to the Lender making any loan and providing any other financial accommodation to the Borrower pursuant to the Note and the SPA, (a) Borrower shall have executed and delivered to the Lender a pledge, and the grant to the Lender of a security interest in and Lien on the outstanding shares of Equity Interests in VCIG and Hardwire and (b) each other Grantor shall have executed and delivered to the Lender a pledge, and the grant to the Lender of (i) a security interest in and Lien on the outstanding shares of Equity Interests and indebtedness from time to time owned by such Grantor of each Person now or hereafter existing and in which such Grantor has any interest at any time, and (ii) a security interest in all other personal property and fixtures of such Grantor;

 

WHEREAS, the Grantors are mutually dependent on each other in the conduct of their respective businesses as an integrated operation, with credit needed from time to time by each Grantor often being provided through financing obtained by the other Grantors and the ability to obtain such financing being dependent on the successful operations of all of the Grantors as a whole; and

 

WHEREAS, each Grantor has determined that the execution, delivery and performance of this Agreement directly benefit, and are in the best interest of, such Grantor;

 

  

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NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to provide financial accommodations to the Borrower pursuant to the Note and the SPA, the Grantors hereby jointly and severally agree with the Lender as follows:

 

1. DEFINITIONS

 

1.1. Reference to Security Agreement.  Unless otherwise specified, all references herein to Articles, Sections, Recitals, and Schedules refer to Articles and Sections of, and Recitals and Schedules to, this Security Agreement. All Schedules include amendments and supplements thereto from time to time.

 

1.2. Principles of Construction.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Note Agreement), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns except as otherwise limited or restricted herein, (iii) the words “hereto,” “herein,” “hereof” and “hereunder,” and words of similar import when used in any Note Agreement, shall be construed to refer to such Note Agreement in its entirety and not to any particular provision thereof, (iv) all references in a Note Agreement to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Note Agreement in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

 

1.3. Definitions.  Unless otherwise defined herein, or the context hereof otherwise requires, each term defined in either a Note Agreement or the UCC is used in this Security Agreement with the same meaning; provided that, if the definition given to such term in a Note Agreement conflicts with the definition given to such term in the UCC, the Note Agreement definition shall control to the extent legally allowable; and if any definition given to such term in Article 9 of the UCC conflicts with the definition given to such term in any other chapter of the UCC, the Article 9 definition shall prevail. As used herein, the following terms have the meanings indicated:

 

“Account” means any “account,” as such term is defined in Section 9.102(a)(2) of the UCC.

 

“Account Debtor” means any person who is obligated on a Receivable.

 

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided, that any director, executive officer or beneficial owner of less than five percent (5%) of the Equity Interests of a Person shall not be deemed an “Affiliate”.

 

“Cash Collateral Account” has the meaning set forth in Section 5.5.

 

  

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“Chattel Paper” means any “chattel paper”, as such term is defined in Section 9.102(a)(11) of the UCC, including all Electronic Chattel Paper and Tangible Chattel Paper.

 

“Claims” has the meaning set forth in Section 6.18.

 

“Code” means the Internal Revenue Code of 1986.

 

“Collateral” has the meaning set forth in Section 2.1.

 

“Collateral Note Security” means all rights, titles, interests, and Liens any Grantor (other than Borrower) may have, be, or become entitled to under all present and future loan agreements, security agreements, pledge agreements, deeds of trust, mortgages, guarantees, or other Documents assuring or securing payment of or otherwise evidencing the Collateral Notes, including those set forth on Schedule 3.10.

 

“Collateral Notes” means all rights, titles, and interests of any Grantor (other than Borrower) in and to all promissory notes and other Instruments payable to such Grantor, including all inter-company notes from the subsidiaries of such Grantor and those set forth on Schedule 3.10.

 

“Collateral Records” means books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon.

 

“Collateral Support” means all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a Lien or security interest in such real or personal property.

 

“Commercial Tort Claims” means any “commercial tort claim”, as such term is defined in Section 9.102(a)(13) of the UCC, including all commercial tort claims listed on Schedule 3.10.

 

“Commodity Account” means any “commodity account”, as such term is defined in Section 9.102(a)(14) of the UCC, and all sub-accounts thereof.

 

“Control” has the meaning set forth in Sections 8.106, 9.104, 9.105, 9.106, or 9.107 of the UCC, as applicable.

 

“Copyright Licenses” means any and all agreements providing for the granting of any right in or to Copyrights (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on Schedule 3.17.

 

“Copyrights” means all United States and foreign copyrights (including Community designs), including copyrights in software and databases, and all Mask Works (as defined under 17 U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered, and, with respect to any and all of the foregoing: (a) all registrations and applications therefor, including the registrations and applications referred to on Schedule 3.17; (b) all extensions and renewals thereof; (c) all rights corresponding thereto throughout the world; (d) all rights to sue for past, present and future infringements thereof; and (e) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor (other than Borrower) against third parties for past, present, or future infringement of any Copyright or any Copyright licensed under any Copyright License.

 

  

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“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect.

 

“Deposit Accounts” means any “deposit account”, as such term is defined in Section 9.102(a)(29) of the UCC, including those deposit accounts identified on Schedule 3.10, and any account which is a replacement or substitute for any of such accounts, together with all monies, Instruments, certificates, checks, drafts, wire transfer receipts, and other property deposited therein and all balances therein.

 

“Documents” means any “document”, as such term is defined in Section 9.102(a)(30) of the UCC.

 

“Electronic Chattel Paper” means any “electronic chattel paper”, as such term is defined in Section 9.102(a)(31) of the UCC.

 

“Equipment” means: (a) any “equipment”, as such term is defined in Section 9.102(a)(33) of the UCC; (b) all machinery, equipment, furnishings, Fixtures, and Vehicles; and (c) any and all additions, substitutions, and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment, and accessories installed thereon or affixed thereto (in each case, regardless of whether characterized as equipment under the UCC).

 

“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

 

“Excluded Assets” means, collectively, any assets of Borrower other than the Pledged Equity Interests held by Borrower and the Proceeds thereof.

 

“Fixtures” means any “fixtures”, as such term is defined in Section 9.102(a)(41) of the UCC.

 

“General Intangibles” means: (a) any “general intangibles”, as such term is defined in Section 9.102(a)(42) of the UCC; and (b) all interest rate or currency protection or hedging arrangements, computer software, computer programs, all tax refunds and tax refund claims, all licenses, permits, concessions and authorizations, all contract rights, all joint venture interests, partnership interests, or membership interests that do not constitute a Security, all Material Agreements, and all Intellectual Property (in each case, regardless of whether characterized as general intangibles under the UCC).

 

“Goods” means: (a) “goods”, as that term is defined in Section 9.102(a)(44) of the UCC; (b) all Inventory; and (c) all Equipment (in each case, regardless of whether characterized as goods under the UCC).

 

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

 

  

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“Grantors” has the meaning set forth in the introductory paragraph, and “Grantor” means any one of the Grantors.

 

“Guarantors” means, collectively, FIN and Hardwire.

 

“Instrument” means any “instrument”, as such term is defined in Section 9.102(a)(47) of the UCC, including the Collateral Notes.

 

“Intellectual Property” means, collectively, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets, and the Trade Secret Licenses.

 

“Inventory” means: (a) any “inventory”, as such term is defined in Section 9.102(a)(48) of the UCC; (b) all wrapping, packaging, advertising, and shipping materials; (c) all goods that have been returned, repossessed, or stopped in transit; (d) all Documents evidencing any of the foregoing; and (e) all computer programs embedded in any goods and all accessions thereto and products thereof (in each case, regardless of whether characterized as inventory under the UCC).

 

“Investment Related Property” means: (a) any “investment property”, as such term is defined in Section 9.102(a)(49) of the UCC; and (b) all Pledged Equity Interests (regardless of whether such interest is classified as investment property under the UCC).

 

“Letter-of-Credit Right” means any “letter-of-credit right”, as such term is defined in Section 9.102(a)(51) of the UCC.

 

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, easement, right-of-way or other encumbrance on title to real property, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

 

“Loan Parties” means, collectively, Borrower and each Guarantor.

 

“Material Agreements” means: (a) all of Grantors’ (other than Borrower) rights, titles, and interests in, to, and under those contracts listed on Schedule 3.10, including all rights of any Grantor (other than Borrower) to receive moneys due and to become due under or pursuant to the Material Agreements; (b) all rights of any Grantor (other than Borrower) to receive Proceeds of any insurance, indemnity, warranty, or guaranty with respect to the Material Agreements; (c) all claims of any Grantor (other than Borrower) for damages arising out of or for breach of or default under the Material Agreements; and (d) all rights of any Grantor (other than Borrower) to compel performance and otherwise exercise all rights and remedies under the Material Agreements.

 

“Maximum Liability” has the meaning set forth in Section 6.2(a).

 

“Money” means “money” as defined in Section 1.201(b)(24) of the UCC.

 

  

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“Note Agreements” has the meaning set forth in the introductory paragraph, and “Note Agreement” means any one of the Note Agreements.

 

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Note Agreement or otherwise with respect to any loan, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

 

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

 

“Patent Licenses” means all agreements providing for the granting of any right in or to Patents (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on Schedule 3.17.

 

“Patents” means all United States and foreign patents and certificates of invention, or similar industrial property rights, and applications for any of the foregoing, including: (a) each patent and patent application referred to on Schedule 3.17; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof; (c) all rights corresponding thereto throughout the world; (d) all inventions and improvements described therein; (e) all rights to sue for past, present and future infringements thereof; (f) all licenses, claims, damages, and Proceeds of suit arising therefrom; and (g) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor (other than Borrower) against third parties for past, present, or future infringement of any Patent or any Patent licensed under any Patent License.

 

“Permitted Liens” means (i) carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business which relate to sums not delinquent or which are being contested in good faith and by appropriate proceedings diligently prosecuted, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto and for which adequate reserves in accordance with GAAP are being maintained, (ii) Liens in cash Collateral in any Deposit Account in favor of the institution holding such Deposit Account, and (iii) Liens existing on the date hereof pursuant to that certain Amended and Restated Security Agreement among Borrower and the holders of Borrower’s 15% Senior Secured Convertible Promissory Notes, dated as of February 28, 2014.

 

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

“Pledged Equity Interests” means all Pledged Stock, Pledged LLC Interests, and Pledged Partnership Interests.

 

  

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“Pledged LLC Interests” means all membership interests owned by a Grantor in any limited liability company, including all membership interests listed on Schedule 3.10 and the certificates, if any, representing such membership interests as such interest may be increased or otherwise adjusted from time to time, including (a) all of such Grantor’s right, title, and interest in any and all distributions, issues, profits, and shares (including rights in the nature of warrants, purchase options, or options to acquire any property or further interest in such limited liability company) payable or distributable by such limited liability company, whether in cash or otherwise, whether for capital or income or surplus or otherwise, including distributions upon liquidation, dissolution, revision, reclassification, split-up, or other change or transaction affecting such limited liability company, or as a sale, refinancing, or other capital transaction affecting any assets or property of such limited liability company; (b) all of such Grantor’s right, title, and interest as a member with respect to such limited liability company and the applicable limited liability company agreement; (c) all of such Grantor’s rights under the applicable limited liability company agreement; (d) all of such Grantor’s right to vote upon, approve, or consent to (or withhold consent or approval to) any matter pursuant to the applicable limited liability company agreement, or otherwise to control, manage, or direct the affairs of such limited liability company; and (e) all of such Grantor’s right to terminate, amend, supplement, modify or waive performance under, the applicable limited liability company agreement, or perform thereunder, and to compel performance and otherwise to exercise all remedies thereunder; and (f) all Proceeds therefrom.

 

“Pledged Partnership Interests” means all partnership interests owned by a Grantor in any general partnership, limited partnership, limited liability partnership or other partnership, including all partnership interests listed on Schedule 3.10 and the certificates, if any, representing such partnership interests as such interest may be increased or otherwise adjusted from time to time, including (a) all of such Grantor’s right, title, and interest in any and all distributions, issues, profits, and shares (including rights in the nature of warrants, purchase options, or options to acquire any property or further interest in such partnership) payable or distributable by such partnership, whether in cash or otherwise, whether for capital or income or surplus or otherwise, including distributions upon liquidation, dissolution, revision, reclassification, split-up, or other change or transaction affecting such partnership, or as a sale, refinancing, or other capital transaction affecting any assets or property of such partnership; (b) all of such Grantor’s right, title, and interest as a partner with respect to such partnership and the applicable partnership agreement; (c) all of such Grantor’s rights under the applicable partnership agreement; (d) all of such Grantor’s right to vote upon, approve, or consent to (or withhold consent or approval to) any matter pursuant to the applicable partnership agreement, or otherwise to control, manage, or direct the affairs of such partnership; and (e) all of such Grantor’s right to terminate, amend, supplement, modify or waive performance under, the applicable partnership agreement, or perform thereunder, and to compel performance and otherwise to exercise all remedies thereunder; and (f) all Proceeds therefrom.

 

“Pledged Stock” means all shares of capital stock owned by a Grantor, including all shares of capital stock described on Schedule 3.10, and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, including all voting rights with respect to such Pledged Stock and all dividends, distributions, cash, warrants, rights, options, Instruments, securities, and other property or Proceeds from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of such shares.

 

“Proceeds” means any “proceeds,” as such term is defined in Section 9.102(a)(64) of the UCC.

 

“Receivables” means the Accounts, Chattel Paper, Documents, Investment Related Property, Instruments, or Commercial Tort Claims, and any other rights or claims to receive Money which are General Intangibles or which are otherwise included as Collateral, together with all of the applicable Grantor’s rights, if any, in all Collateral Support and Supporting Obligations related thereto.

 

  

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“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees and advisors of such Person and of such Person’s Affiliates.

 

“Requirement of Law” means, as to any Person, any law (statutory or common), ordinance, treaty, rule, regulation, order, policy, other legal requirement or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Security Agreement Supplement” has the meaning set forth in Section 4.21.

 

“Secured Obligations” means:

 

(a)           the Obligations;

 

(b)           all costs and expenses, including all fees, disbursements and other charges of counsel to the Lender, incurred by Lender, or any of Lender’s Affiliates to preserve and maintain the Collateral, collect the obligations herein described, and enforce this Security Agreement or any rights under any other Note Agreement; and

 

(c)           all amounts owed under any extension, renewal, or modification of any of the foregoing;

 

in each case whether or not (i) such obligations arise or accrue before or after the filing by or against any Grantor of a petition under the Bankruptcy Code, or any similar filing by or against any Grantor under the laws of any jurisdiction, or any bankruptcy, insolvency, receivership or other similar proceeding, (ii) such obligations are allowable under Section 502(b)(2) of the Bankruptcy Code or under any other insolvency  proceedings, (iii) the right of payment in respect of such obligations is reduced to judgment, or (iv) such obligations are liquidated, unliquidated, similar, dissimilar, related, unrelated, direct, indirect, fixed, contingent, primary, secondary, joint, several, or joint and several, matured, disputed, undisputed, legal, equitable, secured, or unsecured.

 

“Securities Account” means any “securities account”, as such term is defined in Section 8.501(a) of the UCC, and all sub-accounts thereof.

 

“Security” has the meaning set forth in Section 8.102(a)(15) of the UCC.

 

“Supporting Obligation” means all “supporting obligations” as defined in Section 9.102(a)(77) of the UCC.

 

“Tangible Chattel Paper” means any “tangible chattel paper”, as such term is defined in Section 9.102(a)(78) of the UCC.

 

“Trademark Licenses” means any and all agreements providing for the granting of any right in or to Trademarks (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on Schedule 3.17.

 

“Trademarks” means all United States and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing, including: (a) the registrations and applications referred to on Schedule 3.17; (b) all extensions or renewals of any of the foregoing; (c) all of the goodwill of the business connected with the use of and symbolized by the foregoing; (d) the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill; and (e) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor (other than Borrower) against third parties for past, present, or future infringement of any Trademark or any Trademark licensed under any Trademark License.

 

  

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“Trade Secret Licenses” means any and all agreements providing for the granting of any right in or to Trade Secrets (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on Schedule 3.17.

 

“Trade Secrets” means all trade secrets and all other confidential or proprietary information and know-how, whether or not such Trade Secret has been reduced to a writing or other tangible form, including all Documents and things embodying, incorporating, or referring in any way to such Trade Secret, including: (a) the right to sue for past, present and future misappropriation or other violation of any Trade Secret; and (b) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor (other than Borrower) against third parties for past, present, or future infringement of any Trade Secrets or any Trade Secrets  licensed under any Trade Secret License.

 

“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, that in any event, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority (or terms of similar import in any applicable jurisdiction) of Lender’s security interest in any Collateral is governed by the Uniform Commercial Code (or other similar law) as in effect in a jurisdiction (whether within or outside the United States) other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code (or other similar law) as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority (or terms of similar import in such jurisdiction) and for purposes of definitions related to such provisions.

 

“Vehicles” means all present and future automobiles, trucks, truck tractors, trailers, semi-trailers, or other motor vehicles or rolling stock, now owned or hereafter acquired by a Grantor (other than Borrower).

 

2. GRANT OF SECURITY INTEREST

 

2.1. Security Interest.  To secure the prompt and complete payment and performance of the Secured Obligations when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code or any similar provisions of other applicable laws), each Grantor hereby grants to Lender a continuing security interest in, a Lien upon, and a right of set off against, and hereby assigns to Lender as security, all personal property of such Grantor, whether now owned or hereafter acquired or existing, and wherever located (together with all other collateral security for the Secured Obligations at any time granted to or held or acquired by or under the Control of Lender, collectively, the “Collateral”), including:

 

(a) Accounts;

 

(b) Chattel Paper;

 

(c) Commercial Tort Claims;

 

  

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(d) Deposit Accounts, Securities Accounts, and Commodity Accounts;

 

(e) Documents;

 

(f) General Intangibles;

 

(g) Goods;

 

(h) Instruments;

 

(i) Investment Related Property;

 

(j) Letter of Credit Rights;

 

(k) Money;

 

(l) Fixtures;

 

(m) Intellectual Property;

 

(n) Material Agreements;

 

(o) Vehicles;

 

(p) to the extent not otherwise included above, all Collateral Records, Collateral Support, and Supporting Obligations relating to any of the foregoing; and

 

(q) to the extent not otherwise included above, all accessions to, substitutions for, and all replacements, products, Proceeds of the foregoing, including Proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss, damage, or destruction of any Collateral.

 

Notwithstanding the foregoing, no Lien or security interest is hereby granted on any Excluded Assets. Notwithstanding any contrary provision, each Grantor agrees that, if, but for the application of this paragraph, granting a security interest in the Collateral would constitute a fraudulent conveyance under 11 U.S.C. § 548 or a fraudulent conveyance or transfer under any state fraudulent conveyance, fraudulent transfer, or similar law in effect from time to time (each a “fraudulent conveyance”), then the security interest remains enforceable to the maximum extent possible without causing such security interest to be a fraudulent conveyance, and this Security Agreement is automatically amended to carry out the intent of this sentence.

 

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

 

  

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2.3. Authorization to File Financing Statements.  Each Grantor hereby irrevocably authorizes Lender at any time and from time to time to file in any UCC jurisdiction any financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of such Grantor 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 Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates.  Each Grantor agrees to furnish any such information to Lender promptly upon request.

 

3. REPRESENTATIONS AND WARRANTIES.  Each Grantor represents and warrants to Lender that:

 

3.1. Note Agreements.  Certain representations and warranties in the Note Agreements to which a Grantor is a party are applicable to such Grantor or its assets or operations, and each such representation and warranty is true and correct.

 

3.2. Title; Authorization; Enforceability; Perfection.  (a) Each Grantor has good and valid rights in and title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens except for Permitted Liens, and has full power and authority to grant to Lender the security interest in such Collateral; (b) the execution and delivery by each Grantor of this Security Agreement has been duly authorized, and this Security Agreement constitutes a legal, valid and binding obligation of such Grantor and creates a security interest enforceable against such Grantor in all now owned and hereafter acquired Collateral; (c)(i) upon the filing of all UCC financing statements naming each Grantor as “debtor” and Lender as “secured party” and describing the Collateral in the filing offices set forth opposite such Grantor’s name on Schedule 3.5 hereof, (ii) upon delivery of all Instruments, Chattel Paper, certificated Pledged Equity Interests, and Collateral Notes, (iii) upon sufficient identification of Commercial Tort Claims, (iv) upon execution of a control agreement establishing Lender’s Control with respect to any Deposit Account, Securities Account, or Commodity Account, (v) upon consent of the issuer or any nominated person with respect to Letter of Credit Rights, and (vi) to the extent not subject to Article 9 of the UCC, upon recordation of the security interests granted hereunder in Intellectual Property in the applicable intellectual property registries, including the United States Patent and Trademark Office and the United States Copyright Office, the security interests granted to Lender hereunder constitute valid and perfected first priority Liens (subject in the case of priority only to the rights of the United States government (including any agency or department thereof) with respect to United States government Receivables) on all of the Collateral.

 

3.3. Conflicting Legal Requirements and Contracts.  Neither the execution and delivery by any Grantor of this Security Agreement, the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance with the terms and provisions hereof will (a) violate (i) any legal requirement binding on such Grantor, (ii) such Grantor’s Organization Documents, or (iii) the provisions of any indenture, Instrument or agreement to which such Grantor is a party or is subject, or by which it, or its property, is bound; or (b) conflict with or constitute a default under, or result in the creation or imposition of any Lien pursuant to, the terms of any such indenture, Instrument or agreement (other than any Lien of Lender).

 

3.4. Governmental Authority.  No authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required either (a) for the pledge by any Grantor of the Collateral pursuant to this Security Agreement or for the execution, delivery, or performance of this Security Agreement by any Grantor, or (b) for the exercise by Lender of the voting or other rights provided for in this Security Agreement or the remedies in respect of the Collateral pursuant to this Security Agreement (except as may be required in connection with the disposition of the Pledged Equity Interests by legal requirements affecting the offering and sale of securities generally).

 

  

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3.5. Grantor Information.  Each Grantor’s exact legal name, jurisdiction of organization, type of entity, state issued organizational identification number and the location of its principal place of business, or chief executive office (or the principal residence if such Grantor is a natural person) and of the books and records relating to the Receivables, are disclosed on Schedule 3.5; no Grantor has any other places of business except those set forth on Schedule 3.5. Except as noted on Schedule 3.5 hereto, all such books, records, and Collateral are in such Grantor’s possession. No Grantor has done in the last five (5) years, and does, business under any other name (including any trade-name or fictitious business name) except for those names set forth on Schedule 3.5. Except as provided on Schedule 3.5, no Grantor has changed its name, jurisdiction of organization, principal place of business, or chief executive office (or principal residence if such Grantor is a natural person) or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) within the past five (5) years.

 

3.6. Property Locations.  Subject to Section 4.4(f), the Inventory, Equipment, and Fixtures are located solely at the locations described on Schedule 3.6.  All of such locations are owned by a Grantor except for locations (a) which are leased by a Grantor as lessee and designated in Part B of Schedule 3.6, and (b) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part C of Schedule 3.6, with respect to which Inventory such Grantor has delivered bailment agreements, warehouse receipts, financing statements or other Documents satisfactory to Lender to protect Lender’s security interest in such Inventory.

 

3.7. Litigation.  Except as set forth on Schedule 3.7, there are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of any Grantor after due and diligent investigation, threatened in writing or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against Grantor or any of its properties which, either individually or in the aggregate, if adversely determined would result in a Material Adverse Event.

 

3.8. No Financing Statements or Control Agreements.  Other than the financing statements and control agreements with respect to this Security Agreement, there are no other financing statements or control agreements covering any Collateral, other than those evidencing Permitted Liens and set forth on Schedule 3.8.

 

3.9. Maintenance of Collateral.  All tangible Collateral which is necessary to any Grantor’s business is in good repair and condition, ordinary wear and tear excepted, and none thereof is a Fixture except as specifically referred to herein on Schedule 3.6.

 

3.10. Collateral.  Schedule 3.10 accurately lists all Pledged Equity Interests, Securities Accounts, Commodity Accounts, Deposit Accounts, Collateral Notes, Collateral Note Security, Commercial Tort Claims, Material Agreements, and all letters of credit, in which any Grantor has any right, title, or interest. All information supplied by any Grantor to the Lender with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is true, correct, and complete in all material respects.

 

3.11. Deposit, Commodity, and Securities Accounts.  Schedule 3.10 correctly identifies all Deposit Accounts, Commodity Accounts, and Securities Accounts in which a Grantor has an interest and the institutions holding such accounts.  Each Grantor is the sole account holder of each such account, and such Grantor has not consented to, and is not otherwise aware of, any person (other than Lender) having Control over, or any other interest in, any such account or the property credited thereto.

 

  

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3.12. Receivables.

 

(a) Each Receivable (i) is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, representing an unsatisfied obligation of such Account Debtor, (ii) is and will be enforceable in accordance with its terms, (iii) is not and will not be subject to any setoffs, defenses, taxes, counterclaims (except with respect to refunds, returns and allowances in the ordinary course of business), and (iv) is and will be in compliance with all applicable laws, whether federal, state, local or foreign.

 

(b) None of the Account Debtors in respect of any Receivable is the government of the United States, any agency or instrumentality thereof, any state or municipality or any foreign sovereign.  No Receivable requires the consent of the Account Debtor in respect thereof in connection with the pledge hereunder, except any consent which has been obtained.

 

(c) The names of the Account Debtors, amounts owing, due dates and other information with respect to each Account or Chattel Paper are and will be correctly stated in all records of each Grantor relating thereto and in all invoices and reports with respect thereto furnished to Lender by each Grantor from time to time.  As of the time when each Account or each item of Chattel Paper arises, the applicable Grantor (other than Borrower) shall be deemed to have represented and warranted that such Account or Chattel Paper, as the case may be, and all records relating thereto, are genuine and in all respects what they purport to be.

 

3.13. Letter of Credit Rights.  All letters of credit to which any Grantor (other than Borrower) has rights is listed on Schedule 3.10, and such Grantor has obtained the consent of each issuer or the nominated person of any letter of credit to the assignment of the Proceeds of the letter of credit to Lender.

 

3.14. Instruments; Chattel Paper; Collateral Notes; and Collateral Note Security.  All Instruments and Chattel Paper, including the Collateral Notes, have been delivered to Lender, together with corresponding endorsements duly executed by the applicable Grantor in favor of Lender, and such endorsements have been duly and validly executed and are binding and enforceable against such Grantor in accordance with their terms.  Each Collateral Note and the Documents evidencing the Collateral Note Security are in full force and effect; there have been no renewals or extensions of, or amendments, modifications, or supplements to, any thereof about which Lender has not been advised in writing; and no “default” or “potential default” has occurred and is continuing under any such Collateral Note or Documents evidencing the Collateral Note Security, except as disclosed on Schedule 3.10.

 

3.15. Material Agreements.  All Material Agreements to which any Grantor (other than Borrower) is a party are set forth on Schedule 3.10.  True and correct copies of all such Material Agreements have been furnished to Lender.  Each Material Agreement is in full force and effect; there have been no amendments, modifications, or supplements to any Material Agreement of which Lender has not been advised in writing; and no default, breach, or potential default or breach has occurred and is continuing under any Material Agreement, except as disclosed on Schedule 3.10.  No Material Agreement prohibits assignment or requires consent of or notice to any person in connection with the assignment to Lender hereunder, except such as has been given or made (or currently being sought by such Grantor using its best efforts).

 

  

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3.16. Investment Related Property.

 

(a) Schedule 3.10 sets forth all of the Pledged Stock, Pledged LLC Interests, and Pledged Partnership Interests owned by any Grantor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on such Schedule.

 

(b) Except as set forth on Schedule 3.10, no Grantor has acquired any equity interests of another entity or substantially all the assets of another entity within the past five (5) years.

 

(c) Each Grantor is the record and beneficial owner of the Pledged Equity Interests owned by it free of all Liens, rights or claims of other persons other than Permitted Liens, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests.

 

(d) No consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or desirable in connection with the creation, perfection or first priority status of the security interest of Lender in any Pledged Equity Interests or the exercise by Lender of the voting or other rights provided for in this Security Agreement or the exercise of remedies in respect thereof.

 

(e) None of the Pledged LLC Interests or Pledged Partnership Interests are or represent interests in issuers that (i) are registered as investment companies or (ii) are dealt in or traded on securities exchanges or markets.

 

(f) Except as otherwise set forth on Schedule 3.10, all of the Pledged LLC Interests and Pledged Partnership Interests are or represent interests in issuers that have not opted to be treated as securities under the UCC of any jurisdiction.

 

(g) (i) Each Grantor has delivered to Lender all stock certificates, or other Instruments or Documents representing or evidencing the Pledged Equity Interests, together with corresponding assignment or transfer powers duly executed in blank by such Grantor, and such powers have been duly and validly executed and are binding and enforceable against such Grantor in accordance with their terms and (ii) to the extent such Pledged Equity Interests are uncertificated, each Grantor has taken all actions necessary or desirable to establish Lender’s Control over such Pledged Equity Interests.

 

3.17. Intellectual Property.

 

(a) All of the Intellectual Property is subsisting, valid, and enforceable. The information contained on Schedule 3.17 is true, correct, and complete.  All issued Patents, Patent Licenses, Trademarks, Trademark Licenses, Copyrights, Copyright Licenses, Trade Secret, and Trade Secret Licenses of each Grantor (other than Borrower) are identified on Schedule 3.17.

 

(b) Each Grantor (other than Borrower) is the sole and exclusive owner of the entire and unencumbered right, title, and interest in and to the Intellectual Property purported to be owned by such Grantor free and clear of any Liens, including any pledges, assignments, licenses, user agreements, and covenants by such Grantor not to sue third persons, other than Permitted Liens.

 

  

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(c) To the best of each Grantor’s knowledge, no third party is infringing, or in such Grantor’s reasonable business judgment, may be infringing, any of such Grantor’s rights under the Intellectual Property.

 

(d) Each Grantor has performed and will continue to perform all acts and has paid and will continue to pay all required fees and taxes to maintain each and every item of the Intellectual Property in full force and effect throughout the world, as applicable.

 

(e) Each of the Patents and Trademarks identified on Schedule 3.17 has been properly registered with the United States Patent and Trademark Office and in corresponding offices throughout the world (where appropriate) and each of the Copyrights identified on Schedule 3.17 has been properly registered with the United States Copyright Office and in corresponding offices throughout the world (where appropriate).

 

(f) To the best of each Grantor’s knowledge, except as set forth on Schedule 3.7, no claims with respect to the Intellectual Property have been asserted and are pending (i) to the effect that the sale, licensing, pledge, or use of  any of the products of such Grantor’s business infringes any other party’s valid copyright, trademark, service mark, trade secret, or other intellectual property right, (ii) against the use by such Grantor of any Intellectual Property used in such Grantor’s business as currently conducted, or (iii) challenging the ownership or use by such Grantor of any of the Intellectual Property that such Grantor purports to own or use, nor, to such Grantor’s knowledge, is there a valid basis for such a claim described in this Section 3.17.

 

The foregoing representations and warranties will be true and correct in all respects with respect to any additional Collateral or additional specific descriptions of certain Collateral delivered to Lender in the future by any Grantor.  The failure of any of these representations or warranties or any description of Collateral therein to be accurate or complete shall not impair the security interest in any such Collateral.

 

4. COVENANTS.  From the date of this Security Agreement, and thereafter until this Security Agreement is terminated:

 

4.1. Note Agreements.  Each Grantor shall (a) comply with, perform, and be bound by all covenants and agreements in the Note Agreements that are applicable to it, its assets, or its operations, each of which is hereby ratified and confirmed (INCLUDING THE INDEMNIFICATION AND RELATED PROVISIONS IN ARTICLE 5 OF THE SPA); AND (b) CONSENT TO AND AGREE TO BE BOUND BY THE VENUE AND SERVICE OF PROCESS IN SECTION 6.2 OF THE SPA, AND WAIVER OF JURY TRIAL PROVISIONS OF SECTION 11.15 OF THE CREDIT AGREEMENT.

 

4.2. General.

 

(a) Inspection.  Each Grantor will permit Lender or any other Secured Party, by its representatives and agents (i) to inspect the Collateral, (ii) to examine and make copies of the records of such Grantor relating to the Collateral, and (iii) to discuss the Collateral and the related records of such Grantor with, and to be advised as to the same by, such Grantor’s officers, employees, and accountants (and, in the case of any Receivable, with any Account Debtor), all at such reasonable times and intervals as Lender or such other Secured Party may determine, and all at such Grantor’s expense.

 

  

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(b) Records and Reports; Notification of Default or Event of Default.  Each Grantor will maintain true, complete, and accurate books and records with respect to the Collateral, and furnish to Lender such reports relating to the Collateral at such intervals as Lender shall from time to time request.  Each Grantor will give prompt notice in writing to Lender of the occurrence of any Default or Event of Default and of any other development, financial or otherwise, which might materially and adversely affect the Collateral.  Each Grantor shall mark its books and records to reflect the security interest of Lender under this Security Agreement.

 

(c) Schedules.  Each Grantor shall immediately update any Schedules if any information therein shall become inaccurate or incomplete.  The failure of property descriptions to be accurate or complete on any Schedule shall not impair Lender’s security interest in such property.

 

(d) Financing Statements and Other Actions; Defense of Title.  Each Grantor will deliver to Lender all financing statements and execute and deliver control agreements and other Documents and take such other actions as may from time to time be reasonably requested by Lender in order to maintain a first priority perfected security interest in and, in the case of Investment Related Property, Deposit Accounts, Letter-of-Credit-Rights, and Electronic Chattel Paper, Control of, the Collateral.  Each Grantor will take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of Lender in the Collateral and the priority thereof against any Lien not expressly permitted hereunder.

 

(e) Disposition of Collateral.  No Grantor will sell, lease, license or otherwise dispose of the Collateral except (i) prior to the occurrence of an Event of Default, sales or leases of Inventory in the ordinary course of business, and (ii) until such time as such Grantor receives a notice from Lender pursuant to Section 5.4, Proceeds of Inventory and Accounts collected in the ordinary course of business.

 

(f) Liens.  No Grantor will create, incur, or suffer to exist any Lien on the Collateral except Permitted Liens.

 

(g) Change in Location, Jurisdiction of Organization or Name.  No Grantor will (i) have any Inventory, Equipment, Fixtures, or Proceeds or products thereof (other than Inventory and Proceeds thereof disposed of as permitted by Section 4.2(e)) at a location other than a location specified on Schedule 3.6, (ii) maintain records relating to the Receivables at a location other than at the location specified on Schedule 3.10, (iii) maintain a place of business at a location other than a location specified on Schedule 3.6, (iv) change its name or taxpayer identification number, (v) change its mailing address, or (vi) change its jurisdiction of organization, unless such Grantor shall have given Lender not less than ten (10) days’ prior written notice thereof, and Lender shall have reasonably determined that such change will not adversely affect the validity, perfection or priority of Lender’s security interest in the Collateral. Prior to making any of the foregoing changes, each Grantor shall execute and deliver all such additional Documents and perform all additional acts as Lender, in its sole discretion, may reasonably request in order to continue or maintain the existence and priority of its security interest in all of the Collateral.

 

(h) Taxes.  Each Grantor will pay when due and payable all taxes, assessments and governmental charges and levies upon the Collateral, unless the same are being contested in good faith by appropriate proceedings diligently conducted (which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien) and adequate reserves in accordance with GAAP are being maintained by such Grantor.

 

  

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(i) Compliance with Agreements.  Each Grantor shall comply in all material respects with all mortgages, deeds of trust, Instruments, and other agreements binding on it or affecting its properties or business.

 

(j) Compliance with Legal Requirements.  Each Grantor shall comply with all applicable laws, rules, regulations, and orders of any court or Governmental Authority.

 

(k) Other Financing Statements.  No Grantor will authorize any other financing statement naming it as debtor covering all or any portion of the Collateral, except as permitted by Section 4.2(f).

 

4.3. Receivables.

 

(a) Certain Agreements on Receivables.  No Grantor (other than Borrower) will make or agree to make any discount, credit, rebate or other reduction in the original amount owing on a Receivable or accept in satisfaction of a Receivable less than the original amount thereof, except that, prior to the occurrence of an Event of Default, such Grantor may reduce the amount of Accounts arising from the sale of Inventory in accordance with its present policies and in the ordinary course of business.

 

(b) Collection of Receivables.  Except as otherwise provided in this Security Agreement, each Grantor (other than Borrower) will, at such Grantor’s sole expense, use its commercially reasonable efforts to collect all amounts due or hereafter due to such Grantor under the Receivables and enforce such Grantor’s rights under all Collateral Support or Supporting Obligation with respect to the Receivables.

 

(c) Delivery of Invoices. Each Grantor (other than Borrower) will deliver to Lender immediately upon its request after the occurrence of an Event of Default duplicate invoices with respect to each Account bearing such language of assignment as Lender shall specify.

 

(d) Disclosure of Counterclaims on Receivables.  If (i) any discount, credit or agreement to make a rebate or to otherwise reduce the amount owing on a Receivable exists or (ii) if, to the knowledge of any Grantor, any dispute, setoff, claim, counterclaim or defense exists or has been asserted or threatened with respect to a Receivable, each Grantor will promptly disclose such fact to Lender in writing in connection with the inspection by Lender of any record of such Grantor relating to such Receivable and in connection with any invoice or report furnished by such Grantor to Lender relating to such Receivable.

 

4.4. Inventory and Equipment.

 

(a) Maintenance of Goods.  Each Grantor will do all things reasonably necessary to maintain, preserve, protect and keep the Inventory and the Equipment in good repair and working and saleable condition.

 

(b) Insurance.  Each Grantor will (i) maintain fire and extended coverage insurance on the Inventory and Equipment containing a lender’s loss payable clause in favor of Lender, and providing that said insurance will not be terminated except after at least thirty (30) days’ written notice from the insurance company to Lender, (ii) maintain such other insurance on the Collateral for the benefit of Lender as Lender shall from time to time request, (iii) furnish to Lender upon request from time to time the originals of all policies of insurance on the Collateral and certificates with respect to such insurance, and (iv) maintain general liability insurance naming Lender as an additional insured.

 

  

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(c) Safekeeping of Inventory; Inventory Covenants.  No Secured Party shall be responsible for (i) the safekeeping of the Inventory, (ii) any loss or damage thereto or destruction thereof occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value of Inventory, or (iv) any act or default of any carrier, warehouseman, bailee or forwarding agency or any other person in any way dealing with or handling the Inventory, except to the extent that any Grantor incurs any loss, cost, claim or damage from any of the foregoing as a result of the gross negligence or willful misconduct of such Secured Party as determined by a court of competent jurisdiction in final and nonappealable judgment.  All risk of loss, damage, distribution or diminution in value of the Inventory shall, except as noted in the previous sentence, be borne by Grantors.

 

(d) Records and Schedules of Inventory.  Each Grantor (other than Borrower) shall keep correct and accurate daily records on a first-in, first-out basis, itemizing and describing the kind, type, quality and quantity of Inventory, such Grantor’s cost therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto and Inventory then on consignment, and shall, at the request of Lender, furnish to Lender daily copies of the working papers related thereto.  A physical count of the Inventory shall be conducted no less often than annually and a report based on such count of Inventory shall promptly thereafter be provided to Lender together with such supporting information including invoices relating to such Grantor’s purchase of goods listed in said report, as Lender shall, in its sole and absolute discretion, request.

 

(e) Certificates of Title.  With respect to any item of Equipment which is covered by a certificate of title and indication of a security interest on such certificate is required as a condition of perfection, upon the request of Lender, the applicable Grantor shall cause Lender’s security interest to be properly indicated thereon.

 

(f) Instruments.  (i) Each Grantor has, and agrees that it will maintain, exclusive possession of its Documents, Instruments, Goods, Equipment and Inventory, other than (x) Inventory in transit in the ordinary course of business, (y) Inventory that is in the possession or control of a warehouseman, bailee, agent or other Person in the Grantor’s ordinary course of business and (z) Documents, Instruments or Promissory Notes that have been delivered to Lender pursuant to subclause (f)(ii).  (ii) If any Collateral shall be evidenced by an Instrument, negotiable Document, promissory note or Tangible Chattel Paper, each Grantor shall deliver and pledge to Lender hereunder such Instrument, negotiable Document, Promissory Note or Tangible Chattel Paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Lender.

 

4.5. Investment Related Property.

 

(a) No Modification of Rights and Obligation. Without the prior written consent of Lender, no Grantor shall vote to enable or take any other action to: (i)  amend or terminate any partnership agreement, limited liability company agreement, certificate of incorporation, by-laws or other organizational documents in any way that materially changes the rights of such Grantor with respect to any Investment Related Property or adversely affects the validity, perfection or priority of Lender’s security interest; (ii) permit any issuer of any Pledged Equity Interest to issue any additional stock, partnership interests, limited liability company interests or other equity interests of any nature or to issue securities convertible into or granting the right of purchase or exchange for any stock or other equity interest of any nature of such issuer; (iii) other than as permitted under the Note Agreements, permit any issuer of any Pledged Equity Interest to dispose of all or a material portion of its assets, other than sales of Inventory in the ordinary course of business; (iv) waive any default under or breach of any terms of Organization Documents relating to the issuer of any Pledged Equity Interest; or (v) cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests which are not securities (for purposes of the UCC) on the date hereof to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as securities for purposes of the UCC; provided, however, notwithstanding the foregoing, if any issuer of any Pledged Partnership Interests or Pledged LLC Interests takes any such action in violation of the foregoing in this clause (v), such Grantor shall promptly notify Lender in writing of any such election or action and, in such event, shall take all steps necessary or advisable to establish Lender’s Control thereof.

 

  

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(b) Performance of Underlying Obligations. Each Grantor shall comply with all of its Obligations under any partnership agreement or limited liability company agreement relating to Pledged Partnership Interests or Pledged LLC Interests and shall enforce all of its rights with respect to any Investment Related Property.

 

(c) Changes in Capital Structure of Issuers. Without the prior written consent of Lender, no Grantor shall permit any issuer of any Pledged Equity Interest to merge or consolidate unless (i) such issuer creates a security interest that is perfected by a filed financing statement (that is not effective solely under Section 9-508 of the UCC) in collateral in which such new debtor has or acquires rights, and (ii) all the outstanding Equity Interests of the surviving or resulting corporation, limited liability company, partnership or other entity is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding Equity Interests of the constituent issuer.

 

(d) Consent of Grantor. To the extent the consent of a Grantor, whether in its capacity as a partner, member, general partner, managing member, shareholder, issuer, or otherwise, is required for the transfer, conveyance, or encumbrance of all or any portion of the Pledged Equity Interests in any corporation, partnership or limited liability company, such Grantor hereby irrevocably (i) consents to the grant of the security interests herein by all applicable Grantors described in this Security Agreement, (ii) consents to the transfer or conveyance of the Pledged Equity Interests pursuant to Lender’s exercise of its rights and remedies under this Security Agreement or any of the other Note Agreements, at law or in equity, (iii) consents to the admission of Lender, its nominees, or any other transferee of any Pledged Equity Interest as a partner (including as the general partner) or member (including as the managing member) of such partnership or limited liability company, and (iv) agrees that all terms and conditions in the constituent documents applicable to the pledge of any Pledged Equity Interest, the enforcement thereof, the transfer of any Pledged Equity Interest or the admission of Lender, its nominees, or any other transferee of any Pledged Equity Interest as a partner (including as the general partner) or member (including as the managing member) of such partnership or limited liability company have been satisfied or waived. Each Grantor hereby irrevocably agrees not to vote to amend the applicable constituent documents to provide that its equity interests are securities governed by Article 8 of the UCC, and hereby agrees and acknowledges that any such vote shall be invalid and any such amendment shall be void ab initio.

 

  

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(e) Voting of Securities.  Prior to the occurrence of an Event of Default, each Grantor is entitled to exercise all voting rights pertaining to any Pledged Equity Interests; provided, however, that no vote shall be cast or consent, waiver, or ratification given or action taken without the prior written consent of Lender which would (i) be inconsistent with or violate any provision of this Security Agreement or any other Note Agreement or (ii) amend, modify, or waive any term, provision or condition of the certificate of incorporation, bylaws, certificate of formation, or other charter document, or other agreement relating to, evidencing, providing for the issuance of, or securing any Collateral in a way adverse to Lender; and provided further that such Grantor shall give Lender at least five (5) Business Days’ prior written notice in the form of an officers’ certificate of the manner in which it intends to exercise, or the reasons for refraining from exercising, any voting or other consensual rights pertaining to the Collateral or any part thereof which might have a material adverse effect on the value of the Collateral or any part thereof.  After the occurrence and during the continuance of an Event of Default and if Lender elects to exercise such right, the right to vote any Pledged Equity Interests shall be vested exclusively in Lender.  To this end, each Grantor hereby irrevocably constitutes and appoints Lender the proxy and attorney-in-fact of such Grantor, with full power of substitution, to vote, and to act with respect to, any and all Collateral that is Pledged Equity Interests standing in the name of such Grantor or with respect to which such Grantor is entitled to vote and act, subject to the understanding that such proxy may not be exercised unless an Event of Default has occurred and is continuing.  The proxy herein granted is coupled with an interest, is irrevocable, and shall continue until the termination of this Security Agreement pursuant to Section 6.16.

 

4.6. Accounts.

 

(a) Verification of Accounts.  Lender shall have the right, at any time or times hereafter, in its name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Accounts, by mail, telephone, telegraph or otherwise.

 

(b) Disputed Accounts; Limitation on Modification of Accounts.  Each Grantor (other than Borrower) shall give Lender prompt written notice of any Accounts which are in dispute between any Account Debtor and such Grantor in a material amount.  No Grantor (other than Borrower) will, without Lender’s prior written consent, grant any extension of the time for payment of any of the Accounts, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts granted in the ordinary course of business of such Grantor.

 

(c) Notice to Account Debtor.  Lender may, in its sole discretion, at any time or times after an Event of Default has occurred, and without prior notice to any Grantor, notify any or all Account Debtors that the Accounts have been assigned to Lender and that Lender has a security interest therein.  Lender may direct any or all Account Debtors to make all payments upon the Accounts directly to Lender.  Lender shall furnish Grantors with a copy of such notice.

 

4.7. Intellectual Property.

 

(a) Prosecution of Applications. Each Grantor shall prosecute diligently all applications in respect of Intellectual Property, now or hereafter pending.

 

(b) Federal Applications. Except to the extent not required in such Grantor’s reasonable business judgment, each Grantor shall make federal applications on all of its unpatented but patentable inventions and all of its registerable but unregistered Copyrights and Trademarks.

 

  

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(c) Maintenance of Rights. Each Grantor shall preserve and maintain all of its material rights in the Intellectual Property and protect its Intellectual Property from infringement, unfair competition, cancellation, or dilution by all appropriate action necessary in such Grantor’s reasonable business judgment, including the commencement and prosecution of legal proceedings to recover damages for infringement and to defend and preserve its rights in the Intellectual Property.

 

(d) No Abandonment.  No Grantor may abandon any of the Intellectual Property necessary to the conduct of its business in the exercise of such Grantor’s reasonable business judgment.

 

(e) Licenses.  (i) No Grantor shall sell or assign any of its interest in any of the Intellectual Property other than in the ordinary course of business for full and fair consideration without the prior written consent of Lender; (ii) no Grantor shall grant any license or sublicense with respect to any of its Intellectual Property other than in the ordinary course of business for full and fair consideration without the prior written consent of Lender; and (iii) each Grantor shall maintain the quality of any and all products and services with respect to which the Intellectual Property is used.

 

(f) No Conflicting Agreements. No Grantor shall enter into any agreement, including any licensing agreement, that is or may be inconsistent with such Grantor’s Obligations under this Security Agreement or any of the other Note Agreements.

 

(g) Additional Intellectual Property.  Each Grantor shall give Lender prompt written notice if such Grantor shall obtain rights to or become entitled to the benefit of any Intellectual Property not identified on Schedule 3.17.  Each Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements, or Trademark Security Agreements, each in form and substance satisfactory to Lender, as Lender may request to evidence Lender’s Lien on such Intellectual Property.

 

(h) Obligation upon Default.  On and after the occurrence of an Event of Default, each Grantor shall use its reasonable efforts to obtain any consents, waivers, or agreements necessary to enable Lender to exercise its rights and remedies with respect to the Intellectual Property.

 

4.8. Collateral Notes and Collateral Note Security.  Without the prior written consent of Lender, no Grantor (other than Borrower) may (a) modify or substitute, or permit the modification, or substitution of, any Collateral Note or any Document evidencing the Collateral Note Security or (b) release any Collateral Note Security unless specifically required by the terms thereof.

 

4.9. Instruments; Chattel Paper; and Documents.  Each Grantor (other than Borrower) will (a) deliver to Lender immediately upon execution of this Security Agreement the originals of all Chattel Paper and Instruments (if any then exists), (b) hold in trust for Lender upon receipt and immediately thereafter deliver to Lender any Chattel Paper and Instruments constituting Collateral, (c) mark conspicuously all Chattel Paper and Instruments (other than any delivered to Lender) with an appropriate reference to the security interest of Lender, and (d) upon Lender’s request, deliver to Lender (and thereafter hold in trust for Lender upon receipt and immediately deliver to Lender) any Document evidencing or constituting Collateral.

 

  

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4.10. Deposit, Commodity, and Securities Accounts.  With respect to any Deposit Account, Commodity Account, or Securities Account, each Grantor shall (a) maintain such accounts at the institutions described on Schedule 3.10 or such additional institutions as have complied with clause (b) hereof; (b) cause each bank and other financial institution with an account referred to in Schedule 3.10 hereto to execute and deliver to the Lender (or its designee) a control agreement, in form and substance satisfactory to the Lender and such Grantor, duly executed by such Grantor and such bank or financial institution, pursuant to which such institution shall irrevocably agree, among other things, that (i) it will comply at any time with the instructions originated by Lender (or its designee) to such bank or financial institution directing the disposition of cash, commodity contracts, securities, Investment Property and other items from time to time credited to such account, without further consent of such Grantor, (ii) all cash, commodity contracts, securities, Investment Property and other items of such Grantor deposited with such institution shall be subject to a perfected, first priority security interest in favor of Lender (or its designee) and (iii) Lender shall have exclusive Control over such account; (c) deliver to Lender all certificates or Instruments, if any, now or hereafter representing or evidencing such accounts, accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Lender. Without Lender’s consent, no Grantor shall establish any additional Deposit Account, Commodity Account, or Securities Account, unless at the time such account is established it is subject to Lender’s exclusive Control.  The provisions of this Section 4.10 shall not apply to Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of a Grantor's salaried employees; provided that the funds on deposit in such Deposit Accounts shall at no time exceed the actual payroll, payroll taxes and other employee wage and benefit payments then owing by such Grantor for the immediately succeeding payroll period.

 

4.11. Commercial Tort Claims.  If any Grantor (other than Borrower) at any time holds or acquires a Commercial Tort Claim in an amount in excess of $[_________], such Grantor shall (a) immediately forward to Lender written notification of any and all Commercial Tort Claims, including any and all actions, suits and proceedings before any court or Governmental Authority by or affecting such Grantor; and (b) execute and deliver such statements, Documents and notices and do and cause to be done all such things as may be required by Lender, or required by law, including all things which may from time to time be necessary under the UCC to fully create, preserve, perfect and protect the priority of Lender’s security interest in any Commercial Tort Claims.

 

4.12. Letters-of-Credit Rights.  If any Grantor (other than Borrower) is at any time a beneficiary under a letter of credit now or hereafter issued in favor of any Grantor in an amount in excess of $[_________], such Grantor shall promptly notify Lender thereof in writing and, at Lender’s request, such Grantor shall, pursuant to an agreement in form and substance satisfactory to Lender, either (a) arrange for the issuer or any confirmer of such letter of credit to consent to an assignment to Lender of the Proceeds of any drawing under the letter of credit or (b) arrange for Lender to become the transferee beneficiary of the letter of credit, with Lender agreeing, in each case, that the Proceeds of any drawing under the letter of credit are to be applied to the Secured Obligations as provided in the Note Agreements.

 

4.13. Fixtures.  For any Collateral that is a Fixture or an accession which has been attached to real estate or other goods prior to the perfection of the security interest of Lender, the applicable Grantor (other than Borrower) shall furnish Lender, upon reasonable demand, a disclaimer of interest in each such Fixture or accession and a consent in writing to the security interest of Lender therein, signed by all persons having any interest in such Fixture or accession by virtue of any interest in the real estate or other goods to which such Fixture or accession has been attached.

 

  

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4.14. Federal, State or Municipal Claims.  Each Grantor will notify Lender of any Collateral which constitutes a claim against a Governmental Authority, or any instrumentality or agency thereof, the assignment of which claim is restricted by federal, state or municipal law.

 

4.15. Warehouse Receipts Non-Negotiable.  Each Grantor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its inventory, such warehouse receipt or receipt in the nature thereof shall not be “negotiable” (as such term is used in Section 7-104 of the UCC).

 

4.16. Mortgagee’s and Landlord Waivers.  Each Grantor (other than Borrower) shall cause each mortgagee of real property owned by such Grantor (upon request by Lender) and each landlord of real property leased by such Grantor to execute and deliver Instruments satisfactory in form and substance to Lender by which such mortgagee or landlord waives their rights, if any, in the Collateral and permits Lender to enter the subject property on and after the occurrence of an Event of Default.

 

4.17. Lockboxes  Upon request of Lender, each Grantor (other than Borrower) shall execute and deliver to Lender irrevocable lockbox agreements in the form provided by or otherwise acceptable to Lender, which agreements shall be accompanied by an acknowledgment by the bank where the lockbox is located of the Lien of Lender granted hereunder and of irrevocable instructions to wire all amounts collected therein to a special collateral account as determined by Lender.

 

4.18. Use and Operation of Collateral.  Should any Collateral come into the possession of Lender, Lender may use or operate such Collateral for the purpose of preserving it or its value, pursuant to the order of a court of appropriate jurisdiction or in accordance with any other rights held by Lender in respect of such Collateral.  Each Grantor covenants to promptly reimburse and pay to Lender, at Lender’s request, the amount of all expenses (including the cost of any insurance and payment of taxes or other charges) incurred by Lender in connection with its custody and preservation of the Collateral, and all such expenses, costs, taxes, and other charges shall bear interest at the default interest rate until repaid and, together with such interest, shall be payable by Grantors to Lender upon demand and shall become part of the Secured Obligations. However, the risk of accidental loss or damage to, or diminution in value of, the Collateral is on Grantors, and Lender shall have no liability whatever for failure to obtain or maintain insurance, nor to determine whether any insurance ever in force is adequate as to amount or as to the risks insured. With respect to the Collateral that is in the possession of Lender, Lender shall have no duty to fix or preserve rights against prior parties to such Collateral and shall never be liable for any failure to use diligence to collect any amount payable in respect of such Collateral, but shall be liable only to account to Grantors for what it may actually collect or receive thereon. The provisions of this subparagraph are applicable whether or not an Event of Default has occurred.

 

4.19. Certain Proceeds.  Notwithstanding any contrary provision herein, any and all Proceeds of any Collateral consisting of cash, checks and other non-cash items shall be part of the Collateral hereunder, and shall, if received by any Grantor, be held in trust for the benefit of Lender, and shall forthwith be delivered to Lender (accompanied by proper instruments of assignment and/or stock and/or bond powers executed by such Grantor in accordance with Lender’s instructions) to be held subject to the terms of this Security Agreement.  Any cash Proceeds of the Collateral which come into the possession of Lender on and after the occurrence and during the continuance of an Event of Default (including insurance Proceeds) may, at Lender’s option, be applied in whole or in part to the Secured Obligations (to the extent then due), be released in whole or in part to or on the written instructions of such Grantor for any general or specific purpose, or be retained in whole or in part by Lender as additional Collateral.  The provisions of this subparagraph are applicable whether or not an Event of Default has occurred.

 

  

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4.20. Further Assurances.  At any time and from time to time, upon the reasonable request (in writing) of Lender, and at the sole expense of Grantors, each Grantor shall promptly execute and deliver all such further Instruments and Documents and take such further actions as Lender may deem reasonably necessary or desirable (a) to assure Lender that its security interests hereunder are perfected with a first priority Lien, and (b) to carry out the provisions and purposes of this Security Agreement, including (i) filing such financing statements as Lender may require, (ii) executing control agreements with respect to the Collateral, in each case naming Lender, as secured party, in form and substance reasonably satisfactory to Lender, (iii) furnishing to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail, and (iv) taking all actions required by law in any relevant UCC, or by other law as applicable in any foreign jurisdiction, such Grantor shall use its best efforts to obtain any required consents from any Person other than Borrower and its Affiliates with respect to any permit or license or any Contractual Obligation with such Person entered into by such Grantor that requires such consent as a condition to the creation by such Grantor of a Lien on any right, title or interest in such permit, license or Contractual Obligation related thereto.  A carbon, photographic, or other reproduction of this Security Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement.

 

4.21. Additional Grantors. Upon the execution and delivery by any person of a security agreement supplement in form and substance satisfactory to Lender (each a “Security Agreement Supplement”), (a) such person shall be and become a Grantor hereunder and each reference in this Security Agreement and the other Note Agreements to “Grantor” shall also mean and be a reference to such person, and (b) the supplemental Schedules3.5, 3.6, 3.10, and 3.17 attached to each Security Agreement Supplement shall be incorporated into and become a part of Schedules 3.5, 3.6, 3.10, and 3.17 respectively, hereto, and Lender may attach such supplemental exhibits to such Schedules; each reference to such Schedules means a reference to such Schedules as supplemented pursuant to each Security Agreement Supplement.

 

5. REMEDIES UPON EVENT OF DEFAULT

 

5.1. Remedies.  On and after the occurrence of an Event of Default, Lender may (but subject to the terms of the Note Agreements) exercise any or all of the following rights and remedies:

 

(a) Contractual Remedies. Those rights and remedies provided in this Security Agreement, the Note, or any other Note Agreement, provided that this Section 5.1(a) shall not limit any rights or remedies available to Lender prior to the occurrence of an Event of Default.

 

(b) Legal Remedies.  Those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a debtor is in default under a security agreement.

 

(c) Disposition of Collateral.  Without notice except as specifically provided in Section 5.2(c) or elsewhere herein, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery, and upon such other terms as Lender may deem commercially reasonable. Neither Lender’s compliance with any applicable state or federal law in the conduct of such sale, nor its disclaimer of any warranties relating to the Collateral, shall be considered to affect the commercial reasonableness of such sale. Each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

 

  

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(d) Distributions. On and after the occurrence of an Event of Default, all payments and distributions made to any Grantor upon or with respect to the Collateral shall be paid or delivered to Lender, and each Grantor agrees to take all such action as Lender may deem necessary or appropriate to cause all such payments and distributions to be made to Lender.  Further, Lender shall have the right, at any time after the occurrence of any Event of Default, to notify and direct any issuer to thereafter make all payments, dividends, and any other distributions payable in respect thereof directly to Lender.  Such issuer shall be fully protected in relying on the written statement of Lender that it then holds a security interest which entitles it to receive such payments and distributions.  Any and all Money and other property paid over to or received by Lender hereunder shall be retained by Lender as additional collateral hereunder and may be applied in accordance with Section 5.10 hereof.

 

(e) Use of Premises.  Lender shall be entitled to occupy and use any premises owned or leased by any Grantor where any of the Collateral or any records relating to the Collateral are located until the Secured Obligations are paid or the Collateral is removed therefrom, whichever first occurs, without any obligation to pay such Grantor for such use and occupancy.

 

5.2. Grantors’ Obligations Upon Event of Default.  Upon the request of Lender on and after the occurrence of an Event of Default, each Grantor will:

 

(a) Assembly of Collateral.  Assemble and make available to Lender the Collateral and all records relating thereto at any place or places specified by Lender.

 

(b) Lender Access.  Permit Lender, by Lender’s representatives and agents, to enter any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral and to remove all or any part of the Collateral.

 

(c) Notice of Disposition of Collateral.  Each Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made.  To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to any Grantor, addressed as set forth in Section 6.13, at least ten (10) days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made. Lender shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given.  Subject to the provisions of applicable law, Lender may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by law, be made at the time and place to which the sale was postponed, or Lender may further postpone such sale by announcement made at such time and place.

 

5.3. Condition of Collateral; Warranties.  Lender has no obligation to clean-up or otherwise prepare the Collateral for sale.  Lender may sell the Collateral without giving any warranties as to the Collateral.  Lender may specifically disclaim any warranties of title or the like.  This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

 

  

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5.4. Collection of Receivables.  On and after the occurrence of an Event of Default, Lender may at any time in its sole discretion, by giving Grantors written notice, elect to require that the Receivables be paid directly to Lender.  In such event, each Grantor shall, and shall permit Lender to, promptly notify the Account Debtors under the Receivables of Lender’s interest therein and direct such Account Debtors to make payment of all amounts then or thereafter due under the Receivables directly to Lender.  Upon receipt of any such notice from Lender, each Grantor shall thereafter hold in trust for Lender, all amounts and Proceeds received by it with respect to the Receivables and immediately and at all times thereafter deliver to Lender all such amounts and Proceeds in the same form as so received, whether by cash, check, draft or otherwise, with any necessary endorsements.  Lender shall hold and apply funds so received as provided by the terms of Section 5.10.  If after the occurrence of an Event of Default, any Account Debtor fails or refuses to make payment on any Collateral when due, Lender is authorized, in its sole discretion, either in its own name or in the name of Grantors, to take such action as Lender shall deem appropriate for the collection of any amounts owed with respect to Collateral or upon which a delinquency exists.  Each Grantor agrees that Lender may at any time and from time to time, if an Event of Default has occurred, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as Lender in its sole discretion shall determine or abandon any Receivable, and any such action by Lender shall be commercially reasonable so long as Lender acts in good faith based on information known to it at the time it takes any such action. Regardless of any other provision hereof, however, Lender shall never be liable for its failure to collect, or for its failure to exercise diligence in the collection of, any amounts owed with respect to Collateral, nor shall it be under any duty whatsoever to anyone except Grantors to account for funds that it shall actually receive hereunder.

 

5.5. Cash Collateral Account.  On and after the occurrence of an Event of Default, Lender shall have, and each Grantor hereby grants to Lender, the right and authority to transfer all funds on deposit in the Deposit Accounts to a “Cash Collateral Account” (herein so called) maintained with a depository institution acceptable to Lender and subject to the exclusive direction, domain, and Control of Lender, and no disbursements or withdrawals shall be permitted to be made by any Grantor from such Cash Collateral Account.  Such Cash Collateral Account shall be subject to the security interest in favor of Lender herein created, and each Grantor hereby grants a security interest to Lender in and to, such Cash Collateral Account and all checks, drafts, and other items ever received by any Grantor for deposit therein.  Furthermore, if an Event of Default has occurred, Lender shall have the right, at any time in its discretion without notice to any Grantor, (a) to transfer to or to register in the name of Lender or any other Secured Party or nominee any certificates of deposit or deposit instruments constituting Deposit Accounts and shall have the right to exchange such certificates or Instruments representing Deposit Accounts for certificates or Instruments of smaller or larger denominations and (b) to take and apply against the Obligations any and all funds then or thereafter on deposit in the Cash Collateral Account or otherwise constituting Deposit Accounts.

 

5.6. Intellectual Property.  For purposes of enabling Lender to exercise its rights and remedies under this Security Agreement and enabling Lender and its successors and assigns to enjoy the full benefits of the Collateral, each Grantor hereby grants to Lender an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to any Grantor) to use, license, or sublicense any of the Intellectual Property.  Each Grantor shall provide Lender with reasonable access to all media in which any of the Intellectual Property may be recorded or stored and all computer programs used for the completion or printout thereof.  This license shall also inure to the benefit of all successors, assigns, and transferees of Lender.  On and after the occurrence of an Event of Default, Lender may require that Grantors assign all of their right, title, and interest in and to the Intellectual Property or any part thereof to Lender or such other person as Lender may designate pursuant to Documents satisfactory to Lender.  If no Event of Default has occurred, Grantors shall have the exclusive, non-transferable right and license to use the Intellectual Property in the ordinary course of business and the exclusive right to grant to other persons licenses and sublicenses with respect to the Intellectual Property for full and fair consideration.

 

  

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5.7. Record Ownership of Securities. On and after the occurrence of an Event of Default, Lender may have any Collateral that is Pledged Equity Interests and that is in the possession of Lender, or its nominee or nominees, registered in its name, or in the name of its nominee or nominees, as Lender; and, as to any Collateral that is Pledged Equity Interests so registered, Lender shall execute and deliver (or cause to be executed and delivered) to the applicable Grantor all such proxies, powers of attorney, dividend coupons or orders, and other Documents as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting rights and powers which it is entitled to exercise under this Security Agreement or to receive the dividends and other distributions and payments in respect of such Collateral that is Pledged Equity Interests or Proceeds thereof which it is authorized to receive and retain under this Security Agreement.

 

5.8. Investment Related Property.  Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the “Securities Act”) and applicable state securities laws, Lender may be compelled, with respect to any sale of all or any part of the Investment Related Property conducted without prior registration or qualification of such Investment Related Property under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Related Property for their own account, for investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Lender shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Related Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it.  If Lender determines to exercise its right to sell any or all of the Investment Related Property, upon written request, each Grantor shall and shall cause each issuer of any Pledged Stock to be sold hereunder, each partnership and each limited liability company from time to time to furnish to Lender all such information as Lender may request in order to determine the number and nature of interest, shares or other Instruments included in the Investment Related Property which may be sold by Lender in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder. In case of any sale of all or any part of the Investment Related Property on credit or for future delivery, such Collateral so sold may be retained by Lender until the selling price is paid by the purchaser thereof, but Lender shall not incur any liability in case of the failure of such purchaser to take up and pay for such assets so sold and in case of any such failure, such Collateral may again be sold upon like notice.  Lender, instead of exercising the power of sale herein conferred upon them, may proceed by a suit or suits at law or in equity to foreclose security interests created hereunder and sell such Investment Related Property, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

 

5.9. Sales on Credit.  If Lender sells any of the Collateral upon credit, Grantors will be credited only with payments actually made by the purchaser, received by Lender, and applied to the indebtedness of the purchaser.  In the event the purchaser fails to pay for the Collateral, Lender may resell the Collateral and Grantors shall be credited with the Proceeds of the sale.

 

5.10. Application of Proceeds.  On and after the occurrence of an Event of Default, the Proceeds of the Collateral shall be applied by Lender to payment of the Secured Obligations in accordance with the terms and conditions of the Note Agreements. If the Proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantors shall be liable for the deficiency and the fees of any attorneys employed by Lender to collect such deficiency.

 

  

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5.11. Power of Attorney.  Each Grantor hereby appoints Lender and Lender’s designee as its attorney, with power: (a) on and after the occurrence of an Event of Default, to endorse such Grantor’s name on any checks, notes, acceptances, money orders, or other forms of payment or security that come into Lender’s possession; (b) to sign such Grantor’s name on any invoice, bill of lading, warehouse receipt, or other negotiable or non-negotiable Document constituting Collateral, on drafts against customers, on assignments of Accounts, on notices of assignment, financing statements, and other public records, and to file any such financing statements by electronic means with or without a signature as authorized or required by applicable law or filing procedure; (c) so long as any Event of Default has occurred, to notify the post office authorities to change the address for delivery of any Grantor’s mail to an address designated by Lender and to receive, open, and dispose of all mail addressed to any Grantor; (d) to send requests for verification of Accounts to customers or Account Debtors; (e) to complete in any Grantor’s name or Lender’s name, any order, sale, or transaction, obtain the necessary Documents in connection therewith, and collect the Proceeds thereof; (f) to clear Inventory through customs in any Grantor’s name, Lender’s name, or the name of Lender’s designee, and to sign and deliver to customs officials powers of attorney in any Grantor’s name for such purpose; (g) to the extent that any Grantor’s authorization given in Section 2.3 of this Security Agreement is not sufficient, to file such financing statements with respect to this Security Agreement or to file a photocopy of this Security Agreement in substitution for a financing statement, as Lender may deem appropriate; and (h) subject to the terms and conditions of this Security Agreement and, if applicable, after Lender has determined that any Grantor has failed to take any action required under the Note Agreements, this Security Agreement or any other Note Agreement, to do all things reasonably necessary to carry out the terms and conditions of the Note Agreements and this Security Agreement.  Each Grantor ratifies and approves all acts of such attorney.  No Secured Party nor its attorneys will be liable for any acts or omissions or for any error of judgment or mistake of fact or law except for such Secured Party’s willful misconduct or gross negligence as determined by a court of competent jurisdiction in final and nonappealable judgment.  This power, being coupled with an interest, is irrevocable until this Security Agreement is terminated in accordance with Section 6.16.

 

6. GENERAL PROVISIONS

 

6.1. Joint and Several Obligations of Grantors.

 

(a) Each Grantor is accepting joint and several liability hereunder with other persons that have executed or will execute a Security Agreement in consideration of the financial accommodation to be provided by the holders of the Secured Obligations, for the mutual benefit, directly and indirectly, of each Grantor and in consideration of the undertakings of each Grantor to accept joint and several liability for the Obligations of each of them.

 

(b) Each Grantor jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Grantors with respect to the payment and performance of all of the Secured Obligations, it being the intention of the parties hereto that all the Secured Obligations shall be the joint and several Obligations of each Grantor without preferences or distinction among them.

 

  

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6.2. Limitation of Obligations.

 

(a) The provisions of this Security Agreement are severable, and in any action or proceeding involving any applicable law affecting the rights of creditors generally, if the Obligations of any Grantor under this Security Agreement would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Grantor’s liability under this Security Agreement, then, notwithstanding any other provision of this Security Agreement to the contrary, the amount of such liability shall, without any further action by Grantors or Lender, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Grantor’s “Maximum Liability”).  This Section 6.2 with respect to the Maximum Liability of each Grantor is intended solely to preserve the rights of Lender hereunder to the maximum extent not subject to avoidance under applicable law, and none of Grantors or any other Person shall have any right or claim under this Section 6.2(a) with respect to the Maximum Liability, except to the extent necessary to ensure that the Obligations of Grantors hereunder shall not be rendered voidable under applicable law.

 

(b) Each Grantor agrees that the Secured Obligations may at any time and from time to time exceed the Maximum Liability of such Grantor, and may exceed the aggregate Maximum Liability of all other Grantors, without impairing this Security Agreement or affecting the rights and remedies of Lender.  Nothing in this Section 6.2(b) shall be construed to increase any Grantor’s Obligations hereunder beyond its Maximum Liability.

 

(c) Notwithstanding any or all of the Secured Obligations becoming unenforceable against any Grantor or the determination that any or all of the Secured Obligations shall have become discharged, disallowed, invalid, illegal, void or otherwise unenforceable as against any Grantor (whether by operation of any present or future law or by order of any court or governmental agency), the Secured Obligations shall, for the purposes of this Security Agreement, continue to be outstanding and in full force and effect.

 

6.3. NO RELEASE OF GRANTORS.  THE OBLIGATIONS OF GRANTORS UNDER THIS SECURITY AGREEMENT SHALL NOT BE REDUCED, LIMITED OR TERMINATED, NOR SHALL GRANTORS BE DISCHARGED FROM ANY OBLIGATION HEREUNDER, FOR ANY REASON WHATSOEVER (other than pursuant to Section 6.16), including (and whether or not the same shall have occurred or failed to occur once or more than once and whether or not Grantors shall have received notice thereof):

 

(a) (i) any increase in the principal amount of, or interest rate applicable to, (ii) any extension of the time of payment, observance or performance of, (iii) any other amendment or modification of any of the other terms and provisions of, (iv) any release, composition or settlement (whether by way of acceptance of a plan of reorganization or otherwise) of, (v) any subordination (whether present or future or contractual or otherwise) of, or (vi) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, the Secured Obligations;

 

(b) (i) any failure to obtain, (ii) any release, composition or settlement of, (iii) any amendment or modification of any of the terms and provisions of, (iv) any subordination of, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, any Note Agreements;

 

  

29

  

 

(c) (i) any failure to obtain or any release of, any failure to protect or preserve, (ii) any release, compromise, settlement or extension of the time of payment of any Obligations constituting, (iii) any failure to perfect or maintain the perfection or priority of any Lien upon, (iv) any subordination of any Lien upon, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of any Lien or intended Lien upon, any collateral now or hereafter securing, the Secured Obligations or any other guaranties thereof;

 

(d) any termination of or change in any relationship between Grantors and any Secured Party or the addition or release of any Grantor;

 

(e) any exercise of, or any failure or election not to exercise, delay in the exercise of, waiver of, or forbearance of or other indulgence with respect to, any right, remedy or power available to any Secured Party, including (i) any election not to or failure to exercise any right of setoff, recoupment or counterclaim, (ii) any election of remedies effected by Lender, including the foreclosure upon any real estate constituting collateral, whether or not such election affects the right to obtain a deficiency judgment, and (iii) any election by Lender in any proceeding under the Bankruptcy Code of the application of Section 1111(b)(2) of the Bankruptcy Code; and

 

(f) ANY OTHER ACT OR FAILURE TO ACT OR ANY OTHER EVENT OR CIRCUMSTANCE THAT (i) VARIES THE RISK OF GRANTORS UNDER THIS SECURITY AGREEMENT OR (ii) BUT FOR THE PROVISIONS HEREOF, WOULD, AS A MATTER OF STATUTE OR RULE OF LAW OR EQUITY, OPERATE TO REDUCE, LIMIT OR TERMINATE THE OBLIGATIONS OF GRANTORS HEREUNDER OR DISCHARGE GRANTORS FROM ANY OBLIGATION HEREUNDER.

 

6.4. Subordination of Certain Claims.  Any and all rights and claims of Grantors against Borrower or against any other Person or property, arising by reason of any payment by any Grantors to any Secured Party pursuant to the provisions, or in respect, of this Security Agreement shall be subordinate, junior and subject in right of payment to the prior and indefeasible payment in full of all Secured Obligations, and until such time, Grantors defer all rights of subrogation, contribution or any similar right and until such time agree not to enforce any such right or remedy Grantors may now or hereafter have against Borrower, any endorser or any other Grantor of all or any part of the Secured Obligations and any right to participate in, or benefit from, any security given to Lender to secure any of the Secured Obligations.  All Liens and security interests of Grantors, whether now or hereafter arising and howsoever existing, in assets of Borrower or any assets securing the Secured Obligations shall be and hereby are subordinated to the rights and interests of Lender and in those assets until the prior and indefeasible final payment in full of all Secured Obligations.  If any amount shall be paid to Grantors contrary to the provisions of this Section 6.4 at any time when any of the Secured Obligations shall not have been indefeasibly paid in full, such amount shall be held in trust for the benefit of Lender and shall forthwith be turned over in kind in the form received to Lender (duly endorsed if necessary) to be credited and applied against the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Note Agreements.

 

6.5.  Recovered Payments. The Secured Obligations shall be deemed not to have been paid, observed or performed, and Grantors’ Obligations under this Security Agreement in respect thereof shall continue and not be discharged, to the extent that any payment, observance or performance thereof by any Grantor is recovered from or paid over by or for the account of Lender for any reason, including as a preference or fraudulent transfer or by virtue of any subordination (whether present or future or contractual or otherwise) of the Secured Obligations, whether such recovery or payment over is effected by any judgment, decree or order of any court or governmental agency, by any plan of reorganization or by settlement or compromise by Lender (whether or not consented to by Grantors) of any claim for any such recovery or payment over.  Each Grantor hereby expressly waives the benefit of any applicable statute of limitations and agrees that it shall be liable hereunder whenever such a recovery or payment over occurs.

 

  

30

  

 

6.6. No Waiver. No delay or omission of Lender to exercise any right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a waiver of any Event of Default, or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy.  No waiver, amendment or other variation of the terms, conditions or provisions of this Security Agreement whatsoever shall be valid unless in writing signed by Lender and then only to the extent in such writing specifically set forth.  All rights and remedies contained in this Security Agreement or by law afforded shall be cumulative and all shall be available to any Secured Party until the Secured Obligations have been paid in full.

 

6.7. Lender Performance of Grantors’ Obligations.  Without having any obligation to do so, Lender may perform or pay any Obligation which any Grantor has agreed to perform or pay in this Security Agreement and each Grantor shall, jointly and severally, reimburse Lender for any amounts paid by Lender pursuant to this Section 6.7.  Each Grantor’s Obligation to reimburse Lender pursuant to the preceding sentence shall be a Secured Obligation payable on demand.

 

6.8. Specific Performance of Certain Covenants.  Each Grantor acknowledges and agrees that a breach of any of the covenants contained in Sections 4.2(d), 4.2(f), 4.9, 4.17, 5.4, 5.5, 5.6, 5.10, 5.11, or 6.9 will cause irreparable injury to the Lender, that the Lender have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Lender to seek and obtain specific performance of other Obligations of such Grantor contained in this Security Agreement, that the covenants of such Grantor contained in the Sections referred to in this Section 6.8 shall be specifically enforceable against such Grantor.

 

6.9. Dispositions Not Authorized.  No Grantor is authorized to sell or otherwise dispose of the Collateral except as set forth in Section 4.2(e) and notwithstanding any course of dealing between any Grantor and Lender or other conduct of Lender, no authorization to sell or otherwise dispose of the Collateral (except as set forth in Section 4.2(e)) shall be binding upon Lender unless such authorization is in writing signed by Lender.

 

6.10. Waivers.  Except to the extent expressly otherwise provided herein or in other Note Agreements and to the fullest extent permitted by applicable law, each Grantor waives (a) any right to require Lender to proceed against any other Person, to exhaust its rights in Collateral, or to pursue any other right which Lender may have; (b) with respect to the Secured Obligations, presentment and demand for payment, protest, notice of protest and nonpayment, notice of intent to accelerate, and notice of acceleration; and (c) all rights of marshaling in respect of any and all of the Collateral.

 

6.11. Benefit of Agreement.

 

(a) The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of Grantors, Lender and their respective successors and assigns, except that no Grantor shall have the right to assign its rights or delegate its Obligations under this Security Agreement or any interest herein, without the prior written consent of Lender.

 

(b) Lender is the agent for each Secured Party, the security interest granted hereunder and all rights granted to Lender hereunder or in connection herewith are for the benefit of each Secured Party, and Lender may, subject to the terms and conditions of the Note Agreements, without the joinder of any Secured Party, exercise any and all rights in favor of Lender or Lender hereunder, including, without limitation, conducting any foreclosure sales hereunder, and executing full or partial releases hereof, amendments or modifications hereto, or consents or waivers hereunder.  The rights of Lender are subject to the Note Agreements and may (to the extent permitted under the Note Agreements) be subject to one or more separate agreements between or among such parties, but no Grantor need inquire about any such agreement or be subject to any terms thereof unless such Grantor specifically joins therein; and consequently, no Grantor nor any Grantor’s successors or assigns shall be entitled to any benefits or provisions of any such separate agreements or be entitled to rely upon or raise as a defense, in any manner whatsoever, the failure or refusal of any party thereto to comply with the provisions thereof except to the extent the Borrower’s consent is expressly required under the Note Agreements to consent to certain amendments thereunder.

 

  

31

  

 

6.12. Survival.  All representations and warranties of each Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement. Without prejudice to the survival of any other Obligation of each Grantor hereunder, the Obligations of each Grantor under Sections 6.14 and 6.18 shall survive termination of this Security Agreement.

 

6.13. Sending Notices.  All demands, notices and other communications provided for hereunder shall be in writing, and shall be delivered in the same manner and on the same terms as provided for in the Note Agreements, with any notices to any Grantor to be given at its address set forth on Schedule 3.5 hereto, and in the case of any Secured Party, set forth in the Note Agreements.

 

6.14. Taxes and Expenses.  Any taxes (including income taxes) payable or ruled payable by federal or state authority in respect of this Security Agreement shall be paid by each Grantor, together with interest and penalties, if any.  Grantors shall jointly and severally reimburse Lender for any and all reasonable out-of-pocket expenses (including reasonable attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals, auditors and accountants) paid or incurred by Lender in connection with the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). In addition, Grantors shall be jointly and severally obligated to pay all of the costs and expenses incurred by Lender, including attorneys’ fees and court costs, in obtaining or liquidating the Collateral, in enforcing payment of the Secured Obligations, or in the prosecution or defense of any action or proceeding by or against Lender or any Grantor concerning any matter arising out of or connected with this Security Agreement, any Collateral or the Secured Obligations, including any of the foregoing arising in, arising under or related to a case under any bankruptcy, insolvency or similar law.   Any and all costs and expenses incurred by each Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by such Grantor.

 

6.15. Headings.  The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.

 

6.16. Termination.  This Security Agreement shall continue in effect (notwithstanding the fact that from time to time there may be no Secured Obligations outstanding) until (a) the Note has terminated pursuant to its express terms and (b) all of the Secured Obligations have been indefeasibly paid and performed in full (other than unasserted contingent indemnification obligations) and no commitments of Lender which would give rise to any Secured Obligations are outstanding; provided that the termination of this Security Agreement under this Section 6.16 is subject to Section 6.5.

 

  

32

  

 

6.17. GOVERNING LAW.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

 

6.18. Indemnity.  Each Grantor does hereby assume all liability for the Collateral, for the security interest of Lender, and for any use, possession, maintenance, and management of, all or any of the Collateral, including any taxes arising as a result of, or in connection with, the transactions contemplated herein, and agrees to assume liability for, and to indemnify and hold Lender and Lender’s Related Parties, successors, assigns, and attorneys harmless from and against, any and all claims, causes of action, or liability, for injuries to or deaths of persons and damage to property, howsoever arising from or incident to such use, possession, maintenance, and management, whether such persons be agents or employees of any Grantor or of third parties, or such damage be to property of any Grantor or of others.  Each Grantor does hereby indemnify, save, and hold Lender and Lender’s Related Parties, successors, assigns, and attorneys harmless from and against, and covenants to defend Lender against, any and all losses, damages, claims, costs, penalties, liabilities, and expenses (collectively, “Claims”), including court costs and attorneys’ fees, and any of the foregoing, ARISING FROM THE NEGLIGENCE OF LENDER OR ANY OF LENDER’S RESPECTIVE RELATED PARTIES, howsoever arising or incurred because of, incident to, or with respect to Collateral or any use, possession, maintenance, or management thereof; provided, however, that the indemnity set forth in this Section 6.18 will not apply to Claims caused by the gross negligence or willful misconduct of Lender or any of Lender’s Related Parties, as determined by a court of competent jurisdiction in final and nonappealable judgment.

 

6.19. FINAL AGREEMENT.  THIS SECURITY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

Remainder of page intentionally left blank.

Signature page to follow.

 

  

33

  

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

 

BORROWER:

 

ELECTRONIC CIGARETTES INTERNATIONAL GROUP, LTD.

 

 

	
  

	
By:

	_____________________________________________	 

 

	
  

	
Name:

 

	
  

	
Title:

 

GRANTORS:

 

FIN BRANDING GROUP, LLC

 

 

	
  

	
By:

	_____________________________________________	 

 

	
  

	
Name:

 

	
  

	
Title:

 

HARDWIRE INTERACTIVE ACQUISITION COMPANY

 

	
  

	
By:

	_____________________________________________	 

 

	
  

	
Name:

 

	
  

	
Title:

 

LENDER:

 

JGB (CAYMAN) CAMBRIDGE LTD.

 

 

	
  

	
By:

	_____________________________________________	 

 

	
  

	
Name:

 

	
  

	
Title:

 

  

  

  

 

SCHEDULE 3.5

 

GRANTOR INFORMATION

 

	
1.  

	
Full Legal Name, Type of Organization, Jurisdiction of Organization, Chief Executive Office / Place of Business (or Residence if Grantor is a Natural Person) and Organizational Identification Number of each Grantor:

 

	
Full Legal Name

	
Type of Organization

	
Jurisdiction of Organization

	
Chief Executive Office / Place

of Business (or Residence if Grantor is a Natural Person)

	
Organization I.D.#

 

	  	  	  	  	  

 

	
2.  

	
Other Names (including any Trade-Name or Fictitious Business Name) under which each Grantor has conducted business for the past five (5) years:

 

	
Full Legal Name

	
Trade Name or Fictitious Business Name

	  	  

 

	
3.  

	
Changes in Name, Jurisdiction of Organization, Chief Executive Office or Sole Place of Business (or Principal Residence if Grantor is a Natural Person) and Corporate Structure within past five (5) years:

 

	
Full Legal Name

	
Trade Name or Fictitious Business Name

	  	  

 

	
4.  

	
Financing Statements:

 

	
Name of Grantor

	
Filing Jurisdiction(s)

	  	  

 

  

  

  

 

SCHEDULE 3.6

 

PROPERTY LOCATIONS

 

	
1.  

	
Locations owned by Grantor

 

	
Name of Grantor

	
Location of Equipment, Inventory, and Fixtures

	  	  

 

	
2.  

	
Locations leased by Grantor as lessee

 

	
Name of Grantor

	
Location of Equipment, Inventory, and Fixtures

	  	  

 

	
3.  

	
Locations at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment

 

	
Name of Grantor

	
Location of Equipment, Inventory, and Fixtures

	  	  

 

  

  

  

 

SCHEDULE 3.10

 

COLLATERAL

 

	
1.  

	
Investment Related Property:

 

Pledged Shares

 

	
Grantor

	
Stock Issuer

	
Class of Stock

	
Certificated (Y/N)

	
Stock Certificate No.

	
Par Value

	
No. of Pledged Stock

	
% of Outstanding Stock of the Stock Issuer

	  	  	  	  	  	  	  	  

 

Pledged Partnership Interests (Limited Liability Companies)

 

	
Grantor

	
Limited Liability Company

	
Certificated (Y/N)

	
Certificate No. (if any)

	
No. of Pledged Units

	
% of Outstanding LLC Interests of the Limited Liability Company

	  	  	  	  	  	  

 

Pledged Partnership Interests (Partnerships)

 

	
Grantor

	
Partnership

	
Type of Partnership Interests (e.g., general or limited)

	
Certificated (Y/N)

	
Certificate No.

(if any)

	
% of Outstanding Partnership Interests of the Partnership

	  	  	  	  	  	  

 

Securities Accounts

 

	
Grantor

	
Share of Securities Intermediary

	
Account Number

	
Account Name

	  	  	  	  

 

Commodity Accounts

 

	
Grantor

	
Name of Commodities Intermediary

	
Account Number

	
Account Name

	  	  	  	  

 

  

  

  

 

	
2.  

	
Deposit Accounts:

 

	
Grantor

	
Name of Depositary Bank

	
Account Number

	
Account Name

	  	  	  	  

 

	
3.  

	
Collateral Notes:

 

	
Grantor

	
Issuer

	
Original Principal Amount

	
Outstanding Principal Balance

	
Issue Date

	
Maturity Date

	  	  	  	  	  	  

 

	
4.  

	
Collateral Note Security:

 

	
Name of Grantor

	
Collateral Notes Secured

	
Description of Collateral Note Security

	  	  	  

 

	
5.  

	
Commercial Tort Claims:

 

	
Name of Grantor

	
Commercial Tort Claims

	  	  

 

	
6.  

	
Material Agreements:

 

	
Name of Grantor

	
Material Agreements

	  	  

 

	
7.  

	
Letters of Credit:

 

	
Name of Grantor

	
Description of Letters of Credit

	  	  

 

  

  

  

 

SCHEDULE 3.17

 

INTELLECTUAL PROPERTY

 

PATENTS AND PATENT LICENSES

 

	
1.  

	
Patents

 

	
Country

	
Patent No.

	
Issue Date

	
Inventor(s)

	
Title

	  	  	  	  	  
	
Pending Patent Applications

	
Country

	
Serial No.

	
Filing Date

	
Inventor(s)

	
Title

	  	  	  	  	  
	
Patent Applications in Preparation

	
Country

	
Docket No.

	
Expected

Filing Date

	
Inventor(s)

	
Title

	  	  	  	  	  

 

	
2.  

	
Patent Licenses

 

	
Country or

Territory

	
Licensor

	
Licensee

	
Effective

Date

	
Expiration

Date

	
Subject

Matter

	  	  	  	  	  	  

 

TRADEMARKS AND TRADEMARK LICENSES

 

 

	
3.  

	
Trademarks

 

	
Registered Trademarks

	
Country

	
Trademark

	
Registration No.

	
Registration Date

	  	  	  	  
	
Pending Trademark Applications

	
Country

	
Trademark

	
Serial No.

	
Filing Date

	  	  	  	  
	
Trademark Applications in Preparation

	
Country

	
Trademark

	
Docket No.

	
Expected

Filing Date

	
Products/

Services

	  	  	  	  	  

 

  

  

  

 

	
4.  

	
Trademark Licenses

 

	
Country or

Territory

	
Trademark

	
Licensor

	
Licensee

	
Effective

Date

	
Expiration

Date

	  	  	  	  	  	  

 

COPYRIGHTS AND COPYRIGHT LICENSES

 

 

	
5.  

	
Copyrights/Mask Works

 

	
Registered Copyrights/Mask Works

	
Country

	
Registration No.

	
Registration Date

	
Author(s)

	
Title

	  	  	  	  	  
	
Copyright/Mask Work Pending Registration Applications

	
Country

	
Serial No.

	
Filing Date

	
Author(s)

	
Title

	  	  	  	  	  
	
Copyright/Mask Work Registration Applications in Preparation

	
Country

	
Docket No.

	
Expected

Filing Date

	
Author(s)

	
Title

	  	  	  	  	  

 

	
6.  

	
Copyright/Mask Work Licenses

 

	
Country or Territory

	
Licensor

	
Licensee

	
Effective

Date

	
Expiration

Date

	  	  	  	  	  

 

TRADE SECRETS AND TRADE SECRET LICENSES

 

 

	
7.  

	
Trade Secrets

 

	
Name of Grantor

	
Description of Trade Secrets

	  	  

 

	
8.  

	
Trade Secret Licenses

 

	
Trade Secrets

	
Licensor

	
Licensee

	
Effective

Date

	
Expiration

Dateecig_ex102.htm

Exhibit 10.2

 

AMENDMENT NO. 3

TO

SECURITIES PURCHASE AGREEMENT

AND CLOSING CERTIFICATE

THIS AMENDMENT NO. 3 TO THE SECURITIES PURCHASE AGREEMENT and Closing Certificate (this “Amendment”) is made and entered into as of October 14, 2014 by and among Electronic Cigarettes International Group, Ltd. (f/k/a Victory Electronic Cigarettes Corp.), a Nevada corporation (the “Company”), Must Have Limited, a limited liability company incorporated in England and Wales with company number 05101019 (“Must Have”), FIN Branding Group, LLC, an Illinois limited liability company (“FIN”), Hardwire Interactive Acquisition Company, a Delaware corporation and wholly-owned subsidiary of the Company (“Hardwire”), VCIG LLC (“VCIG”) and JGB (Cayman) Cambridge Ltd. (“JGB” or the “Purchaser”).

WHEREAS, the Company and the Purchaser entered into a Securities Purchase Agreement, dated as of April 22, 2014 (as amended, restated, supplemented or otherwise modified from time to time in accordance with its provisions, the “Purchase Agreement”). Capitalized terms used herein but not otherwise defined herein shall have the respective meanings given such terms in the Purchase Agreement;

WHEREAS, the Purchaser intends to make an additional advance to the Company in an amount equal to $5,000,000 and in consideration therefore the Company shall increase the principal amount of the Note by $5,500,000, in each case, in accordance with the terms of this Amendment;

WHEREAS, as an inducement to the Purchaser to make the additional advance, each of FIN Branding Group, LLC (“FIN”), VCIG LLC (“VCIG”) and Hardwire Interactive Acquisition Company (“Hardwire”) will enter into an unconditional guaranty of all of the Company’s obligations under the Notes and the other Transaction Documents (together, the “Subsidiary Guarantees”);

WHEREAS, as an additional inducement to the Purchaser to make the additional advance, the Company will pledge 100% of the equity interests of Hardwire and VCIG to the Purchaser and VCIG will pledge 100% of the equity interests of FIN as additional security for its obligations under the Notes and the other Transaction documents and each of FIN, Hardwire and VCIG shall grant the Purchaser a first priority security interest in all of their respective assets as security for their obligations under the Subsidiary Guarantees all pursuant to a Pledge and Security Agreement by and among the Company, FIN, Hardwire, VCIG and the Purchasers (collectively with all agreements and instruments required to be executed and delivered by the Company, FIN and/or Hardwire thereunder, the “Security Agreement”), which shall be acceptable to the Purchaser in form and substance;

WHEREAS, the parties hereto desire to amend the Purchase Agreement on the terms and subject to the conditions set forth herein; and

 

  

  

  

WHEREAS, pursuant to Section 6.3 of the Purchase Agreement, the amendments requested by the Company must be contained in a written agreement signed by the Company and Purchaser.

NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1. Definitions. Capitalized terms used and not defined in this Amendment shall have the respective meanings given them in the Purchase Agreement.  In addition, the definitions of “Security Documents” and “Transaction Documents” set forth in the Purchase Agreement are deemed amended to include the Subsidiary Guarantees and the Security Agreement and the Amended Security Documents (as defined in the Deed of Amendment (the “Deed of Amendment”), dated October 14, 2014, by and among Must Have, the Purchaser, JGB Collateral LLC and subordinated creditors signatory thereto) as, in each case, such documents and agreements may be amended, modified or supplemented from time to time.

 

2. Section 1.3.  Section 1.3 of the Purchase Agreement is hereby amended by (i) deleting the reference to “$7,000,000” in the last line of Section 1.3(a) and replacing it with “$12,000,000” and (ii) inserting the following new paragraphs immediately after paragraph (e) in Section 1.3:

“(f)           Subject to the terms and conditions of this Agreement, the Company shall issue and sell to each Purchaser, and each Purchaser severally, but not jointly, agrees to purchase from the Company, on the Third Incremental Loan Closing Date (as defined below) Incremental Loan Notes in the principal amount of $5,500,000 (the “Third Tranche”) for an aggregate purchase price of up to $5,000,000 (the “Third Tranche Purchase Price”).  In connection with the foregoing, the Company and the Purchasers have entered into a Third Amendment to the Notes in substantially the form attached hereto as Exhibit N (the “Third Note Amendment”) to evidence the Third Tranche of Incremental Loan Notes.  The Third Tranche Purchase Price shall reduce the $10,000,000 identified for Acquisition Loans set forth in Section 1.4(a) hereof.

(g)           The closing of the purchase and sale of the Third Tranche of Incremental Loan Notes shall occur on October 14, 2014, or such other date as the parties may mutually agree (the “Third Incremental Loan Closing Date” or “Third Incremental Loan Closing”), provided, that all of the conditions set forth in Article 4.3 and Section 1.3(h) hereof have been satisfied. For all purposes of this Agreement, including without limitation Article 2 hereof, the Third Incremental Loan Closing Date shall be deemed an “Incremental Loan Closing Date” and the Third Incremental Loan Closing shall be deemed an “Incremental Loan Closing.” Each closing contemplated by this paragraph shall take place at the offices of Haynes and Boone, LLP, 30 Rockefeller Plaza, 26th Floor, New York, NY 10112 at 10:00 a.m. New York Time, or at such other time and place as the parties may agree.

(h)           All obligations of the Purchasers with respect to the Third Tranche are subject to the satisfaction, on or before the Third Incremental Loan Closing Date, of the following conditions:

 

  

  

  

 

(i) Accuracy of the Company’s Representations and Warranties.  The representations and warranties of the Company in this Agreement, as amended, the Transaction Documents, as amended (the “Third Tranche Documents” and together with the Purchase Agreement and the Transaction Documents, as amended, restated supplemented or otherwise modified from time to time in accordance with their provisions, the “Loan Transaction Documents”) shall be true and correct in all material respects on and as of the Third Incremental Loan Closing Date as if made on and as of such date, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct in all material respects as of such date. For purposes of determining the Company’s compliance with this condition, only the disclosures in Reports filed prior to September 25, 2014 shall be deemed to be exceptions to the Company’s representations and warranties in Section 2.1;

 

(ii) Performance by the Company; Execution and Delivery.  The Company, Must Have, FIN, VCIG and Hardwire shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the applicable Loan Transaction Documents. The Company, Must Have, FIN, VCIG and Hardwire shall have executed and/or delivered each of the applicable Loan Transaction Documents, including but not limited to the Third Tranche Documents and any amendments to the Transaction Documents or other documents requested by the Purchaser in form and substance satisfactory to the Purchaser;

 

(iii) Amended Note; Other Loan Transaction Documents.  The Company shall have duly executed and delivered to Purchaser the Third Note Amendment. In connection with the foregoing, at or prior to the Third Incremental Loan Closing, the Company shall have delivered to Purchaser each of the following:

 

	
(A)  

	
 a termination and release agreement with respect to the Credit Agreement and all related documents, duly executed by FIN and Wells Fargo Bank, N.A., together with UCC-3 termination statements for all UCC-1 financing statements filed by Wells Fargo Bank, N.A. and covering any portion of the Collateral (as defined in the Security Documents); and

 

	
(B)  

	
 evidence that all other action that Purchaser may deem necessary or desirable in order to perfect the liens created under the Security Documents has been taken (including without limitation landords’ and bailees’ waiver and consent agreements and deposit account control agreements);

 

  

  

  

 

	
(C)  

	
a payoff letter in form and substance satisfactory to the Purchaser, duly executed by Wells Fargo Bank, N.A.;

 

	
(D)  

	
the Subsidiary Guarantees duly executed and delivered by each of FIN, VCIG and Hardwire;

 

	
(E)  

	
the Security Agreement, duly executed by the Company, VCIG, FIN and Hardwire, and any other agreement, instrument or other document required to be executed and delivered by any of them thereunder; and

 

	
(F)  

	
Intercreditor agreement by and among JGB, the Company, FIN, Hardwire, VCIG and Pinnacle Family Office Investments, L.P. and the Pinnacle Noteholders (the “Intercreditor Agreement”).

 

(iv) Establishment of Accounts. A lockbox account shall have been properly established by FIN at Wells Fargo Bank, N.A. in accordance with the terms and conditions of the Security Agreement (the “Lockbox Account”). All necessary and proper account control agreements with respect to such account shall have been duly executed and delivered by FIN and Wells Fargo Bank, N.A.;

 

(v) No Default.  No Event of Default under the Notes shall have occurred or be continuing;

 

(vi) Secretary’s Certificate. The Company shall have delivered to the Purchaser a certificate, signed by the Secretary of the Company and dated as of each Incremental Loan Closing Date, as to (i) the resolutions adopted by its Board of Directors approving the transactions contemplated hereby, (ii) its charter, as in effect at each Incremental Loan Closing Date, (iii) its bylaws, as in effect at each Incremental Loan Closing Date, and (iv) the authority and incumbency of the officers executing the Loan Transaction Documents and any other documents required to be executed or delivered in connection therewith;

 

(vii) Officer’s Certificate. The Company shall have delivered to Purchaser a certificate signed by an executive officer on behalf of the Company, dated as of each Incremental Loan Closing Date, confirming the accuracy of the Company’s representations, warranties and performance of the covenants of the Company, Must Have, FIN and Hardwire as of each Incremental Loan Closing Date and confirming the compliance with the conditions precedent set forth in paragraphs (i)-(vi) and (viii)-(ix) of this Section 1.3(h) as of each Incremental Loan Closing Date;

 

  

  

  

 

(viii) Material Adverse Effect. No change having or that would be expected to have a Material Adverse Effect shall have occurred. Without limiting the generality of the foregoing, the parties agree that a change having a Material Adverse Effect shall be deemed to have occurred if: (1) the Closing Bid Price (as defined in the Note) for the Common Stock on the Principal Market is less than $3.00 per share on any of the twenty consecutive Trading Days prior to the applicable Incremental Loan Closing Date, (2) any event of default under any Indebtedness in excess of $50,000 of the Company or any Subsidiary has occurred or is continuing, or the occurrence or continuance of any event or circumstance that would with the giving of notice result in an acceleration prior to maturity of any such Indebtedness, (3) the Company or any Subsidiary is unable to pay its Indebtedness and other obligations and liabilities as such Indebtedness and other obligations and liabilities come due, (4) the Company or any Subsidiary attempts to arrange a composition, adjustment or restructuring of its Indebtedness and/or other obligations in excess of $500,000 in the aggregate and/or (5) the Company or any Subsidiary is required to make or otherwise subject to any late payments, penalty payments, liquidated damages payments or any other kind of payment that arises as a result of the Company’s or such Subsidiary’s violation or breach of, failure to comply with or default under any instrument evidencing Indebtedness or other contract, in each case, evidencing obligations of the Company in excess of $500,000 in the aggregate, including, without limitation, any registration rights agreement. For all purposes of this Agreement, each of Must Have, FIN and Hardwire shall be deemed a “Subsidiary.”

 

(ix) Approvals. The Company shall have obtained all required consents and approvals of its Board of Directors to deliver and perform all obligations pursuant to the Loan Transaction Documents.”

 

3. Section 2.1. Section 2.1 of the Purchase Agreement is hereby amended by deleting the last sentence of paragraph (a) and replacing it with the following:

“For the purposes of this Agreement, “Material Adverse Effect” means any material adverse effect on the business, operations, properties, prospects, or condition (financial or otherwise) of (i) Must Have, (ii) FIN, (iii) VCIG, (iv) Hardwire, individually, or (v) the Company and its Subsidiaries taken as a whole and/or any condition, circumstance, or situation that would prohibit in any material respect the ability of the Company, Must Have, Hardwire, VCIG or FIN to perform any of their respective obligations under this Agreement or any of the other Transaction Documents (as defined below) in any material respect.”

 

4. Section 3.11.  Section 3.11 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

 

  

  

  

“ 3.11 No Pledge. The Company shall not, and shall cause each Subsidiary not to, create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance, hypothecation or other grant of security interest, whether direct or indirect, voluntary or involuntary or by operation of law on any of the business assets and/or property of Must Have, FIN, VCIG or Hardwire (“Pledge Limitations”) or the Company’s equity interests in Must Have, FIN, VCIG or Hardwire, in each case, without the prior written consent of the Purchasers.  Such Pledge Limitations shall not apply to any Permitted Liens.  “Permitted Liens” shall mean: (i) liens imposed by law for taxes, assessments or charges or levies of any governmental authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) liens of landlords and liens of carriers, warehousemen, suppliers, mechanics, materialmen and other liens in existence on the date hereof or thereafter imposed by law and created in the ordinary course of business; (iii) liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts, statutory obligations and other similar obligations, (iv) easements (including, without limitations, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded) and interest of ground lessors, which do not interfere materially with the ordinary conduct of the business of the Company, (v) letters of credit or deposits in the ordinary course to secure leases, and (v) the liens in the assets of FIN and Hardwire of Pinnacle Family Office Investments, L.P. as collateral agent for the holders of those certain 15% Senior Secured Convertible Promissory Notes in the original aggregate principal amount of $27,375,000 (the “15% Convertible Notes”) issued pursuant to the Amended and Restated Note Purchase Agreement, dated February 28, 2014, subject always to the terms of the Intercreditor Agreement, except to the extent any of the foregoing clauses (i) – (v) would be expected to result in a Material Adverse Effect.”

 

5. Section 3.12.  Section 3.12 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“3.12  Indebtedness. The Company shall cause Must Have, FIN, VCIG and Hardwire not to, directly or indirectly, enter into, create, incur, assume or suffer to exist any Indebtedness of any kind without the prior written consent of the Purchasers other than, solely with respect to Must Have, the Corporate Guarantee of Must Have in favor of David Steven Levin, Melanie Levin, Miguel Carlo Corral and David Ryder, dated April 22, 2014 (the “Must Have Guarantee”).”

 

6. Section 3.13.  Section 3.13 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

“3.13  No Guarantees of Indebtedness. The Company will cause Must Have, FIN, VCIG and Hardwire not to guarantee (directly or indirectly), any Indebtedness of the Company, any Subsidiary or any other person, other than, solely with respect to Must Have, the Must Have Guarantee.”

 

  

  

  

 

7. Section 3.17.  Section 3.17 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

 

“3.17 Restricted Payments. The Company will not, nor will it permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment (as defined herein), except for Restricted Payments made by any Subsidiary to the Company.  Notwithstanding the foregoing, the Company shall not permit or cause Must Have, FIN, VCIG or Hardwire to make any Restricted Payment to the Company or any other direct or indirect parent entity or any other person, and any such payment shall, for the avoidance of doubt, be prohibited by this Section 3.17, without the express prior written consent of the Purchasers or as otherwise provided in the Security Documents.  “Restricted Payments” shall mean for any Person, (a) any dividend or distribution on any class of its capital stock, (b) any payment on account of, or the setting apart of assets for a sinking or other analogous fund, or the purchase, redemption, retirement, defeasance or other acquisition of any shares of its capital stock or any options, warrants, or other rights to purchase its capital stock, whether now or hereafter outstanding and (c) any payment, repayment, redemption, retirement, repurchase or other acquisition, direct or indirect, of, on account of, or in respect of, the principal of any Indebtedness that is subordinated to the obligations arising under the Notes (or any installment thereof) prior to the regularly scheduled payment date thereof (as in effect on the date such Indebtedness was originally incurred or as amended with the prior written consent of the Purchasers).  For the avoidance of doubt, and without limiting the immediately following sentence, any payment of the Loan Notes (as defined in the Acquisition Agreement) or 15% Convertible Notes by the Company with net proceeds from the sale of equity securities pursuant Section 3.24 herein, the Intercreditor Deed and/or the Intercreditor Agreement, as applicable, shall not be deemed a “Restricted Payment” for purposes of this Section 3.17, provided that no Event of Default under the Notes has occurred or is continuing.  In addition, the Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, defease, repurchase, repay or otherwise make any payments (including scheduled payments of principal and interest) in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness, whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, (i) an event constituting an Event of Default has occurred and is continuing, (ii) an event that with the passage of time and without being cured would constitute an Event of Default has occurred and is continuing or (iii) an Event of Default will occur or would reasonably be expected to occur as a result of such redemption, defeasance, repurchase, repayment or other payment.”

 

8. Section 3.21.  Section 3.21 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

 

  

  

  

“3.21  Operations of Must Have, FIN, VCIG and Hardwire.

i. The Company shall not cause or permit Must Have, FIN, VCIG or Hardwire to Transfer any of their assets, business or other property, whether now owned or hereinafter acquired, or issue or sell any Equity Interests of Must Have, FIN or Hardwire to any person (including, without limitation, the Company or any other Subsidiary of the Company), except (i) dispositions of obsolete or worn-out property in the ordinary course of business and (ii) the sale of inventory in the ordinary course of business.  “Transfer” means any sale, assignment, license, pledge, transfer, hypothecation or other disposition, conveyance or encumbrance.

 

ii. The Company shall cause each of Must Have, FIN, VCIG and Hardwire to conduct its business in the ordinary course of business consistent with past practice and for each such entity, shall preserve and maintain intact its current business organization, operations and franchise and preserve the rights, franchises, goodwill and relationships of its employees, customers, suppliers, regulators and others having relationships with each of Must Have, FIN and/or Hardwire.

 

iii. The Company shall not cause or permit (i) either of Must Have, FIN or Hardwire to commingle its assets with the assets of the Company or any other Subsidiary of the Company or otherwise use its assets or other property for the benefit of any other Person (including, without limitation, the Company or any other Subsidiary of the Company), except that the Company shall cause Hardwire to deposit, or cause to be deposited, all of its accounts receivables, revenues, proceeds and other cash into the Lockbox Account, and/or (ii) the business of Must Have, FIN, VCIG or Hardwire to be run through any entity other than Must Have, FIN, VCIG and Hardwire, respectively.

 

iv. The Company will not take any action, or fail to take any action that could materially diminish the business of Must Have, FIN, VCIG or Hardwire or divert the business of Must Have, FIN or Hardwire to any other Person (including, without limitation, the Company or any other Subsidiary).”

 

9. The Purchase Agreement is further amended by replacing sub-clause (2) of clause (ii) of the second sentence of Section 3.23 with the following:

“(2) the lowest of the conversion prices set forth in Section 2(b)(ii) of the Notes, as adjusted pursuant to and in accordance with the terms of the Notes.”

 

10. Section 3.24.  Section 3.24 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:

 

  

  

  

“3.24   Pay Downs of Indebtedness.  Except for the amortization payment due on October 30, 2014 (the “October Amortization Payment”) equal to $263,158 in the aggregate under the terms of the 5% Original Issue Discount Convertible Promissory Note in the principal amount of $4,210,526.33 issued to Dominion Capital LLC on May 30, 2014, neither the Company nor any Subsidiary shall make any payment of principal under any Indebtedness other than with net proceeds from the sale of equity securities of the Company. Notwithstanding the foregoing, at any time on or after November 17, 2014, the Company may make payments pursuant to the terms of the Company’s (i) 5% Original Issue Discount Convertible Promissory Note in the principal amount of $4,210,526.33 issued to Dominion Capital LLC on May 30, 2014, (ii) 5% Original Issue Discount Convertible Promissory Note in the principal amount of $2,105,263.16 issued to Dominion Capital LLC on May 30, 2014, (iii) 5% Original Issue Discount Convertible Promissory Note in the principal amount of $5,263,157.89 issued to Dominion Capital LLC on July 17, 2014 and (iv) 5% Original Issue Discount Convertible Promissory Note in the principal amount of $5,789,473.68 issued to MG Partners II Ltd. on July 17, 2014, in each case as in effect on the date hereof (collectively, the “5% OID Notes”).  For the avoidance of doubt, except for the October Amortization Payment, the Company shall not make any cash payments of principal or any amortization payments under the 5% OID Notes prior to November 17, 2014. For further avoidance of doubt, the Company shall not use any proceeds from the sale of the Notes hereunder (including, without limitation, the First Tranche, Second Tranche or Third Tranche) to make any payments under any such Indebtedness other than to Wells Fargo Bank, N.A. as contemplated by the payoff letter.  The Company agrees that it will not enter into any amendments, waivers, variations or modifications to the 5% OID Notes without the prior written consent of JGB.”

11. The Purchase Agreement is further amended by adding the following as a new Section 3.25:

“3.25 Lockbox Account.  The Company shall cause FIN to maintain, the Lockbox Account and otherwise maintain such account in accordance with the terms the terms of the Security Agreement. The Company and FIN acknowledge and agree that any withdrawal from the Lockbox Account shall require the written authorization of JGB. To the extent that the cash or deposit in the Lockbox Account exceeds $2,000,000, the Company may request in writing to utilize such amount in excess of $2,000,000. The Purchaser may, in its discretion, within five (5) Business Days of such request, authorize the Company to use such excess funds, at the Purchaser’s option, to (i) purchase inventory for FIN or (ii) make advance payment of any Holder Redemption Right for any calendar month subsequent to the calendar month in which such request was made.”

12. Additional Representations and Warranties. The Company, Must Have, FIN, VCIG and Hardwire hereby represent and warrant (before and after giving effect to this Amendment) that:

 

(a) Each of the Company, Must Have, FIN, VCIG and Hardwire has the corporate power and authority, and the legal right, to execute, deliver and perform this Amendment and to enter into the transactions contemplated hereby.

 

  

  

  

 

(b) Each of the Company, Must Have, FIN, VCIG and Hardwire has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment.

 

(c) No consent or authorization of, filing with, notice to or other act by, or in respect of, any Governmental Authority or any other Person is required in connection with this Amendment, or the execution, delivery, performance, validity or enforceability of this Amendment or the transactions contemplated hereby, except consents, authorizations, filings and notices which have been obtained or made and are in full force and effect.

 

(d) Each of the Amended Security Documents (as defined in the Deed of Amendment (the “Deed of Amendment”), dated October 14, 2014, by and among Must Have, the Purchaser, JGB Collateral LLC and subordinated creditors signatory thereto) and each other document and instrument executed and delivered by Must Have in connection therewith, including without limitation the Inter-creditor Deed, the Share Charge, the Senior Debenture and the Senior Guarantee (each as defined in the Deed of Amendment), remains in full force and effect and is a valid, enforceable and subsisting agreement of Must Have.  Must Have represents and warrants on the date of this Amendment by reference to the facts and circumstances existing on that date that all the representations and warranties contained in clause 8 of the Senior Debenture and clause 5 of the Senior Guarantee are true and accurate as if repeated on the date of this Amendment.  Each of Must Have and the Company, as applicable, has performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Deed of Amendment, the Inter-creditor Deed, the Share Charge, the Senior Debenture and the Senior Guarantee and each other document and instrument executed and delivered by Must Have or the Company in connection therewith required to be complied with by Must Have or the Company, as applicable.

 

(e) This Amendment constitutes the legal, valid and binding obligations of the Company, Must Have, FIN, VCIG and Hardwire and are enforceable against the Company, Must Have, FIN and Hardwire in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

 

13. Additional Covenants and Agreements.  At such times as the Purchaser may reasonably request, the Company shall cause its legal counsel to issue one or more legal opinions to the Purchaser and the Company’s transfer agent in order to cause any shares of common stock to be issued and/or the Notes to be free of any restrictive legends or other restriction on transfer under applicable securities laws.

 

14. Limited Effect. Except as expressly provided hereby, all of the terms and provisions of the Purchase Agreement and the other Loan Transaction Documents are and shall remain in full force and effect and are hereby ratified and confirmed by the Company, Must Have, FIN, VCIG and Hardwire. The amendments contained herein shall not be construed as a waiver or amendment of any other provision of the Purchase Agreement or the other Loan Transaction Documents or for any purpose except as expressly set forth herein or a consent to any further or future action on the part of the Company, Must Have, FIN, VCIG and Hardwire that would require the waiver or consent of the Purchaser.

 

  

  

  

 

15. Public Announcement.  Within four (4) Business Days after the date hereof, the Company shall file a Current Report on Form 8-K, including this Amendment as an exhibit thereto, with the SEC.  From and after the filing of such Form 8-K, the Company represents to the Purchaser that it shall have publicly disclosed all material, non-public information delivered to the Purchaser or any of its representatives by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Loan Transaction Documents or otherwise. The Form 8-K that the Company is required to file pursuant to this Section 15 shall be subject to Purchaser’s prior review and approval.

 

16. Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the Company, Must Have, FIN, VCIG Hardwire, the Purchasers and each of their respective successors and permitted assigns.

 

17. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of the State of New York. The parties submit to the jurisdiction of the state and federal courts located in New York County, New York for any action, suit or proceeding arising out of this Amendment.

 

18. Counterparts. This Amendment may be executed in any number of counterparts, all of which shall constitute one and the same agreement, and any party hereto may execute this Amendment by signing and delivering one or more counterparts. Delivery of an executed counterpart of this Amendment electronically or by facsimile shall be effective as delivery of an original executed counterpart of this Amendment.

 

19. Costs and Expenses. The Company agrees to pay or reimburse the Purchaser for out-of-pocket costs and expenses incurred in connection with this Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby in an amount equal to $100,000 plus reasonable attorneys’ fees.  The Company acknowledges and agrees that, at the Purchaser’s option, the Third Tranche may be funded net of such amount.

 

[Signature Page Follows]

 

  

  

  

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

	
Electronic Cigarettes International Group, Ltd.

 

 

By_____________________

Name:

Title:.

 

	  	
Must Have Limited

 

 

By_____________________

Name:

Title:

	
FIN Branding Group, LLC

 

 

By_____________________

Name:

Title:

	  	
Hardwire Interactive Acquisition Company

 

 

By_____________________

Name:

Title:

 

	
JGB (Cayman) Cambridge Ltd.

 

 

By_____________________

Name:

Title:

	  	
VCIG LLC

 

 

By_____________________

Name:

Title:

	  	  	  	  
	  	  	  	  	  

 

  

  

  

Exhibit N

Third Note Amendment

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