Document:

ex10-4.htm

Exhibit 10.4

 

INTERCREDITOR AND SUBORDINATION AGREEMENT

 

INTERCREDITOR AND SUBORDINATION AGREEMENT dated as of July 26, 2012, by and among [    ] as the executor (the “Executor”) for [   ], [   ], an individual, the “Subordinated Lenders” and each, a “Subordinated Lender”), TEL-INSTRUMENT ELECTRONICS CORP., a New Jersey corporation (“Issuer”), and [   ], an Illinois limited liability company (“Purchaser”).

 

WHEREAS, Issuer and Purchaser have entered into the Securities Purchase Agreement (as defined below) on the date hereof pursuant to which, among other things, Purchaser has agreed, subject to the terms and conditions set forth in the Securities Purchase Agreement, to extend credit to Issuer as evidenced by that certain Senior Secured Promissory Note of even date herewith issued by Issuer to Purchaser in the original principal amount of $600,000;

 

WHEREAS, in accordance with the terms of the Securities Purchase Agreement and the other Senior Loan Documents (as hereinafter defined), Issuer has granted Purchaser a lien on, security interest in and right of set-off against any and all right, title and interest of Issuer in and to the Collateral; and

 

WHEREAS, as an inducement to and as one of the conditions precedent to the agreement of Purchaser to consummate the transactions contemplated by the Securities Purchase Agreement and the other Senior Loan Documents, Purchaser requires the execution and delivery of this Agreement by each Subordinated Lender and Issuer.

 

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1. Definitions.

 

(a) Capitalized terms used but not defined herein (including in the preamble and recitals above) shall have the meanings given such terms in the Securities Purchase Agreement.

 

(b) The following terms shall have the following meanings:

 

“Agreement” means this Intercreditor and Subordination Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.

 

“Bankruptcy Code” means the Bankruptcy Reform Act of 1978, as codified under Title 11 of the United States Code, or any successor statutes, and the bankruptcy rules promulgated thereunder, as the same may be in effect from time to time.

 

“Collateral” means the collective reference to the “Collateral” (as defined in the Security Agreement) and any and all other property from time to time subject to Liens or security interests to secure payment or performance of the Senior Obligations.

 

  

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“Credit Parties” means Issuer and any other Person that at any time is or becomes directly or indirectly liable on or in respect of, or that provides security for, any Senior Obligations, and their successors and permitted assigns.

 

“Enforcement Action” means, with respect to the Subordinated Obligations, any action to collect all or any portion of the Subordinated Obligations, to accelerate or demand payment of all or any portion of the Subordinated Obligations or to enforce any of the rights and remedies of any holder of any of the Subordinated Obligations, either pursuant to the Subordinated Loan Documents, at law, or in equity, including, but not limited to: (i) commencing or pursuing legal proceedings to collect any amounts owed with respect to the Subordinated Obligations; (ii) execution upon, or otherwise enforcing any judgment obtained with respect to, amounts owed on the Subordinated Obligations; or (iii) commencing or pursuing any judicial or non-judicial proceedings with respect to the Subordinated Obligations to foreclose upon, or to acquire title in lieu of foreclosure as to, all or any portion of the assets of Issuer.

 

“Insolvency Event” means (i) Issuer or any of its Subsidiaries commencing any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Issuer or any of its Subsidiaries making a general assignment for the benefit of its creditors; (ii) there being commenced against Issuer or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above; (iii) there being commenced against Issuer or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets; (iv) Issuer or any of its Subsidiaries taking any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) Issuer or any of its Subsidiaries generally not paying, or being unable to pay, or admitting in writing its inability to pay, its debts as they become due.

 

“Insolvency Proceeding” means the occurrence or commencement of any proceeding specified in clause (i) or clause (ii) of the definition of “Insolvency Event” in this Agreement.

 

“Issuer” has the meaning specified in the recitals of this Agreement.

 

“Permitted Refinancing” means any refinancing of the Senior Obligations under the Transaction Documents; provided that the financing documentation entered into by the Credit Parties in connection with such Permitted Refinancing constitutes Permitted Refinancing Loan Documents.

 

“Permitted Refinancing Loan Documents” means any financing documentation which replaces the Transaction Documents and pursuant to which the Senior Obligations under the Transaction Documents are refinanced, as such financing documentation may be amended, restated, supplemented or otherwise modified from time to time as permitted hereunder.

 

  

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“Permitted Interest Payments” means regularly scheduled cash payments of interest, at the non-default rate of interest, pursuant to and in accordance with the Subordinated Notes.

 

“Permitted Subordinated Debt Payments” means (i) Permitted Interest Payments and (ii) Permitted Debt Prepayments, pursuant to and in accordance with the terms and conditions of the Securities Purchase Agreement (including Section 9.06 thereof).

 

“Person” shall mean any individual, firm, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity.

 

“Purchaser” has the meaning specified in the recitals of this Agreement.

 

“Securities Purchase Agreement” means the Securities Purchase Agreement, dated as of the date hereof, by and among Issuer, Purchaser and the other parties from time to time party thereto, as such Securities Purchase Agreement may be amended, restated, modified or supplemented from time to time, including, without limitation, amendments, modifications, supplements and restatements thereof giving effect to increases, renewals, extensions, refundings, deferrals, restructurings, replacements or refinancings of, or additions to, the arrangements provided in such Securities Purchase Agreement (whether provided by the original Purchaser under the Securities Purchase Agreement or a successor Purchaser).

 

“Security Agreement” means the Security Agreement, dated as of the date hereof, by and among Issuer, Purchaser and the other parties from time to time party thereto, as such Security Agreement may be amended, restated, modified or supplemented from time to time.

 

“Senior Default” means any “Default” or an “Event of Default” under the Securities Purchase Agreement or any other Senior Loan Document.

 

“Senior Lender” means Purchaser, each other holder of a Senior Obligation and each of their respective successors and assigns.

 

“Senior Loan Documents” means the collective reference to the Securities Purchase Agreement, the other Transaction Documents (as defined in the Securities Purchase Agreement) and all other documents, instruments and agreements that from time to time evidence the Senior Obligations or secure or support payment or performance thereof, as the same may be amended, restated, modified or supplemented from time to time, including, without limitation, amendments, modifications, supplements and restatements thereof giving effect to increases, renewals, extensions, refundings, deferrals, restructurings, replacements or refinancings of, or additions to, the arrangements provided therein (whether provided by Purchaser under the Securities Purchase Agreement or a successor Purchaser).

 

“Senior Obligations” means the “Secured Obligations”, as such term is defined in the Security Agreement, including, without limitation, all principal, interest, fees, expenses, indemnities and reimbursement obligations at any time owed by the Credit Parties to Senior Lender pursuant to the terms of the Transaction Documents, in each instance, whether before or after the commencement of an Insolvency Proceeding and without regard to whether or not an allowed claim, and all obligations and liabilities incurred with respect to Permitted Refinancings, together with any amendments, restatements, modifications, renewals or extensions thereof.

 

  

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“Subordinated Event of Default” means an Event of Default (as defined in any Subordinated Note or other Subordinated Loan Document as in effect on the date hereof).

 

“Subordinated Lenders” has the meaning specified in the recitals of this Agreement.

 

“Subordinated Loan Documents” means the collective reference to the Subordinated Notes and any other documents, agreements or instruments that from time to time evidence or otherwise relate to the Subordinated Obligations.

 

“Subordinated Notes” means, collectively, the (i) Subordinated Note dated as of February 22, 2010 in the original principal amount of $125,000 issued by Issuer to [   ], an individual, and that is currently held by the Executor on behalf of the [   ], in the form of Exhibit A hereto, and (ii) Subordinated Note dated as of February 22, 2010 in the original principal amount of $125,000 issued by Issuer to [   ], in the form of Exhibit B hereto, each as in effect as of the date hereof and as amended, supplemented, restated or otherwise modified from time to time as permitted by this Agreement and the Senior Loan Documents, including any notes issued in exchange or substitution therefor.

 

“Subordinated Obligations” means the collective reference to the unpaid principal of and interest on the Subordinated Notes and all other Indebtedness of Issuer owing to the Subordinated Lenders (including, without limitation, interest accruing at the then applicable rate provided therein after the maturity of the Subordinated Notes and interest accruing at the then applicable rate provided in the Subordinated Notes after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Issuer, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Subordinated Notes, this Agreement, or any other Subordinated Loan Document, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Subordinated Lenders that are required to be paid by Issuer pursuant to the terms of any other Subordinated Loan Document); provided, however, that Subordinated Obligations shall not include obligations for compensation, employee benefits and reimbursement of related costs incurred in the Ordinary Course of Business, to the extent any of the foregoing constitutes Indebtedness, and to the extent such Indebtedness is permitted by the Securities Purchase Agreement.

 

(c) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section and paragraph references are to this Agreement unless otherwise specified.

 

(d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

 

  

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(e) No inference in favor of, or against, any party to this Agreement shall be drawn from the fact that such party has drafted any portion of this Agreement.

 

2. Subordination; Enforcement Action.  Issuer and each Subordinated Lender hereby agrees, for itself and each future holder of the Subordinated Obligations, that:

 

(a) No part of the Subordinated Obligations shall have any claim to any assets of Issuer on a parity with or prior to the claim of any of the Senior Obligations.

 

(b) Unless and until the Senior Obligations have been paid in full, without the express prior written consent of Senior Lender, (1) no Subordinated Lender shall, directly or indirectly, take, demand, accept or receive from Issuer or any other Person, in cash or other property or by setoff or in any other manner, payment of all or any of the Subordinated Obligations, and (2) Issuer shall not make, give or permit, directly or indirectly, by setoff, redemption, purchase or in any other manner, any payment of or with respect to, or any collateral or other security for, the whole or any part of the Subordinated Obligations, including, without limitation, any guarantee, letter of credit or similar credit support to support payment of any of the Subordinated Obligations; provided, however, that, subject in all respects to the other terms and provisions hereof, (x) each Subordinated Lender may accept and retain, and Issuer may make, Permitted Subordinated Debt Payments so long as no Blockage Period is then in effect; and (y) Issuer may resume making any Permitted Interest Payment, and may make any Permitted Interest Payment missed during any Blockage Period, upon the cessation of a Blockage Period.  A “Blockage Period” shall exist from and after the date that any Senior Default shall have occurred, until the earlier to occur of (a) the cure or waiver of such Senior Default, as determined by Senior Lender in its sole discretion and (b) the payment in full of the Senior Obligations.

 

(c) Unless and until the Senior Obligations have been paid in full, without the express written consent of Senior Lender, no Subordinated Lender shall commence any Enforcement Action.

 

(d) The expressions “prior payment in full,” “payment in full,” “paid in full” and any other similar terms or phrases when used herein with respect to the Senior Obligations shall mean (i) the indefeasible payment in full, in immediately available funds, of all of the Senior Obligations and the performance in full of all of the Senior Obligations, (ii) the termination or expiration of all Senior Loan Documents, and (iii) termination of any and all commitments to lend under the Senior Loan Documents.  Senior Obligations shall be considered to be outstanding whenever any loan commitment under any Senior Loan Document is outstanding.

 

(e) Each holder of Senior Obligations, whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Obligations in reliance upon the provisions contained in this Agreement.

 

3. Additional Provisions Concerning Subordination.  Without limiting any other term or provision in this Agreement:

 

(a) The Subordinated Lenders and Issuer hereby agree that upon the occurrence of any Insolvency Event:

 

  

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(i) all Senior Obligations shall be paid in full before any payment or distribution is made with respect to any of the Subordinated Obligations; and

 

(ii) any payment or distribution of assets of any Credit Party of any kind or character, whether in cash, property or securities, to which any Subordinated Lender would be entitled except for the provisions hereof, shall be paid or delivered by such Credit Party, or any receiver, trustee in bankruptcy, liquidating trustee, disbursing agent or other Person making such payment or distribution, directly to Senior Lender for application against the Senior Obligations (in accordance with the terms of the applicable Senior Loan Documents), to the extent necessary to pay in full all Senior Obligations, before any payment or distribution shall be made to any Subordinated Lender, and (x) each Subordinated Lender hereby unconditionally authorizes, empowers and directs all trustees, receivers, custodians, conservators, or any other Persons having authority over the property of any Credit Party to effect delivery of all such payments and distributions to Senior Lender and (y) each Subordinated Lender agrees to execute and deliver to Senior Lender such further instruments as may be requested by Senior Lender to confirm the authorization referred to in the foregoing clause (x).

 

(b) Upon the occurrence of any Insolvency Proceeding commenced by or against any Credit Party:

 

(i) each Subordinated Lender irrevocably authorizes and empowers Senior Lender to demand, sue for, collect and receive every payment or distribution on account of any of the Subordinated Obligations payable or deliverable in connection with such event or proceeding, until the Senior Obligations are paid in full, and give acquittance therefor;

 

(ii) each Subordinated Lender irrevocably authorizes and empowers Senior Lender to file claims and proofs of claim in any such Insolvency Proceeding and take such other actions, in its own name, or in the name of the Subordinated Lenders or otherwise, as Senior Lender may deem necessary or advisable for the enforcement of the provisions of this Agreement; provided, however, that the foregoing authorization and empowerment imposes no obligation on Senior Lender to take any such action;

 

(iii) each Subordinated Lender shall take such action, duly and promptly, as Senior Lender may request from time to time:

 

(A) to collect the Subordinated Obligations for the account of the Senior Lenders until the Senior Obligations are paid in full; and

 

(B) to file appropriate proofs of claim in respect of the Subordinated Obligations and deliver copies of any such proofs of claim to Senior Lender; and

 

(iv) each Subordinated Lender shall execute and deliver such powers of attorney, assignments or proofs of claim or other instruments as Senior Lender may request to enable Senior Lender to enforce any and all claims in respect of the Subordinated Obligations and to collect and receive any and all payments and distributions, until the Senior Obligations are paid in full, which may be payable or deliverable at any time upon or in respect of the Subordinated Obligations.

 

  

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(c) Except as otherwise expressly permitted by the terms hereof, if any payment or distribution, whether consisting of money, property or securities, shall be collected or received by or come into the custody, control or possession of any Subordinated Lender in respect of the Subordinated Obligations, such Subordinated Lender shall forthwith deliver the same to Senior Lender for application against the Senior Obligations, in the exact form received, duly endorsed to Senior Lender, if required, in each case to be applied to the payment or prepayment of the applicable Senior Obligations in accordance with the terms of the applicable Senior Loan Documents until such Senior Obligations are paid in full.  Until so delivered, such payment or distribution shall be held in trust by such Subordinated Lender as the property of the Senior Lenders, segregated from other funds and property held by such Subordinated Lender.

 

4. Subrogation.  Until the Senior Obligations are paid in full, the Subordinated Lenders shall not make or assert any claim of subrogation under applicable law or otherwise with respect to the Senior Lenders or the Senior Obligations.  Upon the payment in full of the Senior Obligations, the Subordinated Lenders shall be subrogated to the rights of the Senior Lenders to receive payments or distributions of assets of Issuer and each other Credit Party in respect of the Senior Obligations until the Senior Obligations shall be paid in full.  For the purposes of such subrogation, payments or distributions to Senior Lender of any money, property or securities to which any Subordinated Lender would be entitled except for the provisions of this Agreement shall be deemed, as between Issuer and its creditors (other than the Senior Lenders and such Subordinated Lender), to be a payment by Issuer to or on account of Subordinated Obligations (it being understood that the provisions of this Agreement are, and are intended solely, for the purpose of defining the relative rights of the Subordinated Lenders, on the one hand, and Senior Lender, on the other hand).

 

5. Consents, Waivers and Covenants of Subordinated Lenders.

 

(a) Each Subordinated Lender consents and agrees that, without the necessity of any reservation of rights against any Subordinated Lender, and without notice to or further assent by any Subordinated Lender:

 

(i) any demand for payment of any Senior Obligations made by Senior Lender may be rescinded in whole or in part by Senior Lender, and any Senior Obligation may be continued, and the Senior Obligations, or the liability of any Credit Party or any guarantor or any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, or any obligation or liability of any Credit Party or any other party under any Senior Loan Document, or any other agreement, may, from time to time, in whole or in part, be amended, restated, renewed, extended, increased, modified, accelerated, compromised, restructured, waived, surrendered, or released by Senior Lender;

 

(ii) the Securities Purchase Agreement, the other Senior Loan Documents and the Senior Obligations may be amended, restated, modified, extended, increased, renewed, restructured, supplemented or terminated, in whole or in part, as Senior Lender may deem advisable from time to time, and any collateral security at any time held by Senior Lender for the payment of any of the Senior Obligations may be sold, exchanged, restructured, waived, surrendered or released, in each case all without notice to or further assent by any Subordinated Lender, which will remain bound under this Agreement, and Senior Lender shall have the right to grant waivers or consents to any Credit Party with respect to any of the Senior Obligations or any Senior Loan Document in any manner whatsoever, all without impairing, abridging, releasing or affecting the subordination provided for herein; and

 

  

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(iii) any Permitted Refinancing may be consummated by any Credit Party to the extent that such Permitted Refinancing constitutes a Senior Obligation.

 

(b) Each Subordinated Lender waives any and all notice of the creation, renewal, extension, increase, or accrual of any of the Senior Obligations and notice of or proof of reliance by Senior Lender upon this Agreement.  The Senior Obligations shall be deemed conclusively to have been created, contracted or incurred in reliance upon this Agreement, and all dealings between the Credit Parties and Senior Lender shall be deemed to have been consummated in reliance upon this Agreement.  Each Subordinated Lender acknowledges and agrees that Senior Lender has relied upon the subordination provided for herein in entering into the Senior Loan Documents and in making funds available to Issuer thereunder.  Each Subordinated Lender waives notice of or proof of reliance on this Agreement and protest, demand for payment and notice of default.

 

(c) The Subordinated Lenders hereby consent to the Liens on the Collateral created  in favor of Senior Lender under the Senior Loan Documents, and agree that the grant, perfection, priority and existence of such Liens does not and shall not constitute a Subordinated Event of Default or any other default under any Subordinated Loan Document.

 

(d) Concurrently with the issuance thereof, the Subordinated Lenders shall provide Senior Lender with a copy of any written notice of any Subordinated Event of Default or similar communication given by any Subordinated Lender to Issuer pursuant to or in connection with any of the Subordinated Loan Documents.  Upon demand by Senior Lender, the Subordinated Lenders will furnish to Senior Lender a statement of the indebtedness owing from Issuer to the Subordinated Lenders.  Senior Lender may rely without further investigations upon such statements.

 

(e)           Notwithstanding anything in the Subordinated Notes or any other agreement or instrument to the contrary, the Subordinated Lenders and Issuer hereby acknowledge and agree that the maturity date of each of the Subordinated Notes shall be the date upon which the Senior Obligations are paid in full.

 

6. Negative Covenants of the Subordinated Lenders.  Until the payment in full of the Senior Obligations, no Subordinated Lender shall, without the prior written consent of Senior Lender:

 

(a) sell, assign, or otherwise transfer, in whole or in part, the Subordinated Obligations or any interest therein to any other Person (a “Transferee”) or create, incur or suffer to exist any security interest, Lien, charge or other encumbrance whatsoever upon any of the Subordinated Obligations or under any Subordinated Loan Document in favor of any Transferee unless:

 

(i) such action is made expressly subject to this Agreement; and

 

  

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(ii) the Transferee expressly acknowledges to Senior Lender, by a written agreement in form and substance satisfactory to Senior Lender or by delivery of an executed counterpart of this Agreement or an intercreditor and subordination agreement substantially identical to this Agreement, the subordination provided for herein and agrees to be bound by all of the terms and provisions hereof;

 

(b) permit any of the Subordinated Loan Documents or the Subordinated Obligations to be amended, restated, renewed, restructured, increased, extended, supplemented or otherwise modified in any respect;

 

(c) permit or require any Subsidiary of Issuer or any other Credit Party to guarantee any of the Subordinated Obligations;

 

(d) permit or require Issuer, any Subsidiary of Issuer or any other Credit Party to create any Lien on any of its assets or properties to secure the payment or performance of any of the Subordinated Obligations;

 

(e) commence, or join with any creditors (other than Senior Lender) in commencing, or otherwise cause, any Insolvency Proceeding;

 

(f) challenge the validity, enforceability, priority of, or any other term or provision of, any Senior Loan Document;

 

(g) challenge the extent, validity, creation, perfection or priority of, any Lien created or purported to be created pursuant to any Senior Loan Document or seek to avoid or subordinate any such Lien; or

 

(h) interfere in any respect with the exercise by Senior Lender of any right or remedy under any Senior Loan Document or applicable law;

 

provided, however, that a transfer by operation of law to the estate of a deceased Subordinated Lender shall not be a default hereunder; provided, further, that it is the express intent of all parties hereto that such transfer shall be expressly subject to this Agreement, and that the Transferee of the estate expressly acknowledges to Senior Lender, by a written agreement in form and substance satisfactory to Senior Lender or by delivery of an executed counterpart of this Agreement or an intercreditor and subordination agreement substantially identical to this Agreement, the subordination provided for herein and agrees to be bound by all of the terms and provisions hereof.

 

7. Senior Obligations Unconditional.  All obligations and agreements of the Subordinated Lenders hereunder shall be irrevocable, unconditional, continuing and absolute.  All rights and interests of Senior Lender hereunder, and all agreements and obligations of the Subordinated Lenders and Issuer, shall remain in full force and effect irrespective of:

 

(a) any lack of validity or enforceability of any Senior Loan Document or if all or any portion of the Senior Obligations and/or the Liens securing same are subordinated, set aside, avoided or disallowed, in each case pursuant to an Insolvency Proceeding or otherwise (as a result of the fraudulent transfer provisions under the Bankruptcy Code, under any State fraudulent conveyance or fraudulent transfer statute, or otherwise);

 

  

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(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Senior Obligations, or any amendment or waiver or other modification, whether by course of conduct or otherwise, of the terms of any Senior Loan Document, including, without limitation, any increase in any of the Senior Obligations resulting from the extension of additional credit to any Credit Party or otherwise;

 

(c) any exchange, release or nonperfection of any Lien upon any Collateral, or any release, amendment, waiver or other modification, whether in writing or by course of conduct or otherwise, of all or any of the Senior Obligations or any guarantee thereof;

 

(d) the existence of any claim, set-off, defense, counterclaim or other right that any Subordinated Lender, any Credit Party or any other Person may have against any Person, including, without limitation, Senior Lender;

 

(e) any manner of application of Collateral or any other collateral, or proceeds thereof, to all or any of the Senior Obligations, or any manner of sale or other disposition of any Collateral or any other collateral for all or any of the Senior Obligations or any obligations of the Credit Parties under the Senior Loan Documents or any other assets of the Credit Parties;

 

(f) any change, restructuring or termination of the corporate or other organizational structure or existence of any Credit Party;

 

(g) any failure of Senior Lender to disclose to any Subordinated Lender any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of Issuer or any of its Subsidiaries now or hereafter known to Senior Lender (each Subordinated Lender hereby waiving any duty on the part of Senior Lender to disclose such information); or

 

(h) any other event or circumstance which otherwise might constitute a defense or counterclaim available to, or a discharge of, Issuer in respect of any of the Senior Obligations, or of any Subordinated Lender or Issuer in respect of this Agreement.

 

8. Representations and Warranties.  Each Subordinated Lender represents and warrants to Senior Lender that:

 

(a) its Subordinated Note: (i) has been issued to it for good and valuable consideration; (ii) is owned by such Subordinated Lender free and clear of any security interests, Liens, charges or encumbrances whatsoever arising from, through or under such Subordinated Lender, other than the interest of Senior Lender under this Agreement; (iii) is payable solely and exclusively to such Subordinated Lender and to no other Person and is payable without deduction for any defense, recoupment, offset or counterclaim, and (iv) constitutes the only evidence of the obligations evidenced thereby;

 

  

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(b) such Subordinated Lender has the power and authority and the legal right to execute and deliver and to perform its obligations under this Agreement and has taken all necessary action to authorize its execution, delivery and performance of this Agreement;

 

(c) this Agreement has been duly executed and delivered by such Subordinated Lender and constitutes a legal, valid and binding obligation of such Subordinated Lender, enforceable against such Subordinated Lender in accordance with its terms;

 

(d) the execution, delivery and performance of this Agreement will not violate any provision of any requirement of law applicable to such Subordinated Lender or contractual obligation of such Subordinated Lender and will not result in the creation or imposition of any Lien on any of the properties or revenues of such Subordinated Lender pursuant to any requirement of law affecting, or any contractual obligation of, such Subordinated Lender, except the interest of Senior Lender under this Agreement;

 

(e) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or governmental authority or any other Person (including, without limitation, any creditor of such Subordinated Lender), is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement;

 

(f) no pending or, to the best of its knowledge, threatened litigation, arbitration or other proceedings if adversely determined would in any way prevent the performance of the terms of this Agreement; and

 

(g) as of the date hereof, Issuer is indebted to the Subordinated Lenders under the Subordinated Loan Documents in the aggregate amount of $323,036.

 

9. No Representation by Senior Lender.  Senior Lender has not made, and does not hereby or otherwise make to any of the Subordinated Lenders, any representations or warranties, express, or implied, nor does Senior Lender assume any liability or obligation to or of any Subordinated Lender with respect to:

 

(a) the financial or other condition of any Credit Party or any other obligors under any instruments of guarantee with respect to the Senior Obligations;

 

(b) the enforceability, validity, value or collectibility of any of the Senior Obligations or the Subordinated Obligations, any collateral therefor, or any guarantee or security which may have been granted in connection with any of the Senior Obligations or the Subordinated Obligations; or

 

(c) the title or right of any Credit Party or any other Person to transfer any collateral or security.

 

10. Waiver of Claims.  To the maximum extent permitted by law, each Subordinated Lender waives any claim it might have against Senior Lender with respect to, or arising out of, any action or failure to act or any error of judgment, negligence, or mistake or oversight whatsoever on the part of Senior Lender or its affiliates, directors, officers, employees, advisors, attorneys or agents with respect to any exercise of any rights or remedies under any of the Senior Loan Documents or any transaction relating to any of the Collateral or any guarantee.  Neither Senior Lender nor any of its affiliates, directors, officers, employees, advisors, attorneys or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or any guarantee or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral or realize upon any guarantee upon the request of any Credit Party or any Subordinated Lender or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof or any guarantee.

 

  

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11. Additional Provisions Applicable After Insolvency Event or Proceeding.  Without limiting any other term or provision in this Agreement or any Senior Loan Document:

 

(a) The provisions of this Agreement shall continue in full force and effect notwithstanding the occurrence of any Insolvency Event or Insolvency Proceeding.

 

(b) Each Subordinated Lender agrees that it will not, directly or indirectly (including as a member of any unsecured creditors’ committee), take any action in or relating to any proceeding arising from, as a result of, in connection with or relating to any Insolvency Proceeding to challenge, contest or object in any manner to (i) the extent, validity, creation, enforceability, perfection or priority of any of the Senior Obligations or any Senior Loan Document or any Liens or security interests created under any Senior Loan Document, or any term or provision of this Agreement or any Subordinated Lender's obligations, undertakings, acknowledgments and agreements set forth in this Agreement; (ii) any pleading, motion, notice, objection or argument of or made by or on behalf of any holder of any of the Senior Obligations based on, under or in respect of Section 361, 362, 363 or 364 of the Bankruptcy Code, including in respect of permitting the use of any cash or other collateral by, or providing any financing to, any Credit Party under either Section 363 or 364 of the Bankruptcy Code (including, without limitation, any request for adequate protection, or in respect of the sale or other disposition of any property by any Credit Party under Section 363 of the Bankruptcy Code or pursuant to a plan of reorganization or any other arrangement (and each Subordinated Lender shall be deemed to have consented to any such sale or disposition and all of the terms applicable thereto); or (iii) the payment of interest, fees, expenses or other amounts to Senior Lender under Sections 506(b) or 506(c) of the Bankruptcy Code or otherwise.  Each Subordinated Lender agrees that it will not seek relief from the automatic stay or from any other stay in any Insolvency Proceeding or take any action in derogation thereof, without the prior written consent of Senior Lender.  Subordinated Lenders shall not support or vote in favor of any plan of reorganization (and they shall be deemed to have voted to reject any plan of reorganization) unless such plan (i) pays off, in cash in full, all Senior Obligations or (ii) is accepted by Senior Lender.  This Agreement, which the parties hereto expressly acknowledge is a “subordination agreement” under Section 510(a) of the Bankruptcy Code, shall be effective, during and after the commencement of an Insolvency Proceeding.

 

12. Further Assurances.  The Subordinated Lenders and Issuer, at their own sole cost and expense and at any time from time to time, upon the written request of Senior Lender will promptly and duly execute and deliver such further instruments and documents and take such further actions as Senior Lender reasonably may request for the purposes of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted.  Without limiting the generality of the foregoing, in the event of an assignment pursuant to any Senior Loan Document or in the event of a Permitted Refinancing, the Subordinated Lenders and Issuer shall, upon the request of Senior Lender, execute a new intercreditor and subordination agreement upon the same terms as this Agreement to further evidence and confirm that the Subordinated Obligations are and shall remain junior and subordinate in right of payment to the Senior Obligations or such Permitted Refinancing, as applicable.

 

  

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13. Reinstatement.  The terms and provisions of this Agreement shall continue to be effective or be reinstated, and the Senior Obligations shall not be deemed to be paid in full, as the case may be, if at any time any payment of any of the Senior Obligations is rescinded or avoided, or must otherwise be returned by Senior Lender pursuant to any Insolvency Proceeding or otherwise, all as though such payment had not been made.

 

14. Expenses.  Each Subordinated Lender, jointly and severally, shall pay or reimburse Senior Lender, upon demand, for all of its costs and expenses incurred in connection with the enforcement or preservation of any rights and remedies with respect to the Subordinated Lenders under this Agreement, including, without limitation, fees and disbursements of counsel to Senior Lender.

 

15. Provisions Define Relative Rights.  This Agreement is intended solely for the purpose of defining the relative rights of Senior Lender, on the one hand, and the Subordinated Lenders, on the other, and the obligations of Issuer in connection with the foregoing and no other Person shall have any right, benefit or other interest under this Agreement.  Issuer hereby agrees that it will not make any payment on or in respect of any of the Subordinated Obligations, or take any other actions, in contravention of the provisions of this Agreement.

 

16. Legend.  Each Subordinated Lender will cause each of the Subordinated Notes (and each other Subordinated Loan Document as Senior Lender shall request) to bear upon its face the following legend:

 

“ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE SUBJECT TO THE TERMS OF, THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF JULY 26, 2012 (THE “SUBORDINATION AGREEMENT”), AS THE SAME MAY BE AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, BY AND AMONG TEL-INSTRUMENT ELECTRONICS CORP., A NEW JERSEY CORPORATION, MILLENNIUM TRUST COMPANY, LLC CUSTODIAN FBO VINCENT J. DOWLING, JR., ROTH IRA, AN ILLINOIS LIMITED LIABILITY COMPANY, AND THE HOLDERS FROM TIME TO TIME OF THE OBLIGATIONS ARISING UNDER THE SUBORDINATED LOAN DOCUMENTS REFERRED TO IN THE SUBORDINATION AGREEMENT, INCLUDING, WITHOUT LIMITATION, THIS NOTE, AND EACH HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, ACKNOWLEDGES AND AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.”

 

  

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17. Powers Coupled With An Interest.  All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until the Senior Obligations are paid in full.

 

18. Authority of Senior Lender.  Issuer and each Subordinated Lender acknowledges and agrees that the rights and responsibilities of Senior Lender under this Agreement with respect to any action taken by Senior Lender or the exercise or non-exercise by Senior Lender of any option, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall be governed by the Senior Loan Documents and by such other agreements with respect thereto as may exist from time to time among, but, as between Senior Lender, on the one hand, and Issuer and the Subordinated Lenders, on the other hand, Senior Lender shall be conclusively presumed to be acting with full and valid authority so to act or refrain from acting, and neither Issuer nor any Subordinated Lender shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

 

19. Notices.

 

(a) All notices, requests and demands to or upon Senior Lender, Issuer or any Subordinated Lender under this Agreement to be effective shall be in writing (or by fax or similar electronic transfer confirmed in writing) and shall be deemed to have been duly given or made (i) when delivered by hand or (ii) if given by mail, when deposited in the mails by certified mail, return receipt requested, or (iii) if by fax or similar electronic transfer, when sent and receipt has been confirmed, addressed as follows:

 

	 	
If to Senior Lender:

	
[  ]

	 	  	  
	 	
with a copy to:

	
[  ]

	 	  	  
	 	
If to Issuer:

	
Tel-Instrument Electronics Corp.

	 	  	
728 Garden Street

	 	  	
Carlstadt, NJ 07072

	 	  	
Facsimile: (201) 933-7340

	 	  	
Attention: Joseph P. Macaluso

	 	  	  
	 	
with a copy to:

	
Lucosky Brookman LLP

	 	  	
33 Wood Avenue South, 6th Floor

	 	  	
Iselin, New Jersey 08830

	 	  	
Facsimile: (732) 395-4401

	 	  	
Attention: Seth Brookman, Esq.

 

(b) If to any Subordinated Lender, at its address or transmission number for notices set forth under its signature below.

 

(c) Senior Lender, any Credit Party and any Subordinated Lender may change their addresses and transmission numbers for notices by notice in the manner provided in this Section 19.

 

  

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20. Counterparts.  This Agreement may be executed by one or more of the parties on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic means shall be effective as delivery of an original executed counterpart of this Agreement.

 

21. Severability.  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

22. Integration.  THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT OF SENIOR LENDER, ISSUER AND THE SUBORDINATED LENDERS WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THERE ARE NO PROMISES OR REPRESENTATIONS BY SENIOR LENDER, ISSUER OR ANY SUBORDINATED LENDER RELATIVE TO THE SUBJECT MATTER HEREOF NOT REFLECTED HEREIN.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

23. Amendments in Writing; No Waiver; Cumulative Remedies.

 

(a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by Senior Lender, Issuer and each Subordinated Lender.

 

(b) No failure to exercise, nor any delay in exercising, on the part of Senior Lender, any right, remedy power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

(c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

 

(d) If any Subordinated Lender or Issuer violates any of the terms or provisions of this Agreement, in addition to any remedies in law, at equity or otherwise, Senior Lender may restrain or enjoin such violation in any court of competent jurisdiction and may interpose this Agreement as a defense or counterclaim in any action or proceeding by any Subordinated Lender or Issuer.

 

24. Section Headings.  The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

 

25. Successors and Assigns.  This Agreement shall be binding upon the successors and assigns of Issuer and each Subordinated Lender and shall inure to the benefit of Senior Lender and its successors and assigns.

 

  

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26. Governing Law; etc.  This Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.  Each party hereto hereby irrevocably and unconditionally submits for itself and its property in any legal action or proceeding arising out of or relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of New York, the federal courts of the United States in the State of New York, and any appellate court from any thereof.

 

27. Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

[the remainder of this page intentionally left blank]

 

[Signature Page to Intercreditor and Subordination Agreement]

 

  

16

  

 

 

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

 

	
SENIOR LENDER:

 

[   ]

 

 

	
By:

	
_______________________________

	
Name:

	
_______________________________

	
Title:

	
_______________________________

 

___________________________________

 

Read and Approved by: [   ]

 

 

Signatures Continue on Next Page

 

  

  

  

 

[Signature Page to Intercreditor and Subordination Agreement]

 

	
ISSUER:

 

TEL-INSTRUMENT ELECTRONICS CORP.

 

 

	
By:

	 
_______________________________

	
Name:

	 
_______________________________

	
Title:

	 
_______________________________

 

 

 

Signatures Continue on Next Page

 

  

  

  

 

[Signature Page to Intercreditor and Subordination Agreement]

 

	
  

	
SUBORDINATED LENDERS:

	
  

	
_______________________________

	
  

	
[   ]

	
  

	
Address for Notices:

	
  

	
c/o Tel-Instrument Electronics Corp.

	
  

	
728 Garden Street

	
  

	
Carlstadt, New Jersey  07072

	
  

	
Attention:  Joseph P. Macaluso

	
  

	
Fax No.:  (201) 933-7340

	
  

	
Telephone No.: (201) 933-1600

	
  

	
_______________________________

	
  

	
Jeffrey C. O’Hara

	
  

	
Address for Notices:

	
  

	
c/o Tel-Instrument Electronics Corp.

	
  

	
728 Garden Street

	
  

	
Carlstadt, New Jersey  07072

	
  

	
Attention:  Joseph P. Macaluso

	
  

	
Fax No.:  (201) 933-7340

	
  

	
Telephone No.: (201) 933-1600

 

  

  

  

 

 

Exhibit A

[   ] Subordinated Note

See attached.

 

 

 

 

 

  

  

  

 

 

 

 

 

 

Exhibit B

[   ] Subordinated Note

See attached.ex10-5.htm

Exhibit 10.5

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT is dated as of July __, 2012 by and among TEL-INSTRUMENT ELECTRONICS CORP., a New Jersey corporation (the “Issuer”), each additional “Debtor” (as hereinafter defined) and [   ], a limited liability trust company organized and existing under the laws of the State of Illinois (“Secured Party” or “Purchaser”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to a certain Securities Purchase Agreement of even date herewith (as the same may be amended, restated, modified or supplemented and in effect from time to time, the “Purchase Agreement”) by and among the Issuer and Purchaser, Purchaser has agreed, subject to the satisfaction of certain conditions precedent, to purchase a certain promissory note (the “Note”) issued by the Issuer; and

 

WHEREAS, it is a condition precedent to the issuance and purchase of the Note that the Issuer shall have granted the security interests contemplated by this Agreement in order to secure the payment and performance of the Secured Obligations (as hereinafter defined).

 

NOW, THEREFORE, in consideration of the foregoing, and in order to induce the Purchaser to purchase the Note under the Purchase Agreement, each Debtor hereby agrees with Secured Party as follows:

 

SECTION 1. Definitions.

 

1.1 The following terms, as used herein, have the meanings set forth below:

 

“Account Debtor” means the account debtor with respect to any Account and/or the prospective purchaser of goods, services or both with respect to any contract or contract right, and/or any party who enters into or proposes to enter into any contract or other arrangement with any Debtor, pursuant to which such Debtor is to deliver any personal property or perform any services

 

“Agreement” means this Security Agreement, as the same may be amended, restated, modified or supplemented and in effect from time to time in accordance with the terms hereof.

 

“Blocked Accounts” has the meaning assigned to that term in Section 4.12(b).

 

“Collateral” has the meaning assigned to that term in Section 2.

 

“Collecting Banks” has the meaning assigned to that term in Section 4.12(b).

 

“Copyrights” means any copyrights, copyright registrations and copyright applications, and all renewals, extensions and continuations of any of the foregoing.

 

“Debtor” means (i) the Issuer and (ii) each Person that becomes a party to this Agreement pursuant to Section 16 hereof.

 

  

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“Deposit Account Control Agreement” has the meaning assigned to that term in Section 4.12(a).

 

“Depository Account” has the meaning assigned to that term in Section 4.12(c).

 

“Federal Registration Collateral” means Collateral with respect to which Liens may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation.

 

“Intellectual Property” means, collectively, all Copyrights, Patents and Trademarks.

 

“Patents” means any patents, patent registrations and patent applications and all renewals, extensions and continuations of any of the foregoing.

 

“Secured Obligations” means, collectively:

 

(a) the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise) of all obligations, liabilities and indebtedness (including principal, premium, interest, fees, costs and indemnities (including all interest and fees that accrue after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of any Debtor at the rate provided for in the respective documentation, whether or not a claim for post-petition interest or fees is allowed in any such proceeding)) of such Debtor to Secured Party, whether now existing or hereafter incurred under, arising out of, or in connection with, the Purchase Agreement, the Note and the other Transaction Documents to which such Debtor is a party and the due performance and compliance by such Debtor with all of the terms, conditions and agreements contained in the Purchase Agreement, the Note and in such other Transaction Documents to which it is a party;

 

(b) any and all reasonable sums advanced by Secured Party in order to preserve the Collateral or preserve its security interest in the Collateral;

 

(c) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of such Debtor referred to in clause (a) above, after an Event of Default shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by Secured Party of its rights hereunder, together with reasonable attorneys’ fees and court costs; and

 

(d) all amounts owing to Secured Party pursuant to any of the Transaction Documents in its capacity as such.

 

“Security Interests” means the security interests granted or provided for pursuant to Section 2 hereof, as well as all other security interests created, assigned or provided as additional security for the Secured Obligations pursuant to the provisions of this Agreement or any of the other Transaction Documents.

 

  

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“Trademarks” means any trademarks, trademark registrations, and trademark applications, all renewals, extensions and continuations of any of the foregoing and all goodwill attributable to any of the foregoing.

 

1.2 Other Definition Provisions.  References to “Sections” or “Schedules” shall be to Sections or Schedules of this Agreement unless otherwise specifically provided.  For purposes hereof, “including” is not limiting and “or” is not exclusive.  Except as provided by Section 1.3, capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided for in the Purchase Agreement.  Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference.  All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

 

1.3 Uniform Commercial Code Terms.  All terms used herein and defined in the Uniform Commercial Code as adopted in the State of New York from time to time (the “Uniform Commercial Code”, or “UCC”) shall have the meaning given therein unless otherwise defined herein.  To the extent the definition of any category or type of collateral is expanded by any amendment, modification or revision to the Uniform Commercial Code, such expanded definition will apply automatically as of the date of such amendment, modification or revision.

 

SECTION 2. Grant of Security Interests.

 

To secure the payment and performance of the Secured Obligations, each Debtor hereby grants to Secured Party a lien on, security interest in and right of set-off against any and all right, title and interest of Debtor in and to any and all of the following property, whether now owned or existing or hereafter created, acquired or arising (all being collectively referred to herein as the “Collateral”):

 

(a) all Accounts;

 

(b) all Chattel Paper (including all Tangible Chattel Paper and all Electronic Chattel Paper);

 

(c) all Commercial Tort Claims, including those Commercial Tort Claims in which such Debtor has any interest specified on Schedule 3.9;

 

(d) all Contracts, together with all Contract Rights arising thereunder;

 

(e) all Deposit Accounts, all cash, and other property deposited therein or otherwise credited thereto from time to time and other monies and property in the possession or under the control of Secured Party or any affiliate, representative, agent or correspondent of Secured Party;

 

(f) all Documents;

 

(g) all General Intangibles, including any and all Intellectual Property;

 

  

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(h) all Goods any and all Inventory, any and all Equipment and any and all Fixtures;

 

(i) all Instruments;

 

(j) all Investment Property;

 

(k) all Letter-of-Credit Rights;

 

(l) all Supporting Obligations;

 

(m) any and all other personal property and interests in personal property whether or not subject to the UCC;

 

(n) any and all books and records, in whatever form or medium, that at any time evidence or contain information relating to any of the foregoing properties or interests in properties or are otherwise necessary or helpful in the collection thereof or realization thereon;

 

(o) all Accessions and additions to, and substitutions and replacements of, any and all of the foregoing; and

 

(p) all Proceeds and products of the foregoing, and all insurance pertaining to the foregoing and proceeds thereof.

 

SECTION 3. Representations and Warranties.

 

Issuer represents and warrants to Secured Party, from and after the Closing, and each other Debtor represents to Secured Party, from and after the date of its applicable joinder agreement, in each case, as follows:

 

3.1 Binding Obligation; Perfection.  This Agreement constitutes a valid and binding obligation of such Debtor, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, or other Applicable Law relating to the enforcement of creditors’ rights generally and by general equitable principles.  Secured Party has a valid and perfected first priority security interest in the Collateral securing the payment of the Secured Obligations, and such Security Interests are entitled to all of the rights, priorities and benefits afforded by, and subject to any limitation of, the Uniform Commercial Code or other Applicable Law as enacted in any relevant jurisdiction which relates to perfected security interests.

 

3.2 Organizational Information.  Schedule 3.2 hereto sets forth (i) the full, correct and current name of such Debtor, as its appears in such Debtor’s Organization Documents, (ii) any names of such Debtor other than such Debtor’s current name, as set forth on such Debtor’s Organization Documents during the five (5) year period preceding the Closing Date, (iii) such Debtor’s type of organization and whether such Debtor is a Registered Organization, (iv) such Debtor’s jurisdiction of organization, (v) such Debtor’s location (as determined pursuant to Section 9-307 of the Uniform Commercial Code), (vi) such Debtor’s organizational identification number (if any) and (vii) whether or not such Debtor is a Transmitting Utility.

 

  

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3.3 Collateral Locations.  Schedule 3.3 hereto sets forth all addresses at which any Collateral is located, indicating for each whether such location is owned or leased by such Debtor, or owned or operated by a third-party such as a warehouseman, consignee or processor.  Schedule 3.3 hereto indicates which of the foregoing addresses serves as such Debtor’s chief executive office.  Schedule 3.3 hereto sets forth the legal description of all real properties maintained by such Debtor, leased or owned, on which any Fixtures are located, together with the name and address of the record owner of each such property.

 

3.4 Existing Liens.  Except for Permitted Liens, such Debtor owns the Collateral, and will own all after acquired Collateral, free and clear of any Lien.  No effective financing statement or other form of lien notice covering all or any part of the Collateral is on file in any recording office, except for those pertaining to Permitted Liens.

 

3.5 Governmental Authorizations; Consents; Federal Registration Collateral.  No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or consent of any other Person is required for (i) the grant by such Debtor of the Security Interests granted hereby or for the execution, delivery or performance of this Agreement by such Debtor; or (ii) the exercise by Secured Party of its rights and remedies hereunder (except as may have been accomplished by or at the direction of such Debtor or Secured Party).  Except as set forth on Schedule 3.5 hereto, none of the Collateral is Federal Registration Collateral.  Except for (a) the filing of UCC financing statements with the Secretary of State of such Debtor’s jurisdiction of organization, (b) the filing of any necessary registrations, recordations or notices, as applicable, in respect of any Federal Registration Collateral and (c) execution and delivery of Deposit Account Control Agreements in respect of Deposit Accounts, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or consent of any other Person is required for the perfection of the Security Interests granted hereby and pursuant to any other Transaction Documents.

 

3.6 Accounts.  Each existing Account constitutes, and each hereafter arising Account will constitute, the legally valid and binding obligation of the applicable Account Debtor.  The amount represented by such Debtor to Secured Party as owing by each Account Debtor, and the amount set forth on any invoice pertaining to any Account is, or will be, the correct amount actually and unconditionally owing, except for normal cash discounts and allowances where applicable.  No Account Debtor has, or will have, any defense, set-off, claim or counterclaim against such Debtor that can be asserted against Secured Party, whether in any proceeding to enforce Secured Party’s rights in the Collateral or otherwise, except defenses, setoffs, claims or counterclaims that are not, in the aggregate, material to the value of the Accounts.  None of the Accounts is, nor will any hereafter-arising Account be, evidenced by a promissory note or other Instrument other than a check, unless such note or other Instrument has been (i) issued in accordance with the terms and conditions of the Purchase Agreement and (ii) endorsed over and delivered to Purchaser.  The right to receive payment under each Account is assignable except where the Account Debtor with respect to such Account is a Governmental Authority, to the extent assignment of any such right to payment is prohibited or limited by Applicable Law.

 

  

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3.7 Inventory.  All Inventory is, and will be, of good and merchantable quality, free from any material defects subject to any reserves taken in Debtor’s audited financial statements in accordance with GAAP.  Such Inventory is not, and will not be, subject to any licensing, patent, trademark, trade name or copyright agreement with any Person that restricts such Debtor’s or Secured Party’s ability to manufacture and/or sell the Inventory.  The completion and manufacturing process of such Inventory by a Person other than such Debtor would be permitted under any contract to which such Debtor is a party or to which the Inventory is subject.  Such Debtor does not sell any Inventory to any customer on approval or on any other basis that entitles the customer to return, or which may obligate such Debtor to repurchase, such Inventory.  None of such Debtor’s Inventory has been, or will be, produced in violation of any material provision of the Fair Labor Standards Act of 1938, or in material violation of any Applicable Law.

 

3.8 Intellectual Property.  The Copyrights, Patents and Trademarks listed on Schedule 3.8 hereto constitute all of the Intellectual Property owned by such Debtor.  All Intellectual Property owned by such Debtor is valid, subsisting and enforceable and all filings necessary to maintain the effectiveness of such registrations have been made.  Such Debtor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to all Intellectual Property purported to be owned by such Debtor, free and clear of any Liens, including licenses and covenants by such Debtor not to sue third persons.  Such Debtor has no notice of any suits or actions commenced or threatened with reference to any Intellectual Property.  The execution, delivery and performance of this Agreement by such Debtor will not violate or cause a default under any Intellectual Property or any agreement in connection therewith.

 

3.9 Certain Collateral Disclosures.  Except in each case as set forth on Schedule 3.9 hereto, such Debtor has no ownership interest in any Chattel Paper, Letter of Credit Rights, Commercial Tort Claims, Documents, or Equipment covered by any certificate of title.

 

3.10 Control Arrangements.  Except for Control arising by operation of law in favor of banks and securities intermediaries having custody over Deposit Accounts and Securities Accounts set forth on Schedule 3.10 hereto, no Person has Control of any Deposit Accounts, Electronic Chattel Paper, Investment Property or Letter of Credit Rights in which such Debtor has any interest.

 

3.11 Accurate Information.  All information heretofore, herein or hereafter supplied to Secured Party by an Authorized Officer on behalf of such Debtor with respect to the Collateral is and will be accurate and complete in all material respects.  Without limiting the foregoing, all written information heretofore, herein or hereafter supplied to Secured Party by or on behalf of such Debtor with respect to the Collateral is and will be accurate and complete in all material respects.

 

  

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3.12 Survival of Representations and Warranties.  All representations and warranties of such Debtor contained in this Agreement shall survive the execution and delivery of this Agreement.

 

SECTION 4. Covenants and Further Assurances.

 

4.1 Name or Entity Changes.  No Debtor shall change its name, type of organization or jurisdiction of organization without the prior written consent of Secured Party, which consent shall not be unreasonably withheld.

 

4.2 Accounts.  Except as otherwise provided in this Section 4.2, each Debtor shall continue to collect, at its own expense, all amounts due or to become due to such Debtor with respect to Accounts and apply such amounts as are so collected to the outstanding balances thereof.  In connection with such collections, such Debtor may take (and at Secured Party’s direction during the continuance of any Event of Default, shall take) such action as such Debtor or Secured Party, as applicable, may deem necessary or advisable to enforce collection of the Accounts.  Secured Party shall have the right at any time after the occurrence and during the continuance of an Event of Default to: (i)  notify the Account Debtor under any Accounts (or any other Person obligated thereon) of the Lien granted upon such Accounts in favor of Secured Party and to direct such Account Debtors and other Persons to make payment of all amounts due or to become due or otherwise render performance directly to Secured Party; (ii) exercise the rights of such Debtor with respect to the obligation of the Account Debtor to make payment or otherwise render performance to such Debtor and with respect to any property that secures the obligations of the Account Debtor or any other Person obligated on the Collateral; and (iii) adjust, settle or compromise the amount or payment of such Accounts.  After the occurrence and during the continuance of an Event of Default, all amounts and Proceeds received by such Debtor with respect to the Accounts shall be received in trust for the benefit of Secured Party (on behalf of Secured Party), shall be segregated from other funds of such Debtor and shall be forthwith paid over to Secured Party in the same form as so received (with any necessary endorsement) to be held in any Deposit Account pursuant to Section 4.12 and applied pursuant to the terms of the Purchase Agreement.  No Debtor shall adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any Account Debtor, or allow any credit or discount thereon (other than credits and discounts in the Ordinary Course of Business) without the prior consent of Secured Party. Each Debtor agrees to execute any document or instrument, and to take any action, necessary under Applicable Law (including the Assignment of Claims Act) in order for Secured Party to exercise its rights and remedies (or be able to exercise its rights and remedies at some future date) with respect to any Accounts of such Debtor where the Account Debtor is a Governmental Authority.

 

4.3 Intellectual Property.

 

(a) In the event any Debtor acquires or becomes entitled to any new or additional Federal Registration Collateral consisting of Intellectual Property, or rights thereto, such Debtor shall give to Secured Party prompt written notice thereof, and shall amend (and hereby so authorizes Secured Party to amend) the schedules to the respective security agreements or enter into new or additional security agreements to include any such new or additional Intellectual Property.

 

  

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(b) Each Debtor shall: (i) diligently prosecute any Intellectual Property application at any time pending; (ii) make application for registration or issuance of all new or additional Intellectual Property as reasonably deemed appropriate by such Debtor; (iii) preserve and maintain all rights in the Intellectual Property; and (iv) use commercially reasonable efforts to obtain any consents, waivers or agreements necessary to enable Secured Party to exercise its remedies with respect to any and all Intellectual Property.

 

(c) No Debtor shall abandon any material right to file an Intellectual Property application nor shall any Debtor abandon any material pending Intellectual Property application, or registered Intellectual Property.

 

(d) No Debtor shall sell or assign its interest in, or grant any license under, any Intellectual Property or enter into any other agreement with respect to any Intellectual Property, and each Debtor further agrees that it shall not take any action or permit any action to be taken by others subject to its control, including licensees, or fail to take any action which would affect the validity or enforcement of the rights granted to Secured Party under this Agreement.

 

(e) Each Debtor agrees (i) to maintain the quality of any and all products in connection with which the Trademarks are used, consistent with commercially reasonable business practices, and (ii) to provide Secured Party, upon Secured Party’s request from time to time, with a certificate of an officer of such Debtor certifying such Debtor’s compliance with the foregoing.  Upon the occurrence of an Event of Default, each Debtor agrees that Secured Party, or a conservator appointed by Secured Party, shall have the right to establish such additional product quality controls as Secured Party, or said conservator, in its reasonable judgment, may deem necessary to assure maintenance of the quality of products sold by such Debtor under the Trademarks.

 

(f) Each Debtor hereby assigns, transfers and conveys to Secured Party all Intellectual Property owned or used by such Debtor to the extent necessary to enable Secured Party, effective upon the occurrence of any Event of Default, to realize on the Collateral and any successor or assign to enjoy the benefits of the Collateral.  This right and assignment shall inure to the benefit of Secured Party and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.  Such right and assignment is granted free of charge, without requirement that any monetary payment whatsoever including any royalty or license fee, be made to such Debtor or any other Person by Secured Party or any other Person.

 

4.4 Bailees.  No Collateral having a value, individually or in the aggregate, in excess of $75,000 shall at any time be in the possession or control of any warehouse, consignee, bailee or any of any Debtor’s agents or processors without prior written notice to Secured Party and the receipt by Secured Party, if Secured Party has so requested, of warehouse receipts or bailee lien waivers (as applicable) satisfactory to Secured Party prior to the commencement of such possession or control.  Each Debtor shall, upon the request of Secured Party, notify any such warehouse, consignee, bailee, agent or processor of the Security Interests, shall instruct such Person to hold all such Collateral for Secured Party’s account subject to Secured Party’s instructions and shall obtain an acknowledgement from such Person that such Person holds the Collateral for Secured Party’s benefit.

 

  

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4.5 Chattel Paper and Instruments.  Each Debtor shall deliver to Secured Party all Tangible Chattel Paper and all Instruments duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party.  Each Debtor shall provide Secured Party with Control of all Electronic Chattel Paper by having Secured Party identified as the assignee of the Records pertaining to the single authoritative copy thereof and otherwise complying with the applicable elements of Control set forth in the UCC.  Each Debtor also shall deliver to Secured Party all security agreements securing any Chattel Paper and securing any Instruments.  Each Debtor will mark conspicuously all Chattel Paper and all Instruments with a legend, in form and substance satisfactory to Secured Party, indicating that such Chattel Paper and such Instruments are subject to the Security Interests.  Notwithstanding anything herein to the contrary, the terms and provisions of this Section 4.5 shall not apply to Checks received and processed by Debtors in the Ordinary Course of Business so long as no Event of Default has occurred and is then continuing.

 

4.6 Letters of Credit.  Each Debtor shall deliver to Secured Party all Letters of Credit duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party.  Each Debtor also shall deliver to Secured Party all security agreements securing any Letters of Credit. Each Debtor shall take any and all actions as may be necessary or desirable, or that Secured Party may reasonably request, from time to time, to cause Secured Party to obtain exclusive Control of any Letter-of-Credit Rights owned by such Debtor in a manner acceptable to Secured Party.

 

4.7 Equipment.  Each Debtor shall cause all Equipment to be maintained and preserved in the same condition, repair and in working order as when new, ordinary wear and tear and obsolescence excepted, and shall promptly make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end.  Upon request of Secured Party, such Debtor shall promptly deliver to Secured Party any and all certificates of title, applications for title or similar evidence of ownership of all Equipment having a value in excess of $75,000 and shall cause Secured Party to be named as lienholder on any such certificate of title or other evidence of ownership.  Each Debtor shall promptly inform Secured Party of any deletions from the Equipment (other than deletions pursuant to asset dispositions permitted by the Purchase Agreement) and shall not permit any such items to become Fixtures to real estate other than real estate subject to mortgages or deeds of trust in favor of Secured Party.

 

4.8 Investment Property.  Each Debtor shall take any and all actions as may be necessary or desirable, or that Secured Party may reasonably request from time to time, to (i) cause Secured Party to obtain exclusive Control of any Investment Property owned by such Debtor in a manner acceptable to Secured Party and (ii) obtain from any issuers of Investment Property and such other Persons, for the benefit of Secured Party, written confirmation of Secured Party’s Control over such Investment Property upon terms and conditions acceptable to Secured Party.

 

  

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4.9 General Intangibles.  Each Debtor shall use commercially reasonable efforts to obtain any consents, waivers or agreements necessary to enable Secured Party to exercise remedies hereunder and under the other Transaction Documents with respect to any of such Debtor’s rights under any General Intangibles, including such Debtor’s rights as a licensee of Software.

 

4.10 Commercial Tort Claims.  Each Debtor shall promptly advise Secured Party upon such Debtor becoming aware that it has any interest in Commercial Tort Claims.  With respect to any Commercial Tort Claim in which any Debtor has any interest, such Debtor shall execute and deliver such documents as may be necessary or desirable, or that Secured Party may request, to create, perfect and protect Secured Party’s security interest in such Commercial Tort Claim.

 

4.11 Taxes and Claims.  Each Debtor shall pay when due all property and other taxes, assessments and governmental charges imposed upon, and all claims against, the Collateral (including claims for labor, materials and supplies); provided that no such tax, assessment or charge need be paid to the extent the same are Properly Contested and the same may be contested without risk of loss or forfeiture or material impairment of the Collateral or the use thereof.

 

4.12 Bank Accounts; Collection of Accounts and Payments.

 

(a) Upon request by Secured Party, each Debtor agrees to enter into a deposit account control agreement (“Deposit Account Control Agreement”), in a form reasonably acceptable to Secured Party, with each financial institution with which such Debtor maintains from time to time any Deposit Account, other than those accounts described in Section 8.15(b) of the Purchase Agreement.  No Debtor shall establish any Deposit Account with any financial institution unless prior thereto Secured Party and such Debtor shall have entered into a Deposit Account Control Agreement with such financial institution, or unless Secured Party shall have waived such requirement.  Each Deposit Account Control Agreement shall provide, among other things, that the financial institution maintaining the Deposit Account will waive certain rights of setoff and will, from and after receipt by such financial institution of written notice from Secured Party, transfer all amounts held by such financial institution on behalf of such Debtor, as Secured Party may direct.  The parties hereto agree that such written notice from Secured Party may only be given if an Event of Default under the Purchase Agreement has occurred and is continuing.

 

(b) Upon request by Secured Party at any time after the occurrence and during the continuance of an Event of Default, each Debtor agrees to establish lock box and blocked accounts (collectively, “Blocked Accounts”) in such Debtor's name with such banks as are acceptable to Secured Party (“Collecting Banks”), subject to irrevocable instructions in a form specified by Secured Party, to which Account Debtors shall directly remit all payments on Accounts and in which such Debtor will immediately deposit all cash payments for Inventory or other cash payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or check.  In addition, Secured Party may establish one or more depository accounts at each Collecting Bank or at a centrally located bank in the name of Secured Party or such Debtor as customer (collectively, the “Depository Account”).  Each Debtor shall cause each Collecting Bank, pursuant to an agreement in form and substance satisfactory to Secured Party, to cause all amounts held or deposited in the Blocked Accounts held by such Collecting Bank to be transferred to the Depository Account on a daily basis.

 

  

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4.13 Collateral Generally.

 

(a) Each Debtor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto (or similar documents required by any laws of any applicable jurisdiction), relating to all or any part of the Collateral without the signature of such Debtor (to the extent such signature is required under the laws of any applicable jurisdiction), which financing statements may describe the Collateral as “all assets” or “all personal property” or words of like import.

 

(b) Each Debtor will furnish to Secured Party, from time to time upon request, statements and schedules further identifying, updating, and describing the Collateral and such other information, reports and evidence concerning the Collateral as Secured Party may reasonably request, all in reasonable detail.

 

(c) Each Debtor shall not use or permit any Collateral to be used unlawfully or in material violation of any provision of Applicable Law, or any policy of insurance covering any of the Collateral.

 

(d) Subject to the next sentence, each Debtor shall keep the Collateral (other than Collateral in the possession of Secured Party, cash on deposit in permitted Deposit Accounts and investments in permitted Securities Accounts) at the locations maintained by such Debtor and set forth on Schedule 3.3 hereto.  Each Debtor shall give Secured Party not less than thirty (30) days prior written notice of any change in such Debtor’s chief executive office and principal place of business or of any new location of business or any new location for any of the Collateral.  With respect to any new location (which in any event shall be within the continental United States), each Debtor shall execute and deliver such instruments, documents and notices and take such actions as may be necessary, or that Secured Party may request, to create, perfect and protect the Security Interests.

 

(e) Each Debtor shall keep full and accurate books and records relating to the Collateral and shall stamp or otherwise mark such books and records in such manner as Secured Party may reasonably request indicating that the Collateral is subject to the Security Interests.

 

(f) Except as otherwise permitted herein or by the Purchase Agreement, no Debtor shall (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral to secure indebtedness of such Debtor or any other Person except for the Security Interests and Permitted Liens.

 

(g) Beyond the safe custody and reasonable care in preservation thereof, each Debtor agrees that Secured Party shall have no duties concerning the custody and preservation of any Collateral in its possession (or in the possession of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto.  Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property.  Secured Party shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by Secured Party in good faith.

 

  

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(h) Each Debtor shall do nothing to impair the rights of Secured Party in the Collateral.  Each Debtor assumes all liability and responsibility in connection with the Collateral acquired, held or used by it, and the liability of such Debtor to pay the Secured Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, stolen, damaged, or for any reason whatsoever unavailable to such Debtor.

 

(i) Secured Party agrees that upon payment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral shall revert to the applicable Debtor.  Secured Party further agrees that upon such termination of the Security Interests or release of any Collateral, Secured Party shall, at the joint and several expense of the Debtors, execute and deliver to each Debtor such documents as such Debtor shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be.

 

4.14 Federal Compliance.

 

(a) As soon as possible after the end of each month (but in any event within five (5) Business Days after the end thereof) or more frequently as Secured Party may request following the occurrence and during the continuation of an Event of Default, each Debtor shall notify Secured Party in writing of any and all interest acquired in Federal Registration Collateral during such month.  Each Debtor shall take such steps as may be necessary, or that Secured Party may request, in order to perfect any Security Interests in Federal Registration Collateral.

 

(b) As soon as possible after the end of each month (but in any event within five (5) Business Days after the end thereof) or more frequently as Secured Party may request following the occurrence and during the continuation of an Event of Default, each Debtor shall notify Secured Party in writing of any and all Collateral which constitutes a claim against the United States government or any instrumentality or agency thereof arising in the Ordinary Course of Business during such month, the assignment of which claim is restricted by federal law.  Each Debtor shall promptly notify Secured Party in writing of any Collateral which constitutes a claim against the United States government or any instrumentality or agency thereof not arising outside of the Ordinary Course of Business, the assignment of which claim is restricted by federal law.  Upon the request of Secured Party, each Debtor shall take such steps as may be necessary, or that Secured Party may request, to comply with any applicable federal assignment of claims laws and other comparable laws.

 

(c) Each Debtor shall not produce any Inventory in violation of any material provision of the Fair Labor Standards Act of 1938, or in material violation of any other law.

 

  

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4.15 Debtors Remain Liable.  Anything herein to the contrary notwithstanding: (i) each Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein and shall perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by Secured Party of any of the rights hereunder shall not release any Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral; (iii) Secured Party shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of any Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder; and (iv) Secured Party shall not have any liability in contract or tort for any Debtor’s acts or omissions.

 

4.16 Insurance.  The assets and properties of each Debtor at all times shall be maintained in accordance with the requirements of the Purchase Agreement.  Debtors shall bear the full risk of any loss of any nature whatsoever with respect to the Collateral.  Debtors will furnish Secured Party with (i) copies of all insurance policies and evidence of the maintenance of such policies by the renewal thereof at least thirty (30) days before any expiration date, and (ii) appropriate lender loss payable and additional insured endorsements in form and substance satisfactory to Secured Party, naming Secured Party as a lender loss payee and additional insured as its interests may appear with respect to property, casualty and liability insurance coverage, and providing (A) that all proceeds thereunder shall be payable to Secured Party as its interests may appear, (B) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy, and (C) that such policy and loss payable clauses may not be cancelled, amended or terminated unless at least thirty (30) days’ prior written notice is given to Secured Party.  In the event of any loss thereunder, the carriers named therein hereby are directed by Secured Party and Debtors to make payment for such loss to Secured Party and not to such Debtor and Secured Party jointly.  If any such insurance losses are paid by check, draft or other instrument payable to any Debtor and Secured Party jointly, Secured Party may endorse such Debtor’s name thereon and do such other things as Secured Party may deem advisable to reduce the same to cash.  If any payment for such loss is made to a Debtor and not Secured Party, such Debtor shall turn over such payment to Secured Party.  Secured Party is hereby authorized to adjust and compromise claims under insurance coverage referred to above.  All loss recoveries received by Secured Party upon any such insurance may, subject to the following provisions of this section, be applied to the Secured Obligations in accordance with the applicable provisions of the Purchase Agreement.  Any surplus shall be paid by Secured Party to Debtors or applied as may be otherwise required by law.  Any deficiency thereon shall be paid by Debtors to Secured Party, on demand.

 

4.17 Other Documents and Actions.  Each Debtor shall, from time to time, at its expense, promptly execute and deliver all further instruments, documents and notices and take all further action that may be necessary, or that Secured Party may request, in order to create, perfect and protect any Security Interests, or to enable Secured Party to exercise and enforce its rights and remedies hereunder or under any other Transaction Document with respect to any Collateral.  Without limiting the generality of the foregoing, each Debtor shall:  (i) at any reasonable time, upon demand by Secured Party to such Debtor, allow inspection of the Collateral by Secured Party or Persons designated by Secured Party and to examine and make copies of the records of such Debtor related thereto, and to discuss the Collateral and the records of such Debtor with respect thereto with, and to be advised as to the same by, such Debtor’s officers and employees (with all of such information to be held by Secured Party in accordance with the terms and conditions of the Purchase Agreement) and, after the occurrence and during the continuance of an Event of Default, with any other Person which is or may be obligated with respect to any Collateral; and (ii) upon Secured Party’s request, appear in and defend any action or proceeding that may affect such Debtor’s title to or Secured Party’s security interest in the Collateral.

 

  

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SECTION 5. Remedial Provisions.

 

(a) Upon the occurrence and during the continuance of an Event of Default, Secured Party or its attorneys shall have the right without notice or demand or legal process (unless the same shall be required by Applicable Law), personally, or by an agent, (i) to enter upon, occupy and use any premises owned or leased by a Debtor or where the Collateral is located (or is believed to be located), subject to Applicable Law, until the Secured Obligations are paid in full without any obligation to pay rent to such Debtor, to render the Collateral useable or saleable and to remove the Collateral or any part thereof to the premises of Secured Party for such time as Secured Party may desire in order to effectively collect or liquidate the Collateral and use in connection with such removal any and all services, supplies and other facilities of such Debtor; (ii) to take possession of such Debtor’s original books and records, to obtain access to such Debtor’s data processing equipment, computer hardware and Software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner Secured Party deems appropriate; and (iii) to notify postal authorities to change the address for delivery of such Debtor’s mail to an address designated by Secured Party and to receive, open and dispose of all mail addressed to such Debtor.  If any Debtor’s books and records are prepared or maintained by an accounting service, contractor or other third party agent, such Debtor hereby irrevocably authorizes such service, contractor or other agent, upon notice by Secured Party to such Person that an Event of Default has occurred and is continuing, to deliver to Secured Party or its designees such books and records, and to follow Secured Party’s instructions with respect to further services to be rendered.

 

(b) If any Event of Default shall have occurred and be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein, in the Purchase Agreement or otherwise available to it, all the rights and remedies of Secured Party on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may: (i) require each Debtor to, and each Debtor hereby agrees that it will, at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at any place or places designated by Secured Party which is reasonably convenient to Secured Party in which event such Debtor shall at its own expense (A) forthwith cause the same to be moved to the place or places so designated by Secured Party, (B) store and keep any Collateral so delivered to Secured Party at such place or places pending further action by Secured Party, and (C) while Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain the Collateral in good condition; (ii) withdraw all cash in any Deposit Account and apply such monies in payment of the Secured Obligations; and (iii) without notice except as specified below, sell, lease, license or otherwise dispose of the Collateral or any part thereof by one or more contracts, in one or more parcels at public or private sale, and without the necessity of gathering at the place of sale of the property to be sold, at any of Secured Party’s offices or elsewhere, at such time or times, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable.  Secured Party shall have no obligation to marshal any Collateral in favor of the any Debtor or any other Credit Party.

 

  

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(c) Each Debtor agrees that, to the extent notice of sale shall be required by law, a reasonable authenticated notification of disposition shall be a notification given at least ten (10) days prior to any such sale and such notice shall (i) describe Secured Party and the applicable Debtor, (ii) describe the Collateral that is the subject of the intended disposition, (iii) state the method of intended disposition, (iv) state that such Debtor is entitled to an accounting of the Secured Obligations and state the charge, if any, for an accounting, and (v) state the time and place of any public disposition or the time after which any private sale is to be made.  At any sale of the Collateral, if permitted by law, Secured Party may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase, lease, license or other disposition of the Collateral or any portion thereof for the account of Secured Party (on behalf of Secured Party and the Purchaser).  Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.  Secured Party may disclaim any warranties that might arise in connection with the sale, lease, license or other disposition of the Collateral and have no obligation to provide any warranties at such time.  Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.  To the extent permitted by law, each Debtor hereby specifically waives all rights of redemption, stay or appraisal, which it has or may have under any law now existing or hereafter enacted.

 

(d)  If an Event of Default has occurred and is continuing, each Debtor hereby irrevocably authorizes and empowers Secured Party, without limiting any other authorizations or empowerments contained in any of the other Transaction Documents, to assert, either directly or on behalf of such Debtor, any claims such Debtor may have, from time to time, against any other party to any of the agreements to which such Debtor is a party or to otherwise exercise any right or remedy of such Debtor under any such agreements (including the right to enforce directly against any party to any such agreement all of such Debtor’s rights thereunder, to make all demands and give all notices and to make all requests required or permitted to be made by such Debtor thereunder).

 

(e) If an Event of Default has occurred and is continuing, the proceeds of any collection, enforcement, sale or other disposition of, or other realization upon, all or any part of the Collateral and any cash held in any Deposit Account shall be applied in accordance with the applicable provisions of the Purchase Agreement.

 

(f) Each Debtor acknowledges and agrees that a breach of any of the covenants contained in Sections 4, 5 and 6 hereof will cause irreparable injury to Secured Party and that Secured Party has no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of Secured Party to seek and obtain specific performance of other obligations of such Debtor contained in this Agreement, that the covenants of such Debtor contained in the Sections referred to in this Section shall be specifically enforceable against such Debtor.

 

  

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(g) No failure or delay on the part of any party hereto in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or any other right, power or privilege.  All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

SECTION 6. Attorney-in-Fact.

 

Each Debtor hereby irrevocably appoints Secured Party, its nominee, and any other Person whom Secured Party may designate, as such Debtor’s attorney in fact, with full power during the existence of any Event of Default: (i) to sign such Debtor’s name on verifications of Accounts and other Collateral; (ii) to send requests for verification of Collateral to such Debtor’s customers, Account Debtors and other obligors; (iii) to endorse such Debtor’s name on any checks, notes, acceptances, money orders, drafts, and any other forms of payment or security that may come into Secured Party’s possession or on any assignments, stock powers, or other instruments of transfer relating to the Collateral or any part thereof; (iv) to sign such Debtor’s name on any invoice or bill of lading relating to any Collateral, on claims to enforce collection of any Collateral, on notices to and drafts against customers and Account Debtors and other obligors, on schedules and assignments of Collateral, on notices of assignment and on public records; (v) to notify the post office authorities to change the address for delivery of such Debtor’s mail to an address designated by Secured Party; (vi) to receive, open and dispose of all mail addressed to such Debtor; (vii) to sign any document which may be required by the United States Patent and Trademark Office or United States Copyright Office or similar registrar in order to effect an absolute assignment of all right, title and interest in any Intellectual Property, and record the same, as applicable; (viii) to execute any document or instrument, and to take any action, necessary under Applicable Law (including the Assignment of Claims Act) in order for Secured Party to exercise its rights and remedies (or to be able to exercise its rights and remedies at some future date) with respect to any Account of an Account Debtor, customer or other obligor (including any such Account Debtor, customer or obligor that is a Governmental Authority); and (ix) to do all things necessary to carry out the terms and provisions of this Agreement.  Each Debtor hereby ratifies and approves all acts of any such attorney and agrees that neither Secured Party nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than, and to the extent of, such Person’s gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment).  The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Secured Obligations have been fully paid and satisfied and the Security Interests shall have terminated in accordance with the terms hereof.

 

  

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SECTION 7. Expenses.

 

(a) Without limiting any Debtor’s obligations under the Purchase Agreement or the other Transaction Documents, each Debtor hereby agrees to promptly pay all fees, costs and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with (i) protecting, storing, warehousing, appraising, insuring, handling, maintaining and shipping the Collateral, (ii) creating, perfecting, maintaining and enforcing Secured Party’s Liens and (iii) collecting, enforcing, retaking, holding, preparing for disposition, processing and disposing of the Collateral.

 

(b) If any Debtor fails to promptly pay any portion of the above costs, fees and expenses when due or to perform any other obligation of such Debtor under this Agreement, Secured Party may, at its option, but shall not be required to, pay or perform the same and charge such Debtor’s account for all fees, costs and expenses incurred therefor, and the Debtors jointly and severally agree to reimburse Secured Party therefor on demand.  All sums so paid or incurred by Secured Party for any of the foregoing, any and all other sums for which any Debtor may become liable hereunder and all fees, costs and expenses (including attorneys’ fees, legal expenses and court costs) incurred by Secured Party in enforcing or protecting the Security Interests or any of their rights or remedies under this Agreement shall be payable on demand, shall constitute Secured Obligations, shall bear interest until paid at the highest rate provided in the Purchase Agreement and shall be secured by the Collateral.

 

SECTION 8. Notices.

 

All notices, approvals, requests, demands and other communications hereunder to be delivered to any Debtor and all notices, approvals, requests, demands and other communications hereunder shall be given in accordance with the notice provision of the Purchase Agreement.

 

SECTION 9. Successors and Assigns.

 

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns except that (x) no Debtor may assign its rights or obligations hereunder without the written consent of Secured Party (and any such assignment or transfer without such consent shall be null and void ab initio) and (y) Secured Party may assign its rights or obligations hereunder except to the extent prohibited by the Purchase Agreement.  No sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to Secured Party, for its benefit and the benefit of the Purchaser, hereunder, subject to the rights of any such assignee.

 

SECTION 10. Changes in Writing.

 

No amendment, modification, termination or waiver of any provision of this Agreement shall be effective unless the same shall be in writing signed by Secured Party (or with such other consent as is required by the Purchase Agreement) and the Debtors.

 

  

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SECTION 11. GOVERNING LAW.

 

THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.

 

SECTION 12. JURISDICTION; JURY TRIAL WAIVER.

 

(a) EACH PARTY HERETO HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT FORUM.  EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 12.02 OF THE PURCHASE AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OTHER PARTY HERETO IN ANY OTHER JURISDICTION IN THE EVENT THAT A STATE OR FEDERAL COURT LOCATED IN THE COUNTY OF NEW YORK DECLINES JURISDICTION.

 

(b) EACH PARTY HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.  EACH PARTY HERETO (I) CERTIFIES THAT NEITHER THE OTHER PARTY NOR ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.

 

To the extent that any Debtor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such Debtor hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the other Transaction Documents.

 

  

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SECTION 13. Counterparts; Integration.

 

Facsimile or electronic transmissions of any executed original document and/or retransmission of any executed facsimile or electronic transmission shall be deemed to be the same as the delivery of an executed original.  At the request of any party hereto, the other parties hereto shall confirm facsimile or electronic transmissions by executing duplicate original documents and delivering the same to the requesting party or parties.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  This Agreement constitutes the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

 

SECTION 14. Headings.

 

Headings and captions used in this Agreement are included for convenience of reference and shall not be given any substantive effect.

 

SECTION 15. General Terms and Conditions.

 

In addition to and without limitation of any of the foregoing, this Agreement shall be deemed to be a Transaction Document and shall otherwise be subject to all of the general terms and conditions contained in Article 12 of the Purchase Agreement, mutatis mutandi.

 

SECTION 16. Additional Debtors.

 

It is understood and agreed that any Subsidiary of the Issuer or other Person that desires to become a Debtor hereunder, or is required to become a party to this Agreement after the date hereof pursuant to the requirements of the Purchase Agreement, any other Transaction Document or otherwise, shall become a Debtor hereunder by (x) executing a joinder agreement in form and substance satisfactory to Secured Party, (y) delivering supplements to Schedules hereto as are necessary to cause such Schedules to be complete and accurate with respect to such additional Debtor on such date and (z) taking all actions as specified in this Agreement as would have been taken by such Debtor had it been an original party to this Agreement, in each case with all documents required above to be delivered to Secured Party and with all documents and actions required above to be taken to the reasonable satisfaction of Secured Party.

 

[Signature page follows]

 

 

  

19

  

Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above.

 

DEBTORS:

TEL-INSTRUMENT ELECTRONICS CORP.

By:           __________________________________

Name:           __________________________________

Title:           __________________________________

SECURED PARTY:

[   ]

By:           ____________________________________

Name:           ____________________________________

Title:           ____________________________________

 

_________________________________________

Read and Approved by: [   ]

  

  

  

 

Schedules to Security Agreement

 

Schedule 3.2

 

 

Organizational Information

 

  

21

  

Schedules to Security Agreement

 

Schedule 3.3

 

 

Collateral Locations, Chief Executive Office, Real Estate, Legal Descriptions

 

  

  

  

Schedule 3.5

 

 

Federal Registration Collateral

 

 

 

  

  

  

Schedule 3.6

 

 

Intellectual Property

 

  

  

  

Schedule 3.9

 

 

Chattel Paper, Letter-of-Credit Rights, Commercial Tort Claims, Documents,

 

Titled Equipment

 

  

  

  

Schedule 3.10

 

 

Deposit and Securities Accounts

 

	
Bank

	
Account No.

	
Type of

Account

	
Description

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