Document:

EX-10.1

 

Exhibit 10.1

Hartville Group, Inc.

Conversion Agreement and Release

     This Conversion Agreement and Release (the “Agreement”) is entered into as of July 31, 2006
among Hartville Group, Inc., a Nevada corporation (the “Company”), and each of the undersigned
holders of Convertible Debentures issued by the Company (each, a “Holder” and collectively, the
“Holders”).

Background Information

     A. The Company issued convertible debentures (convertible into shares of the Company’s Common
Stock) (the “Convertible Debentures”) and Warrants (to purchase shares of the Company’s Common
Stock) (the “Warrants”) to the Holders pursuant to (i) a Securities Purchase Agreement, dated
November 11, 2004, by and among the Company and the purchasers signatory thereto, as amended
pursuant to that certain Interest Amendment and Forbearance Agreement, dated October ___, 2005,
pursuant to which additional Convertible Debentures and Warrants were issued (the “November 11
Purchase Agreement”); and (ii) a Securities Purchase Agreement, dated November 26, 2004, by and
among the Company and the purchasers signatory thereto, as amended pursuant to that certain
Interest Amendment and Forbearance Agreement, dated October ___, 2005, pursuant to which additional
Convertible Debentures and Warrants were issued (the “November 26 Purchase Agreement”). Each of
the November 11 Purchase Agreement and the November 26 Purchase Agreement shall be referred to as a
“Purchase Agreement” and, collectively, as the “Purchase Agreements”.

     B. Pursuant to (i) the Registration Rights Agreement, dated November 11, 2004, entered into by
and among the Company and the purchasers signatory thereto, as amended (the “November 11
Registration Rights Agreement”); and (ii) the Registration Rights Agreement, dated November 26,
2004, entered into by and among the Company and the purchasers signatory thereto, as amended (the
“November 26 Registration Rights Agreement”), each of which was entered into in connection with the
Purchase Agreements, the Holders have certain registration rights with respect to the shares of
Common Stock issuable upon conversion of the Convertible Debentures or exercise of the Warrants and
with respect to certain other securities. Each of the November 11 Registration Rights Agreement
and the November 26 Registration Rights Agreement shall be referred to as a “Registration Rights
Agreement” and, collectively, as the “Registration Rights Agreements”.

     C. The Holders now desire (i) to elect to either convert all Convertible Debentures issued
pursuant to the Purchase Agreements into shares of Common Stock of the Company or to receive a cash
payment as payment in full with respect to all Convertible Debentures issued pursuant to the
Purchase Agreements, in either case pursuant to the terms of this Agreement and (ii) to terminate
the Purchase Agreements, the Registration Rights Agreements and the Convertible Debentures in their
entirety.

Agreement

     The parties hereby acknowledge the foregoing Background Information and agree as follows:

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     The aggregate outstanding principal amount of the Convertible Debentures (the “Conversion
Amount”) held by each Holder shall, at the election of each such Holder as indicated on the
signature page to this Agreement, either (i) be converted into such number of shares of the
Company’s Common Stock as is equal to the Conversion Amount for such Holder divided by $0.15 (with
any fractional shares being rounded up to the nearest whole share) (the “Conversion Shares”) or
(ii) agree to receive cash in an amount equal to the Conversion Amount for such Holder multiplied
by 0.20 (the “Cash Payment”).

     This Agreement shall become effective upon receipt of executed and completed signature pages
to this Agreement from all Holders of Convertible Debentures (the “Effective Date”);
provided, however, the Effective Date must occur on or before August 1, 2006 or
this Agreement shall be null and void and of no further force or effect. The Company hereby agrees
that upon the Effective Date, it shall promptly issue and send to each Holder such Holder’s
Conversion Shares or Cash Payment, as applicable.

     Each Holder agrees that as of the Effective Date, such Holder’s Convertible Debentures shall
be deemed to be converted or re-paid in full, as applicable, and such Holder shall no longer have
any rights with respect to such Convertible Debentures (other than the issuance by the Company of
the Conversion Shares or payment by the Company of the Cash Payment, as applicable).

     Each Holder agrees that, as of the Effective Date, all provisions in the Securities Purchase
Agreements, the Registration Rights Agreements and each Convertible Debenture (collectively, the
“Transaction Agreements”) relating solely to the Convertible Debentures and, if after the Effective
Date such Holder shall not hold any Conversion Shares (by virtue of prior conversions or receipt of
Conversion Shares hereunder), shares underlying the Convertible Debentures (other than any
indemnification or contribution provisions), any provisions relating to rights to participate in
future financings and any prohibitions on additional financings by the Company shall terminate in
their entirety and be of no further force or effect. Nothing herein shall be deemed to modify or
amend the rights of a Holder and obligations of the Company under the Transaction Agreements with
respect to its Warrant and the Warrant Shares which rights and obligations shall remain in full
force and effect; except that, the Company’s obligation to register the Warrant Shares under the
Registration Rights Agreement (other than pursuant to any piggy-back registration rights therein)
is hereby terminated. Each Holder further agrees that the Company shall be deemed to have complied
with all of its rights and obligations under the Transaction Agreements and such Holder hereby
releases the Company from all liabilities, damages or obligations pursuant to the Transaction
Agreements, including without limitation any rights to registration of securities, liquidated
damages or interest payments.

     The Company, for itself and its affiliates and successors and assigns, hereby releases and
discharges each Holder and its respective directors, officers, shareholders, members, partners,
employees and agents (and any other persons with a functionally equivalent role of a person holding
such titles notwithstanding a lack of such title or any other title) successors and assigns from
all suits, claims, charges, liabilities and causes of action, whatsoever, whether known or unknown,
in law or equity or otherwise, which the Company or its affiliates, successors and assigns have or
may have against any or all of them arising out of, relating to, or in connection solely with with
the Transaction Documents, the Convertible Debentures and the Warrants.

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     Each Holder, severally and not jointly with the other Holders, for itself and its affiliates
and successors and assigns, hereby releases and discharges the Company and its respective
directors, officers, shareholders, members, partners, employees and agents (and any other persons
with a functionally equivalent role of a person holding such titles notwithstanding a lack of such
title or any other title), successors and assigns from all suits, claims, charges, liabilities and
causes of action, whatsoever, whether known or unknown, in law or equity or otherwise, which such
Holder or its affiliates, successors and assigns have or may have against any or all of them
arising out of, relating to, or in connection solely with any breach or violation by the Company
under the Transaction Documents, Convertible Debentures or Warrants that occurred prior to the date
hereof.

     This Agreement may be executed in multiple counterparts, each of which shall be deemed to be
an original, but all of which taken together shall constitute one and the same Agreement. Any
photostatic, facsimile, or electronic reproduction of the executed Agreement shall constitute an
original.

[Remainder of page intentionally left blank. Signature page follows.]

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Company:

Hartville Group, Inc.

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

     Dennis C. Rushovich
	 	 
	 

	 	     President & CEO	 	 

Holders:

	 	 	 
	Name of Holder:
	 	 
	 

	 	 

	 	 	 
	Signature of Authorized Signatory of Holder:
	 	 
	 

	 	 

	 	 	 
	Name of Authorized Signatory:
	 	 
	 

	 	 

	 	 	 
	Title of Authorized Signatory:
	 	 
	 

	 	 

	 	 	 
	Outstanding Principal Amount of Convertible Debentures:
	 	 
	 

	 	 

	 	 	 
	Date of Issue of Convertible Debentures:
	 	 
	 

	 	 

Please select one of the following conversion alternatives:

	 	 	 	 	 
	 

	 	 
	 	Conversion Shares (equal to the Outstanding Principal Amount divided by $0.15)
	 
	 	 	 	 
	 

	 	 
	 	Cash Payment (equal to the Outstanding Principal Amount multiplied by 0.20)

Address for Delivery of Conversion Shares or Cash Payment, as applicable:

 

 

 

	 	 	 
	EIN Number:
	 	 
	 

	 	 

	 	 	 
	Facsimile Number:
	 	 
	 

	 	 

	 	 	 
	Email Address:
	 	 
	 

	 	 

4EX-10.2

 

Exhibit 10.2

SECURITY AGREEMENT

     SECURITY AGREEMENT, dated as of July 31, 2006 (this “Agreement”), among Hartville
Group, Inc., a Nevada corporation (the “Company”) and all of the Subsidiaries of the
Company (such subsidiaries, the “Guarantors”) (the Company and Guarantors are collectively
referred to as the “Debtors”) and the holder or holders of the Company’s Original Issue
Discount Secured Debentures due July 31, 2009 in the original aggregate principal amount of
$7,600,000 (the “Debenture”), signatory hereto, their endorsees, transferees and assigns
(collectively referred to as, the “Secured Parties”).

W I
T N E S S E T H:

     WHEREAS, pursuant to the Debenture, the Secured Parties have severally agreed to extend the
loans to the Company evidenced by the Debenture;

     WHEREAS, pursuant to a certain Subsidiary Guarantee dated as of the date hereof (the
“Guaranty”), the Guarantors have jointly and severally agreed to guaranty and act as surety
for payment of such loans; and

     WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the
Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and
to grant the Secured Parties, pari passu with each other Secured Party, a perfected security
interest in certain property of such Debtor to secure the prompt payment, performance and discharge
in full of all of the Company’s obligations under the Debenture and the other Debtor’s obligations
under the Guaranty.

     NOW, THEREFORE, in consideration of the agreements herein contained and for other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:

     1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings
set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are
defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”,
“deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”,
“instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and
“supporting obligations”) shall have the respective meanings given such terms in Article 9 of the
UCC.

     (a) “Collateral” means the collateral in which the Secured Parties are granted
a security interest by this Agreement and which shall include the following personal
property of the Debtors, whether presently owned or existing or hereafter acquired or coming
into existence, wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the Collateral and

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of insurance covering the same and of any tort claims in connection therewith, and all
dividends, interest, cash, notes, securities, equity interest or other property at any time
and from time to time acquired, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Securities (as defined below):

     (i) All goods, including, without limitations, (A) all machinery, equipment,
computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture,
special and general tools, fixtures, test and quality control devices and other
equipment of every kind and nature and wherever situated, together with all
documents of title and documents representing the same, all additions and accessions
thereto, replacements therefor, all parts therefor, and all substitutes for any of
the foregoing and all other items used and useful in connection with any Debtor’s
businesses and all improvements thereto; and (B) all inventory;

     (ii) All contract rights and other general intangibles, including, without
limitation, all partnership interests, membership interests, stock or other
securities, rights under any of the Organizational Documents, agreements related to
the Pledged Securities, licenses, distribution and other agreements, computer
software (whether “off-the-shelf”, licensed from any third party or developed by any
Debtor), computer software development rights, leases, franchises, customer lists,
quality control procedures, grants and rights, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, copyrights, and income tax
refunds;

     (iii) All accounts, together with all instruments, all documents of title
representing any of the foregoing, all rights in any merchandising, goods,
equipment, motor vehicles and trucks which any of the same may represent, and all
right, title, security and guaranties with respect to each account, including any
right of stoppage in transit;

     (iv) All documents, letter-of-credit rights, instruments and chattel paper;

     (v) All commercial tort claims;

     (vi) All deposit accounts and all cash (whether or not deposited in such
deposit accounts);

     (vii) All investment property;

     (viii) All supporting obligations; and

     (ix) All files, records, books of account, business papers, and computer
programs; and

     (x) the products and proceeds of all of the foregoing Collateral set forth in
clauses (i)-(ix) above.

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     Without limiting the generality of the foregoing, the “Collateral”
shall include all investment property and general intangibles respecting ownership
and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H
hereto (as the same may be modified from time to time pursuant to the terms hereof),
and any other shares of capital stock and/or other equity interests of any other
direct or indirect subsidiary of any Debtor obtained in the future, and, in each
case, all certificates representing such shares and/or equity interests and, in each
case, all rights, options, warrants, stock, other securities and/or equity interests
that may hereafter be received, receivable or distributed in respect of, or
exchanged for, any of the foregoing (all of the foregoing being referred to herein
as the “Pledged Securities”) and all rights arising under or in connection
with the Pledged Securities, including, but not limited to, all dividends, interest
and cash.

     Notwithstanding the foregoing, nothing herein shall be deemed to constitute an
assignment of any asset which, in the event of an assignment, becomes void by
operation of applicable law or the assignment of which is otherwise prohibited by
applicable law (in each case to the extent that such applicable law is not
overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar
applicable law); provided, however, that to the extent permitted by applicable law,
this Agreement shall create a valid security interest in such asset and, to the
extent permitted by applicable law, this Agreement shall create a valid security
interest in the proceeds of such asset.

     (b) “Intellectual Property” means the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including, without limitation, (i) all
copyrights arising under the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether published or
unpublished, all registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings and applications in
the United States Copyright Office, (ii) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions thereof, and all
applications for letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade dress,
service marks, logos, domain names and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection therewith, whether
in the United States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political subdivision thereof,
or otherwise, and all common law rights related thereto, (iv) all trade secrets arising
under the laws of the United States, any other country or any political subdivision thereof,
(v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all
licenses for any of the foregoing, and (vii) all causes of action for infringement of the
foregoing.

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     (c) “Majority in Interest” shall mean, at any time of determination, the
majority in interest (based on then-outstanding principal amounts of Debentures at the time
of such determination) of the Secured Parties.

     (d) “Necessary Endorsement” shall mean undated stock powers endorsed in blank
or other proper instruments of assignment duly executed and such other instruments or
documents as the Agent (as that term is defined below) may reasonably request.

     (e) “Obligations” means all of the liabilities and obligations (primary,
secondary, direct, contingent, sole, joint or several) due or to become due, or that are now
or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured
Parties, including, without limitation, all obligations under this Agreement, the
Debentures, the Guaranty and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not from time to
time decreased or extinguished and later increased, created or incurred, and all or any
portion of such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from any of the Secured Parties
as a preference, fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time. Without limiting the
generality of the foregoing, the term “Obligations” shall include, without limitation: (i)
principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii)
any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from
time to time under or in connection with this Agreement, the Debentures, the Guaranty and
any other instruments, agreements or other documents executed and/or delivered in connection
herewith or therewith; and (iii) all amounts (including but not limited to post-petition
interest) in respect of the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any Debtor.

     (f) “Organizational Documents” means with respect to any Debtor, the documents
by which such Debtor was organized (such as a certificate of incorporation, certificate of
limited partnership or articles of organization, and including, without limitation, any
certificates of designation for preferred stock or other forms of preferred equity) and
which relate to the internal governance of such Debtor (such as bylaws, a partnership
agreement or an operating, limited liability or members agreement).

     (g) “UCC” means the Uniform Commercial Code of the States of Nevada and Ohio
and or any other applicable law of any state or states which has jurisdiction with respect
to all, or any portion of, the Collateral or this Agreement, from time to time. It is the
intent of the parties that defined terms in the UCC should be construed in their broadest
sense so that the term “Collateral” will be construed in its broadest sense.

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Accordingly if there are, from time to time, changes to defined terms in the UCC that
broaden the definitions, they are incorporated herein and if existing definitions in the UCC
are broader than the amended definitions, the existing ones shall be controlling.

     2. Grant of Perfected First Priority Security Interest. As an inducement for the Secured
Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely
payment, performance and discharge in full, as the case may be, of all of the Obligations, each
Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured
Parties a continuing and perfected security interest in and to, a lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and nature in and to,
the Collateral (the “Security Interest”).

     3. Delivery of Certain Collateral. Contemporaneously or prior to the execution of this
Agreement, each Debtor shall deliver or cause to be delivered to the Agent (a) any and all
certificates and other instruments representing or evidencing the Pledged Securities, and (b) any
and all certificates and other instruments or documents representing any of the other Collateral,
in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with
the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and
correct copy of each Organizational Document governing any of the Pledged Securities.

     4. Representations, Warranties, Covenants and Agreements of the Debtors. Each Debtor
represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

     (a) Each Debtor has the requisite corporate, partnership, limited liability company
or other power and authority to enter into this Agreement and otherwise to carry out its
obligations hereunder. The execution, delivery and performance by each Debtor of this
Agreement and the filings contemplated therein have been duly authorized by all necessary
action on the part of such Debtor and no further action is required by such Debtor. This
Agreement has been duly executed by each Debtor. This Agreement constitutes the legal,
valid and binding obligation of each Debtor, enforceable against each Debtor in accordance
with its terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws of general application relating to or affecting
the rights and remedies of creditors and by general principles of equity.

     (b) The Debtors have no place of business or offices where their respective books of
account and records are kept (other than temporarily at the offices of its attorneys or
accountants) or places where Collateral is stored or located, except as set forth on
Schedule A attached hereto. Except as specifically set forth on Schedule A,
each Debtor is the record owner of the real property where such Collateral is located, and
there exist no mortgages or other liens on any such real property except for Permitted Liens
(as defined in the Debentures). Except as disclosed on Schedule A, none of such
Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

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     (c) Except for Permitted Liens (as defined in the Debentures) and except as set forth
on Schedule B attached hereto, the Debtors are the sole owner of the Collateral
(except for non-exclusive licenses granted by any Debtor in the ordinary course of
business), free and clear of any liens, security interests, encumbrances, rights or claims,
and are fully authorized to grant the Security Interest. There is not on file in any
governmental or regulatory authority, agency or recording office an effective financing
statement, security agreement, license or transfer or any notice of any of the foregoing
(other than those that will be filed in favor of the Secured Parties pursuant to this
Agreement) covering or affecting any of the Collateral. So long as this Agreement shall be
in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any
such office or agency any such financing statement or other document or instrument (except
to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of
this Agreement).

     (d) No written claim has been received that any Collateral or Debtor’s use of any
Collateral violates the rights of any third party. There has been no adverse decision to any
Debtor’s claim of ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to any Debtor’s right to keep and maintain such Collateral in full force and
effect, and there is no proceeding involving said rights pending or, to the best knowledge
of any Debtor, threatened before any court, judicial body, administrative or regulatory
agency, arbitrator or other governmental authority.

     (e) Each Debtor shall at all times maintain its books of account and records relating
to the Collateral at its principal place of business and its Collateral at the locations set
forth on Schedule A attached hereto and may not relocate such books of account and
records or tangible Collateral unless it delivers to the Secured Parties at least 30 days
prior to such relocation (i) written notice of such relocation and the new location thereof
(which must be within the United States) and (ii) evidence that appropriate financing
statements under the UCC and other necessary documents have been filed and recorded and
other steps have been taken to perfect the Security Interest to create in favor of the
Secured Parties a valid, perfected and continuing perfected first priority lien in the
Collateral.

     (f) This Agreement creates in favor of the Secured Parties a valid, security interest
in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing
the payment and performance of the Obligations. Upon making the filings described in the
immediately following paragraph, all security interests created hereunder in any Collateral
which may be perfected by filing Uniform Commercial Code financing statements shall have
been duly perfected. Except for the filing of the Uniform Commercial Code financing
statements referred to in the immediately following paragraph, the recordation of the
Intellectual Property Security Agreement (as defined below) with respect to copyrights and
copyright applications in the United States Copyright Office referred to in paragraph (m),
the execution and delivery of deposit account control agreements satisfying the requirements
of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and
the delivery of the certificates and other instruments provided in Section 3, no action is
necessary to create,

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perfect or protect the security interests created hereunder. Without limiting the
generality of the foregoing, except for the filing of said financing statements, the
recordation of said Intellectual Property Security Agreement, and the execution and delivery
of said deposit account control agreements, no consent of any third parties and no
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for (i) the execution, delivery and
performance of this Agreement, (ii) the creation or perfection of the Security Interests
created hereunder in the Collateral or (iii) the enforcement of the rights of the Secured
Parties hereunder.

     (g) Each Debtor hereby authorizes the Secured Parties, or any of them, to file one or
more financing statements under the UCC, with respect to the Security Interest with the
proper filing and recording agencies in any jurisdiction deemed proper by them.

     (h) The execution, delivery and performance of this Agreement by the Debtors does not
(i) violate any of the provisions of any Organizational Documents of any Debtor or any
judgment, decree, order or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing any Debtor’s debt or otherwise) or other
understanding to which any Debtor is a party or by which any property or asset of any Debtor
is bound or affected. No consent (including, without limitation, from stockholders or
creditors of any Debtor) is required for any Debtor to enter into and perform its
obligations hereunder.

     (i) The capital stock and other equity interests listed on Schedule H hereto
represent all of the capital stock and other equity interests of the Guarantors, and
represent all capital stock and other equity interests owned, directly or indirectly, by the
Company. All of the Pledged Securities are validly issued, fully paid and nonassessable,
and the Company is the legal and beneficial owner of the Pledged Securities, free and clear
of any lien, security interest or other encumbrance except for the security interests
created by this Agreement and other Permitted Liens (as defined in the Debenture).

     (j) The ownership and other equity interests in partnerships and limited liability
companies (if any) included in the Collateral (the “Pledged Interests”) by their
express terms do not provide that they are securities governed by Article 8 of the UCC and
are not held in a securities account or by any financial intermediary.

     (k) Each Debtor shall at all times maintain the liens and Security Interest provided
for hereunder as valid and perfected first priority liens and security interests in the
Collateral in favor of the Secured Parties until this Agreement and the Security Interest
hereunder shall be terminated pursuant to Section 11 hereof. Each Debtor hereby agrees to
defend the same against the claims of any and all persons and entities. Each Debtor shall
safeguard and protect all Collateral for the account of the Secured Parties. At the
request of the Secured Parties, each Debtor will sign and deliver to the Secured

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Parties at any time or from time to time one or more financing statements pursuant to
the UCC in form reasonably satisfactory to the Secured Parties and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed by the Secured
Parties to be, necessary or desirable to effect the rights and obligations provided for
herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees,
taxes and other amounts necessary to maintain the Collateral and the Security Interest
hereunder, and each Debtor shall obtain and furnish to the Secured Parties from time to
time, upon demand, such releases and/or subordinations of claims and liens which may be
required to maintain the priority of the Security Interest hereunder.

     (l) No Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise
dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in
its ordinary course of business and sales of inventory by a Debtor in its ordinary course of
business) without the prior written consent of a Majority in Interest.

     (m) Each Debtor shall keep and preserve its equipment, inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate any such
Collateral (or cause to be operated or located) in any area excluded from insurance
coverage.

     (n) Each Debtor shall maintain with financially sound and reputable insurers, insurance
with respect to the Collateral against loss or damage of the kinds and in the amounts
customarily insured against by entities of established reputation having similar properties
similarly situated and in such amounts as are customarily carried under similar
circumstances by other such entities and otherwise as is prudent for entities engaged in
similar businesses but in any event sufficient to cover the full replacement cost thereof.
Each Debtor shall cause each insurance policy issued in connection herewith to provide, and
the insurer issuing such policy to certify to the Agent that (a) the Agent will be named as
lender loss payee and additional insured under each such insurance policy; (b) if such
insurance be proposed to be cancelled or materially changed for any reason whatsoever, such
insurer will promptly notify the Agent and such cancellation or change shall not be
effective as to the Agent for at least thirty (30) days after receipt by the Agent of such
notice, unless the effect of such change is to extend or increase coverage under the policy;
and (c) the Agent will have the right (but no obligation) at its election to remedy any
default in the payment of premiums within thirty (30) days of notice from the insurer of
such default. If no Event of Default (as defined in the Debenture) exists and if the
proceeds arising out of any claim or series of related claims do not exceed $100,000, loss
payments in each instance will be applied by the applicable Debtor to the repair and/or
replacement of property with respect to which the loss was incurred to the extent reasonably
feasible, and any loss payments or the balance thereof remaining, to the extent not so
applied, shall be payable to the applicable Debtor, provided, however, that payments
received by any Debtor after an Event of Default occurs and is continuing or in excess of
$100,000 for any occurrence or series of related occurrences shall be paid to the Agent and,
if received by such Debtor, shall be held in trust for and immediately paid over to the
Agent unless otherwise directed in writing by the Agent. Copies of such policies or the
related certificates, in each case, naming the Agent as lender loss payee

8

 

and additional insured shall be delivered to the Agent at least annually and at the time any
new policy of insurance is issued.

     (o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the
Secured Parties promptly, in sufficient detail, of any substantial change in the Collateral,
and of the occurrence of any event which would have a material adverse effect on the value
of the Collateral or on the Secured Parties’ security interest therein.

     (p) Each Debtor shall promptly execute and deliver to the Secured Parties such further
deeds, mortgages, assignments, security agreements, financing statements or other
instruments, documents, certificates and assurances and take such further action as the
Secured Parties may from time to time request and may in its sole discretion deem necessary
to perfect, protect or enforce its security interest in the Collateral including, without
limitation, if applicable, the execution and delivery of a separate security agreement with
respect to each Debtor’s Intellectual Property (“Intellectual Property Security
Agreement”) in which the Secured Parties have been granted a security interest
hereunder, substantially in a form acceptable to the Secured Parties, which Intellectual
Property Security Agreement, other than as stated therein, shall be subject to all of the
terms and conditions hereof.

     (q) Each Debtor shall permit the Secured Parties and their representatives and agents
to inspect the Collateral at any time, and to make copies of records pertaining to the
Collateral as may be requested by a Secured Party from time to time.

     (r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and accounts
receivable in respect of the Collateral.

     (s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process levied
against any Collateral and of any other information received by such Debtor that may
materially affect the value of the Collateral, the Security Interest or the rights and
remedies of the Secured Parties hereunder.

     (t) All information heretofore, herein or hereafter supplied to the Secured Parties by
or on behalf of any Debtor with respect to the Collateral is accurate and complete in all
material respects as of the date furnished.

     (u) The Debtors shall at all times preserve and keep in full force and effect their
respective valid existence and good standing and any rights and franchises material to its
business.

     (v) No Debtor will change its name, type of organization, jurisdiction of organization,
organizational identification number (if it has one), legal or corporate structure, or
identity, or add any new fictitious name unless it provides at least 30 days prior written
notice to the Secured Parties of such change and, at the time of such written

9

 

notification, such Debtor provides any financing statements or fixture filings
necessary to perfect and continue perfected the perfected security Interest granted and
evidenced by this Agreement.

     (w) No Debtor may consign any of its Inventory or sell any of its Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale without the
consent of a Majority in Interest which shall not be unreasonably withheld, except to the
extent such consignment or sale does not exceed 15% of the total value of all of the
Company’s finished goods in Inventory.

     (x) No Debtor may relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to the Secured Parties and so long as,
at the time of such written notification, such Debtor provides any financing statements or
fixture filings necessary to perfect and continue perfected the perfected security Interest
granted and evidenced by this Agreement.

     (y) Each Debtor was organized and remains organized solely under the laws of the state
set forth next to such Debtor’s name in the first paragraph of this Agreement. Schedule
D attached hereto sets forth each Debtor’s organizational identification number or, if
any Debtor does not have one, states that one does not exist.

     (z) (i) The actual name of each Debtor is the name set forth in the preamble above;
(ii) no Debtor has any trade names except as set forth on Schedule E attached
hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or
as set forth on Schedule E for the preceding five years; and (iv) no entity has
merged into any Debtor or been acquired by any Debtor within the past five years except as
set forth on Schedule E.

     (aa) At any time and from time to time that any Collateral consists of instruments,
certificated securities or other items that require or permit possession by the secured
party to perfect the security interest created hereby, the applicable Debtor shall deliver
such Collateral to the Agent.

     (bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all
orders and instructions of Agent regarding the Pledged Interests consistent with the terms
of this Agreement without the further consent of any Debtor as contemplated by Section 8-106
(or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter
into a similar agreement (or one that would confer “control” within the meaning of Article 8
of the UCC) with any other person or entity.

     (cc) Each Debtor shall cause all tangible chattel paper constituting Collateral to be
delivered to the Agent, or, if such delivery is not possible, then to cause such tangible
chattel paper to contain a legend noting that it is subject to the security interest created
by this Agreement. To the extent that any Collateral consists of electronic chattel paper,
the applicable Debtor shall cause the underlying chattel paper to be “marked” within the
meaning of Section 9-105 of the UCC (or successor section thereto).

10

 

     (dd) If there is any investment property or deposit account included as Collateral that
can be perfected by “control” through an account control agreement, the applicable Debtor
shall cause such an account control agreement, in form and substance in each case
satisfactory to the Secured Parties, to be entered into and delivered to the Secured
Parties.

     (ee) To the extent that any Collateral consists of letter-of-credit rights, the
applicable Debtor shall cause the issuer of each underlying letter of credit to consent to
an assignment of the proceeds thereof to the Secured Parties.

     (ff) To the extent that any Collateral is in the possession of any third party, the
applicable Debtor shall join with the Secured Parties in notifying such third party of the
Secured Parties’ security interest in such Collateral and shall use its best efforts to
obtain an acknowledgement and agreement from such third party with respect to the
Collateral, in form and substance satisfactory to the Secured Parties.

     (gg) If any Debtor shall at any time hold or acquire a commercial tort claim, such
Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the
particulars thereof and grant to the Secured Parties in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing
to be in form and substance satisfactory to the Secured Parties.

     (hh) Each Debtor shall immediately provide written notice to the Secured Parties of any
and all accounts which arise out of contracts with any governmental authority and, to the
extent necessary to perfect or continue the perfected status of the Security Interest in
such accounts and proceeds thereof, shall execute and deliver to the Secured Parties an
assignment of claims for such accounts and cooperate with the Secured Parties in taking any
other steps required, in their judgment, under the Federal Assignment of Claims Act or any
similar federal, state or local statute or rule to perfect or continue the perfected status
of the Security Interest in such accounts and proceeds thereof.

     (ii) Each Debtor shall cause each subsidiary of such Debtor to immediately become a
party hereto (an “Additional Debtor”), by executing and delivering an Additional
Debtor Joinder in substantially the form of Annex A attached hereto and comply with the
provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor
shall deliver replacement schedules for, or supplements to all other Schedules to (or
referred to in) this Agreement, as applicable, which replacement schedules shall supersede,
or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also
deliver such opinions of counsel, authorizing resolutions, good standing certificates,
incumbency certificates, organizational documents, financing statements and other
information and documentation as the Secured Parties may reasonably request. Upon delivery
of the foregoing to the Secured Parties, the Additional Debtor shall be and become a party
to this Agreement with the same rights and obligations as the Debtors, for all purposes
hereof as fully and to the same extent as if it were an original signatory hereto and shall
be deemed to have made the representations,

11

 

warranties and covenants set forth herein as of the date of execution and delivery of
such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed
to include each Additional Debtor.

     (jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and
agreements set forth herein and in the Debentures.

     (kk) Each Debtor shall register the pledge of the applicable Pledged Securities on the
books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to
register the pledge of the applicable Pledged Securities in the name of the Secured Parties
on the books of such issuer. Further, except with respect to certificated securities
delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of
pledge (which, where appropriate, shall comply with the requirements of the relevant UCC
with respect to perfection by registration) signed by the issuer of the applicable Pledged
Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on
its books and records; and (b) at any time directed by Agent during the continuation of an
Event of Default, such issuer will transfer the record ownership of such Pledged Securities
into the name of any designee of Agent, will take such steps as may be necessary to effect
the transfer, and will comply with all other instructions of Agent regarding such Pledged
Securities without the further consent of the applicable Debtor.

     (ll) In the event that, upon an occurrence of an Event of Default, Agent shall sell all
or any of the Pledged Securities to another party or parties (herein called the
“Transferee”) or shall purchase or retain all or any of the Pledged Securities, each
Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case
may be, the articles of incorporation, bylaws, minute books, stock certificate books,
corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of
account, financial records and all other Organizational Documents and records of the Debtors
and their direct and indirect subsidiaries; (ii) use its best efforts to obtain resignations
of the persons then serving as officers and directors of the Debtors and their direct and
indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any
approvals that are required by any governmental or regulatory body in order to permit the
sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged
Securities by Agent and allow the Transferee or Agent to continue the business of the
Debtors and their direct and indirect subsidiaries.

     (mm) Without limiting the generality of the other obligations of the Debtors hereunder,
each Debtor shall promptly (i) cause to be registered at the United States Copyright Office
all of its material copyrights, (ii) cause the security interest contemplated hereby with
respect to all Intellectual Property registered at the United States Copyright Office or
United States Patent and Trademark Office to be duly recorded at the applicable office, and
(iii) give the Agent notice whenever it acquires (whether absolutely or by license) or
creates any additional material Intellectual Property.

     (nn) Each Debtor will from time to time, at the joint and several expense of the
Debtors, promptly execute and deliver all such further instruments and documents, and

12

 

take all such further action as may be necessary or desirable, or as the Secured
Parties may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Secured Parties to exercise and
enforce their rights and remedies hereunder and with respect to any Collateral or to
otherwise carry out the purposes of this Agreement.

     (oo) Schedule F attached hereto lists all of the patents, patent applications,
trademarks, trademark applications, registered copyrights, and domain names owned by any of
the Debtors as of the date hereof. Schedule F lists all material licenses in favor
of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the
date hereof. All material patents and trademarks of the Debtors have been duly recorded at
the United States Patent and Trademark Office and all material copyrights of the Debtors
have been duly recorded at the United States Copyright Office.

     (pp) Except as set forth on Schedule G attached hereto, none of the account
debtors or other persons or entities obligated on any of the Collateral is a governmental
authority covered by the Federal Assignment of Claims Act or any similar federal, state or
local statute or rule in respect of such Collateral.

     5. Effect of Pledge on Certain Rights. If any of the Collateral subject to this Agreement
consists of nonvoting equity or ownership interests (regardless of class, designation, preference
or rights) that may be converted into voting equity or ownership interests upon the occurrence of
certain events (including, without limitation, upon the transfer of all or any of the other stock
or assets of the issuer), it is agreed that the pledge of such equity or ownership interests
pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be
deemed to be the type of event which would trigger such conversion rights notwithstanding any
provisions in the Organizational Documents or agreements to which any Debtor is subject or to which
any Debtor is party.

     6. Defaults. The following events shall be “Events of Default”:

     (a) The occurrence of an Event of Default (as defined in the Debenture) under the
Debenture;

     (b) Any representation or warranty of any Debtor in this Agreement shall prove to
have been incorrect in any material respect when made;

     (c) The failure by any Debtor to observe or perform any of its obligations hereunder
for five (5) days after delivery to such Debtor of notice of such failure by or on behalf of
a Secured Party unless such default is capable of cure but cannot be cured within such time
frame and such Debtor is using best efforts to cure same in a timely fashion; or

     (d) If any provision of this Agreement shall at any time for any reason be declared
to be null and void, or the validity or enforceability thereof shall be contested by any
Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental

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authority having jurisdiction over any Debtor, seeking to establish the invalidity or
unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or
obligation purported to be created under this Agreement.

     7. Duty To Hold In Trust.

     (a) Upon the occurrence of any Event of Default and at any time thereafter, each Debtor
shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the
Security Interest, whether payable pursuant to the Debenture or otherwise, or of any check,
draft, note, trade acceptance or other instrument evidencing an obligation to pay any such
sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer
any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to
their initial purchases of Debentures for application to the satisfaction of the Obligations
(and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of
the remaining Debentures).

     (b) If any Debtor shall become entitled to receive or shall receive any securities or
other property (including, without limitation, shares of Pledged Securities or instruments
representing Pledged Securities acquired after the date hereof, or any options, warrants,
rights or other similar property or certificates representing a dividend, or any
distribution in connection with any recapitalization, reclassification or increase or
reduction of capital, or issued in connection with any reorganization of such Debtor or any
of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an
addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise),
such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the
same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver
any and all certificates or instruments evidencing the same to Agent on or before the close
of business on the fifth business day following the receipt thereof by such Debtor, in the
exact form received together with the Necessary Endorsements, to be held by Agent subject to
the terms of this Agreement as Collateral.

     8. Rights and Remedies Upon Default.

     (a) Upon the occurrence of any Event of Default and at any time thereafter, the Secured
Parties, acting through any agent appointed by them for such purpose, shall have the right
to exercise all of the remedies conferred hereunder and under the Debentures, and the
Secured Parties shall have all the rights and remedies of a secured party under the UCC.
Without limitation, the Secured Parties shall have the following rights and powers:

     (i) The Secured Parties shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and assistance of any person,
any premises where the Collateral, or any part thereof, is or may be placed and
remove the same, and each Debtor shall assemble the Collateral and make it available
to the Secured Parties at places which the Secured Parties shall reasonably select,
whether at such Debtor’s premises or elsewhere, and make

14

 

available to the Secured Parties, without rent, all of such Debtor’s respective
premises and facilities for the purpose of the Secured Parties taking possession of,
removing or putting the Collateral in saleable or disposable form.

     (ii) Upon notice to the Debtors by Agent, all rights of each Debtor to exercise
the voting and other consensual rights which it would otherwise be entitled to
exercise and all rights of each Debtor to receive the dividends and interest which
it would otherwise be authorized to receive and retain, shall cease. Upon such
notice, Agent shall have the right to receive any interest, cash dividends or other
payments on the Collateral and, at the option of Agent, to exercise in such Agent’s
discretion all voting rights pertaining thereto. Without limiting the generality of
the foregoing, Agent shall have the right (but not the obligation) to exercise all
rights with respect to the Collateral as it were the sole and absolute owners
thereof, including, without limitation, to vote and/or to exchange, at its sole
discretion, any or all of the Collateral in connection with a merger,
reorganization, consolidation, recapitalization or other readjustment concerning or
involving the Collateral or any Debtor or any of its direct or indirect
subsidiaries.

     (iii) The Secured Parties shall have the right to operate the business of
each Debtor using the Collateral and shall have the right to assign, sell, lease or
otherwise dispose of and deliver all or any part of the Collateral, at public or
private sale or otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in such parcel or
parcels and at such time or times and at such place or places, and upon such terms
and conditions as the Secured Parties may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to any Debtor or right of redemption of a
Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment
or other transfer of Collateral, the Secured Parties may, unless prohibited by
applicable law which cannot be waived, purchase all or any part of the Collateral
being sold, free from and discharged of all trusts, claims, right of redemption and
equities of any Debtor, which are hereby waived and released.

     (iv) The Secured Parties shall have the right (but not the obligation) to
notify any account debtors and any obligors under instruments or accounts to make
payments directly to the Secured Parties and to enforce the Debtors’ rights against
such account debtors and obligors.

     (v) The Secured Parties may (but are not obligated to) direct any financial
intermediary or any other person or entity holding any investment property to
transfer the same to the Secured Parties or their designee.

     (vi) The Secured Parties may (but are not obligated to) transfer any or all
Intellectual Property registered in the name of any Debtor at the United States

15

 

Patent and Trademark Office and/or Copyright Office into the name of the
Secured Parties or any designee or any purchaser of any Collateral.

     (b) The Agent may comply with any applicable law in connection with a disposition of
Collateral and such compliance will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. The Agent may sell the Collateral without
giving any warranties and may specifically disclaim such warranties. If the Agent sells any
of the Collateral on credit, the Debtors will only be credited with payments actually made
by the purchaser. In addition, each Debtor waives any and all rights that it may have to a
judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies
hereunder, including, without limitation, its right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights and remedies with respect
thereto.

     (c) For the purpose of enabling the Agent to further exercise rights and remedies under
this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby
grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable,
nonexclusive license (exercisable without payment of royalty or other compensation to such
Debtor) to use, license or sublicense following an Event of Default, any Intellectual
Property now owned or hereafter acquired by such Debtor, and wherever the same may be
located, and including in such license access to all media in which any of the licensed
items may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof.

     9. Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the
Collateral hereunder shall be applied first, to the expenses of retaking, holding, storing,
processing and preparing for sale, selling, and the like (including, without limitation, any taxes,
fees and other costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys’ fees and expenses incurred by the Secured Parties in enforcing their rights hereunder
and in connection with collecting, storing and disposing of the Collateral, and then to
satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding
principal amounts of Debentures at the time of any such determination), and to the payment of any
other amounts required by applicable law, after which the Secured Parties shall pay to the
applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties
are legally entitled, the Debtors will be liable for the deficiency, together with interest
thereon, at the rate of 10% per annum or the lesser amount permitted by applicable law (the
“Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to
collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims,
damages and demands against the Secured Parties arising out of the repossession, removal, retention
or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the
Secured Parties as determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction.

     10. Securities Law Provision. Each Debtor recognizes that Agent may be limited in its ability
to effect a sale to the public of all or part of the Pledged Securities by reason of certain
prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws

16

 

(collectively, the “Securities Laws”), and may be compelled to resort to one or more sales
to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities
for their own account, for investment and not with a view to the distribution or resale thereof.
Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the
Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of
any Pledged Securities for the period of time necessary to register the Pledged Securities for sale
to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to
satisfy any requirements under the Securities Laws (including, without limitation, registration
thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

     11. Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and
expenses incurred in connection with any filing required hereunder, including without limitation,
any financing statements pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches reasonably required by the
Secured Parties. The Debtors shall also pay all other claims and charges which in the reasonable
opinion of the Secured Parties might prejudice, imperil or otherwise affect the Collateral or the
Security Interest therein. The Debtors will also, upon demand, pay to the Secured Parties the
amount of any and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Secured Parties may incur in connection with (i)
the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any
of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable
hereunder shall be added to the principal amount of the Debentures and shall bear interest at the
Default Rate.

     12. Responsibility for Collateral. The Debtors assume all liabilities and responsibility in
connection with all Collateral, and the Obligations shall in no way be affected or diminished by
reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for
any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any
Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts
in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any
obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall
remain obligated and liable under each contract or agreement included in the Collateral to be
observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall
have any obligation or liability under any such contract or agreement by reason of or arising out
of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any
of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform
any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make
inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party
in respect of the Collateral or as to the sufficiency of any performance by any party under any
such contract or agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been assigned to the Agent or
to which the Agent or any Secured Party may be entitled at any time or times.

     13. Security Interest Absolute. All rights of the Secured Parties and all obligations of the
Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of

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validity or enforceability of this Agreement, the Debentures or any agreement entered into in
connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner
or place of payment or performance of, or in any other term of, all or any of the Obligations, or
any other amendment or waiver of or any consent to any departure from the Debentures or any other
agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection
of any of the Collateral, or any release or amendment or waiver of or consent to departure from any
other collateral for, or any guaranty, or any other security, for all or any of the Obligations;
(d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion
any insurance claims or matters made or arising in connection with the Collateral; or (e) any other
circumstance which might otherwise constitute any legal or equitable defense available to a Debtor,
or a discharge of all or any part of the Security Interest granted hereby. Until the Obligations
shall have been paid and performed in full, the rights of the Secured Parties shall continue even
if the Obligations are barred for any reason, including, without limitation, the running of the
statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of
protest, demand, notice of nonpayment and demand for performance. In the event that at any time any
transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed
by final order of a court of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be
deemed to be otherwise due to any party other than the Secured Parties, then, in any such event,
each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but
shall remain a valid and binding obligation enforceable in accordance with the terms and provisions
hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other
person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to
marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of
the application of the statute of limitations to any obligation secured hereby.

     14. Term of Agreement. This Agreement and the Security Interest shall terminate on the date on
which all payments under the Debentures have been indefeasibly paid in full and all other
Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors
contained in this Agreement (including, without limitation, Annex B hereto) shall survive and
remain operative and in full force and effect regardless of the termination of this Agreement.

     15. Power of Attorney; Further Assurances.

     (a) Each Debtor authorizes the Secured Parties, and does hereby make, constitute and
appoint the Secured Parties and their respective officers, agents, successors or assigns
with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with
power, in the name of the various Secured Parties or such Debtor, to, after the occurrence
and during the continuance of an Event of Default, (i) endorse any note, checks, drafts,
money orders or other instruments of payment (including payments payable under or in respect
of any policy of insurance) in respect of the Collateral that may come into possession of
the Secured Parties; (ii) to sign and endorse any financing statement pursuant to the UCC or
any invoice, freight or express bill, bill of lading,

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storage or warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with accounts, and other documents relating to the Collateral; (iii)
to pay or discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt
for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer
any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi)
generally, at the option of the Secured Parties, and at the expense of the Debtors, at any
time, or from time to time, to execute and deliver any and all documents and instruments and
to do all acts and things which the Secured Parties deem necessary to protect, preserve and
realize upon the Collateral and the Security Interest granted therein in order to effect the
intent of this Agreement and the Debentures all as fully and effectually as the Debtors
might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do
or cause to be done by virtue hereof. This power of attorney is coupled with an interest
and shall be irrevocable for the term of this Agreement and thereafter as long as any of the
Obligations shall be outstanding. The designation set forth herein shall be deemed to amend
and supersede any inconsistent provision in the Organizational Documents or other documents
or agreements to which any Debtor is subject or to which any Debtor is a party. Without
limiting the generality of the foregoing, after the occurrence and during the continuance of
an Event of Default, each Secured Party is specifically authorized to execute and file any
applications for or instruments of transfer and assignment of any patents, trademarks,
copyrights or other Intellectual Property with the United States Patent and Trademark Office
and the United States Copyright Office.

     (b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file
and record, as the case may be, with the proper filing and recording agencies in any
jurisdiction, including, without limitation, the jurisdictions indicated on Schedule
C attached hereto, all such instruments, and take all such action as may reasonably be
deemed necessary or advisable, or as reasonably requested by the Secured Parties, to perfect
the Security Interest granted hereunder and otherwise to carry out the intent and purposes
of this Agreement, or for assuring and confirming to the Secured Parties the grant or
perfection of a perfected security interest in all the Collateral under the UCC.

     (c) Each Debtor hereby irrevocably appoints the Secured Parties as such Debtor’s
attorney-in-fact, with full authority in the place and instead of such Debtor and in the
name of such Debtor, from time to time in the Secured Parties’ discretion, to take any
action and to execute any instrument which the Secured Parties may deem necessary or
advisable to accomplish the purposes of this Agreement, including the filing, in its sole
discretion, of one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of such Debtor where permitted by
law, which financing statements may (but need not) describe the Collateral as “all assets”
or “all personal property” or words of like import, and ratifies all such actions taken by
the Secured Parties. This power of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter as long as any of the Obligations
shall be outstanding.

19

 

     16. Notices. All notices, requests, demands and other communications hereunder shall be
subject to the notice provision of the Purchase Agreement (as such term is defined in the
Debentures).

     17. Other Security. To the extent that the Obligations are now or hereafter secured by
property other than the Collateral or by the guarantee, endorsement or property of any other
person, firm, corporation or other entity, then the Secured Parties shall have the right, in its
sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies
hereunder.

     18. Appointment of Agent. The Secured Parties hereby appoint Midsummer Investment, Ltd. to
act as their agent (“Midsummer” or “Agent”) for purposes of exercising any and all
rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked
in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new
Agent; provided, that Midsummer may not be removed as Agent unless Midsummer shall then hold less
than $250,000 principal amount of Debentures; provided further that such removal may occur only if
each of the other Secured Parties shall then hold not less than $500,000 principal amount of
Debentures. The Agent shall have the rights, responsibilities and immunities set forth in
Annex B hereto.

     19. Miscellaneous.

     (a) No course of dealing between the Debtors and the Secured Parties, nor any failure
to exercise, nor any delay in exercising, on the part of the Secured Parties, any right,
power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.

     (b) All of the rights and remedies of the Secured Parties with respect to the
Collateral, whether established hereby or by the Debentures or by any other agreements,
instruments or documents or by law shall be cumulative and may be exercised singly or
concurrently.

     (c) This Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and is intended to supersede all prior negotiations, understandings
and agreements with respect thereto. Except as specifically set forth in this Agreement, no
provision of this Agreement may be modified or amended except by a written agreement
specifically referring to this Agreement and signed by the parties hereto.

     (d) In the event any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason, unless such provision is narrowed by
judicial construction, this Agreement shall, as to such jurisdiction, be construed as if
such invalid, prohibited or unenforceable provision had been more

20

 

narrowly drawn so as not to be invalid, prohibited or unenforceable. If,
notwithstanding the foregoing, any provision of this Agreement is held to be invalid,
prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such invalidity, prohibition or unenforceability
without invalidating the remaining portion of such provision or the other provisions of this
Agreement and without affecting the validity or enforceability of such provision or the
other provisions of this Agreement in any other jurisdiction.

     (e) No waiver of any breach or default or any right under this Agreement shall be
considered valid unless in writing and signed by the party giving such waiver, and no such
waiver shall be deemed a waiver of any subsequent breach or default or right, whether of the
same or similar nature or otherwise.

     (f) This Agreement shall be binding upon and inure to the benefit of each party
hereto and its successors and assigns.

     (g) Each party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the provisions and
purposes of this Agreement.

     (h) All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles
of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement
and the Debenture (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York,
Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, Borough of Manhattan for
the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such proceeding is improper. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any such
proceeding by mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If any party shall commence a proceeding to enforce any
provisions of this Agreement, then the prevailing party in such proceeding shall be
reimbursed by the other party for its reasonable attorney’s fees and

21

 

other costs and expenses incurred with the investigation, preparation and prosecution
of such proceeding.

     (i) This Agreement may be executed in any number of 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. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.

     (j) All Debtors shall jointly and severally be liable for the obligations of each
Debtor to the Secured Parties hereunder.

     (k) Each Debtor shall indemnify, reimburse and hold harmless the Secured Parties and
their respective partners, members, shareholders, officers, directors, employees and agents
(collectively, “Indemnitees”) from and against any and all losses, claims,
liabilities, damages, penalties, suits, costs and expenses, of any kind or nature,
(including fees relating to the cost of investigating and defending any of the foregoing)
imposed on, incurred by or asserted against such Indemnitee in any way related to or arising
from or alleged to arise from this Agreement or the Collateral, except any such losses,
claims, liabilities, damages, penalties, suits, costs and expenses which result from the
gross negligence or willful misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction. This indemnification provision
is in addition to, and not in limitation of, any other indemnification provision in the
Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other
agreement, instrument or other document executed or delivered in connection herewith or
therewith.

     (l) Nothing in this Agreement shall be construed to subject Agent or any Secured Party
to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that
is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries
that is a limited liability company, nor shall Agent or any Secured Party be deemed to have
assumed any obligations under any partnership agreement or limited liability company
agreement, as applicable, of any such Debtor or any if its direct or indirect subsidiaries
or otherwise, unless and until any such Secured Party exercises its right to be substituted
for such Debtor as a partner or member, as applicable, pursuant hereto.

     (m) To the extent that the grant of the security interest in the Collateral and the
enforcement of the terms hereof require the consent, approval or action of any partner or
member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or
compliance with any provisions of any of the Organizational Documents, the Debtors hereby
grant such consent and approval and waive any such noncompliance with the terms of said
documents.

[SIGNATURE PAGES FOLLOW]

22

 

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

	 	 	 	 	 
	HARTVILLE GROUP, INC.	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	[SUBSIDIARY]	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

23

 

[SIGNATURE PAGE OF HOLDERS TO HTVL SA]

Name of Investing Entity:                                         

Signature of Authorized Signatory of Investing entity:                                         

Name of Authorized Signatory:                                         

Title of Authorized Signatory:                                         

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

24

 

SCHEDULE A

Principal Place of Business of Debtors:

Canton, OH

Locations Where Collateral is Located or Stored:

Hartville Re – Cayman Islands

Hartville Group, Inc. – Canton, OH

Petsmarketing Insurance.com Agency, Inc. – Canton, OH

Wag n Pet Club, Inc. – Canton, OH

25

 

SCHEDULE B

National City Bank – To be paid off with financing

26

 

SCHEDULE C

Ohio

Nevada

27

 

SCHEDULE D

Organizational Identification Numbers

Hartville Group, Inc. – C10954-2000

Petsmarketing Insurance.com Agency, Inc. — 1147049

Hartville Re – CA 113502

Wag N Pet Club, Inc. – 800355564

28

 

SCHEDULE E

Names; Mergers and Acquisitions

29

 

SCHEDULE F

Intellectual Property

30

 

SCHEDULE G

Account Debtors

31

 

SCHEDULE H

Pledged Securities

32

 

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as of [                     ___, 2006 made by

Hartville Group, Inc.

and its subsidiaries party thereto from time to time, as Debtors

to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

     Reference is made to the Security Agreement as defined above; capitalized terms used herein
and not otherwise defined herein shall have the meanings given to such terms in, or by reference
in, the Security Agreement.

     The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the
Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the
Security Agreement, (b) have all the rights and obligations of the Debtors under the Security
Agreement as fully and to the same extent as if the undersigned was an original signatory thereto
and (c) be deemed to have made the representations and warranties set forth in Section 4 therein as
of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY
INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND
AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

     Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as
applicable.

     An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured
Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall
not be modified, amended or terminated without the prior written consent of the Secured Parties.

 

 

     IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on
behalf of the undersigned.

	 	 	 
	 

	 	[Name of Additional Debtor]
	 
	 	 
	 

	 	By:
	 
	 	 
	 

	 	Name:
	 

	 	Title:
	 
	 	 
	 

	 	Address:
	 
	 	 
	Dated:
	 	 

 

 

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

          1. Appointment. The Secured Parties (all capitalized terms used herein and not otherwise
defined shall have the respective meanings provided in the Security Agreement to which this Annex B
is attached (the “Agreement”)), by their acceptance of the benefits of the Agreement,
hereby designate Midsummer Investment, Ltd. (“Midsummer” or “Agent”) as the Agent
to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to
authorize the Agent to take such action on its behalf under the provisions of the Agreement and any
other Transaction Document (as such term is defined in the Debentures) and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically delegated to or required of
the Agent by the terms hereof and thereof and such other powers as are reasonably incidental
thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

          2. Nature of Duties. The Agent shall have no duties or responsibilities except those
expressly set forth in the Agreement. Neither the Agent nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be liable for any action taken or
omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be
responsible for the consequence of any oversight or error of judgment or answerable for any loss,
unless caused solely by its or their gross negligence or willful misconduct as determined by a
final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of
the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of
the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor
or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent any obligations in
respect of the Agreement or any other Transaction Document except as expressly set forth herein and
therein.

          3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each
Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Company and its
subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and
continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the
taking or not taking of any action in connection therewith, and (ii) its own appraisal of the
creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time
to time, and the Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Secured Party with any credit, market or other information with respect
thereto, whether coming into its possession before any Obligations are incurred or

 

 

at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured
Party for any recitals, statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith, or for the execution,
effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or
sufficiency of the Agreement or any other Transaction Document, or for the financial condition of
the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or conditions of the Agreement
or any other Transaction Document, or the financial condition of the Debtors, or the value of any
of the Collateral, or the existence or possible existence of any default or Event of Default under
the Agreement, the Debentures or any of the other Transaction Documents.

          4. Certain Rights of the Agent. The Agent shall have the right to take any action with
respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the
Agent shall request instructions from the Secured Parties with respect to any material act or
action (including failure to act) in connection with the Agreement or any other Transaction
Document, and shall be entitled to act or refrain from acting in accordance with the instructions
of Secured Parties holding a majority in principal amount of Debentures (based on then-outstanding
principal amounts of Debentures at the time of any such determination); if such instructions are
not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such
act or taking such action, and if such action is taken, shall be entitled to appropriate
indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the
Agent shall not incur liability to any person or entity by reason of so refraining. Without
limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the
Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the
terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to
question or challenge the authority of, or the instructions given to, the Agent pursuant to the
foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i)
could reasonably be expected to expose it to personal liability or (ii) is contrary to this
Agreement, the Transaction Documents or applicable law.

          5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying,
upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, radiogram, order or other document or telephone message signed, sent or made by
the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and
the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it
and upon all other matters pertaining to this Agreement and the other Transaction Documents and its
duties thereunder, upon advice of other experts selected by it. Anything to the contrary
notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that
the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the
liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created,
perfected, or enforced or are entitled to any particular priority.

 

 

          6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the
Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in
proportion to their initially purchased respective principal amounts of Debentures, from and
against any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement
or any other Transaction Document, or in any way relating to or arising out of the Agreement or any
other Transaction Document except for those determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction to have resulted solely from the Agent’s own gross
negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may
require each Secured Party to deposit with it sufficient sums as it determines in good faith is
necessary to protect the Agent for costs and expenses associated with taking such action.

          7. Resignation by the Agent.

     (a) The Agent may resign from the performance of all its functions and duties under
the Agreement and the other Transaction Documents at any time by giving 30 days’ prior
written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such
resignation shall take effect upon the appointment of a successor Agent pursuant to clauses
(b) and (c) below.

     (b) Upon any such notice of resignation, the Secured Parties, acting by a Majority in
Interest, shall appoint a successor Agent hereunder.

     (c) If a successor Agent shall not have been so appointed within said 30-day period,
the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if
any, as the Secured Parties appoint a successor Agent as provided above. If a successor
Agent has not been appointed within such 30-day period, the Agent may petition any court of
competent jurisdiction or may interplead the Debtors and the Secured Parties in a
proceeding for the appointment of a successor Agent, and all fees, including, but not
limited to, extraordinary fees associated with the filing of interpleader and expenses
associated therewith, shall be payable by the Debtors on demand.

          8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured
Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with
respect to its security interest in the Collateral, whether pursuant to any other agreement or
otherwise (other than pursuant to this Agreement), or take or institute any action against the
Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder
(other than any such action arising from the breach of this Agreement) and (ii) that such Secured
Party has no other rights with respect to the Collateral other than as set forth in this Agreement
and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such

 

 

successor Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its
duties and obligations under the Agreement. After any retiring Agent’s resignation or removal
hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent.

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