Document:

f8k112111ex10iv_nxt.htm

Exhibit 10.4

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of November 21, 2011 (this “Agreement”), is among NXT Nutritionals Holdings, Inc., a Delaware corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and NXT Investment Partners, LLC, a Delaware limited liability company, as the holder (the “Holder”) of the Company’s 13% Senior Secured Note due November 21, 2015 (the “Note”) and together, the Holder with its endorsees, transferees and assigns (the “Secured Party”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to the Purchase Agreement (as defined in the Note), the Secured Party has agreed to extend the loan to the Company evidenced by the Note;

 

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

 

WHEREAS, in order to induce the Secured Party to extend the loan evidenced by the Note, each Debtor has agreed to execute and deliver to the Secured Party this Agreement and to grant the Secured Party, a security interest in all of the property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Note and the Guarantors’ obligations under the Guarantee.

 

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 Party is granted a valid, continuing lien and security interest by this Agreement and which shall include all of the 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 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)), including, without limitation, all of the following: 

 

  

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(i) All goods, including, without limitation: (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; (B) all raw materials; and (C) all inventory;

 

(ii) All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other 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, including, without limitation, any rights, title and interest to the natural sweetener, SUSTA®;

 

(iii) All accounts (including all accounts receivable), together with all instruments, all documents of title representing any of the foregoing, 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 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, none of the following items will be included in the Collateral: (a) any asset of a foreign Subsidiary or any shares of capital stock or other equity interests of a foreign Subsidiary (other than 65% of the common voting capital stock or other equity interests and 100% of any non-voting capital stock or other equity interests of any first-tier foreign Subsidiary, each of which shall constitute Collateral); (b) assets if the granting of a security interest in such asset would (I) be prohibited by applicable law (but proceeds and receivables thereof, the assignment of which is expressly deemed effective under the UCC, shall not be deemed excluded from the Collateral regardless such prohibition), or (II) be prohibited by contract (except to the extent such prohibition is overridden by UCC Section 9-408) (but proceeds and receivables thereof shall not be deemed excluded from the Collateral regardless of such prohibition); (c) any property and assets, the pledge of which would require approval, license or authorization of any governmental body, unless and until such consent, approval, license or authorization shall have been obtained or waived; (d) assets in circumstances where Secured Party reasonably determines that the cost, burden or consequences (including adverse tax consequences) of obtaining or perfecting a security interest in such assets is excessive in relation to the practical benefit afforded thereby; 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) “Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Secured Party (as that term is defined below) may reasonably request.

 

(d) “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 Party, including, without limitation, all obligations under this Agreement, the Note, the Guarantee 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 owned 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 by the Secured Party 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 Note and the loan 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 Note, the Guarantee 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.

 

(e) “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).

 

(f) “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

 

(g) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i). 

 

(h) “UCC” means the Uniform Commercial Code of the State of New York 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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(i) “Business Day” means any day other than a Saturday, Sunday or a day on which banks are closed in the State of New York.

 

2. Grant of First Priority Security Interest in Collateral.  As an inducement for the Secured Party to extend the loan as evidenced by the Note 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 Party a first priority security interest in and to, a first lien upon and a right of set-off against all of its respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “Security Interest” and, collectively, the “Security Interests”); provided, however, that the Secured Party shall subordinate from time to time upon the Company’s request its Security Interests granted in such Collateral as constitutes raw materials, inventory and accounts receivable to any security interest(s) granted by the Company and each applicable Debtor to unaffiliated third parties (each a “Third Party Security Interest” and collectively, the “Third Party Security Interests”); and provided, further, that the Company and each applicable Debtor delivers a prior written notice of each such Third Party Security Interest not less than three (3) Business Days prior to the grant of such Third Party Security Interest.

 

3. Delivery of Certain Collateral.  Contemporaneously with or prior to the execution of this Agreement, each Debtor shall deliver or cause to be delivered to the Secured Party: (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 the Secured Party, or have previously delivered to Secured Party, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

 

4. Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Party concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Party 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 perform 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.

 

  

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(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 Note).  Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman Secured Party or processor.

 

(c) Except for Permitted Liens (as defined in the Note) 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 Interests.  Except as set forth on Schedule C attached hereto, 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 Party pursuant to this Agreement) covering or affecting any of the Collateral.  Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be filed in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Party pursuant to the terms of this Agreement).

 

(d) No written claim has been received that any Collateral or any Debtor's use of any Collateral violates the rights of any third party. To Debtors’ knowledge, 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 Party 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 Interests to create in favor of the Secured Party a valid, perfected and continuing perfected first priority lien in the Collateral, except as otherwise provided in Section 2 hereof.

 

  

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(f) This Agreement creates in favor of the Secured Party a valid, continuing security interest in the Collateral, subject only to Permitted Liens (as defined in the Notes) securing the payment and performance of the Obligations and except as otherwise provided in Section 2 hereof.  Upon making the filings described in the immediately following paragraph together with the payment of all necessary filing fees with the applicable office of the Secretary of State, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected.   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 Party hereunder.

 

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

 

(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. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

 

(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) 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 Note).

 

(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.

 

  

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(k) Except for Permitted Liens (as defined in the Note), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected first priority liens and security interests in the Collateral in favor of the Secured Party until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 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 Party.  At the request of the Secured Party, each Debtor will sign and deliver to the Secured Party at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Secured Party and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Secured Party 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 Interests hereunder, and each Debtor shall obtain and furnish to the Secured Party 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 Interests hereunder.

 

(l) No Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for (i) Permitted Liens and (ii) 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 the Secured Party.

 

(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, including Collateral hereafter acquired, 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 Secured Party, that: (a) the Secured Party 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 Secured Party and such cancellation or change shall not be effective as to the Secured Party for at least thirty (30) days after receipt by the Secured Party of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Secured Party 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 Note) 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 Secured Party and, if received by such Debtor, shall be held in trust for the Secured Party and immediately paid over to the Secured Party unless otherwise directed in writing by the Secured Party.   Copies of such policies or the related certificates, in each case, naming the Secured Party as lender loss payee and additional insured shall be delivered to the Secured Party at least annually and at the time any new policy of insurance is issued.

 

  

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(o) Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Party promptly, in sufficient detail, of any material adverse 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 Party security interest therein.

 

(p) Each Debtor shall promptly execute and deliver to the Secured Party such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Secured Party may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Party’s 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 Party has been granted a security interest hereunder, substantially in a form reasonably acceptable to the Secured Party, 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 Party and its representatives to inspect the Collateral once person calendar year absence continuance of an Event of Default, during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the 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 Party 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 Party hereunder. 

 

(t) All information heretofore, herein or hereafter supplied to the Secured Party 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.

 

  

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(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 Party of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

 

(w) Except in the ordinary course of business, 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 the Secured Party which shall not be unreasonably withheld.

 

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

 

(y) (i) The actual name of each Debtor is the name set forth in Schedule D attached hereto; (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.

 

(z) 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 Secured Party. 

 

(aa) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of the Secured Party 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.

 

(bb) Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Secured Party, 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).

 

  

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(cc) 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 Party, to be entered into and delivered to the Secured Party.

 

(dd) 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 Party.

 

(ee) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Secured Party in notifying such third party of the Secured Party’s 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 reasonably satisfactory to the Secured Party.

 

(ff) If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Party in a writing signed by such Debtor of the particulars thereof and grant to the Secured Party 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 Party.

 

(gg) Each Debtor shall cause each subsidiary of such Debtor to promptly 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 Party may reasonably request.  Upon delivery of the foregoing to the Secured Party, 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, 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.

 

(hh) The Company agrees that, in its capacity of the holder of the Pledged Securities, it shall not vote or give consents with respect to the Pledged Securities for any purpose inconsistent with the provisions of this Agreement and the Note.

 

  

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(ii) Except with respect to certificated securities delivered to the Secured Party, the applicable Debtor shall deliver to Secured Party 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 Secured Party 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 Secured Party, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Secured Party regarding such Pledged Securities without the further consent of the applicable Debtor.

 

(jj) Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly give the Secured Party notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

 

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

 

(ll) 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.  Schedule F lists all e-mail addresses, business, personal and otherwise, of all “Named Executive Officers” as such term is used in the Securities Exchange Act of 1934, as amended.

 

(mm) 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. Defaults.  The following events shall be “Events of Default”:

 

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

 

  

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

 

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for ten (10) 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 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.

 

6. 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 Interests, whether payable pursuant to the Note 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 Party and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Party, in an amount equal to the currently outstanding Principal Amount of the Note for application to the satisfaction of the Obligations.

 

(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) hold the same in trust on behalf of and for the benefit of the Secured Party; and (ii) to deliver any and all certificates or instruments evidencing the same to Secured Party on or before the close of business on the fifth (5th) Business Day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Secured Party subject to the terms of this Agreement as Collateral.

 

  

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7. Rights and Remedies Upon Default. 

 

(a) Upon the occurrence of any Event of Default and at any time thereafter, the Secured Party shall have the right to exercise all of the remedies conferred hereunder and under the Note, and the Secured Party shall have all the rights and remedies of a secured party under the UCC.  Without limitation, the Secured Party shall have the following rights and powers:

 

(i) The Secured Party 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 Party at places which the Secured Party shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Secured Party, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Secured Party taking possession of, removing or putting the Collateral in saleable or disposable form.

 

(ii) Upon notice to the Debtors by the Secured Party, 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, Secured Party shall have the right to receive any interest, cash dividends or other payments on the Collateral and, at the option of the Secured Party, to exercise in such Secured Party’s discretion all voting rights pertaining thereto.  

 

(iii) The Secured Party 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 Party 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 Party 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 Party 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 Party and to enforce the Debtors’ rights against such account debtors and obligors.

 

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

 

  

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(vi) The Secured Party may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Party or any designee or any purchaser of any Collateral.

 

(b) The Secured Party shall comply with any applicable law in connection with a disposition of Collateral.  The Secured Party may sell the Collateral without giving any warranties and may specifically disclaim such warranties.  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 Secured Party’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 Secured Party to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Secured Party and the Secured Party, 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.

 

8. Applications of Proceeds.  The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral 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 Party in enforcing the Secured Party’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations of the Secured Party (based on then-outstanding Principal Amount of the Note at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Party shall pay to the applicable Debtor any surplus proceeds.

 

9. Securities Law Provision.  Each Debtor recognizes that Secured Party 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 (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 Secured Party 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.  

 

  

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10. Costs and Expenses.  Each Debtor agrees to pay all reasonable and documented 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 Party.  The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Secured Party is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein.  The Debtors will also, upon demand, pay to the Secured Party the amount of any and all reasonable and documented expenses, including the reasonable fees and expenses of its counsel and of any experts which the Secured Party may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and Secured Party, which the Secured Party, for the benefit of the Secured Party, and the Secured Party 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 Party under the Note.  Until so paid, any fees payable hereunder shall be added to the Principal Amount of the Note and shall bear interest at the Default Rate.

 

11. 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.  The Secured Party agrees to treat the Collateral with the same standard of care with which it would accord its own collateral.  Without limiting the generality of the foregoing: (a) the Secured Party does not have: (i) 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) 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.  The Secured Party shall not 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 Secured Party of any payment relating to any of the Collateral, nor shall the 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 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 Secured Party or to which the Secured Party may be entitled at any time or times.

 

  

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12. Security Interests Absolute.  All rights of the Secured Party and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Note 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 Note 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 guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Party 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 Interests granted hereby.  Until the Obligations shall have been paid and performed in full, the rights of the Secured Party 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 Party hereunder shall be deemed by final, nonappealable 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 Party, 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 Party to proceed against any other person or entity or to apply any Collateral which the Secured Party 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.

 

13. Term of Agreement.  This Agreement and the Security Interests shall terminate on the date on which all payments under the Note have been paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

 

  

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14. Power of Attorney; Further Assurances.

 

(a) Each Debtor authorizes the Secured Party, and does hereby make, constitute and appoint the Secured Party and its officers, Secured Party’s, 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 Secured Party 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 Party; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, 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 Party, 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 Party deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Note 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) Each Debtor hereby irrevocably appoints the Secured Party 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 Party’s discretion, to take any action and to execute any instrument which the Secured Party 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 Party.  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.

 

15. 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 Note).

 

16. 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 Party 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 Party’s rights and remedies hereunder.

 

  

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17. Miscellaneous.

 

(a) No course of dealing between the Debtors and the Secured Party, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder or under the Note 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 Party with respect to the Collateral, whether established hereby or by the Note or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

 

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Party, or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

 

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Secured Party (other than by merger).  The Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Party.”

 

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

 

  

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(h) Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, 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.  Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Note (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or Secured Party) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan.  Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, 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.

 

(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 Party hereunder. 

 

(k) Each Debtor shall indemnify, reimburse and hold harmless the Secured Party and their respective partners, members, shareholders, officers, directors, employees and the Secured Party (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including reasonable and documented 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 Notes, the Purchase Agreement (as such term is defined in the Note) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

 

  

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(l) Nothing in this Agreement shall be construed to subject the 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 the 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 of 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.

 

  

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

 

	
NXT NUTRITIONALS HOLDINGS, INC.

 

	
By:    /s/ Francis McCarthy                                                      

      Name: Francis McCarthy

      Title:   President and CEO

 

	  
	
NXT NUTRITIONALS, INC.

 

 

	
By:    /s/ Francis McCarthy                                                     

      Name: Francis McCarthy

      Title:   President and CEO

 

  

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[SIGNATURE PAGE OF SECURED PARTY]

Name of Investing Entity: NXT INVESTMENT PARTNERS, LLC

 

Signature of Authorized Signatory of Investing Entity:    /s/ Richard J. Golden                                                                                                                                

 

Name of Authorized Signatory: Richard J. Golden

 

	
Title of Authorized Signatory: 

	
Manager of NIP-GGS Management, LLC

	 	Manager of Investing Entity

                 

 

  

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ANNEX A

to

SECURITY

AGREEMENT

 

FORM OF ADDITIONAL DEBTOR JOINDER

 

 

Security Agreement dated as of November 21, 2011 made by

NXT Nutritionals Holdings, Inc.

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

to and in favor of

the Secured Party 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 Party 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 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 PARTY A SECURITY INTEREST IN THE COLLATERAL AS 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 Party, and the Secured Party 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 Party.

 

  

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Disclosure Schedules

 

A           -           Collateral

 

B           -           Permitted Liens

 

C           -           Financing Statements, Security Agreements, Licensed and Transfer Notices

 

D           -           Debtors

 

E           -           Trade Names

 

F           -           Material Licenses; Email Addresses of Named Executive Officers

 

G           -           Account Debtors Covered by Federal Assignment of Claims Act

 

H           -           Capital Stock and Other Equity Interests

 

 

25f8k112111ex10v_nxt.htm

Exhibit 10.5

 

NXT NUTRITIONALS HOLDINGS, INC.

 

 

CERTIFICATE OF DESIGNATION

OF

SERIES A CONVERTIBLE PREFERRED STOCK

 

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

 

 

The undersigned, the authorized officer of NXT Nutritionals Holdings, Inc., a Delaware corporation (the “Corporation”), in accordance with the provisions of Section 103 of the General Corporation Law of the State of Delaware (the “DGCL”) does hereby certify that, in accordance with Section 141 of the DGCL, the following resolution was duly adopted by the Board of Directors of the Corporation on November 15, 2011:

 

RESOLVED, that the Board of Directors, pursuant to authority expressly vested in it by the Certificate of Incorporation of the Corporation, hereby authorizes the issuance of a series of Preferred Stock, par value $.001 per share, of the Corporation, and hereby fixes the designation, preferences, rights and the qualifications, limitations and restrictions thereof, in addition to those set forth in the Certificate of Incorporation of the Corporation, as follows:

 

SERIES A CONVERTIBLE

PREFERRED STOCK

 

Section 1. Designation; Amount; and Issue Date.  The shares of such series shall be designated as “Series A Convertible Preferred Stock” (the “Series A Convertible Preferred Stock”), the par value thereof shall be $.001 per share and the number of issued and outstanding shares constituting the Series A Convertible Preferred Stock shall be 13,075,468 (as may be adjusted by the Corporation from time to time pursuant to Section 5). The “Issue Date” shall mean the date that shares of Series A Convertible Preferred Stock are first issued by the Corporation. The Issue Date shall be deemed to be the date of issuance of the Series A Convertible Preferred Stock regardless of the number of times transfer of any such shares is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such shares.

 

Section 2. Rank. With respect to dividend rights, the Series A Convertible Preferred Stock will rank: (i) senior to: (A) the common stock, par value $.001 per share (the “Common Stock”) of the Corporation; (B) all other classes of common stock of the Corporation; and (C) each other class or series of preferred stock of the Corporation now or hereafter established by the Board of Directors (the “Board of Directors” or the “Board”) of the Corporation (collectively referred to as “Junior Stock”) unless the holder(s) of at least 67% of the shares of the Series A Convertible Preferred Stock consent in writing to the creation of Parity Stock or Senior Stock in accordance with Section 7, respectively prior to the issuance thereof (as defined below); (ii) on a parity with each other class or series of preferred stock of the Corporation established hereafter by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series A Convertible Preferred Stock as to dividend rights (collectively referred to as “Parity Stock”); and (iii) junior to each class or series of preferred stock of the Corporation established hereafter by the Board, the terms of which class or series expressly provide that such class or series will rank senior to the Series A Convertible Preferred Stock as to dividend rights (collectively referred to as “Senior Stock”).

 

  

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Section 3. Dividends and Distributions.

 

(a) From and after the Issue Date, the holders of each share of Series A Convertible Preferred Stock shall be entitled to receive dividends at an annual rate (the “Annual Dividend”) per share equal to the “Dividend Amount”.  The “Dividend Amount” shall be equal to the quotient obtained by dividing: (i) the numerator, which shall be equal to the greater of: (a) 10% of the then outstanding Principal Amount (as defined below) of the Note (as defined below) as of December 31st of the year for which the Annual Dividend is paid (provided that the Note remains issued and outstanding and has not been prepaid by the Corporation); or (b) 10% of the Net Income (as defined below) of the Corporation in excess of $500,000 for the applicable fiscal year of the Corporation and the denominator which is equal to 13,075,468.  The Board of Directors of the Corporation may, in its discretion with respect to each applicable fiscal year (i) pay all or any portion of the Annual Dividend in cash in accordance with subsection (c) below; or (ii) elect not to pay currently the Annual Dividend (provided that the Note remains issued and outstanding and has not been prepaid by the Corporation) and instead accrue the Annual Dividend and increase the Principal Amount of the Note by the amount of the Annual Dividend which shall then be due and payable on the Maturity Date of the Note.  In the event that the Note has been repaid in full by the Corporation, the Annual Dividend shall be determined only by subclause (b) above and if the Annual Dividend is accrued and not paid currently, the Annual Dividend may be paid on the Dividend Payment Date or accrued and payable to the holder in cash not later than the Mandatory Conversion Date. The “Principal Amount” shall mean the subscription amount of the holder of the Note on the Issue Date as increased from time to time by addition, if applicable, of the Annual Dividend; the “Note” shall mean the Senior Secured Note issued to certain holders pursuant to a Securities Purchase Agreement dated November 21, 2011; the “Net Income” shall mean the net income from operations of the Corporation and its subsidiaries taken as a whole, after deducting interest, taxes, depreciation, and amortization, and any charges in connection with the embedded derivative in the Series A Convertible Preferred Stock, but prior to deduction for the payment of any dividends, for the fiscal year for which the Annual Dividend is being paid. The “Maturity Date” shall mean the fourth (4th) anniversary of the Issue Date of the Note and the Series A Convertible Preferred Stock, provided that in the event the Closing is conducted in more than one closing, the Note as amended shall have the Maturity Date as of the initial Closing Date.

 

(b) Dividends shall be computed on the basis of a 360-day year consisting of twelve 30-day months and will accrue from the date of initial issuance, or from the most recent date to which dividends have been paid or duly provided for.

 

  

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(c) Dividends shall accrue commencing as of January 1, 2012, and shall be payable annually, in arrears, on March 31 of the year following the applicable fiscal year (each, a “Dividend Payment Date”) as follows: (i) the Annual Dividend for the fiscal year ending December 31, 2012 shall be payable on March 31, 2013; (ii) the Annual Dividend for the fiscal year ending December 31, 2013 shall be payable on March 31, 2014; (iii) the Annual Dividend for the fiscal year ending December 31, 2014 shall be payable on March 31, 2015; and (iv) the Annual Dividend for the fiscal year ending December 31, 2015 shall be payable on March 31, 2016 to the record holder(s) of the Series A Preferred Stock on the Mandatory Conversion Date, notwithstanding that a Mandatory Conversion Date shall have occurred. March 31, 2016 shall sometimes be referred to as the Final Dividend Payment Date not withstanding that the Mandatory Conversion Date (as defined in subsection (c) below) of the Series A Convertible Preferred Stock shall be the fourth (4th) anniversary of the Issue Date.  In the event that the Series A Convertible Preferred Stock is converted prior to the Mandatory Conversion Date, the Annual Dividend shall be: (i) prorated based upon the number of days the Series A Convertible Preferred Stock was held during the applicable fiscal year prior to the date of conversion divided by 360; and (ii) payable on the next Dividend Payment Date.  The record date for the determination of holders of shares of Series A Convertible Preferred Stock entitled to receive a payment of the Annual Dividend for each applicable fiscal year shall be December 31, respectively, in each fiscal year, beginning December 31, 2012. In addition, to the extent that any Annual Dividend for any applicable fiscal year has been accrued and not paid and the Board has not elected pursuant to Section 3(a) to increase the Principal Amount of the Note, any and all such unpaid Annual Dividend shall be payable on the Final Dividend Payment Date (March 31, 2016).

 

Section 4. Transfer.  The Series A Convertible Preferred Stock may not be sold, assigned, transferred, exchanged, pledged or otherwise disposed of or encumbered (any of the foregoing, a “Transfer”), in whole or in part, without the prior written consent of the Corporation.  Any purported Transfer of all or any portion of a holder’s shares of Series A Convertible Preferred Stock in violation of this Certificate of Designation shall be null and void, and will not be entered in the ownership records of the Corporation.

 

Section 5. Conversion.

 

(a) Subject always to Section 5(c) and Section 6, each holder of the Series A Convertible Preferred Stock shall have the right to convert the Series A Convertible Preferred Stock, at any time, from time to time, in whole or in part, into shares of Common Stock in accordance with this 5.  Each share of Series A Convertible Preferred Stock shall initially be convertible at the Corporation’s office into one (1) fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) (the “Initial Conversion Rate”); provided that the Initial Conversion Rate shall be adjusted to a conversion rate (calculated to the nearest 1/100th of a share of common stock) (the “Final Conversion Rate”) on the Adjustment Date equal to: (i) 20% of the sum of: (A) all issued and outstanding shares of Common Stock of the Corporation on a fully diluted basis immediately prior to the conversion of any Series A Convertible Preferred Stock; and (B) the number of shares of Common stock issuable at the Initial Conversion Rate; (ii) divided by 13,075,468.  The “Adjustment Date” means the first date on which any shares of Series A Convertible Preferred Stock are converted into shares of Common Stock, which shall be the Mandatory Conversion Date (as defined below) if there are no conversions prior to the Mandatory Conversion Date. The shares of Common Stock issuable upon conversion of each share of Series A Preferred Stock are referred to as the “Conversion Shares”). All shares of Common Stock which may be issued upon conversion of the shares of Series A Convertible Preferred Stock will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof, and the Corporation shall take no action which will cause a contrary result.

 

  

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(b) The right of the holder of Series A Convertible Preferred Stock to convert such shares into Common Stock shall be exercised by surrendering for such purposes to the Corporation or its agent, as provided above, certificates representing the shares of Series A Convertible Preferred Stock to be converted, duly endorsed in blank or accompanied by proper instruments of transfer and a notice of conversion.  The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery upon conversion of shares of Series A Convertible Preferred Stock or other securities or property in a name other than that of the holder of the shares of the Series A Convertible Preferred Stock being converted, and the Corporation shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of any such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

 

(c) Upon the Maturity Date (the “Mandatory Conversion Date”), each share of Series A Convertible Preferred Stock shall automatically and mandatorily convert into the Conversion Shares (a “Mandatory Conversion Event”) at the Final Conversion Rate (whichever is then in effect).  Upon delivery by the Corporation of notice of a Mandatory Conversion Event to the holder(s) of Series A Convertible Preferred Stock, such holders shall surrender to the Corporation or its agent, on the date specified by the Corporation in the notice of a Mandatory Conversion Event, certificates representing all shares of the Series A Convertible Preferred Stock, duly endorsed in blank or accompanied by proper instruments of transfer.  The Conversion Date for all purposes of conversion pursuant to a Mandatory Conversion Event shall be deemed to be the Mandatory Conversion Date.

 

(d) The Corporation (and any successor corporation) shall take all action necessary so that a number of shares of the authorized but unissued Common Stock (or common stock in the case of any successor corporation) sufficient to provide for the conversion of the Series A Convertible Preferred Stock outstanding upon the basis provided for herein are at all times reserved by the Corporation (or any successor corporation), free from preemptive rights, for such conversion.  If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Series A Convertible Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Series A Convertible Preferred Stock on the new basis. Notwithstanding anything to the contrary herein, the Corporation shall not issue any securities or make any change in its capital structure if as a result thereof the Corporation would not have sufficient shares of Common Stock to issue upon conversion of the issued and outstanding shares of Series A Convertible Preferred Stock.

 

(e) Upon the surrender of certificates representing shares of Series A Convertible Preferred Stock for conversion on the terms hereof, the person converting shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and all rights with respect to the shares surrendered shall forthwith terminate, except the right to receive the Common Stock.

 

  

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(f) No fractional shares of Common Stock shall be issued upon conversion of Series A Convertible Preferred Stock and the aggregate number of shares of Common Stock which would otherwise be issuable upon any shares surrendered for conversion at one time by the same holder shall be rounded up to the nearest whole number.

 

(g) Except with respect to the Annual Dividend payable on the Final Dividend Payment Date, under no circumstances shall the Corporation make any payment to any party (including any holder of Series A Convertible Preferred Stock) in connection with the conversion of shares of Series A Convertible Preferred Stock into shares of Common Stock.

 

Section 6. Mandatory Conversion or Redemption Upon a Change of Control.

 

(a) If a Change of Control (as defined in Section 6(c)) occurs, each holder of shares of Series A Convertible Preferred Stock that are outstanding immediately prior to the Change of Control shall be required either to: (i) convert all, but not less than all, of its shares of Series A Convertible Preferred Stock into Common Stock in accordance with the terms hereof; or (ii) submit all, but not less than all, of its shares of Series A Convertible Preferred Stock to the Corporation for redemption at the Redemption Price (as defined in Section 6(d)).

 

(b) Upon delivery by the Corporation to each such holder of shares of Series A Convertible Preferred Stock of a notice of a Change of Control (a “COC Notice”) setting forth the material terms of the proposed Change of Control and the procedure by which holders of Series A Convertible Preferred Stock may either convert their shares of Series A Convertible Preferred Stock into Common Stock or have such shares redeemed, each such holder shall return to the Corporation, within ten (10) business days of the date of the COC Notice a notice of election (the form of which shall be included in the COC Notice) (the “Notice of Election”) indicating whether such holder irrevocably elects to convert such holder’s  shares of Series A Convertible Preferred Stock into Common Stock or submit such shares for redemption.  If no response within 10 days, the Series A Convertible Preferred Stock shall be deemed to be converted.

 

(i) Any holder of shares of Series A Convertible Preferred Stock which returns to the Corporation a Notice of Election indicating that it chooses to convert its shares of Series A Convertible Preferred Stock into Common Stock must comply with Section 5, with such conversion to be completed immediately prior to the date upon which the Change of Control is consummated.

 

(ii) Any holder of shares of Series A Convertible Preferred Stock which returns to the Corporation a Notice of Election indicating that such holder chooses to submit its shares of Series A Convertible Preferred Stock to the Corporation for redemption must comply with this Section 6(b)(ii).

 

  

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(A) The Redemption Price shall be payable, at the Corporation’s option, in: (A) cash; (B) the form of consideration the Corporation received in the Change of Control transaction; or (C) any combination thereof.  If the Corporation pays all or a portion of the Redemption Price in capital stock, no fractional shares of any such stock will be issued; instead, the Corporation will round the applicable number of shares of capital stock up to the nearest whole number of shares.

 

(iii) The Corporation shall comply with the requirements of Rule 14e-1 under the Exchange Act of 1934 (the “Exchange Act”) and any other securities laws and regulations to the extent those laws and regulations are applicable in connection with the purchase of Series A Convertible  Preferred Stock as a result of a Change of Control with respect to the Corporation.  To the extent that the provisions of any securities laws or regulations conflict with any of the provisions of this Section 6, the Corporation shall comply with the applicable securities laws and regulations and shall be deemed not to have breached its obligations under this Section 6.

 

(iv) The Corporation shall not be required to purchase any shares of Series A Convertible Preferred Stock upon the occurrence of a Change of Control if a third party makes an offer to purchase the Series A Convertible Preferred Stock in the manner, for the amount, at the times and otherwise in compliance with the requirements described in this Section 6 and purchases all shares of Series A Convertible Preferred Stock validly tendered and not withdrawn.

 

(c)  “Change of Control” shall mean, with respect to the Corporation, the occurrence of any of the following:

 

(i) the Corporation consolidates or merges with or into, or is acquired by, another person (other than a wholly owned subsidiary); provided, however, that a transaction, in which either (A) the Company is the surviving entity or (B) the holders of the Corporation’s Common Stock and Series A Convertible Preferred Stock collectively immediately prior to such transaction have, directly or indirectly more than 50% of the aggregate power of the common stock of the continuing or surviving corporation or transferee entitled to vote generally at the election of directors immediately after such event, shall not be a Change of Control; or

 

(ii) the Corporation sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets (determined on a consolidated basis) to any person other than to a wholly owned Subsidiary.

 

(d) “Redemption Price” per share of Series A Convertible Preferred Stock shall be equal to: (i) 20% of Net Sale Price divided by; (ii) 13,075,468.  The “Net Sale Price” shall be equal to the aggregate purchase price payable if the Corporation consolidates or merges with or into, or is acquired by, another person as contemplated by Section 6(c)(i); or (ii) the aggregate purchase price payable to the Corporation if the Corporation sells all or substantially all of its assets as contemplated by Section 6(c)(ii), in each case less closing costs, accounts payable, trade indebtedness, working capital lines of credit, amounts due and payable pursuant to contracts between the Corporation and third parties or other indebtedness.

 

  

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Section 7. Voting Rights.

 

(a) In addition or as otherwise required by law, so long as any shares of Series A Convertible Preferred Stock shall be outstanding, holders of shares of Series A Convertible Preferred Stock shall vote on an as-converted basis (based on the Initial Conversion Rate) on all together with the holders of Common Stock as a single class on all matters as to which the holders of Common Stock are entitled to vote, except that (A) the holders of shares of Series A Convertible Preferred Stock shall vote together as a separate class to elect one (1) member of the Board of Directors of the Corporation (the “Series A Director”) so long as a majority of the shares of Series A Convertible Preferred Stock issued on the Issue Date (adjusted for any stock splits or reverse stock splits which may occur) remain issued and outstanding; and (ii) as provided in subsection (b) below.

 

(b) So long as any shares of Series A Convertible Preferred Stock shall be outstanding and unless the consent or approval of a greater number of shares of Series A Convertible Preferred Stock shall then be required under the DGCL, without first obtaining the approval of the holders of at least 67% of the then outstanding shares of Series A Convertible Preferred Stock, given in person or by proxy either by written consent or at a meeting at which holders of such shares shall be entitled to vote separately as a class, the Corporation shall not either directly or by amendment, merger, consolidation or otherwise: (i) liquidate, dissolve or wind-up the affairs of the Corporation; (ii) amend, alter, or repeal any provision of this Certificate of Designation, or the Certificate of Incorporation or the Bylaws of  the Corporation if such amendment, alteration or repeal would materially and adversely affect the rights of the Series A Convertible Preferred Stock; (iii) create or authorize the creation of or issue any Parity Stock or Senior Stock; (iv) increase the maximum number or decrease the minimum number of directors set forth in the Company’s bylaws; or (v) authorize or effect the acquisition by the Corporation or any subsidiary of another entity by means of a purchase of all or substantially all of the capital stock or assets of such entity. Notwithstanding the foregoing, the Corporation shall have the right to file a certificate of correction or similar amendment to the Certificate of Incorporation (including this Certificate of Designation) in the event that the Corporation determines that the Certificate of Incorporation or this Certificate of Designation contains a misstatement or mistake.

 

Section 8. Residual Rights.  All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock.

 

Section 9. Preemptive Rights.  The holders of the Series A Convertible Preferred Stock are not entitled to any preemptive rights.

 

Section 10. Outstanding Shares.  All shares of Series A Convertible Preferred Stock shall be deemed outstanding except, from the date of surrender of certificates representing shares of Series A Convertible Preferred Stock for conversion into Common Stock, all such shares of Series A Convertible Preferred Stock shall be deemed converted into shares of Common Stock.

 

[signature on following page]

 

  

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IN WITNESS WHEREOF, NXT Nutritionals Holdings, Inc., has caused this Certificate of Designation to be signed by Francis McCarthy, its Chief Executive Officer, this 21st day of November, 2011.

 

 

NXT NUTRITIONALS HOLDINGS, INC.

 

 

By           /s/ Francis McCarthy               

Name:    Francis McCarthy

Title:      President and Chief Executive Officer

 

 

 

 

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