Document:

ex_166814.htm

Exhibit 10.2

 

 

 

 

 

GUARANTY AND COLLATERAL AGREEMENT

dated as of December [___], 2019

by and among

 

CLEARONE, inc.,

 

and

THE OTHER PARTIES HERETO,

as Grantors,

and

Edward D. Bagley

as Purchaser

 

 

 

 

 

GUARANTY AND COLLATERAL AGREEMENT

 

THIS GUARANTY AND COLLATERAL AGREEMENT, dated as of December [___ __], 2019 (this “Agreement”), is entered into by and among CLEARONE, INC., a Delaware corporation (the “Borrower”), Netstreams Inc., a Delaware corporation, Netstreams LLC, a Texas limited liability company (each, a “Guarantor” and, together with any other Person that becomes a guarantor under the Note Purchase Agreement (as hereafter defined), the “Guarantors”; and together with Borrower, each individually a “Grantor” and collectively, the “Grantors”), in favor of Edward D. Bagley, an individual, as purchaser party to the Note Purchase Agreement (the “Purchaser”).

 

The Purchaser has agreed to purchase the Notes from Borrower pursuant to the Note Purchase Agreement. It is a condition to the obligation of Purchaser to execute and deliver the Note Purchase Agreement and purchase the Notes, that each Guarantor guaranty the payment and performance of the Notes and each Grantor grant liens in all or substantially all of its assets to secure the same, all as set forth in this Agreement.

 

Each Grantor is affiliated with each other Grantor. Borrower and the other Grantors are engaged in interrelated businesses, and each Grantor will derive substantial direct and indirect benefit (financial and otherwise) from the purchase of the Notes under the Note Purchase Agreement. It is a condition precedent to Purchaser’s obligation to purchase the Notes under the Note Purchase Agreement that the Grantors shall have executed and delivered this Agreement to Purchaser.

 

In consideration of the promises and to induce Purchaser to enter into the Note Purchase Agreement and to induce the Purchaser to purchase the Notes thereunder, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each Grantor (intending to be legally bound) hereby agrees with Purchaser as follows:

 

Section 1          DEFINITIONS.     

 

1.1     Unless otherwise defined herein, terms defined in the Note Purchase Agreement and used herein shall have the meanings assigned thereto in the Note Purchase Agreement, and, if not defined in the Note Purchase Agreement, such terms shall have the meaning assigned thereto in the UCC.

 

1.2     When used herein the following terms shall have the following meanings:

 

“Agreement” has the meaning set forth in the preamble hereto.

 

“Applicable Insolvency Laws” means all applicable laws governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws (including, without limitation, 11 U.S.C. Sections 544, 547, 548 and 550 and other “avoidance” provisions of Title 11 of the Bankruptcy Code, as amended or supplemented).

 

“Chattel Paper” means all “chattel paper” as such term is defined in Section 9-102(a)(11) of the UCC and, in any event, including without limitation with respect to any Grantor, all Electronic Chattel Paper and Tangible Chattel Paper.

 

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“Collateral” means (a) all of the personal property now owned or at any time hereafter arising or acquired by any Grantor or in which any Grantor now has or at any time in the future may acquire any right, title or interest, wherever located, including, without limitation, all of each Grantor’s now owned or hereafter arising or acquired Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Farm Products, Fixtures, General Intangibles, Goods, Health Care Insurance Receivables, indemnification rights and benefits under or pursuant to any purchase agreement, Instruments, insurance policies of any kind maintained by any Grantor, Intellectual Property, Inventory, Investment Property (including, without limitation, Pledged Equity), Leases, Letter-of-Credit Rights, Money, Supporting Obligations and Identified Claims, Vehicles and title documents with respect to Vehicles (including, for the avoidance of doubt, all contract rights, subscription deposits, royalties, license rights, license fees and all other forms of obligations owing to a Grantor arising out of the sale or lease of goods, the licensing of technology or the rendering of services by a Grantor), (b) all books and records pertaining to any of the foregoing, (c) all Proceeds and products of and accessions to any of the foregoing, and (d) all collateral security and guaranties given by any Person with respect to any of the foregoing. Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof. Notwithstanding the foregoing, the “Collateral” shall not include Excluded Assets.

 

“Collateral Access Agreement” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in any Grantor’s books and records, Equipment or Inventory, in each case, in form and substance reasonably satisfactory to Purchaser, pursuant to which, among other things, such Person waives or subordinates any Lien it may have on the Collateral, and agrees to permit Purchaser to enter upon the premises and remove the Collateral or to use the premises to store or dispose of the Collateral.

 

“Copyrights” means all copyrights and copyright registrations arising under the laws of the United States or any other country or political subdivision thereof (whether registered or unregistered and whether published or unpublished), including, without limitation, the copyright registrations and recordings thereof and applications in connection therewith listed on Schedule 4, and (i) all reissues, continuations, extensions or renewals thereof, and the right to obtain all reissues, confirmations, extensions and renewals thereof, (ii) all income, royalties, damages, proceeds and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements, misappropriation, violation, impairment and dilutions thereof, (iii) the right to sue or recover for past, present and future infringements and dilutions thereof, (iv) the goodwill of each Grantor’s business symbolized by the foregoing and connected therewith, and (v) all of each Grantor’s rights corresponding to the foregoing throughout the world.

 

“Excluded Assets” means, with respect to any Grantor:

 

(a)     any of such Grantor’s right, title or interest in any license, contract or agreement to which such Grantor is a party or any of its right, title or interest thereunder, to the extent, but only to the extent, that such a grant would, under the express terms of such license, contract or agreement result in a breach of the terms of, or constitute a default under, such license, contract or agreement (other than to the extent that any such term (i) has been waived or (ii) would be rendered ineffective pursuant to Sections 9-406, 9-408, 9-409 of the UCC or other applicable provisions of the UCC of any relevant jurisdiction or any other applicable law (including Applicable Insolvency Laws) or principles of equity); provided, that (A) immediately upon the ineffectiveness, lapse, termination or waiver of any such provision, the Collateral shall include, and the applicable Grantor shall be deemed to have granted a security interest in, all such right, title and interest as if such provision had never been in effect and (B) the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect the Purchaser’s unconditional continuing security interest in and Liens upon any rights or interests of a Grantor in or to the proceeds of, or any monies due or to become due under, any such license, contract or agreement;

 

(b)     “intent to use” trademark and service mark applications; and

 

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(c)     those assets as to which the Purchaser in its sole discretion determines that the cost, burden, difficulty or consequence of obtaining or perfecting such a security interest outweighs the benefit to the Purchaser and the Secured Parties of the security to be afforded thereby.

 

“Filing Collateral” means Collateral which may be perfected by the filing of a UCC financing statement in the appropriate filing office or an applicable security agreement with the United States Patent and Trademark Office or the United States Copyright Office (or, if at any time applicable, any other governmental office, department or agency or as appropriate, such equivalent agency or agencies in foreign countries).

 

“Fixtures” means “fixtures” as such term is defined in Section 9-102(a)(41) of the UCC and, in any event, including with respect to any Grantor, all of the following, whether now owned or hereafter acquired by a Grantor: plant fixtures, business fixtures, other fixtures and storage facilities, wherever located; and all additions and accessories thereto and replacements therefor.

 

“General Intangibles” means all general intangibles, including, without limitation, all Payment Intangibles, contract rights (including, without limitation, all rights of such Grantor to receive moneys due and to become due to it under any such applicable contract or in connection therewith, all rights of such Grantor to damages arising thereunder and all rights of such Grantor to perform and to exercise all remedies thereunder), rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill (including the goodwill associated with any Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and domain names, industrial designs, other industrial or Intellectual Property or rights therein or applications therefor, whether under license or otherwise, programs, programming materials, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims and uncertificated equity interests not constituting a security.

 

“Guaranteed Obligations” means, with respect to each Guarantor, all Obligations of the Borrower and of the other Guarantors, whether existing on the date hereof or hereafter incurred, created or arising and whether or not from time to time reduced or extinguished or hereafter increased or incurred, whether or not recovery may be or hereafter may become barred by any statute of limitations, and whether enforceable or unenforceable as against the Borrower or any of the other Guarantors, now or hereafter in effect, or due or to become due, including, without limitation, all principal, interest (including without limitation, interest accruing at the then applicable rate provided in the Note Purchase Agreement after the maturity thereof and interest accrued or accruing at the then applicable rate provided in the Note Purchase Agreement upon the commencement or during the pendency of any Insolvency Proceeding, regardless of whether such interest or a claim for post-filing or post-petition interest is allowed or allowable in such Insolvency Proceeding), and any applicable prepayment fee in respect of the Notes or repurchase or redemption obligations in respect of the Notes or the Warrants, and all other monetary obligations of the Borrower and of the other Grantors arising under, out of, in respect of or in connection with the Note Purchase Agreement, the Notes, the Warrants or any of the other Note Documents, including but not limited to fees, costs, expenses and indemnities, in all cases whether primary or secondary, direct or indirect, absolute or contingent, liquidated or unliquidated, due or to become due, or now existing or hereafter incurred.

 

“Identified Claims” means the Commercial Tort Claims described on Schedule 6 as such schedule shall be supplemented from time to time.

 

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“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 the Copyrights, the Intellectual Property Licenses, the Patents, the Trademarks, Trade Secrets, Internet domain names, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom and customer lists, data, inventions (whether patentable or not) and software.

 

“Intellectual Property Licenses” means all agreements (whether written or oral) naming (or granting) any Grantor as licensor or licensee, including those listed on Schedule 4, granting any right (a) under any Copyright, including the grant of rights to manufacture, distribute, exploit and sell materials derived from any such Copyright, (b) to manufacture, use or sell any invention covered in whole or in part by a Patent, and (c) to use any Trademark.

 

“Intercompany Note” means any promissory note evidencing loans made by any Grantor to any other Grantor.

 

“Investment Property” means the collective reference to (a) all “investment property” as such term is defined in Section 9-102(a)(49) of the UCC, (b) all “financial assets” as such term is defined in Section 8-102(a)(9) of the UCC, and (c) whether or not constituting “investment property” as so defined, and all Pledged Equity.

 

“Issuers” means the collective reference to each issuer of any Investment Property.

 

“Note Purchase Agreement” means the Note Purchase Agreement dated as of December 8, 2019 by and among Borrower, the other Grantors, the Purchaser, as amended, supplemented, restated or otherwise modified from time to time.

 

“Paid in Full” or “Payment in Full” means the payment in full in cash of all Obligations, other than contingent indemnification and expense reimbursement obligations for which no claims have been asserted, in accordance with the terms of the Note Purchase Agreement (subject to any rights of reinstatement set forth herein).

 

“Patents” means all patents and patent applications in the United States, any other country or political subdivision thereof, including, without limitation, the patents and patent applications listed on Schedule 4, and (i) all continuation, divisional and continuation-in-part applications and reissues and reexaminations thereof, and all rights to obtain any reissues or extensions thereof, (ii) all income, royalties, proceeds, damages and payments now and hereafter due or payable or asserted under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (iii) the right to sue or recover for past, present and future infringements, misappropriation, violation or other impairment thereof, and (iv) all of each Grantor’s rights corresponding to the foregoing throughout the world.

 

“Pledged Equity” means the Capital Stock of each Grantor of which the Borrower is the sole record and beneficial owner, together with any other equity interests, certificates, options or rights of any nature whatsoever in respect of Capital Stock of any Person that may be issued or granted to, or held by, any Grantor at any time while this Agreement is in effect, and any and all distributional interests, dividends, cash, certificates, liquidation rights and interests, options, rights, warrants, instruments or other property (whether real, personal or mixed) from time to time received, receivable or otherwise distributed in respect of or in exchange or substitution for any and all of such Capital Stock, and all rights to receive any and all income, gain, profit, loss or other items allocated or distributed to the owner of such equity interests (including, without limitation, under or pursuant to any operating agreement, if applicable).

 

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“Proceeds” means all “proceeds” as such term is defined in Section 9-102(a)(64) of the UCC, including, without limitation, any and all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto; provided, however, without limiting the generality of the foregoing, the term “Proceeds” includes whatever is receivable or received when Investment Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Purchaser from time to time with respect to any of the Investment Property.

 

“Receivable” means any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including any Accounts).

 

“Secured Obligations” means (a) in the case of the Borrower, the Obligations, and (b) in the case of the Guarantors, the Guaranteed Obligations.

 

“Securities Act” means the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder.

 

“Trade Secrets” means anything that would constitute a trade secret under Applicable Law and information that derives independent economic value (actual or potential) from not being generally known to and not being readily ascertainable by proper means by a person able to obtain economic value from its use or disclosure, and all other inventions (whether patentable or not), industrial designs, discoveries, improvements, ideas, designs, models, formulae, patterns, compilations, databases, data collections, drawings, blueprints, mask works, devices, methods, techniques, processes, know-how, confidential information, proprietary information, customer lists, software, and technical information.

 

“Trademarks” means all trademarks, trade names, registered trademarks, trademark applications, corporate names, business names, fictitious business names, service marks, trade styles, logos and other source or business identifiers (whether registered or unregistered), in each case in the United States or any other country or political subdivision thereof, including, without limitation, the trade names, registered trademarks, trademark applications, registered service marks and service mark applications listed on Schedule 4, and (i) all registrations and recordings thereof and applications thereof, renewals and extensions thereof, and the right to obtain all extensions and renewals thereof, (ii) all income, royalties, damages, proceeds, and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iii) the right to sue or recover for past, present and future infringements and dilutions thereof, (iv) the goodwill of each Grantor’s business symbolized by the foregoing and connected therewith, and (v) all of each Grantor’s rights corresponding to the foregoing throughout the world; provided, however, any intent-to-use United States trademark application for which an amendment to allege use or statement of use has not been filed and accepted by the United States Patent and Trademark Office shall not be considered Collateral (provided that each such intent-to-use application shall be considered Collateral immediately and automatically upon such filing and acceptance).

 

“UCC” means the Uniform Commercial Code as in effect on the Closing Date and from time to time in the State of New York, provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code (or its equivalent) as in effect on or after the date hereof in any other jurisdiction, “UCC” means the Uniform Commercial Code (or its equivalent) as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy.

 

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“Vehicles” means all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law.

 

Section 2     GUARANTY.

 

2.1     Guaranty.

 

(a)     Subject to the terms hereof, each of the Guarantors hereby, jointly and severally, absolutely, unconditionally and irrevocably, as a primary obligor and not only a surety, guarantees to Purchaser the prompt and complete payment when due (whether at the stated maturity, or earlier by acceleration or otherwise) of the Guaranteed Obligations. The guarantee contained in this Section 2 (this “Guaranty”) is a primary and original obligation of each Guarantor, is not merely the creation of a surety relationship, and is an absolute, unconditional, irrevocable, and continuing guaranty of payment (not collection) which shall remain in full force and effect without respect to future changes in conditions. This Guaranty constitutes a guaranty of payment and not of collection. If any Grantor fails to make any payment of any Secured Obligations on or before the due date thereof and after the expiration of the applicable notice and cure period, if any, Guarantor immediately shall (upon Purchaser’s written demand) cause such payment to be made.

 

(b)     Anything herein or in any other Note Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Note Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable foreign, federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). This Section 2.1(b) is intended solely to preserve the rights of the Purchaser hereunder, and no Guarantor or any other Person shall have any right or claim under this Section 2.1(b) or otherwise as against the Purchaser that would not otherwise be available to such Person under Applicable Insolvency Laws.

 

(c)     Each Guarantor agrees that the Guaranteed Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guaranty contained in this Section 2 or affecting the rights and remedies of Purchaser hereunder.

 

(d)     The guaranty contained in this Section 2 shall remain in full force and effect until all of the Secured Obligations shall have been Paid in Full. Guarantor agrees that Guarantor’s liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement of any lien, security interest, mortgage or realization upon any security or collateral that Purchaser may at any time possess or be entitled. Guarantor consents and agrees that Purchaser shall be under no obligation to marshal any assets of any Grantor or any other Person or against or in payment of any or all of the Secured Obligations.

 

(e)     No payment made by Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by Purchaser from Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Secured Obligations shall be deemed to modify, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Secured Obligations or any payment received or collected from such Guarantor in respect of the Secured Obligations), remain liable for the remaining unpaid Secured Obligations up to the maximum liability of such Guarantor hereunder until the Secured Obligations are Paid in Full.

 

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2.2     Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to Purchaser, and each Guarantor shall remain liable to Purchaser for the full amount guaranteed by such Guarantor hereunder.

 

2.3     No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by Purchaser, no Guarantor shall be entitled to be subrogated to any of the rights of Purchaser against Borrower or any other Guarantor or any collateral security or guaranty or right of offset held by Purchaser for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all of the Secured Obligations are Paid in Full; provided that, no Guarantor shall exercise any such rights of subrogation at any time if the Purchaser (with their designees, in each case) have acquired all or any of the Collateral by credit bid or strict foreclosure. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Secured Obligations shall not have been Paid in Full or at any time until Purchaser (or their designees, in each case, as applicable) ceases to own all or any portion of the Collateral if such Person has acquired all or any of the Collateral by credit bid or strict foreclosure, such amount shall be held by such Guarantor in trust for Purchaser, segregated from the funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to Purchaser in the exact form received by such Guarantor (duly endorsed by such Guarantor to Purchaser, if required), to be applied against the Secured Obligations, whether matured or unmatured, in accordance with Section 6.10 of this Agreement or such order as Purchaser shall determine in its discretion. Guarantor agrees that the execution of the Guaranty shall not be deemed to make Guarantor a “creditor” of any Grantor, and that for purposes of Applicable Insolvency Laws, Guarantor shall not be deemed a “creditor” of such Grantor.

 

2.4     Amendments, etc. with respect to the Secured Obligations.

 

(a)     Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Secured Obligations made by Purchaser may be rescinded by Purchaser and any of the Secured Obligations continued, and the Secured Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guaranty therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by Purchaser and the Note Purchase Agreement and the other Note Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as Purchaser may deem advisable from time to time in accordance with the Note Purchase Agreement and the other Note Documents. Purchaser shall not have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Secured Obligations or for the guaranty contained in this Section 2 or any property subject thereto.

 

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(b)     Without discharging any Guarantor from any of its obligations hereunder Purchaser may, from time to time, at its sole discretion and without notice to or the consent of any Guarantor, take any or all of the following actions: (i) retain or obtain a security interest in any property to secure any of the Secured Obligations or any obligation hereunder, (ii) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the undersigned, with respect to any of the Secured Obligations, (iii) amend, modify, or supplement any terms of the Note Documents or extend or renew any of the Secured Obligations for one or more periods (whether or not longer than the original period), alter or exchange any of the Secured Obligations, or release or compromise any obligation of any of the undersigned hereunder or any obligation of any nature of any other obligor with respect to any of the Secured Obligations, (iv) release any guaranty or right of offset or its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Secured Obligations or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (v) resort to the undersigned (or any of them) for payment of any of the Secured Obligations when due, whether or not Purchaser shall have resorted to any property securing any of the Secured Obligations or any obligation hereunder or shall have proceeded against any other of the undersigned or any other obligor primarily or secondarily obligated with respect to any of the Secured Obligations. This Guaranty includes any and all Secured Obligations arising under successive transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Secured Obligations, changing the interest rate, payment terms, or other terms and conditions thereof, or creating new or additional Secured Obligations after prior Secured Obligations have been satisfied in whole or in part. To the maximum extent permitted by law, Guarantor hereby waives any right to revoke this Guaranty as to future Obligations. If such a revocation is effective notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that (a) no such revocation shall be effective until written notice thereof has been received by Purchaser, (b) no such revocation shall apply to any Secured Obligations in existence on such date (including, but not limited to, any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms, or other terms and conditions thereof), (c) no such revocation shall apply to any Secured Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Purchaser in existence on the date of such revocation, (d) no payment by Guarantor, Grantor, or from any other source, prior to the date of such revocation shall reduce the maximum obligation of Guarantor hereunder, and (e) any payment by Borrower or from any source other than Guarantor, subsequent to the date of such revocation, shall first be applied to that portion of the Secured Obligations as to which the revocation is effective and which are not, therefore, guaranteed hereunder, and to the extent so applied shall not reduce the maximum obligation of Guarantor hereunder.

 

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2.5     Waivers. Each Guarantor waives, until Payment in Full, to the furthest extent permitted by applicable law, any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by Purchaser upon the guaranty contained in this Section 2 or acceptance of the guaranty contained in this Section 2; the Secured Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guaranty contained in this Section 2, and all dealings between Borrower and any of the Guarantors, on the one hand, and Purchaser, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guaranty contained in this Section 2. To the furthest extent permitted by applicable law, each Guarantor waives, until Payment in Full: (a) diligence, presentment, protest, demand for payment and notice of default, dishonor or nonpayment and all other notices whatsoever to or upon Borrower or any of the Guarantors with respect to the Secured Obligations, (b) notice of the existence or creation or non-payment of all or any of the Secured Obligations and (c) all diligence in collection or protection of or realization upon any Secured Obligations or any security for or guaranty of any Secured Obligations. Each Guarantor hereby waives, until Payment in Full: (1) notice of acceptance hereof; (2) notice of any loan or other financial accommodations made or extended to Borrower or the creation or existence of any Secured Obligations; (3) notice of the amount of the Secured Obligations, subject, however, to Guarantor’s right to make inquiry of Purchaser to ascertain the amount of the Secured Obligations at any reasonable time; (4) notice of any adverse change in the financial condition of Borrower or of any other fact that might increase Guarantor’s risk hereunder or the dollar amount of Guarantor’s liability; (5) notice of any event of default by Borrower under any instrument, writing or agreement with Purchaser including the Note Documents; and (6) all other notices (except if such notice is specifically required to be given to Guarantor hereunder or under any other applicable Note Document) and demands to which Guarantor might otherwise be entitled. Each Guarantor consents to any and all forbearances and extensions of the time of payment of the Note Purchase Agreement or any of the other Note Documents, and to any and all changes in the terms, covenants and conditions thereof hereafter made or granted, and to any part of the collateral therefor; it being the intention and agreement hereof that Guarantor shall remain unconditionally liable as a principal as, to and until Payment in Full has occurred, notwithstanding any act, omission or thing which might otherwise operate as a legal or equitable discharge of Borrower or Guarantor. Each Guarantor hereby further waives, until Payment in Full: (x) any rights to assert against Purchaser any defense (legal or equitable), setoff, counterclaim, or claim which Guarantor may now or at any time hereafter have against Borrower or any other party liable to Purchaser (other than the defense that the Secured Obligations shall have been Paid in Full); and (y) any defense, setoff, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Secured Obligations or any security therefor (including, but not limited to, any of the Note Documents). Without limiting the generality of the foregoing or any other provisions of this Guaranty, each Guarantor agrees that this Guaranty shall not be discharged, limited, impaired or affected by: (A) the transfer of all or any part of the property or assets described in any of the Note Documents; (B) any sale, pledge, surrender, indulgence, alteration, substitution, exchange, modification or other disposition of any of the Secured Obligations, all of which Purchaser is expressly authorized to make from time to time; (C) any failure, neglect or omission on the part of Purchaser to realize or protect any of the Secured Obligations, or any personal property or real property or lien security given as security therefor, or to exercise any lien upon or right of appropriation of monies, credits or property of Borrower toward liquidation of the Indebtedness, or performance of the covenants guaranteed hereby; (D) any proceedings with respect to the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets, the marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, imposition or readjustment of, or other similar proceedings affecting Borrower or any other Guarantor or any of their respective assets, it being expressly understood and agreed that no such proceeding shall affect, modify, limit or discharge the liability or obligation of Guarantor hereunder in any manner whatsoever, and that Guarantor shall continue to remain absolutely liable under this Guaranty to the same extent, and in the same manner, as if such proceedings had not been instituted, (E) any lack of validity or enforceability of the Note Purchase Agreement, any of the other Note Documents, or any other document, instrument or agreement referred to therein or evidencing all or any portion of the Guaranteed Obligations or any assignment or transfer of any of the foregoing; (F) any act or failure to act by the Borrower, any other Loan Party or any other Person which may adversely affect such Guarantor’s subrogation rights or rights of contribution (or any similar right of recovery), if any, against the Borrower to recover payments made under this Guaranty; (G) any release, amendment or waiver of, or consent to any departure from, any guaranty of all or any portion of the Guaranteed Obligations (or any exercise, non-exercise or waiver of any right, remedy, power or privilege under or in respect of this Agreement); and (H) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a Guarantor hereunder (other than the defense that the Secured Obligations have been Paid In Full).

 

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2.6     Payments. Each Guarantor hereby guaranties that payments hereunder shall be paid to Purchaser without set-off, recoupment, deduction or counterclaim or any other reduction in immediately available United States dollars at the office of Purchaser specified in the Note Purchase Agreement or as otherwise specified by the Purchaser in writing prior to any such payments.

 

2.7     Reinstatement. The guaranty contained in this Section 2 shall remain in full force and effect and continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Guaranteed Obligations is rescinded or must otherwise be reduced, restored or returned by Purchaser (whether as a “voidable preference”, “fraudulent conveyance”, “fraudulent transfer” or otherwise) upon the commencement of, or otherwise in relation to, any Insolvency Proceeding of or in respect of the Borrower or any other Loan Party, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer, official or designee for, the Borrower or any Guarantor or any substantial part of the property of the Borrower or any Guarantor, or otherwise, all as though such payments had not been made. In the event that any payment, or any part thereof, of any of the Guaranteed Obligations is rescinded or otherwise reduced, restored or returned by Purchaser, the Guaranteed Obligations shall be reinstated to the extent of the payment so rescinded, reduced, restored or returned and shall be reduced only by the amount paid and not so rescinded, reduced, restored or returned. If claim is ever made on the Purchaser for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations, and the Purchaser or such Purchaser repays all or part of such amount by reason of (i) any judgment, decree or order of any court or administrative body of competent jurisdiction or (ii) any settlement or compromise of any such claim effected by the Purchaser or such Purchaser with any such claimant (including the Borrower or a trustee in bankruptcy for the Borrower), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding on such Guarantor notwithstanding any revocation hereof or the cancellation of the Note Purchase Agreement, any of the other Note Documents, or any other instrument evidencing any liability of the Borrower, and such Guarantor shall be and remain liable to the Purchaser or such Purchaser for the amounts so repaid or recovered to the same extent as if such amount had never originally been paid to the Purchaser or such Purchaser.

 

Section 3       GRANT OF SECURITY INTEREST.

 

3.1     Grant. Each Grantor hereby unconditionally grants, and collaterally pledges, assigns and transfers to Purchaser a valid and continuing security interest in and Lien on all of such Grantor’s Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Purchaser but for the fact that they are unenforceable or not allowable due to the existence of any bankruptcy or other Insolvency Proceeding involving any Grantor.

 

Section 4      REPRESENTATIONS AND WARRANTIES.

 

To induce Purchaser to enter into the Note Purchase Agreement and to induce the Purchaser to purchase the Notes thereunder, each Grantor hereby represents and warrants to Purchaser, which representations and warranties shall survive the execution and delivery hereof, that:

 

4.1     Title; No Other Liens. Except for Permitted Liens, such Grantor owns each item of its Collateral free and clear of any and all Liens of others; provided that Pledged Equity shall not be subject to any Liens except the Lien created hereby. No financing statement or other public notice of a Lien with respect to all or any part of the Collateral is on file or of record in any public office, except filings evidencing Permitted Liens and filings for which termination statements have been delivered to Purchaser.

 

4.2     Perfected First Priority Liens. On the Closing Date, the security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 1 (which, in the case of all filings and other documents referred to on Schedule 1, copies thereof have been delivered to Purchaser in completed and duly executed form) will constitute valid perfected security interests in all of the Filing Collateral in favor of Purchaser as collateral security for the Secured Obligations, enforceable in accordance with the terms hereof and (b) are subject to no other Liens on the Collateral except for Permitted Liens; provided that Pledged Equity shall not be subject to any Liens except the Lien created hereby. The filings and other actions specified on Schedule 1 constitute all of the filings and other actions necessary to perfect all security interests granted hereunder on the Filing Collateral.

 

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4.3     Grantor Information. Schedule 2 sets forth, as of the Closing Date, (a) such Grantor’s jurisdiction of organization, (b) the location of such Grantor’s chief executive office, (c) such Grantor’s exact legal name as it appears on its organizational documents and (d) such Grantor’s organizational identification number (to the extent a Grantor is organized in a jurisdiction which assigns such numbers) and federal employer identification number (to the extent a Grantor is organized in a jurisdiction which assigns such numbers).

 

4.4     Collateral Locations. Schedule 3 sets forth, as of the Closing Date, (a) each place of business of such Grantor (including its chief executive office), (b) all locations where all Inventory and the Equipment owned by such Grantor is kept (other than mobile goods and goods which are in transit) and (c) whether each such Collateral location specified in clause (b) and place of business (including such Grantor’s chief executive office) is owned or leased (and if leased, specifies the complete name and notice address of each lessor). On the Closing Date, no Collateral is located in the possession of any lessor, bailee, warehouseman or consignee, except as indicated on Schedule 3. As of the date hereof, no bill of lading, warehouse receipt or other document or instrument of title is outstanding with respect to any Collateral other than Inventory in transit in the ordinary course of business or to a customer of a Grantor.

 

4.5     Certain Property. None of the Collateral constitutes, or is the Proceeds of, Farm Products, Health Care Insurance Receivables, vessels or aircraft.

 

4.6     Investment Property.

 

(a)     The Pledged Equity pledged by such Grantor hereunder constitutes all the issued and outstanding equity interests of each Issuer of Pledged Equity owned by such Grantor.

 

(b)     All of the Pledged Equity has been duly and validly issued and is fully paid and nonassessable, where such concepts are applicable. None of the Pledged Equity of or issued by a partnership or limited liability company is subject to any capital call or additional capital requirement.

 

(c)     The execution, delivery and performance of this Agreement by such Grantor in accordance with its terms will not violate the governing documents of such Grantor or any material agreements, instruments or documents to which such Grantor is a party. To the extent the Pledged Equity is evidenced by certificates, all of such certificates have been delivered to Purchaser on the date hereof, together with an undated instrument of transfer covering such certificate duly executed in blank by such Grantor.

 

(d)     Such Grantor is not and will not become a party to or otherwise bound by any stockholders agreement, limited partnership agreement, limited liability company operating agreement, or other similar agreement which restricts in any manner the rights of any present or future holder of any Pledged Equity to transfer the Pledged Equity (other than restrictions imposed by federal and state securities laws). None of the Pledged Equity is subject to any option, call, warrant, purchase right, preemptive right, right of first refusal or similar contractual or other right or restriction of any Person (other than laws affecting the transfer of securities generally).

 

(e)     All Pledged Equity that is issued by an Issuer that is a corporation is represented by a certificate and constitutes a “security” subject to Article 8 of the UCC. None of the Pledged Equity that is issued by an Issuer that is not a corporation (i) is dealt in or traded on a securities exchange or in a securities market, (ii) by its terms expressly provides that it is not a “security” governed by Article 8 of the UCC and is evidenced by certificates or by its terms expressly provides that it is a “security” governed by Article 8 of the UCC unless certificates evidencing such Pledged Equity have been delivered to Purchaser, or (iii) is an investment company security.

 

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4.7     Receivables.

 

(a)     No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument (other than drafts deposited in the ordinary course of business) or Chattel Paper in excess of $25,000 individually or $100,000 in the aggregate at any time for all such Instruments or Chattel Paper, which has not been delivered to Purchaser.

 

(b)     On the Closing Date, except as set forth on Schedule 7, no contract or agreement is between such Grantor and a Governmental Authority. If the aggregate of Receivables where a Governmental Authority is an obligor exceed $25,000 at any time, (i) such Grantor shall promptly notify Purchaser thereof in writing and (ii) if requested by Purchaser, such Grantor shall promptly deliver a separate assignment of its right to payment of such Receivable to Purchaser pursuant to the Assignment of Claims Act of 1940 using forms provided by Purchaser evidencing (satisfactory to Purchaser) such assignment.

 

(c)     The amounts represented by such Grantor to Purchaser from time to time as owing to such Grantor in respect of the Receivables (to the extent such representations are required by any of the Note Documents) will at all such times be accurate in all material respects.

 

4.8     Intellectual Property.

 

(a)     Schedule 4 lists, as of the Closing Date, all (i) registered Intellectual Property owned by such Grantor in its own name on the date hereof and the jurisdiction of registration and (ii) Intellectual Property Licenses (other than immaterial software licenses entered into in the ordinary course of business). This security interest granted pursuant to this Agreement constitutes a valid, continuing and perfected security interest in favor of the Purchaser in such Copyrights, Intellectual Property Licenses, Patents and Trademarks, subject to completion of the filings and other actions specified on Schedule 1 and, in the case of any Copyrights, Patents and Trademarks for which such filings or other actions are insufficient, subject to all appropriate filings being made with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency within or outside the United States.

 

(b)     On the Closing Date, all Intellectual Property and pending applications for registration of Intellectual Property owned by such Grantor is valid, subsisting, unexpired and enforceable and has not been abandoned.

 

4.9     Depositary and Other Accounts. All deposit, securities and operating accounts maintained by such Grantor are described on Schedule 5 hereto, which description includes for each such account the name of such Grantor maintaining such account, the name and address of the financial institution at which such account is maintained, the account number of such account, and the type and use of such account.

 

4.10     Note Purchase Agreement. Each Grantor (other than Borrower solely with respect to this Agreement) makes each of the representations and warranties applicable to such Grantor made by the Borrower in Article 6 of the Note Purchase Agreement (which representations and warranties shall be deemed to have been renewed upon the selling of additional notes or the extension of other credit accommodations). Such representations and warranties are incorporated herein by this reference as if fully set forth herein.

 

4.11     Financial Condition of Grantor; Etc. (a) Each Guarantor is currently informed of the financial condition of each other Grantor and of all other circumstances which a diligent inquiry would reveal and which would bear upon the risk of nonpayment of the Secured Obligations, (b) each Guarantor shall continue to keep informed of the financial condition of each other Grantor and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Secured Obligations, and (c) the transactions contemplated hereby were effectuated without actual intent to hinder, delay or defraud present or future creditors of such Guarantor or such Grantor.

 

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4.12     Books and Records. Each Grantor agrees that Purchaser’s books and records showing the Secured Obligations among Purchaser and Grantors may be admissible in any action or proceeding and may be used as rebuttably presumptive evidence upon Guarantor and Grantors for the purpose of establishing the items therein set forth and may constitute prima facie proof thereof.

 

4.13     Instruments. Each Instrument, Certificated Security or Chattel Paper owned by such Grantor that evidences any amount payable under or in connection with any of the Collateral in excess of $25,000 individually or $100,000 in the aggregate at any time has been delivered to Purchaser on the date hereof (except to the extent consisting of drafts deposited in the ordinary course of business), duly endorsed in a manner reasonably satisfactory to Purchaser, to be held as Collateral pursuant to this Agreement (or in the case of Electronic Chattel Paper, such Grantor has caused Purchaser to have control thereof within the meaning set forth in Section 9-105 of the UCC).

 

Section 5      COVENANTS.

 

Each Grantor covenants and agrees with Purchaser that, from and after the date of this Agreement until the Secured Obligations shall have been Paid in Full:

 

5.1     Delivery of Instruments, Certificated Securities and Chattel Paper. If any amount payable under or in connection with any of the Collateral in excess of $25,000 individually or $100,000 in the aggregate at any time owned by such Grantor shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, in each case, such Instrument, Certificated Security or Chattel Paper shall be promptly delivered to Purchaser, duly endorsed in a manner reasonably satisfactory to Purchaser, to be held as Collateral pursuant to this Agreement and in the case of Electronic Chattel Paper, the applicable Grantor shall cause Purchaser to have control thereof within the meaning set forth in Section 9-105 of the UCC; provided that the foregoing requirements of this Section 5.1 shall not apply to any drafts deposited in the ordinary course of business. In the event that a Default or Event of Default shall have occurred and be continuing, upon the request of Purchaser, any Instrument, Certificated Security or Chattel Paper not theretofore delivered to Purchaser and at such time being held by any Grantor shall promptly be (but in no event later than within three (3) Business Days of any such request) delivered to Purchaser, duly endorsed in a manner reasonably satisfactory to Purchaser, to be held as Collateral pursuant to this Agreement and in the case of Electronic Chattel Paper, the applicable Grantor shall cause Purchaser to have control thereof within the meaning set forth in Section 9-105 of the UCC.

 

5.2     Maintenance of Perfected Security Interest; Further Documentation.

 

(a)     Such Grantor shall cooperate with Purchaser in maintaining the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.2 and shall defend such security interest against the claims and demands of all Persons whomsoever, subject to the rights of such Grantor under the Note Documents to dispose of the Collateral or incur Permitted Liens (in each case in accordance with the terms and conditions of the Note Documents); provided that Pledged Equity shall not be subject to any Lien except the Lien created hereby.

 

(b)     Such Grantor shall furnish to Purchaser from time to time upon Purchaser’s reasonable request statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection therewith as Purchaser may reasonably request from time to time, all in reasonable detail.

 

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(c)     At any time and from time to time, upon the written request of Purchaser, and at the sole expense of such Grantor, such Grantor shall promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as Purchaser may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including (i) filing any appropriate financing, amendment or continuation statements under the UCC (or other similar laws) in effect in any appropriate jurisdiction with respect to the security interests created hereby, and (ii) in the case of Investment Property and any other relevant Collateral, taking any actions reasonably necessary to enable Purchaser to obtain “control” with respect thereto. Each Grantor acknowledges and agrees that its signature to this Agreement as a Grantor shall bind it to each and every provision of this Agreement in its capacity as “a Grantor” and as an Issuer (as applicable).

 

5.3     Changes in Locations, Name, etc. Such Grantor shall not, except upon fifteen (15) (or thirty (30) with respect to clauses (ii) and (iii) below) days’ prior written notice to Purchaser (or such shorter notice period as shall be satisfactory to Purchaser in its sole commercially reasonable discretion) and delivery to Purchaser of (a) all additional financing statements and other documents reasonably requested by Purchaser as to the validity, perfection and priority of the security interests and other Liens provided for herein, and (b) if applicable, a written supplement to Schedule 3 showing any additional location at which Inventory or Equipment shall be kept:

 

(i)     permit any of the Inventory or Equipment with a fair market value in excess of $100,000 individually, or $400,000 in the aggregate at any time among all Grantors, to be kept at any location other than those listed on Schedule 3 (other than mobile goods and goods that are in transit) unless such Grantor has delivered a Collateral Access Agreement in favor of Purchaser with respect to such location prior to relocating such Inventory or Equipment thereto; or

 

(ii)     change its name, jurisdiction of organization or the location of its chief executive office from that specified on Schedule 2 or in any subsequent notice delivered pursuant to this Section 5.3; or

 

(iii)     change its legal identity or corporate structure.

 

5.4     Notices. Promptly after obtaining knowledge thereof, such Grantor shall advise Purchaser, in reasonable detail in writing, of:

 

(a)     any Lien (other than Permitted Liens) on any of the Collateral; and

 

(b)     the occurrence of any other event which could reasonably be expected to have a material adverse effect on the Liens created hereby or the aggregate value of the Collateral.

 

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5.5     Investment Property.

 

(a)     If such Grantor shall become entitled to receive or shall receive any certificate, option or rights in respect of the equity interests of any Issuer of Pledged Equity, whether in addition to, in substitution of, as a conversion of, or in exchange for, any of the Pledged Equity, or otherwise in respect thereof, such Grantor shall accept the same as the agent of Purchaser, hold the same in trust for Purchaser and promptly deliver the same forthwith to Purchaser in the exact form received, duly indorsed by such Grantor to Purchaser, if required, together with an undated instrument of transfer covering such certificate duly executed in blank by such Grantor and with, if Purchaser so requests, signature guarantied, to be held by Purchaser, subject to the terms hereof, as additional Collateral for the Secured Obligations. Upon the occurrence and during the continuance of an Event of Default, (i) unless Purchaser provides express prior written notice to the contrary, any sums paid upon or in respect of the Pledged Equity or other Investment Property upon the liquidation or dissolution of any Issuer shall be paid over to Purchaser to be held by it hereunder as additional Collateral for the Secured Obligations, and (ii) in case any distribution of capital shall be made on or in respect of the Pledged Equity or other Investment Property or any property shall be distributed upon or with respect to the Pledged Equity or other Investment Property pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof; the property so distributed shall, unless otherwise subject to a perfected Lien in favor of Purchaser, be promptly delivered to Purchaser to be held by it hereunder as additional Collateral for the Secured Obligations. Upon the occurrence and during the continuance of a Default or an Event of Default, if any sums of money or property so paid or distributed in respect of the Pledged Equity or other Investment Property shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to Purchaser, hold such money or property in trust for the Purchaser, segregated from other funds of such Grantor, as additional Collateral for the Secured Obligations.

 

(b)     Without the prior written consent of Purchaser, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any equity interests of any nature or to issue any other securities or interests convertible into or granting the right to purchase or exchange for any equity interests of any nature of any Issuer, except, in each case, as permitted by the Note Purchase Agreement, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Equity or other Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Note Purchase Agreement), (iii) create, incur or permit to exist any Lien in favor of any Person with respect to any of the Pledged Equity or other Investment Property or Proceeds thereof, or any interest therein, except for Permitted Liens (except that Pledged Equity shall not be subject to any Lien except the Lien created hereby) or (iv) enter into or permit to exist any agreement or undertaking, including, without limitation, the governing documents of any Issuer and shareholders’ agreements or operating agreement as applicable, restricting the right or ability of such Grantor or Purchaser to sell, assign or transfer any of the Pledged Equity or other Investment Property or Proceeds thereof, except as permitted by the Note Purchase Agreement.

 

(c)     In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it shall be bound by the terms of this Agreement relating to the Investment Property issued by it and shall comply with such terms insofar as such terms are applicable to it, (ii) it shall notify Purchaser promptly in writing of the occurrence of any of the events described in Section 5.5(a) with respect to the Investment Property issued by it, (iii) the terms of Sections 6.3(c) and 6.7 shall apply to such Issuer with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 regarding the Investment Property issued by it and (iv) it will not recognize, acknowledge or permit the pledge, transfer, grant of control or other disposition of the Investment Property issued by it (or any portion thereof) other than to or as requested by Purchaser pursuant to Section 6 unless otherwise permitted under the terms of this Agreement or the Note Purchase Agreement.

 

(d)     Each Grantor shall cause any Pledged Equity that is issued by an Issuer that is a corporation to be and to continue to be represented by a certificate and to constitute and to continue to constitute a “security” subject to Article 8 of the UCC and shall not cause any Pledged Equity that is issued by an Issuer that is not a corporation to (i) be dealt in or traded on a securities exchange or in a securities market, (ii) be an investment company security, or (iii) (x) be, by its terms, silent on whether such Pledged Equity is or is not a “security” governed by Article 8 of the UCC, (y) by its terms expressly provide that it is not a “security” governed by Article 8 of the UCC if such Pledged Equity is evidenced by certificates or (z) by its terms expressly provide that it is a “security” governed by Article 8 of the UCC unless certificates evidencing such Pledged Equity have been delivered to Purchaser in accordance with Section 4.6 hereof. Each Grantor shall mark its books and records (and shall cause the Issuer of the Pledged Equity of such Grantor to mark its books and records) to reflect the security interest granted pursuant to this Agreement.

 

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5.6     Receivables.

 

(a)     Other than in the ordinary course of business and in amounts which are not material to such Grantor or as otherwise permitted by the Note Purchase Agreement, such Grantor shall not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could adversely affect the value thereof.

 

(b)     Such Grantor shall deliver to Purchaser a copy of each demand, notice or document received by such Grantor that questions or calls into doubt the validity or enforceability of more than [ten percent (10.0%)] of the aggregate amount of the then outstanding Receivables for such Grantor.

 

5.7     Intellectual Property.

 

(a)     Such Grantor shall (and shall use commercially reasonable efforts to cause its licensees to) (i) continue to use each Trademark owned by such Grantor and necessary for the conduct of its business in order to maintain such Trademark in full force free from any claim of abandonment for non-use, except to the extent that such Grantor determines in its reasonable business judgment that any such use of such Trademark is no longer necessary for the conduct of such Grantor’s business, and (ii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law to maintain such Trademark.

 

(b)     Such Grantor (either itself or through licensees) will not do any act that knowingly uses any Intellectual Property necessary for the conduct of its business (as determined by such Grantor in its reasonable business judgment) in a manner which intentionally infringes the Intellectual Property rights of any other Person.

 

(c)     Such Grantor will notify Purchaser promptly if it knows that any application or registration relating to any Intellectual Property owned by such Grantor and necessary for the conduct of its business is about to become forfeited, abandoned or dedicated to the public, or of any adverse determination (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor’s ownership of, or the validity of, any Intellectual Property necessary for the conduct of its business or such Grantor’s right to register the same or to own and maintain the same except, in each case, to the extent such forfeiture, abandonment, dedication, adverse determination, or development relates to Intellectual Property that is not material to the operations of the business of the Grantors and could not reasonably be expected to have a Material Adverse Effect.

 

(d)     Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Purchaser within thirty (30) calendar days of the filing with the SEC of the Borrower’s quarterly report on Form 10-Q or annual report on Form 10-K, as applicable. Upon the request of Purchaser, such Grantor shall duly execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as Purchaser may reasonably request to evidence Purchaser’s security interest in any such Copyright, Patent or Trademark owned by such Grantor and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. Upon receipt from the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof of notice of registration of any Copyright(s), each Grantor shall promptly (but in no event later than five (5) Business Days following such receipt) notify Purchaser in writing of such registration by delivering documentation sufficient for Purchaser to perfect Purchaser’s Liens on such Copyright(s).

 

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(e)     Such Grantor will take all reasonable and necessary steps to maintain and pursue each such application (and to obtain the relevant registration) and to maintain each such registration of all Intellectual Property owned by it and necessary for or material to the conduct of such Grantor’s business, except to the extent that such Grantor determines in its reasonable business judgment that such Intellectual Property is no longer necessary for or material to the conduct of such Grantor’s business and such action (or inaction) with respect thereto is permitted under the Note Purchase Agreement. Grantor shall, to the extent commercially reasonable in Grantor’s good faith business judgment: (i) file and prosecute diligently any Patent or Trademark applications pending as of the date hereof or hereafter that are necessary for the conduct of Grantor’s business, (ii) make application on unpatented but patentable inventions and on Trademarks that are necessary for or material to the conduct of Grantor’s business, and (iii) preserve and maintain all rights in the Intellectual Property that are necessary for or material to the conduct of Grantor’s business (including, but not limited to, with respect to Trademarks, the filing of affidavits of use and incontestability, where applicable, under §§8 and 15 of the Lanham Act (15 U.S.C. § 1058, 1065) and applications for renewal and, to the extent commercially reasonable, initiating opposition or cancellation proceedings or litigation against users of the same or confusingly similar marks who seriously threaten the validity or rights of Grantor in its Trademarks), except, in each case, where such Grantor, in its reasonable and good faith opinion, determines that the costs of engaging in such prosecution, application, preservation or maintenance activities exceeds the likely benefit to be obtained therefrom. Any and all costs and expenses incurred in connection with Grantor’s obligations under this Section shall be borne by Grantor.

 

(f)     Upon request of Purchaser, in order to facilitate filings with the United States Patent and Trademark Office and the United States Copyright Office or any similar offices or agencies in any other country or any political subdivision thereof, each Grantor shall duly and promptly execute and deliver to Purchaser one or more short form intellectual property security agreements (in form and substance reasonably acceptable to Purchaser) to evidence Purchaser’s lien and security interest on all of Grantor’s registered Patents, Trademarks, or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby. The provisions of any such short form intellectual property security agreement are supplemental to the provisions of this Agreement, and nothing contained in such short form intellectual property security agreement shall limit any of the rights or remedies of Purchaser hereunder.

 

(g)     Grantors acknowledge and agree that Purchaser shall have no duties with respect to the Trademarks, Patents, Copyrights, or Intellectual Property Licenses. Without limiting the generality of this Section 5.7, Grantors acknowledge and agree that Purchaser shall not be under any obligation to take any steps necessary to preserve rights in the Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any other Person, but Purchaser may do so at its sole option from and after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including reasonable fees and expenses of attorneys and other professionals) shall be solely at the cost of Borrower.

 

5.8     [Intentionally omitted]

 

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5.9     Inventory. Each Grantor shall:

 

(a)     maintain its existing Inventory, and cause all future acquired Inventory, (i) to be of good and merchantable quality (except for obsolete or discontinued items of Inventory which have been adequately reserved for in accordance with GAAP, consistently applied) and (ii) adequate for the conduct of the business of the Grantor in the ordinary course as currently conducted; and

 

(b)     record all Inventory on the books of the Grantor at the lower of cost or market value determined in accordance with GAAP, consistently applied.

 

5.10     Other Matters.

 

(a)     Each Grantor authorizes Purchaser to, at any time and from time to time, file appropriate financing statements, continuation statements, and amendments thereto that describe the Collateral as “all assets” of each Grantor, or words of similar effect, and which contain any other information required pursuant to the UCC for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, and each Grantor agrees to furnish any such information to Purchaser promptly upon request. Any such financing statement, continuation statement, or amendment may be filed at any time in any appropriate jurisdiction. Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of Purchaser, subject to such Grantor’s rights under Section 9-509(d)(2) of the UCC.

 

(b)     Each Grantor shall, at any time and from time to time, take such steps as Purchaser may reasonably request for Purchaser (i) to the extent required by Section 5.3 of this Agreement, to obtain an acknowledgement (or bailee agreement), in form and substance reasonably satisfactory to Purchaser, of any bailee having possession of any of the Collateral, stating that the bailee holds such Collateral for Purchaser, (ii) to the extent required by this Agreement, to obtain “control” of any letter-of-credit rights, or electronic chattel paper, with any agreements establishing control to be in form and substance reasonably satisfactory to Purchaser, and (iii) to the extent required by this Agreement, otherwise to insure the continued perfection and priority of Purchaser’s security interest in any of the Collateral and of the preservation of its rights therein. If any Grantor shall at any time, acquire a “commercial tort claim” in excess of $50,000, such Grantor shall promptly notify Purchaser thereof in writing and supplement Schedule 6, therein providing a reasonable description and summary thereof, and upon delivery thereof to Purchaser, such Grantor shall grant and be deemed to thereby grant to Purchaser (and such Grantor hereby grants to Purchaser) a security interest and lien in and to such commercial tort claim and all Proceeds thereof, all upon the terms of and governed by this Agreement.

 

(c)     Without limiting the generality of the foregoing, if any Grantor at any time holds or acquires an interest in any electronic chattel paper or any “transferable record”, as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in §16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Grantor shall promptly notify Purchaser in writing thereof and, at the request of Purchaser, shall take such action as Purchaser may reasonably request to vest in Purchaser “control” under Section 9-105 of the UCC of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, §16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.

 

5.11     No Pledge of Equity in Subsidiaries. No Grantor shall grant a security interest in, encumber or in any other manner permit any Lien (other than in favor of Purchaser) to exist in or on, all or any portion of the equity in any of its Subsidiaries.

 

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5.12     Note Purchase Agreement. Each of the Grantors covenants that it shall, and, if necessary, shall cause or enable each Grantor to, fully comply with each of the covenants and other agreements set forth in the Note Purchase Agreement.

 

5.13     No Pledge of Equity in Guarantors. Borrower agrees that, so long as any of the Secured Obligations remain outstanding, except to the extent permitted under the terms of the Note Purchase Agreement, Borrower shall remain, directly or indirectly, the holder of one hundred percent (100%) of the equity in the Guarantors; and without the prior written consent of Purchaser, Borrower shall not assign, sell, convey, gift, transfer, pledge, hypothecate, grant a security interest in, encumber or in any other manner permit any Lien (other than in favor of Purchaser) to exist in or on, all or any portion of the equity in or of any Guarantor.

 

Section 6     REMEDIAL PROVISIONS.

 

6.1     Certain Matters Relating to Receivables.

 

(a)     Purchaser at any time shall (or its agents or designees) at the expense of Grantors, have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as Purchaser may reasonably require in connection with such test verifications, including without limitation, Purchaser shall have the right to verify with any Account Debtor or any other Person, the validity, amount or any other matter rating to any Receivables, or any other Accounts. At any time upon Purchaser’s request and at the expense of Grantors, Grantors shall cause independent public accountants or other auditors satisfactory to Purchaser to furnish to Purchaser reports showing reconciliations, agings and test verifications of, and trial balances for, the Receivables; provided, that so long as no Event of Default has occurred and is continuing, Grantors shall only be responsible for the expenses incurred by such accountants and auditors two (2) times during any calendar year.1

 

(b)     Purchaser hereby authorizes each Grantor to collect such Grantor’s Receivables, and Purchaser may curtail or terminate such authority at any time upon the occurrence and during the continuance of an Event of Default. If requested by Purchaser at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two (2) Business Days) deposited by such Grantor in the exact form received, duly endorsed by such Grantor to Purchaser if required, in a collateral account maintained under the sole dominion and control of Purchaser, subject to withdrawal by Purchaser only as provided in Section 6.6, and (ii) until so turned over, shall be held by such Grantor in trust for Purchaser, segregated from the funds of such Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit.

 

(c)     At any time upon Purchaser’s request, each Grantor shall deliver to Purchaser all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including all original orders, invoices and shipping receipts. Notwithstanding the foregoing, Grantor shall be required to provide copies of such items prior to the occurrence of an Event of Default, and originals of such items after the occurrence of an Event of Default.

 

 

1 Note: NPA to specifically provide that monthly Borrowing Base work/analysis by the third party examiner engaged by the Purchaser is subject to reimbursement by Borrower.

 

 

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6.2     Communications with Obligors; Grantors Remain Liable.

 

(a)     Purchaser in its own name or in the name of others (including any Grantor) may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables to verify with them to Purchaser’s satisfaction the existence, amount and terms of any Receivables.

 

(b)     Upon the request of Purchaser at any time upon the occurrence and during the continuance of an Event of Default, each Grantor shall notify obligors on the Receivables that the Receivables have been assigned to Purchaser and that payments in respect thereof shall be made directly to Purchaser.

 

(c)     Anything herein to the contrary notwithstanding, each Grantor shall remain liable in respect of each of the Receivables to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither Purchaser nor any Purchaser shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by Purchaser of any payment relating thereto, nor shall Purchaser be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, 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 it or to which it may be entitled at any time or times.

 

(d)     For the purpose of enabling Purchaser to exercise rights and remedies under this Agreement effective after the occurrence and during the continuance of an Event of Default, each Grantor hereby grants to Purchaser an irrevocable, nonexclusive worldwide license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, 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. At any time after the occurrence and during the continuance of an Event of Default, Purchaser may refuse to allow Grantor to, and at its sole discretion Purchaser may, exercise quality control over the products and services offered under the applicable Trademark to prevent invalidation or abandonment.

 

6.3     Investment Property.

 

(a)     Unless an Event of Default shall have occurred and be continuing and Purchaser shall have given notice to the relevant Grantor of Purchaser’s intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor will be permitted (i) to receive all cash dividends and distributions paid in respect of the Pledged Equity, to the extent permitted in the Note Purchase Agreement, and (ii) to exercise all voting and other rights with respect to the Investment Property; provided, that no vote shall be cast or other right exercised or action taken which would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Note Purchase Agreement, this Agreement or any other Note Document.

 

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(b)     If an Event of Default shall occur and be continuing and Purchaser shall give written notice of its intent to exercise such rights to the relevant Grantor or Grantors, without any further action by any Person (i) Purchaser shall have the right to receive any and all cash dividends and distributions, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Obligations in accordance with Section 6.5 hereof, (ii) Purchaser shall have the right to cause any or all of the Investment Property to be registered in the name of Purchaser or its nominee, and (iii) Purchaser or its nominee may exercise (x) all voting, consent, and other rights and powers pertaining to such Investment Property at any meeting of holders of the equity interests of the relevant Issuer or Issuers or otherwise (or by written consent or proxy) and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate or other structure of any Issuer, or upon the exercise by any Grantor or Purchaser of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as Purchaser may determine), all without liability except to account for property actually received by it, but Purchaser shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

 

(c)     Each Grantor hereby authorizes and instructs each Issuer of any Investment Property pledged by such Grantor hereunder to, and each such Issuer that is a Grantor hereby agrees to promptly, comply with any instruction received by such Issuer from Purchaser that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions or consent of such Grantor or any other Person, including without limitation, instructions as to the transfer of other disposition of such Investment Property, to pay and remit to Purchaser or its nominee all dividends, distributions and other amounts payable to such Grantor in respect of such Investment Property (upon redemption of such Investment Property, dissolution of such Issuer or otherwise), and to transfer to, and register such Investment Property in the name of, Purchaser or its nominee or transferee. Each Grantor agrees that each Issuer shall be fully protected in so complying with such instructions made in accordance with the terms and conditions of this Agreement.

 

6.4     Proceeds to be Turned Over to Purchaser. In addition to the rights of Purchaser specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, checks and other cash equivalent items shall be held by such Grantor in trust for Purchaser, segregated from the funds of such Grantor, and shall (unless Purchaser provides prior express written notice to the contrary) forthwith upon receipt by such Grantor, be turned over to Purchaser in the exact form received by such Grantor (duly endorsed by such Grantor to Purchaser, if required). All Proceeds received by Purchaser hereunder shall be held by Purchaser in a collateral account maintained under its sole dominion and control. All Proceeds, while held by Purchaser in any collateral account (or by such Grantor in trust for Purchaser) established pursuant hereto, shall continue to be held as collateral security for the Secured Obligations and shall not constitute payment thereof until applied as provided in Section 6.5.

 

6.5     Application of Proceeds. Subject to the provisions of Section 3.3 of the Note Purchase Agreement, at such intervals as may be agreed upon by the Borrower and Purchaser, or, if an Event of Default shall have occurred and be continuing, at any time at Purchaser’s election, Purchaser may apply all or any part of Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Secured Obligations in accordance with Section 6.10 of this Agreement. Any part of such funds which Purchaser elects not so to apply and deems not required as collateral security for the Secured Obligations shall be paid over from time to time by Purchaser to the applicable Grantor or to whomsoever may be lawfully entitled to receive the same. Any balance of such Proceeds remaining after the Secured Obligations shall have been Paid in Full shall be paid over to the applicable Grantor or to whomsoever may be lawfully entitled to receive the same.

 

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6.6     Code and Other Remedies. If an Event of Default shall occur and be continuing, Purchaser may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC or any other applicable law. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default, Purchaser, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any advertisement or notice expressly required by law, the Note Purchase Agreement or any other Note Document) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived, except to the extent expressly required by law, the Note Purchase Agreement or any other Note Document), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of Purchaser or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Purchaser shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at Purchaser’s request, to promptly assemble the Collateral and make it available to Purchaser at places which Purchaser shall reasonably select, whether at such Grantor’s premises or elsewhere. Upon the occurrence and during the continuance of an Event of Default, Purchaser shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable and documented out-of-pocket costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Purchaser hereunder, including reasonable and documented attorneys’ fees, to the payment in whole or in part of the Secured Obligations, in accordance with Section 6.5, and only after such application and after the payment by the Purchaser of any other amount required by any provision of law, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against Purchaser arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition. If an Event of Default shall occur and be continuing, the Purchaser shall have the right to the appointment of a receiver for the properties and assets of each Grantor, and each Grantor hereby consents to such rights and such appointment and hereby waives any objection such Grantor may have thereto or the right to have a bond or other security posted by Purchaser.

 

6.7     Sales of Pledged Equity.

 

(a)     Each Grantor recognizes that Purchaser may be unable to effect a public sale of any or all the Pledged Equity, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Purchaser shall be under no obligation to delay a sale of any of the Pledged Equity for the period of time necessary to permit the Issuer thereof to register such securities or other interests for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so.

 

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(b)     Upon the occurrence and during the continuance of an Event of Default, each Grantor agrees to use its best efforts to do or cause to be done all such other acts as may be reasonably necessary to make such sale or sales of all or any portion of the Pledged Equity pursuant to this Section 6.7 valid and binding and in compliance with applicable law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to Purchaser, that Purchaser has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred and is continuing under the Note Purchase Agreement.

 

6.8     Intellectual Property. Upon the occurrence and during the continuance of any Event of Default, each Grantor hereby authorizes: (a) the Commissioner of Patents and Trademarks, United States Patent and Trademark Office (or as appropriate, such equivalent agency in foreign countries), to issue any and all Patents to Purchaser as assignee of each Grantor’s entire interest therein; (b) the Register of Copyrights, United States Copyright Office (or as appropriate, such equivalent agency in foreign countries), to issue any and all certificates of registration or renewal for all of the Copyrights to Purchaser as assignee of each Grantor’s entire interest therein; and (c) the Commissioner of Patents and Trademarks, United States Patent and Trademark Office (or as appropriate, such equivalent agency in foreign countries) to issue any and all certificates of registration or renewal for all of the Trademarks to Purchaser as assignee of each Grantor’s entire interest therein and in the goodwill of such Grantor’s business connected therewith and symbolized thereby. Grantor agrees that upon the occurrence and during the continuance of an Event of Default, the use by Purchaser of all Intellectual Property of Grantor shall be worldwide and as extensive as the rights of Grantor to use such Intellectual Property, and without any liability for royalties or other related charges from Purchaser to Grantor.

 

6.9     Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-626 of the UCC to the extent permitted by applicable law. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Secured Obligations in full and the fees and disbursements of any attorneys employed by Purchaser to collect such deficiency.

 

6.10     Application of Proceeds. All net proceeds from the enforcement of the Obligations shall be applied by the Purchaser in its discretion.

 

Section 7     PURCHASER.

 

7.1     Purchaser’s Appointment as Attorney-in-Fact; Irrevocable Proxy, etc.

 

(a)     Each Grantor hereby irrevocably constitutes and appoints Purchaser and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact, such power of attorney to be exercisable solely upon the occurrence and during the continuance of an Event of Default, with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives Purchaser the power and right, on behalf of and at the expense of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

 

(i)     in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Purchaser for the purpose of collecting any and all such moneys due under any Receivable or with respect to any other Collateral whenever payable;

 

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(ii)     in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as Purchaser may request to evidence Purchaser’s security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby;

 

(iii)     discharge Liens levied or placed on or threatened against the Collateral, and effect any repairs or insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

 

(iv)     execute, in connection with any sale provided for in Section 6.6 or 6.7, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

 

(v)     (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to Purchaser or as Purchaser shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as Purchaser may deem appropriate; (7) assign any Intellectual Property License, Copyright, Patent or Trademark, throughout the world for such term or terms, on such conditions, and in such manner, as Purchaser shall in its sole discretion determine; (8) vote any right or interest with respect to any Investment Property; (9) order good standing certificates and conduct lien searches in respect of such jurisdictions or offices as Purchaser may deem appropriate; and (10) generally sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Purchaser were the absolute owner thereof for all purposes, and do, at Purchaser’s sole option and such Grantor’s expense, at any time, or from time to time, all acts and things which Purchaser deems necessary to protect, preserve or realize upon the Collateral and Purchaser’s security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

 

UNTIL THE SECURED OBLIGATIONS HAVE BEEN PAID IN FULL IN CASH, EACH GRANTOR HEREBY IRREVOCABLY DESIGNATES AND APPOINTS PURCHASER, AS ITS TRUE AND LAWFUL PROXY, WITH FULL POWER OF SUBSTITUTION, EXERCISABLE UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, FOR AND IN ITS NAME, PLACE AND STEAD TO VOTE ANY AND ALL INVESTMENT PROPERTY OWNED OR HELD BY SUCH GRANTOR OR STANDING IN ITS NAME, AND DO ALL THINGS WHICH ANY GRANTOR MIGHT DO IF PRESENT AND ACTING ITSELF. ONCE EXERCISED BY PURCHASER, THE RIGHT TO VOTE GRANTED PURSUANT TO THIS PROXY SHALL BE EXCLUSIVE TO PURCHASER AND NO GRANTOR SHALL THEREAFTER BE ENTITLED TO EXERCISE ANY RIGHT TO VOTE IN RESPECT OF ANY INVESTMENT PROPERTY, UNTIL PAYMENT IN FULL OR OTHERWISE WITH THE PRIOR WRITTEN CONSENT OF PURCHASER. THE PROXY, AUTHORIZATIONS, AGENCIES, POWERS OF ATTORNEY AND OTHER POWERS GRANTED BY THE GRANTORS UNDER AND PURSUANT TO THIS AGREEMENT ARE IRREVOCABLE AND COUPLED WITH AN INTEREST (INCLUDING, BUT NOT LIMITED TO, THE NOTE PURCHASE AGREEMENT AND THIS AGREEMENT) AND ARE GIVEN TO SECURE THE OBLIGATIONS UNDER THE NOTE PURCHASE AGREEMENT, THIS AGREEMENT AND THE OTHER NOTE DOCUMENTS. SUCH APPOINTMENT OF PURCHASER AS PROXY AND ATTORNEY-IN-FACT SHALL BE VALID AND IRREVOCABLE AS PROVIDED HEREIN NOTWITHSTANDING ANY LIMITATIONS TO THE CONTRARY SET FORTH IN THE ARTICLES OF ORGANIZATION, LIMITED LIABILITY COMPANY AGREEMENTS OR OTHER ORGANIZATIONAL DOCUMENTS OF EACH GRANTOR OR THE LIMITED LIABILITY COMPANY ACT OF THE STATE OF INCORPORATION OF EACH GRANTOR.

 

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Anything in this Section 7.1(a) to the contrary notwithstanding, Purchaser agrees that it will not exercise any rights under the power of attorney or the irrevocable proxy provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing.

 

(b)     If any Grantor fails to perform or comply with any of its agreements contained herein, Purchaser, at its sole option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement.

 

(c)     Each Grantor hereby ratifies all that such attorneys shall lawfully (in accordance with applicable law) do or cause to be done by virtue hereof.

 

(d)     All powers, proxies, authorizations, grants of attorney in fact and agencies contained in this Agreement survive the bankruptcy, dissolution or winding up of any relevant Grantor.

 

Each Grantor covenants and agrees that on the date that is thirty (30) days prior to the date of expiration (by operation of Applicable Law) of the irrevocable proxy granted pursuant to this Section 7.1, each Grantor shall (and shall automatically be deemed to) grant the Purchaser a new irrevocable proxy, on the same terms as those previously granted pursuant to this Section 7.1. Upon the reasonable written request of the Purchaser, such Grantor agrees to deliver to the Purchaser, on behalf of the Purchaser, such further evidence of such irrevocable proxy or such further irrevocable proxies to enable the Purchaser to vote the Pledged Stock after an Event of Default shall have occurred and be continuing.

 

7.2     Duty of Purchaser. Purchaser’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession shall be to deal with it in the same manner as Purchaser deals with similar property for its own account. Neither Purchaser nor any of its respective officers, directors, employees or agents shall be liable for any failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on Purchaser hereunder are solely to protect Purchaser’s interests in the Collateral and shall not impose any duty upon Purchaser to exercise any such powers. Purchaser shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder.

 

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Section 8     MISCELLANEOUS.

 

8.1     Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 11.4 of the Note Purchase Agreement.

 

8.2     Notices. All notices, requests and demands to or upon Purchaser or any Grantor hereunder shall be addressed to Borrower and effected in the manner provided for in Section 11.2 of the Note Purchase Agreement and each Grantor hereby appoints Borrower as its agent to receive notices hereunder.

 

8.3     Indemnification by the Grantors. EACH GRANTOR, JOINTLY AND SEVERALLY, HEREBY AGREES TO AND SHALL INDEMNIFY, EXONERATE AND HOLD PURCHASER FREE AND HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, LOSSES, LIABILITIES, DAMAGES AND EXPENSES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES (COLLECTIVELY, THE “INDEMNIFIED LIABILITIES”), INCURRED BY OR ASSERTED AGAINST THE PURCHASER AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO (a) THE SALE OF ANY OF THE NOTES, (b) THE USE, HANDLING, RELEASE, EMISSION, DISCHARGE, TRANSPORTATION, STORAGE, TREATMENT OR DISPOSAL OF ANY HAZARDOUS SUBSTANCE AT ANY PROPERTY OWNED OR LEASED BY ANY GRANTOR, (c) ANY VIOLATION OF ANY ENVIRONMENTAL LAWS WITH RESPECT TO CONDITIONS AT ANY PROPERTY OWNED OR LEASED BY ANY GRANTOR OR THE OPERATIONS CONDUCTED THEREON, (d) THE INVESTIGATION, CLEANUP OR REMEDIATION OF OFFSITE LOCATIONS AT WHICH ANY LOAN PARTY OR THEIR RESPECTIVE PREDECESSORS ARE ALLEGED TO HAVE DIRECTLY OR INDIRECTLY DISPOSED OF HAZARDOUS SUBSTANCES OR (e) THE EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER NOTE DOCUMENT OR ANY TRANSACTION IN CONNECTION THEREWITH, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF THE PURCHASER, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A FINAL, NONAPPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, EACH GRANTOR HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION 8.3 SHALL SURVIVE REPAYMENT OF THE SECURED OBLIGATIONS, CANCELLATION OF THE NOTES, ANY FORECLOSURE UNDER, OR ANY MODIFICATION, RELEASE OR DISCHARGE OF, ANY OR ALL OF THE COLLATERAL DOCUMENTS AND TERMINATION OF THIS AGREEMENT.

 

8.4     Enforcement Expenses.

 

(a)     Each Grantor agrees, on a joint and several basis, to pay or reimburse on written demand Purchaser for all documented out-of-pocket costs and expenses (including attorneys’ fees) incurred in collecting against any Guarantor under the guaranty contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement or any other Note Document.

 

(b)     Each Grantor agrees to pay, and to save Purchaser harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other Taxes (other than Excluded Taxes) which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

 

27

 

 

(c)     The agreements in this Section 8.4 shall survive repayment of all (and shall be) Secured Obligations, any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

 

8.5     Captions. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

 

8.6     Nature of Remedies. All Secured Obligations of each Grantor and rights of Purchaser expressed herein or in any other Note Document shall be in addition to and not in limitation of those provided by applicable law. No failure to exercise and no delay in exercising, on the part of Purchaser, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

8.7     Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective legal delivery thereof and shall be deemed an original signature hereunder for all purposes.

 

8.8     Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

 

8.9     Entire Agreement. This Agreement, together with the other Note Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof.

 

8.10     Successors; Assigns. This Agreement shall be binding upon the Grantors, the Purchaser and their respective successors and assigns, and shall inure to the benefit of the Grantors, the Purchaser and the successors and assigns of the Purchaser. No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Note Documents. Notwithstanding the foregoing in this Section, no Grantor may assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of the Purchaser.

 

8.11     Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION.

 

8.12     Forum Selection; Consent to Jurisdiction; Waiver of Jury Trial.

 

(a)     EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES, OR ANY AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF UTAH SITTING IN SALT LAKE COUNTY OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, OR ANY APPELLATE COURT FROM ANY THEREOF, AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 11.2 OF THE NOTE PURCHASE AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREIN, NOTHING IN THIS AGREEMENT SHALL LIMIT THE RIGHT OF THE PURCHASER TO BRING ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES, OR ANY NOTE DOCUMENTS, OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY JURISDICTION IN WHICH ANY COLLATERAL IS LOCATED.

 

28

 

 

(b)     TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES, OR ANY OF THE OTHER NOTE DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EACH GRANTOR (i) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY HOLDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT PURCHASER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT PURCHASER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, AND THE OTHER NOTE DOCUMENTS TO WHICH IT IS PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.

 

8.13     Set-off. Each Grantor agrees that Purchaser has all rights of set-off, recoupment and bankers’ lien provided by applicable law, and in addition thereto, each Grantor agrees that at any time any Event of Default exists, Purchaser may apply to the payment of any Secured Obligations, whether or not then due, any and all balances, credits, deposits, accounts or moneys of such Grantor then or thereafter with Purchaser or such Purchaser.

 

8.14     Acknowledgements. Each Grantor hereby acknowledges that:

 

(a)     it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Note Documents to which it is a party;

 

(b)     Neither Purchaser nor any Purchaser has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Note Documents, and the relationship between the Grantors, on the one hand, and Purchaser, on the other hand, in connection herewith or therewith is that of debtor and creditor; and

 

(c)     no joint venture is created hereby or by the other Note Documents or otherwise exists by virtue of the transactions contemplated hereby among the Grantors, Purchaser.

 

8.15     Additional Grantors. Each Loan Party that is required to become a party to this Agreement pursuant to Section 8.15 of the Note Purchase Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Loan Party of a joinder agreement in the form of Annex I hereto.

 

29

 

 

8.16     Releases. Upon the Payment in Full of the Secured Obligations, the security interests granted hereby shall automatically terminate hereunder and of record and all rights to the Collateral will, revert to Grantors, and this Agreement and all obligations (other than those expressly stated to survive such termination) of Purchaser and each Grantor hereunder will terminate. At the request and sole expense of any Grantor following any such termination, Purchaser will deliver to the Grantors any Collateral held by Purchaser hereunder, and execute and deliver to the Grantors and authorize the filing of such documents as the Grantors shall reasonably request to evidence such termination (at the cost of Grantors). Upon any disposition of property permitted by the Note Purchase Agreement, the Liens granted herein shall be deemed to be automatically released and such property shall automatically revert to the applicable Grantor with no further action on the part of any Person. Upon any sale or disposition (including by merger or consolidation) of all of the stock of a Grantor that is expressly permitted by the Note Purchase Agreement, the Liens granted herein by such Grantor shall be deemed to automatically revert to such Grantor and such Grantor shall automatically be released and discharged from its obligations hereunder, in each case, with no further action on the part of any Person. The Purchaser shall, at Grantors’ expense, execute and deliver or otherwise authorize the filing of such documents as Grantors shall reasonably request to evidence such release, including any necessary financing statement amendments.

 

8.17     Obligations and Liens Absolute and Unconditional. Each Grantor understands and agrees that the obligations of each Grantor under this Agreement shall be construed as continuing, absolute and unconditional without regard to (a) the validity or enforceability of any Note Document, any of the Secured Obligations or any other collateral security therefor or guaranty or right of offset with respect thereto at any time or from time to time held by Purchaser, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Grantor or any other Person against Purchaser, or (c) any other circumstance whatsoever (with or without notice to or knowledge of any Grantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Grantor for the Secured Obligations, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Grantor, Purchaser may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any other Grantor or any other Person or against any collateral security or guaranty for the Secured Obligations or any right of offset with respect thereto, and any failure by Purchaser to make any such demand, to pursue such other rights or remedies or to collect any payments from any other Grantor or any other Person or to realize upon any such collateral security or guaranty or to exercise any such right of offset, or any release of any other Grantor or any other Person or any such collateral security, guaranty or right of offset, shall not relieve any Grantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Purchaser against any Grantor. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

 

8.18     Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor or any Issuer for liquidation or reorganization, should Grantor or any Issuer become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s or Issuer’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made (and this Section shall survive repayment of the Secured Obligations). In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

[Signature Pages Follow]

 

30

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by its respective officers hereunto duly authorized as of the date first written.

 

 

	
			 

				
			BORROWER:

				
			 

			
	 	 	 
	 	CLEARONE, INC.	 
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			By: 

				
			 

				
			 

			
	
			 

				
			 

				
			Name:

				
			 

			
	
			 

				
			 

				
			Title:

				
			 

			
	 	 	 	 
	 	 	 	 
	 	GUARANTORS:	 
	 	 	 	 
	 	NETSTREAMS INC.	 
	 	 	 	 
	 	By:	 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 
	 	 	 	 
	 	NETSTREAMS LLC	 
	 	 	 	 
	 	By:	 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 
	 	 	 	 
	 	PURCHASER:	 
	 	 	 	 
	 	Edward D. Bagley	 
	 	 	 	 
	 	 	 	 

 

[Signature Page to Guaranty and Collateral Agreement]

 

 

SCHEDULE 1

FILINGS

 

	
			Grantor

				
			Filing Requirement or 

			Other Action

				
			Filing Office

			
	
			CLEARONE, INC

				
			UCC Filing

				
			Delaware Secretary of State

			
	 	 	
			[___]

			
	 	 	 

 

 

 

 

 

SCHEDULE 2

GRANTOR INFORMATION

 

	
			GRANTOR 

			(exact legal name)

				
			STATE OF 

			ORGANIZATION

				
			FEDERAL EMPLOYER

			IDENTIFICATION

			NUMBER

				
			CHIEF EXECUTIVE

			OFFICE

			
	
			ClearOne Inc.

				
			Delaware

				 	 
	
			Netstreams Inc.

				
			Delaware

				 	 
	
			Netstreams LLC.

				
			Texas

				 	 

 

 

 

 

 

SCHEDULE 3

COLLATERAL LOCATIONS

 

	
			GRANTOR

				
			COLLATERAL

				
			COLLATERAL LOCATION

			OR PLACE OF BUSINESS

			(INCLUDING CHIEF

			EXECUTIVE OFFICE)

				
			OWNER/LESSOR (IF 

			LEASED)

			
	
			CLEARONE, INC.

				 	 	
			 

			
	
			Netstreams Inc.

				 	 	 
	
			Netstreams LLC

				 	 	 

 

 

 

 

 

SCHEDULE 4

INTELLECTUAL PROPERTY

 

1. Copyrights

 

	
			Grantor

				
			Country

				
			Copyright

				
			Registration No.

				
			Registration Date

			
	 	 	 	 	 

 

2. Patents

 

	
			Registrant

				
			Country

				
			Application No.

				
			Filing Date

				
			Registration No.

				
			Issue Date

				
			Title

				
			Status

			
	 	 	 	 	 	 	 	 

 

3. Trademarks

 

	
			Registrant

				
			Trademark

				
			Country

				
			Application No.

				
			Filing Date

				
			Reg. No.

				
			Issue Date

				
			Status

			
	 	 	 	 	 	 	 	 

 

4.     Licensed Copyrights, Patents and Trademark

 

 

 

 

SCHEDULE 5

DEPOSITARY AND OTHER ACCOUNTS

 

	
			GRANTOR2

				
			FINANCIAL 

			INSTITUTION 

			(Name and address)

				
			ACCOUNT NUMBER

				
			TYPE AND USE OF 

			ACCOUNT

			
	 	 	 	 

 

 

 

2 Confirm the owners of each account.

 

 

 

 

SCHEDULE 6

Commercial tort claims

 

 

None.

 

 

 

 

SCHEDULE 7

Contracts or agreements between 

grantor and governmental authority

 

 

 

 

SCHEDULE 8

CERTAIN EXCLUDED ASSETS3

  

 

 

3 Provide name of Grantor that is party of the license, contract or agreement, the other parties thereto, the name and date of the license, contract or agreement (and list any amendments or other modifications), and a summary of why a security interest grant would, under the express terms of such license, contract or agreement result in a breach of the terms of, or constitute a default under, such license, contract or agreement.

 

 

 

 

 

ANNEX I

FORM OF JOINDER TO GUARANTY AND COLLATERAL AGREEMENT

 

This JOINDER AGREEMENT (this “Agreement”) dated as of [__________, 20__] is executed by the undersigned for the benefit of Edward Dallin Bagley (together with his successors and assigns, in such capacity, collectively, “Purchaser”), in connection with that certain Guaranty and Collateral Agreement dated as of [_________], 2019 among CLEARONE, INC., a Delaware corporation (the “Borrower”), Netstreams Inc., a Delaware corporation, and Netstreams LLC, a Texas limited liability company (each, a “Guarantor” and, together with any other Person that becomes a guarantor under the Note Purchase Agreement, the “Guarantors”; and together with Borrower, each individually a “Grantor” and collectively, the “Grantors”), in favor of Purchaser (as amended, restated, supplemented or otherwise modified from time to time, the “Guaranty and Collateral Agreement”). Capitalized terms not otherwise defined herein are being used herein as defined in the Guaranty and Collateral Agreement.

 

Each Person signatory hereto is required to execute this Agreement pursuant to Section 8.15 of the Guaranty and Collateral Agreement.

 

In consideration of the promises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each signatory (intending to be legally bound) hereby agrees as follows:

 

1.     Each such Person unconditionally and absolutely assumes all the obligations of a Grantor [and a Guarantor] under the Guaranty and Collateral Agreement and agrees that such Person is and shall be a Grantor [and a Guarantor] and bound as a Grantor [and a Guarantor] under the terms of the Guaranty and Collateral Agreement, as if such Person had been an original signatory to such agreement. In furtherance of the foregoing, such Person hereby unconditionally grants, pledges, collaterally assigns and transfers to Purchaser, a valid and continuing security interest in and Lien on all of such Person’s right, title and interest in and to the Collateral owned by such Person to secure the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations.

 

2.     Schedules 1, 2, 3, 4, 5, 5.9, 6, 7 and 8 of the Guaranty and Collateral Agreement are hereby amended to add the information relating to each such Person set out on Schedules 1, 2, 3, 4, 5, 6, 7 and 8 respectively, hereof. Each such Person hereby makes to Purchaser the representations and warranties set forth in the Guaranty and Collateral Agreement applicable to such Person and the applicable Collateral and confirms that such representations and warranties are true and correct in all material (without duplication of any materiality qualifiers) respects after giving effect to such amendment to such Schedules.

 

3.     In furtherance of its obligations under Section 5.2 of the Guaranty and Collateral Agreement, each such Person agrees to deliver to Purchaser appropriately complete UCC financing statements naming such person or entity as debtor and Purchaser as secured party, and describing its Collateral and such other documentation as Purchaser (or its successors or assigns) may reasonably require to evidence, protect and perfect the Liens created by the Guaranty and Collateral Agreement, as modified hereby. Each such Person acknowledges the authorizations given to Purchaser under Section 5.10(b) of the Guaranty and Collateral Agreement and otherwise.

 

4.     Each such Person’s address for notices under the Guaranty and Collateral Agreement shall be the address of Borrower set forth in the Note Purchase Agreement and each such Person hereby appoints Borrower as its agent to receive notices hereunder.

 

Annex I - Page 1

 

 

5.     This Agreement shall be deemed to be part of, and a modification to, the Guaranty and Collateral Agreement and shall be governed by all the terms and provisions of the Guaranty and Collateral Agreement, with respect to the modifications intended to be made to such agreement, which terms are incorporated herein by reference, are ratified and confirmed and shall continue in full force and effect as valid and binding agreements of each such person or entity enforceable against such person or entity. Each such Person hereby waives notice of Purchaser’s acceptance of this Agreement. Each such Person will deliver an executed original of this Agreement to Purchaser.

 

6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

7. The provisions of Section 8.12(b) of the Guaranty and Collateral Agreement pertaining to Jury Trial Waver are hereby incorporated into this Agreement by reference to the fullest extent as if the text of such provision were set forth in its entirety herein.

 

 

 

	 	
			[NEW GRANTOR], a [________]

			[________]

			 

			 

			By:                                                                                     

			Name:                                                                                

			Title:                                                                                  

			

 

Annex I - Page 2ex_166815.htm

Exhibit 10.3

 

NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

 

	No. 1 	 	$3,000,000.00
	Date: [_________ __], 2019	 	 

 

CLEARONE, INC.

SENIOR SECURED CONVERTIBLE NOTE

 

 

FOR VALUE RECEIVED, CLEARONE, INC., a Delaware corporation (the “Company”), hereby unconditionally promises to pay to the order of Edward D. Bagley or his registered assigns (the “Holder”), the principal sum of Three Million Dollars $(3,000,000.00), on [________ __], 2023 (the “Maturity Date”), or such earlier date as this Senior Secured Convertible Note (the “Note”) is required or permitted to be repaid as provided hereunder or in the Purchase Agreement (as defined in Section 1 below), and to pay interest to the Holder on the then outstanding principal amount of this Note in accordance with the provisions hereof. In addition, the Company shall pay to the order of the Holder interest on any principal, interest or other amount payable hereunder that is not paid in full when due (whether at the time of any stated interest or principal payment date, at maturity or by prepayment, acceleration or declaration or otherwise) for the period from and including the due date of such payment to but excluding the date the same is paid in full, at a rate per annum equal to five percent (5%) above the Interest Rate (as defined herein)(but in no event in excess of the maximum rate permitted under applicable law) (the “Default Rate”).

 

Interest payable under this Note shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which interest is payable.

 

Payments of principal and interest shall be made in lawful money of the United States of America to the Holder at its address as provided in Section 11.2 of the Purchase Agreement or by wire transfer to such account specified from time to time by the Holder hereof for such purpose as provided in Section 12.

 

 

 

 

This Note is one of the “Notes” referred to in the Purchase Agreement in the aggregate principal amount of Three Million Dollars ($3,000,000.00) (collectively, the “Notes”). The Notes are secured by a first priority security interest in the Collateral (as defined in the Collateral Documents).

 

1.     Definitions. In addition to the terms defined elsewhere in this Note, (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Note Purchase Agreement, dated as of December 8, 2019 (the “Purchase Agreement”), among the Company, the Guarantors party thereto and the Holder, and (b) the following terms have the meanings indicated:

 

“Closing Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on an Eligible Market or any other national securities exchange, the closing bid price per share of Common Stock for such date (or the nearest preceding date) on the primary Eligible Market or exchange on which the Common Stock is then listed or quoted; (b) if the Common Stock is then listed or quoted on the OTC Bulletin Board, the most recent closing bid price per share of Common Stock so reported; (c) if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Board of Directors of the Company.

 

“Common Stock” means the common stock, par value $0.001 per share, of the Company.

 

“Conversion Date” means the date a Conversion Notice is delivered to the Company (as determined in accordance with the notice provisions hereof) together with a Conversion Schedule pursuant to Section 6(a).

 

“Conversion Notice” means a written notice in the form attached hereto as Schedule 1.

 

“Conversion Price” means $2.11 subject to adjustment from time to time pursuant to Section 10.

 

“Daily Trading Volume” means on any given Trading Day the total volume of Common Stock traded on an Eligible Market as reported by Bloomberg L.P.

 

“Eligible Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca or the NYSE MKT (or any successor to any of the foregoing).

 

2

 

 

“Equity Conditions” means, with respect to the Common Stock issuable to the Holder pursuant to the Note Documents (including, without limitation, in respect of any Mandatory Conversion (as defined in Section 6(b)), that each of the following conditions is satisfied or waived by Holder: (i) on each day during the applicable Equity Conditions Measuring Period, all shares of Common Stock then issued and issuable immediately upon conclusion of that Equity Conditions Measuring Period shall be eligible for sale pursuant to a then effective and non-suspended Registration Statement (as defined in Schedule 8.21 to the Purchase Agreement) or pursuant to Rule 144 (as defined in Schedule 8.21 to the Purchase Agreement) without any restriction or limitation and without the need for registration under any applicable federal or state securities laws; (ii) on each day during the applicable Equity Conditions Measuring Period, the Common Stock is designated for listing and eligible for trading on The NASDAQ Capital Market or any other Eligible Market and shall not have been suspended from trading on such exchange or market resulting in the Common Stock not being traded on an Eligible Market; (iii) any applicable shares of Common Stock issuable or to be issued in connection with the event requiring determination may be issued in full without violating any provision of the Note Documents or the rules or regulations of The NASDAQ Capital Market or any other applicable Eligible Market and are, or upon issuance will be, duly authorized and listed and eligible for trading on an Eligible Market; (iv) during the applicable Equity Conditions Measuring Period, there shall not have occurred either (a) the public announcement of a Fundamental Change (as defined in Section 10(c)) which has not been abandoned, terminated or consummated or (b) a Triggering Event (but, for this purpose, excluding any time periods set forth in such definition) which is not cured prior to the end of the applicable Equity Conditions Measuring Period or waived by the Holder; (v) during the applicable Equity Conditions Measuring Period, no default or Event of Default nor any event or circumstance that with the passage of time and without being cured would constitute a default or an Event of Default has occurred and not been cured or waived in writing by the Holder; (vi) if the Holder or its Affiliates is a reporting person under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), the receipt of the applicable shares of Common Stock (or other securities) by such Holder shall be deemed an exempt purchase pursuant to Section 16(b) of the 1934 Act; (vii) the aggregate number of shares of Common Stock issuable by the Company under the Notes, upon any Mandatory Conversion, shall not exceed the Volume Limit; (viii) the Company has confirmed to the Holder that the Holder is not, and will not be, in possession of what is, or of what the Company believes could be deemed, material, non-public information on any Trading Day during the period commencing on the Conversion Date in respect of such Mandatory Conversion and ending on the date that is ten (10) Trading Days immediately following the Conversion Date in respect of such Mandatory Conversion; provided, however, that if there exists any such material, nonpublic information prior to such period, it shall have been disclosed on a Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K no later than the Trading Day immediately preceding the Conversion Date in respect of such Mandatory Conversion; and (ix) the Company has confirmed to the Holder that the Holder is not, and will not be, be restricted from trading shares of Common Stock due to a black-out period restricting the Company’s officers and directors from trading on any Trading Day during the period commencing on the Conversion Date in respect of such Mandatory Conversion and ending on the date that is ten (10) Trading Days immediately following the Conversion Date in respect of such Mandatory Conversion.

 

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“Equity Conditions Measuring Period” means the period beginning fifteen (15) Trading Days prior to the applicable date of determination and ending on and including the applicable date of determination.

 

“Event Equity Value” means the average of the Closing Prices for the five (5) Trading Days preceding the date of delivery of the notice requiring payment of the Event Equity Value, provided that if the Company does not make such required payment (together with any other payments, expenses and liquidated damages then due and payable under the Note Documents) when due or, in the event the Company disputes in good faith the occurrence of the event pursuant to which such notice relates, does not instead deposit such required payment (together with such other payments, expenses and liquidated damages then due) in escrow with an independent third party escrow agent within five (5) Trading Days of the date such required payment is due, then the Event Equity Value shall be one hundred twenty-five percent (125%) of the greater of (a) the average of the Closing Prices for the five (5) Trading Days preceding the date of delivery of the notice requiring payment of the Event Equity Value and (b) the average of the Closing Prices for the five (5) Trading Days preceding the date on which such required payment (together with such other payments, expenses and liquidated damages) is paid in full.

 

“Interest Rate” means a variable annual rate, determined as of the beginning of each calendar quarter, equal to the sum of (y) the greater of (i) the Prime Rate (as published in the Wall Street Journal (New York edition) as of the beginning of such calendar quarter or, if the Wall Street Journal ceases to publish the Prime Rate, a similar reference rate selected by the Board of Directors of the Company) and (ii) five and one-quarter percent (5.25%), plus (z) two and one-half percent (2.5%).

 

“Original Issue Date” means [________ __], 2019.

 

“Trading Day” means (a) any day on which the Common Stock is listed or quoted and traded on an Eligible Market, or (b) if the Common Stock is not then listed or quoted and traded on any Eligible Market, then any Business Day.

 

“Triggering Event” means any of the following events: (a) the Common Stock is not listed or quoted, or is suspended from trading, on an Eligible Market for a period of ten (10) or more Trading Days (which need not be consecutive Trading Days) in any 180 Trading Day period; (b) the conversion rights of the Holder and the other holders of the Notes pursuant to any Note Document are suspended for any reason; (c) the Company fails to have available a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock available to issue Underlying Shares under the Notes and the Warrants or fails to have full authority, including under all laws, rules and regulations of any Trading Market, to issue such Underlying Shares; (d) at any time after the Closing Date, any Common Stock issuable pursuant to the Notes or Warrants is not listed on an Eligible Market; (e) after the effectiveness of the Registration Statement, the Registration Statement is suspended for ten (10) or more Trading Days (which need not be consecutive Trading Days) in any 180 Trading Day period (other than any suspension agreed to by the Holder); (f) the Company or any Subsidiary fails to make any cash payment required under any Note Document to which it is a party and such failure is not cured within five (5) days after notice of such default is first given to the Company by the Holder; (g) the Company or any Subsidiary (i) breaches any of its representations and warranties under any Note Document to which it is a party that is qualified by materiality, (ii) breaches in any material respect any of its representations and warranties under any Note Document to which it is a party that is not qualified by materiality or (iii) breaches any of its covenants or obligations under any Note Document to which it is a party (including any of the covenants set forth in Articles 8 and 9 of the Purchase Agreement), which breach has not been cured or waived in writing by the Holder; or (h) there has occurred any change, event or circumstance that has had or could reasonably be expected to result in a Material Adverse Effect.

 

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“Underlying Shares” means the shares of Common Stock issuable (i) upon conversion of the Notes, (ii) upon exercise of the Warrants and (iii) in satisfaction of any other obligation or right of the Company to issue shares of Common Stock pursuant to the Note Documents, and in each case, any securities issued or issuable in exchange for or in respect of such securities.

 

“Volume Limit” means, with respect to any Mandatory Conversion, the product of (y) four (4) and (z) the arithmetic average of the Daily Trading Volume for each of the twenty (20) consecutive Trading Days preceding the Conversion Date applicable to such Mandatory Conversion.

 

“Warrants” means the warrants to purchase 340,909 shares of Common Stock which were issued to the Purchasers at the closing of the transactions contemplated by the Purchase Agreement.

 

2.       Principal and Interest.

 

(a)      The Company shall pay interest to the Holder on the then outstanding principal amount of this Note at a variable rate per annum equal to the Interest Rate. Interest shall be payable monthly in arrears in cash on the last day of each month, except if such day is not a Business Day in which case such interest shall be payable on the next succeeding Business Day (each, an “Interest Payment Date”). The first Interest Payment Date shall be December 31, 2019 and shall be pro-rated for the number of days elapsed from the Original Issue Date through December 31, 2019. Upon conversion of any portion of the principal amount of this Note into Common Stock in accordance with Section 6 (whether pursuant to Section 6(a) or 6(b)), the Company shall pay to the Holder, in cash, the accrued interest with respect to the principal amount of this Note so converted by no later than the second (2nd) Business Day following the applicable Conversion Date.

 

(b)      On each Payment Date, the Company shall make a periodic cash amortization payment in respect of the principal balance of the Notes in accordance with Section 3.2(a)(ii) of the Purchase Agreement.

 

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(c)      The Company shall have the right to prepay the Notes, from time to time, in cash following the one year anniversary of the Original Issue Date in accordance with Section 3.2(b) of the Purchase Agreement (including the payment of the prepayment premium specified therein).

 

(d)      The Company is obligated to prepay all or any portion of the Notes upon the occurrence of certain events as specified in, and in accordance with, Section 3.2(c) of the Purchase Agreement, including, without limitation, the payment of the premium specified therein. The prepayment of all or any portion of the Notes in accordance with Sections 3.2(b) and 3.2(c) of the Purchase Agreement shall be allocated in accordance with Section 3.3 of the Purchase Agreement.

 

(e)      Except as expressly provided in Sections 3.2(a)(ii), 3.2(b) and 3.2(c) of the Purchase Agreement and except as expressly provided in this Note, the Note may not be prepaid in whole or in part absent the written consent of the Holder.

 

3.        Ranking and Covenants.

 

(a)      (i) No Indebtedness of the Company or any Subsidiary shall be senior to or on a parity with the Notes in right of payment, whether with respect to interest, damages or upon liquidation or dissolution or otherwise and (ii) the Company will not, and will not permit any Subsidiary to, directly or indirectly, enter into, create, incur, assume or suffer to exist any Indebtedness of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, except to the extent expressly permitted by, and subject to any approval required under, the Note Documents.

 

(b)      The covenants set forth in the Purchase Agreement (including Articles 8 and 9 of the Purchase Agreement and the affirmative and negative covenants set forth therein) are incorporated by reference herein and are for the benefit of the holders of the Notes. The covenants set forth in Articles 8 and 9 of the Purchase Agreement may only be amended or waived by the written consent of the Holder.

 

(c)      The Company covenants that it will at all times reserve and keep available out of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Underlying Shares as required under the Notes and Warrants, the number of Underlying Shares which are then issuable and deliverable upon the conversion of (and otherwise in respect of) each Note (taking into account the adjustments set forth in Section 10) and exercise of the Warrants (without giving effect to any limitations set forth therein), free from preemptive rights or any other contingent purchase rights of any other Person. The Company covenants that all Underlying Shares so issuable and deliverable shall, upon issuance in accordance with the terms of the Notes and/or Warrants, be duly and validly authorized and issued and fully paid and nonassessable.

 

4.       Registration of Notes. The Company shall register the Notes upon records to be maintained by the Company for that purpose (the “Note Register”) in the name of each record holder thereof from time to time. The Company may deem and treat the registered Holder of this Note as the absolute owner hereof for the purpose of any conversion hereof or any payment of interest or principal hereon, and for all other purposes, absent actual notice to the contrary.

 

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5.       Registration of Transfers and Exchanges. Subject to compliance with applicable federal and state securities laws, this Note and all rights hereunder are transferable in whole or in part upon the books of the Company by the Holder hereof; provided, however, that the transferee shall agree in writing to be bound by the terms and subject to the conditions of this Note, the Purchase Agreement and the other Note Documents to which the transferring Holder is a party. The Company shall register the transfer of any portion of this Note in the Note Register upon surrender of this Note to the Company at its address for notice set forth herein. Upon any such registration or transfer, a new Note, in substantially the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Note. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge or other fee will be imposed in connection with any such registration of transfer or exchange.

 

6.        Conversion.

 

(a)      At the Option of the Holder. All or any portion of this Note shall be convertible into shares of Common Stock, at the option of the Holder, at any time and from time to time from and after the Original Issue Date. The number of Underlying Shares issuable upon any conversion hereunder shall equal the outstanding principal amount of this Note to be converted divided by the Conversion Price on the Conversion Date (and any accrued interest on the principal amount of this Note that is being converted shall be paid, in cash, by the Company by no later than the second (2) Business Day following the Conversion Date). The Holder shall effect conversions under this Section 6(a) by delivering to the Company a Conversion Notice together with a schedule in the form of Schedule 2 attached hereto (the “Conversion Schedule”). If the Holder is converting less than all of the principal amount of this Note, the Company shall honor such conversion to the extent permissible hereunder and shall promptly deliver to the Holder a Conversion Schedule indicating the principal amount which has not been converted. Any conversion of this Note (whether pursuant to Section 6(a) or 6(b)) in excess of the monthly principal amortization payment required to be paid on the next Payment Date shall, at the election of the Holder, be credited and applied against the next subsequent monthly principal amortization payment or any other monthly principal amortization payment, as designated by the Holder in its sole discretion.    

 

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(b)      At the Option of the Company. If at any time (i) the VWAP exceeds 200% of the Conversion Price then in effect for at least ninety (90) consecutive Trading Days (such ninety (90) consecutive Trading Day period that commences after the first anniversary of the Closing Date, the “Mandatory Conversion Measuring Period”) and the VWAP continues to exceed 200% of the Conversion Price for each Trading Day following the Mandatory Conversion Measuring Period through and including the Conversion Date, and (ii) the Equity Conditions are satisfied for each day of such Mandatory Conversion Measuring Period and continue to be satisfied for each day following the Mandatory Conversion Measuring Period through and including the Conversion Date, then the Company may elect to require the Holder to convert (a “Mandatory Conversion”) a portion of the outstanding principal amount of this Note, up to its entirety, into Common Stock by delivering an irrevocable written notice of such election to the holders of the Notes within five (5) Trading Days following the end of such Mandatory Conversion Measuring Period (the “Mandatory Conversion Notice”). For purposes of example only, if the Conversion Price is $1.00, then the VWAP would need to be greater than $2.00 for each Trading Day in the relevant period for the condition set forth in Section 6(b)(i) to be satisfied. The Mandatory Conversion Notice shall state: (i) the Conversion Date applicable to such Mandatory Conversion, which shall be the tenth (10th) Trading Day after the delivery of such Mandatory Conversion Notice; (ii) the aggregate principal amount of the Notes to be converted pursuant to the Mandatory Conversion; (iii) the number of shares of Common Stock to be issued to the Holder upon such Mandatory Conversion (taking into account the limitations set forth in Section 6(c) hereof); and (iv) that the Mandatory Conversion conditions (including the Equity Conditions) have been satisfied at all times during the Mandatory Conversion Measuring Period and through and including the delivery of the Mandatory Conversion Notice. The principal amount of the Notes convertible as provided in Section 6(b) of the Notes shall be limited to a number of shares of Common Stock equal to the Volume Limit as of the Conversion Date applicable to such Mandatory Conversion. The principal amount of this Note convertible as provided in this Section 6(b) shall be limited by Section 6(c). The tenth (10th) Trading Day after the delivery of such Mandatory Conversion Notice will be the “Conversion Date” for such Mandatory Conversion. If any of the Mandatory Conversion conditions (including any of the Equity Conditions) do not continue to be satisfied after the delivery by the Company of the Mandatory Conversion Notice and prior to the Conversion Date, the Company shall promptly deliver to the holders of the Notes a notice of such failure and each holder shall have the right, in its sole discretion, to either (I) waive such failure, in which case the Company shall complete the Mandatory Conversion in accordance with this Section 6(b), or (II) elect that the conversion of such holder’s Notes pursuant to the Mandatory Conversion not occur. Notwithstanding the foregoing, the Company may effect only one (1) Mandatory Conversion during any one hundred fifty (150) consecutive Trading Days. If the Holder delivers a Conversion Notice following its receipt of the Mandatory Conversion Notice and prior to the Conversion Date applicable to such Mandatory Conversion, the principal amount of the Notes converted by the Holder as part of such Conversion Notice shall reduce the principal amount of the Holder’s Note to be converted on the Conversion Date applicable to such Mandatory Conversion, unless the Holder elects otherwise in its Conversion Notice.

 

If the Company elects to cause a Mandatory Conversion of any portion of this Note pursuant to this Section 6(b), then it must simultaneously take the same action in the same proportion with respect to all other Notes. If the Company elects a Mandatory Conversion pursuant to Section 6(b) of the Notes with respect to less than the principal amount of all of the Notes then outstanding, then the Company shall require conversion of the Notes from each holder of the Notes in an amount equal to the product of (i) the aggregate principal amount of the Notes which the Company has elected to cause to be converted pursuant to Section 6(b) of the Notes, multiplied by (ii) a fraction, the numerator of which is the principal amount of such holder’s Note and the denominator of which is the principal amount of the Notes then outstanding.

 

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7.        Mechanics of Conversion; Restrictive Legends.

 

(a)      Upon conversion of this Note, the Company shall promptly (but in no event later than three (3) Trading Days after the Conversion Date) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate for the Underlying Shares issuable upon such conversion (or the Holder or its designee shall receive a credit for such Underlying Shares issuable upon such conversion to its balance account with DTC through its Deposit Withdrawal Agent Commission System). The Holder, or any Person so designated by the Holder to receive Underlying Shares, shall be deemed to have become the holder of record of such Underlying Shares as of the Conversion Date. The Company shall, upon request of the Holder, use its reasonable best efforts to deliver the Underlying Shares hereunder electronically through The Depository Trust Company (the “DTC”), and to credit the number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with the DTC through its Deposit Withdrawal Agent Commission System. If the Company is not presently eligible to deliver its Common Stock electronically through DTC, the Company shall use its best efforts to take all action necessary to become so eligible promptly following the Closing Date.

 

(b)      The Holder shall not be required to deliver the original Note in order to effect a conversion hereunder. Execution and delivery of the Conversion Notice shall have the same effect as cancellation of the original Note and issuance of a New Note representing the remaining outstanding principal amount; provided that the cancellation of the original Note shall not be deemed effective until a certificate for such Underlying Shares is delivered to the Holder, or the Holder or its designee receives a credit for such Underlying Shares to its balance account with DTC through its Deposit Withdrawal Agent Commission System. Upon surrender of this Note following one or more partial conversions, the Company shall promptly deliver to the Holder a New Note representing the remaining outstanding principal amount. The Holder shall deliver the original Note to the Company within thirty (30) days after the conversion of the entire Note hereunder, provided, that the Holder’s failure to so deliver the original Note shall not affect the validity of such conversion or any of the Company’s obligations under this Note, and the Company’s sole remedy for the Holder’s failure to deliver the original Note shall be to obtain an affidavit of lost note from the Holder.

 

(c)      The Company’s obligations to issue and deliver Underlying Shares upon conversion of this Note in accordance with the terms and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any set-off, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Underlying Shares (other than such limitations contemplated by this Note).

 

(d)      If by the fifth (5th) Trading Day after a Conversion Date the Company fails to deliver or cause to be delivered to the Holder such Underlying Shares in such amounts and in the manner required pursuant to Section 7(a), then the Holder will have the right to rescind such conversion (including any Mandatory Conversion).

 

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(e)      If by the third (3rd) Trading Day after a Conversion Date the Company fails to deliver or cause to be delivered to the Holder such Underlying Shares in such amounts and in the manner required pursuant to Section 7(a), and if after such third (3rd) Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall, at the option of the Holder (in its sole discretion), either (i) pay cash to the Holder (in addition to any other remedies available to or elected by the Holder) in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Price on the date of the event giving rise to the Company’s obligation to deliver such certificate.

 

(f)      Each certificate for Underlying Shares shall bear a restrictive legend only if (i) there is not then an effective Registration Statement covering the resale of the Underlying Shares and naming the Holder as a selling stockholder thereunder and (ii) the Underlying Shares are not freely transferable by the Holder without volume restrictions pursuant to Rule 144; provided, that, no such restrictive legend shall be required if, in the opinion of counsel for the Holder or the Company, the securities represented thereby are not, at such time, required by law to bear such legend.

 

8.        Events of Default.

 

(a)      At any time or times following the occurrence of an Event of Default, the Holder shall have the rights and remedies set forth in Article 10 of the Purchase Agreement, including the right of acceleration set forth in Section 10.2 of the Purchase Agreement.

 

(b)      If this Note is accelerated in accordance with Article 10 of the Purchase Agreement and is not redeemed, in cash, in accordance with, and for the payment required under, Section 10.2 of the Purchase Agreement (the “EofD Redemption Amount”), then, in addition to all other remedies that may be available, the Holder may require the Company to pay all or any portion of the EofD Redemption Amount from time to time in shares of Common Stock of the Company as specified in one or more written notices from the Holder to the Company, with the number of such shares of Common Stock to be issued pursuant to any written notice from the Holder to the Company to be determined by dividing the EofD Redemption Amount to be paid in shares of Common Stock, as specified by the Holder in such written notice to the Company, by 93% of the lower of (y) the Market Price as of the date such EofD Redemption Amount became due and payable to the Holder and (z) the Market Price as of the date of such written notice by the Holder to the Company. In the event the Holder exercises its rights under this paragraph, the Company agrees promptly to take all actions as may be required, including without limitation seeking to obtain stockholder approval if required, in order to comply with its obligations under this paragraph. The term “Market Price” means, with respect to any date of determination, the arithmetic average of the VWAP for each of the twenty (20) consecutive Trading Days prior to such date of determination.

 

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9.       Charges, Taxes and Expenses. Issuance of certificates for Underlying Shares upon conversion of (or otherwise in respect of) this Note shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Underlying Shares or Notes in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Note or receiving Underlying Shares in respect hereof.

 

10.      Certain Adjustments. The Conversion Price is subject to adjustment from time to time as set forth in this Section 10.

 

(a)      Stock Dividends and Splits. If the Company, at any time while this Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this Section 10(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this Section 10(a) shall become effective immediately after the effective date of such subdivision or combination.

 

(b)      Pro Rata Distributions. If the Company, at any time while this Note is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock described in Section 10(a)), (iii) rights or warrants to subscribe for or purchase any security, or (iv) cash or any other asset (in each case, “Distributed Property”), then the Company shall deliver to the Holder (on the effective date of such distribution), the Distributed Property that the Holder would have been entitled to receive in respect of the Underlying Shares for which this Note could have been converted immediately prior to the date on which holders of Common Stock became entitled to receive such Distributed Property.

 

(c)      Fundamental Changes. If, at any time while this Note is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or more transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, (iv) the Company effects any reorganization, reclassification or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock described in Section 10(a)), or (v) there is a Change of Control (each case in clauses (i) through (v) above, a “Fundamental Change”), then upon any subsequent conversion of this Note, the Holder shall have the right to receive (except to the extent previously distributed to the Holder pursuant to Section 10(b)), for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Change), the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Change if it had been, immediately prior to such Fundamental Change, the holder of one share of Common Stock (the “Alternate Consideration”). If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Change, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Change. In the event of a Fundamental Change, the Company or the successor or purchasing Person, as the case may be, shall execute with the Holder a written agreement providing that:

 

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(x)      this Note shall thereafter entitle the Holder to purchase the Alternate Consideration;

 

(y)     in the case of any such successor or purchasing Person, upon such consolidation, merger, statutory exchange, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Company for the performance of all of the Company’s obligations under this Note and the other Note Documents; and

 

(z)     if registration or qualification is required under the 1934 Act or applicable state law for the public resale by the Holder of shares of stock and other securities so issuable upon exercise of this Note, such registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, statutory exchange, combination or sale.

 

If, in the case of any Fundamental Change, the Alternate Consideration includes shares of stock, other securities, other property or assets of a Person other than the Company or any such successor or purchasing Person, as the case may be, in such Fundamental Change, then such written agreement shall also be executed by such other Person and shall contain such additional provisions to protect the interests of the Holder as the Board of Directors of the Company shall reasonably consider necessary by reason of the foregoing. At the Holder’s request, any successor to the Company or surviving Person in such Fundamental Change shall issue to the Holder a new Note consistent with the foregoing provisions and evidencing the Holder’s right to convert such Note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Change is effected shall include terms requiring any such successor or surviving Person to comply with the provisions of this Section 10(c) and ensuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Change. If any Fundamental Change constitutes or results in a Change of Control, then the Company (or any such successor or surviving entity) will purchase each Note (unless such Holder declines to accept such payment in accordance with Section 3.2(c)(v) of the Purchase Agreement) for a purchase price, payable in cash, equal to the greater of (x) the purchase price specified in Section 3.2(c)(i)(I) of the Purchase Agreement, and (y) the product of (i) Event Equity Value and (ii) the Underlying Shares issuable upon conversion of the principal amount of each Note, plus all accrued but unpaid interest on each Note. Any repurchase of the Notes in connection with a Fundamental Change shall be made in the order of priority set forth in Section 3.3 of the Purchase Agreement (provided, that, any repurchase or repayment that is allocated to the principal amount of the Notes shall be applied to the principal payments in reverse chronological order).

 

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(d)      Calculations. All calculations under this Section 10 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(e)      Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 10, the Company at its expense will promptly compute such adjustment in accordance with the terms hereof and prepare and deliver to the Holder a certificate describing in reasonable detail such adjustment and the transactions giving rise thereto, including all facts upon which such adjustment is based.

 

(f)      Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for a Fundamental Change or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the holders of the Notes a notice describing the material terms and conditions of such transaction, at least twenty (20) Trading Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to ensure that the holders of the Notes are given the practical opportunity to convert the Notes prior to such time so as to participate in or vote with respect to such transaction.

 

11.     No Fractional Shares. The Company shall not issue or cause to be issued fractional Underlying Shares on conversion of this Note. If any fraction of an Underlying Share would, except for the provisions of this Section 11, be issuable upon conversion of this Note, the number of Underlying Shares to be issued will be rounded up to the nearest whole share.

 

12.     Notices. Any and all notices or other communications or deliveries hereunder (including any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 12 prior to 5:00 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 12 on a day that is not a Trading Day or later than 5:00 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service specifying next Business Day delivery, or (iv) upon actual receipt by the party to whom such notice is required to be given, if by hand delivery. The address and facsimile number of a party for such notices or communications shall be as set forth in the Purchase Agreement, unless changed by such party by two (2) Trading Days’ prior notice to the other party in accordance with this Section 12.

 

13

 

 

13.     Miscellaneous.

 

(a)      This Note shall be binding on and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Subject to the restrictions on transfer set forth herein, this Note may be assigned by the Holder. The Company shall not be permitted to assign this Note absent the prior written consent of the Holder.

 

(b)      Except as expressly set forth herein, nothing in this Note shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause under this Note.

 

(c)      THE COMPANY HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS NOTE OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THE COMPANY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL. 

 

(d)      This Note shall be governed by and construed under the law of the State of New York, without giving effect to the conflicts of law principles thereof. The Company and, by accepting this Note, the Holder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Note and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Note. The Company and, by accepting this Note, the Holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Note, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

(e)      If action is instituted to collect on this Note, the Company promises to pay all reasonable costs and expenses, including reasonable attorney’s fees, incurred in connection with such action. The Company shall pay the reasonable attorneys’ fees incurred by the Holder in connection with any amendment to, or waiver of, this Note or any other Note Document.

 

(f)      In case any one or more of the provisions of this Note shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Note shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Note.

 

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(g)      In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof, each reference in this Note to a price (if not otherwise adjusted) shall be amended to appropriately account for such event.

 

(h)      This Note, together with the other Note Documents, constitutes the entire agreement of the parties with respect to the subject matter hereof. No provision of this Note may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Holder or, in the case of a waiver, by the Holder. Any waiver executed by the Holder shall be binding on the Company and all holders of the Notes. No waiver of any default with respect to any provision, condition or requirement of this Note 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 either party to exercise any right hereunder in any manner impair the exercise of any such right.

 

(i)     This Note is one of the Notes referred to in the Purchase Agreement and is secured by the Collateral described therein. The Guaranty and Collateral Agreement grants the Collateral Agent, on behalf of the Holder and the other holders of the Notes, certain rights with respect to the Collateral upon an Event of Default. The Subsidiaries have guaranteed the obligations of the Company under the Notes pursuant to the Guaranty and Collateral Agreement.

 

(j)     The Holder shall have no rights as a holder of Common Stock as a result of being a holder of this Note, except as required by law or rights expressly provided in this Note.

 

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SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

 

	
			 

				
			CLEARONE, INC. 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			By

				
			 

				
			 

			
	
			 

				
			Name: 

				
			 

				
			 

			
	
			 

				
			Title: 

				
			 

				
			 

			

 

 

 

 

Acknowledged and Agreed to by:

 

Edward D. Bagley

 

                                                              

 

16

 

 

Schedule 1

 

FORM OF CONVERSION NOTICE

 

(To be executed by the registered Holder in order to convert Note)

 

The undersigned hereby elects to convert the specified principal amount of the Senior Secured Convertible Note (the “Note”) into shares of common stock, par value $0.001 per share (the “Common Stock”), of CLEARONE, INC., a Delaware corporation, according to the conditions hereof, as of the date written below.

 

	
			Date to Effect Conversion

				 
	 	 
	 	 
	
			Principal amount of Notes owned prior to conversion

				 
	 	 
	 	 
	
			Principal amount of Notes to be converted

			(including accrued but unpaid interest thereon)

				 
	 	 
	 	 
	
			Number of shares of Common Stock to be Issued

				 
	 	 
	 	 
	
			Applicable Conversion Price

				 
	 	 
	 	 
	
			Principal amount of Notes owned subsequent to Conversion

				 
	 	 
	 	 
	
			Name of Holder

				 
	 	 
	
			By

				 
	
			Name:

				 
	
			Title:

				 

 

 

 

 

Schedule 2

 

CONVERSION SCHEDULE

 

This Conversion Schedule reflects conversions of the Senior Secured Convertible Note issued by CLEARONE, INC.

 

	
			Date of Conversion

				
			Amount of Conversion

				
			Aggregate Principal Amount

			Remaining Subsequent to Conversion

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