Document:

exv10w21

 

Exhibit 10.21

THIS SECURITY HAS NOT 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 OR SOLD
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 ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITY.

Original Issue Date: April 20, 2005

$2,000,000

9% SENIOR SECURED DEBENTURE

DUE APRIL 20, 2008

     THIS 9% SECURED DEBENTURE is one of a series of duly authorized and issued 9% Senior Secured
Debentures of Brillian Corporation, a Delaware corporation, having a principal place of business at
1600 N. Desert Drive, Tempe, AZ 85281 (the “Company”), designated as its 9% Senior Secured
Debenture, due April 20, 2008 (the “Debentures”).

     FOR VALUE RECEIVED, the Company promises to pay to Regenmacher Holdings Ltd. or its registered
assigns (the “Holder”), the principal sum of $2,000,000 on April 20, 2008 or such earlier
date as the Debentures are required or permitted to be repaid as provided hereunder (the
“Maturity Date”), and to pay interest to the Holder on the then outstanding principal
amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:

     Section 1.  Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:

     “Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1.02(s) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation

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or similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any Significant Subsidiary
thereof any such case or proceeding that is not dismissed within 60 days after commencement;
(c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or proceeding is entered; (d)
the Company or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not discharged or stayed
within 60 days; (e) the Company or any Significant Subsidiary thereof makes a general
assignment for the benefit of creditors; (f) the Company or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a composition, adjustment
or restructuring of its debts; or (g) the Company or any Significant Subsidiary thereof, by
any act or failure to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

     “Business Day” means any day except Saturday, Sunday and any day which shall be
a federal legal holiday in the United States or a day on which banking institutions in the
State of New York are authorized or required by law or other government action to close.

     “Change of Control Transaction” means the occurrence after the date hereof of
any of (i) an acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company, by contract
or otherwise) of in excess of 50% of the voting securities of the Company, or (ii) a
replacement at one time or within a one year period of more than one-half of the members of
the Company’s board of directors which is not approved by a majority of those individuals
who are members of the board of directors on the date hereof (or by those individuals who
are serving as members of the board of directors on any date whose nomination to the board
of directors was approved by a majority of the members of the board of directors who are
members on the date hereof), or (iii) the execution by the Company of an agreement to which
the Company is a party or by which it is bound, providing for any of the events set forth
above in (i) or (ii).

     “Commission” means the Securities and Exchange Commission.

     “Common Stock” means the common stock, par value $0.001 per share, of the
Company and stock of any other class into which such shares may hereafter have been
reclassified or changed.

     “Effectiveness Period” shall have the meaning given to such term in the
Registration Rights Agreement.

     “Eligible
Receivables” means open Receivables, less than 60 days past due,
arising in the normal course of Company’s business which are and at all times shall

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continue to be acceptable to Holder in all respects, as determined in its sole
discretion exercised reasonably and in good faith. No Receivable which has become ineligible
or is due from an Affiliate shall be deemed to be an Eligible Receivable.

     “Event of Default” shall have the meaning set forth in Section 6.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Fundamental Transaction” shall mean (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the Company effects any sale
of all or substantially all of its assets in one or a series of related transactions, (C)
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, or (D) the Company effects any reclassification 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.

     “Late Fees” shall have the meaning set forth in the second paragraph to this
Debenture.

     “Original Issue Date” shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless of the
number of instruments which may be issued to evidence such Debenture.

     “Person” means a corporation, an association, a partnership, organization, a
business, an individual, a government or political subdivision thereof or a governmental
agency.

     “Purchase Agreement” means the Securities Purchase Agreement, dated as of the
date hereof, to which the Company and the original Holder are parties, as amended, modified
or supplemented from time to time in accordance with its terms.

     “Receivables” means open accounts whether or not matured and whether or not
executory, contract rights, chattel paper, notes, rental receivables, tax refunds,
installment payment obligations and other obligations for the payment of money payable to
Company, and contracts, documents, invoices and other instruments evidencing the same, which
Receivables are created or otherwise arise out of the sale of merchandise or the supplying
of services by Company in the regular course of its business and any of Company’s other
assets or property defined under the Uniform Commercial Code of New York as accounts,
general intangibles, chattel paper or instruments, and all cash and non-cash proceeds
thereof, and all security therefor and guaranties and credit enhancements (including but not
limited to letters of credit) thereof, and all of Company’s rights present or future to any
property sold or leased which is represented thereby.

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     “Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of the Purchase Agreement, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in accordance with its
terms.

     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among other things the
resale of the Warrant Shares and naming the Holder as a “selling stockholder” thereunder.

     “Subsidiary” shall have the meaning given to such term in the Purchase
Agreement.

     Section 2.  Interest.

     a) Payment of Interest in Cash. The Company shall pay interest, in cash, to the
Holder on the then outstanding principal amount of this Debenture at the rate of 9% per
annum, payable monthly, in arrears, on the last day of each month for the period beginning
on the Initial Issuance Date and ending on the Maturity Date or such time when this
Debenture is paid or prepaid in full (except that, if any such date is not a Business Day,
then such payment shall be due on the next succeeding Business Day) (each such date, an
“Interest Payment Date”).

     b) Interest Calculations. Interest shall be calculated on the basis of a
360-day year and shall accrue daily commencing on the Original Issue Date until payment in
full of the principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest hereunder will be paid to the
Person in whose name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the “Debenture Register”).

     c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at the rate of 18% per annum (or such lower maximum amount of
interest permitted to be charged under applicable law) (“Late Fee”) which will
accrue daily, from the date such interest is due hereunder through and including the date of
payment.

     d) Prepayment. The Company may prepay all or any portion of the principal
amount of this Debenture without the prior written consent of the Holder at any time.

     Section 3. Registration of Transfers and Exchanges.

     a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations, as requested
by the Holder surrendering the same. No service charge will be made for such registration
of transfer or exchange.

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     b) Investment Representations. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations.

     c) Reliance on Debenture Register. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat the Person in
whose name this Debenture is duly registered on the Debenture Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other purposes, whether
or not this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

     Section 4.  Intentionally Omitted.

     Section 5.  Negative Covenants. So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to directly or
indirectly:

     a) enter into, create, incur, assume or suffer to exist any indebtedness or liens 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 without the prior
consent of the Holder, which consent may be withheld in the sole discretion of the Holder;
provided, that no consent of the Holder shall be required if this Debenture shall be prepaid
in its entirety in accordance with Section 2(d) contemporaneously with the incurrence of
such other indebtedness. The foregoing prohibition shall not be interpreted to apply to
trade accounts payable or capital lease or purchase money security interests in particular
items of equipment purchased by the Company after the date hereof (each a “Permitted Lien”).

     b) amend its certificate of incorporation, bylaws or to her charter documents so as to
adversely affect any rights of the Holder;

     c) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Common Stock or other equity securities or as
otherwise permitted by the Transaction Documents; or

     d) enter into any agreement with respect to any of the foregoing.

     Section 6.  Events of Default.

     a) “Event of Default”, wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):

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     i. any default in the payment of (A) the principal amount of any Debenture, or
(B) interest (including Late Fees) on, or liquidated damages in respect of, any
Debenture, in each case free of any claim of subordination, as and when the same
shall become due and payable (whether on the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest payment or other default
under clause (B) above, is not cured, within 3 Business Days;

     ii. the Company shall fail to observe or perform any other covenant or
agreement contained in this Debenture or any of the other Transaction Documents
which failure is not cured, if possible to cure, within the earlier to occur of (A)
5 Business Days after notice of such default sent by the Holder or by any other
Holder and (B)10 Business Days after the Company shall become or should have become
aware of such failure;

     iii. a default or event of default (subject to any grace or cure period
provided for in the applicable agreement, document or instrument) shall occur under
(A) any of the Transaction Documents other than the Debentures, or (B) any other
material agreement, lease, document or instrument to which the Company or any
Subsidiary is bound;

     iv. any representation or warranty made herein, in any other Transaction
Document, in any written statement pursuant hereto or thereto, or in any other
report, financial statement or certificate made or delivered to the Holder or any
other holder of Debentures shall be untrue or incorrect in any material respect as
of the date when made or deemed made, which such misrepresentation, omission or
inaccuracy could materially impact the ability of the Company to comply with its
obligations under this Debenture or the Security Agreement;

     v. there shall have occurred a Bankruptcy Event;

     vi. the Company or any Subsidiary shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there may
be secured or evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount exceeding
$100,000, whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable.

     vii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction, shall agree to sell or dispose of all or in excess of 33%
of its assets in one or more transactions (whether or not such sale would constitute
a Change of Control Transaction) or shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or

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other equity securities of the Company (other than repurchases of shares of
Common Stock or other equity securities of departing officers and directors of the
Company; provided such repurchases shall exceed $100,000, in the aggregate, for all
officers and directors during the term of this Debenture);

     viii. the Company shall fail for any reason to pay in full the amount of cash
due pursuant to a Buy-In of the Warrant within 5 days after notice therefor is
delivered hereunder or shall fail to pay all amounts owed on account of an Event of
Default within five days of the date due;

     ix. the Company shall fail to have available a sufficient number of authorized
and unreserved shares of Common Stock to issue to such Holder upon exercise of the
Warrants in full;

     x. the Company shall redeem more than a de minimis number of Common Stock
Equivalents; and

     xi. the Company shall fail, at any time, to have a perfected, first priority
security interest in all Collateral (as defined in the Security Agreement) and all
other assets pledged to Holder as security for the loan evidenced by this Debenture.

     b) Remedies Upon Event of Default. If any Event of Default occurs, the full
principal amount of this Debenture, together with interest and other amounts owing in
respect thereof, to the date of acceleration shall become, at the Holder’s election,
immediately due and payable in cash. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the interest rate on
this Debenture shall accrue at the rate of 18% per annum, or such lower maximum amount of
interest permitted to be charged under applicable law. All Debentures for which the full
amount hereunder shall have been paid in accordance herewith shall promptly be surrendered
to or as directed by the Company. The Holder need not provide and the Company hereby waives
any presentment, demand, protest or other notice of any kind, and the Holder may immediately
and without expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such declaration may
be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder
shall have all rights as a Debenture holder until such time, if any, as the full payment
under this Section shall have been received by it. No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent thereon.

     Section 7.  Intentionally Omitted.

     Section 8.  Miscellaneous.

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     a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holders hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service, addressed to the
Company, at the address set forth above, facsimile number 602-389-8869, Attn:
 Chief Financial Officer or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of business of
the Holder. Any notice or other communication or deliveries hereunder 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 telephone number specified in this
Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second
Business Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is required to
be given.

     b) Absolute Obligation. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, interest and liquidated damages (if any) on, this
Debenture at the time, place, and rate, and in the coin or currency, herein prescribed.
This Debenture is a direct debt obligation of the Company. This Debenture ranks
pari passu with all other Debentures now or hereafter issued under the terms
set forth herein.

     c) Security Interest. This Debenture is a direct debt obligation of the
Company and, pursuant to the Security Documents, is secured by a first priority security
interest in all of the assets of the Company and certain other collateral for the benefit of
the Holders.

     d) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for
and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft
or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested,
all reasonably satisfactory to the Company.

     e) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without regard to

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the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to
the exclusive jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of any such court, or such New
York Courts are improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address in effect for
notices to it under this Debenture and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to this
Debenture or the transactions contemplated hereby. If either party shall commence an action
or proceeding to enforce any provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     f) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this Debenture. The
failure of the Company or the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.

     g) Severability. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain applicable to all
other persons and circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates applicable laws governing usury, the applicable rate
of interest due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of or interest on this Debenture
as contemplated herein, wherever enacted, now or at any

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time hereafter in force, or which may affect the covenants or the performance of this
indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has been enacted.

     h) Next Business Day. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the next succeeding
Business Day.

     i) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect any of the
provisions hereof.

     j) Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any and all
efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted,
now or at any time hereafter in force, in connection with any claim, action or proceeding
that may be brought by any Purchaser in order to enforce any right or remedy under any
Transaction Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total liability of the
Company under the Transaction Documents for payments in the nature of interest shall not
exceed the Maximum Rate, and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the Transaction Documents
exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest
allowed by law and applicable to the Transaction Documents is increased or decreased by
statute or any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date of such increase or decrease forward, unless
such application is precluded by applicable law. If under any circumstances whatsoever,
interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect
to indebtedness, if any, evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such indebtedness or be
refunded to the Company, the manner of handling such excess to be at such Purchaser’s
election in the event any principal amount remains outstanding.

*********************

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

	 	 	 	 	 
	 	BRILLIAN CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	Wayne A. Pratt 	 
	 	 	Title:  	Vice President and Chief Financial Officer 	 
	 

11exv10w22

 

Exhibit 10.22

SECURITY AGREEMENT

     SECURITY AGREEMENT, dated as of April 18, 2005 (this “Agreement”), between Brillian
Corporation, a Delaware corporation (the “Company” or the “Debtor”) and the holder
or holders of the Company’s 9% Senior Secured Debenture due
April 20, 2008 in the original
aggregate principal amount of $2,000,000 (the “Debenture”), signatory hereto, their
endorsees, transferees and assigns (collectively referred to as, the “Secured Parties”).

W I T N E S S E T H:

     WHEREAS, pursuant to the Purchase Agreement and the Debentures, the Secured Parties have
agreed to extend the loans to the Company evidenced by the Debentures; and

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

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

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

     (a) “Collateral” means the collateral in which the Secured Parties are granted
a security interest by this Agreement and which shall include the following personal
property of the Debtor, whether presently owned or existing or hereafter acquired or coming
into existence, wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the Collateral and
of insurance covering the same and of any tort claims in connection therewith, and all
dividends, interest, cash, notes, securities, equity interest or other property at any time
and from time to time acquired, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Securities (as defined below):

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

     (ii) All Inventory and Intellectual Property of
the Debtor;

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

     (iv) All Receivables of the Debtor including all insurance proceeds, and
rights to refunds or indemnification whatsoever owing, together with all
instruments, all documents of title representing any of the foregoing, all rights
in any merchandising, goods, equipment, motor vehicles and trucks which any of the
same may represent, and all right, title, security and guaranties with respect to
each Receivable, including any right of stoppage in transit;

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

     (vi) All commercial tort claims;

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

     (viii) All investment property;

     (ix) All supporting obligations; and

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

2

 

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

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

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

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

3

 

any other country or any political subdivision thereof, or otherwise, and all common
law rights related thereto, (iv) all trade secrets arising under the laws of the United
States, any other country or any political subdivision thereof, (v) all rights to obtain
any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the
foregoing, and (vii) all causes of action for infringement of the foregoing.

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

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

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

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

4

 

     (g) “UCC” means the Uniform Commercial Code of the State of New York and or
any other applicable law of any state or states which has jurisdiction with respect to all,
or any portion of, the Collateral or this Agreement, from time to time. It is the intent
of the parties that defined terms in the UCC should be construed in their broadest sense so
that the term “Collateral” will be construed in its broadest sense. Accordingly if there
are, from time to time, changes to defined terms in the UCC that broaden the definitions,
they are incorporated herein and if existing definitions in the UCC are broader than the
amended definitions, the existing ones shall be controlling.

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

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

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

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

     (b) The Debtor has no place of business or offices where its books of account and
records are kept (other than temporarily at the offices of its attorneys

5

 

or accountants) or places where Collateral is stored or located, except as set forth
on Schedule A attached hereto. Except as specifically set forth on Schedule A, Debtor is
the record owner of the real property where such Collateral is located, and there exist no
mortgages or other liens on any such real property except for Permitted Liens (as defined
in the Debentures). Except as disclosed on Schedule A, none of such Collateral is in the
possession of any consignee, bailee, warehouseman, agent or processor.

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

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

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

     (f) This Agreement creates in favor of the Secured Parties a valid, first priority
security interest in the Collateral, subject only to Permitted Liens (as

6

 

defined in the Debentures) securing the payment and performance of the Obligations.
Upon making the filings described in the immediately following paragraph, all security
interests created hereunder in any Collateral which may be perfected by filing Uniform
Commercial Code financing statements shall have been duly perfected. Except for the filing
of the Uniform Commercial Code financing statements referred to in the immediately
following paragraph, the recordation of the Intellectual Property Security Agreement (as
defined below) with respect to copyrights and copyright applications in the United States
Copyright Office referred to in paragraph (m), the execution and delivery of deposit
account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC
with respect to each deposit account of the Debtor, and the delivery of the certificates
and other instruments provided in Section 3, no action is necessary to create, perfect or
protect the security interests created hereunder. Without limiting the generality of the
foregoing, except for the filing of said financing statements, the recordation of said
Intellectual Property Security Agreement, and the execution and delivery of said deposit
account control agreements, no consent of any third parties and no authorization, approval
or other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the execution, delivery and performance of this
Agreement, (ii) the creation or perfection of the Security Interests created hereunder in
the Collateral or (iii) the enforcement of the rights of the Secured Parties hereunder.

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

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

     (i) The capital stock and other equity interests listed on Schedule H hereto represent
all capital stock and other equity interests owned, directly or indirectly, by the Company.
All of the Pledged Securities are validly issued, fully paid and nonassessable, and the
Company is the legal and beneficial owner of the Pledged Securities, free and clear of any
lien, security interest or other

7

 

encumbrance except for the security interests created by this Agreement and other
Permitted Liens (as defined in the Debenture).

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

     (k) Debtor shall at all times maintain the liens and Security Interest provided for
hereunder as valid and perfected first priority liens and security interests in the
Collateral in favor of the Secured Parties until this Agreement and the Security Interest
hereunder shall be terminated pursuant to Section 11 hereof. Debtor hereby agrees to
defend the same against the claims of any and all persons and entities. Debtor shall
safeguard and protect all Collateral for the account of the Secured Parties. At the
request of the Secured Parties, Debtor will sign and deliver to the Secured Parties at any
time or from time to time one or more financing statements pursuant to the UCC in form
reasonably satisfactory to the Secured Parties and will pay the cost of filing the same in
all public offices wherever filing is, or is deemed by the Secured Parties to be, necessary
or desirable to effect the rights and obligations provided for herein. Without limiting the
generality of the foregoing, Debtor shall pay all fees, taxes and other amounts necessary
to maintain the Collateral and the Security Interest hereunder, and Debtor shall obtain and
furnish to the Secured Parties from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain the priority of the
Security Interest hereunder.

     (l) Debtor will not transfer, pledge, hypothecate, encumber, license, sell or
otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by
Debtor in its ordinary course of business and sales of inventory by Debtor in its ordinary
course of business) without the prior written consent of a Majority in Interest.

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

     (n) Debtor shall maintain with financially sound and reputable insurers, insurance
with respect to the Collateral against loss or damage of the kinds and in the amounts
customarily insured against by entities of established reputation having similar properties
similarly situated and in such amounts as are customarily carried under similar
circumstances by other such entities and otherwise as is prudent for entities engaged in
similar businesses but in any event sufficient to cover the full replacement cost thereof.
Debtor shall cause each insurance policy issued in connection herewith to provide, and the
insurer issuing

8

 

such policy to certify to the Agent that (a) the Agent will be named as lender loss payee
and additional insured under each such insurance policy; (b) if such insurance be proposed
to be cancelled or materially changed for any reason whatsoever, such insurer will promptly
notify the Agent and such cancellation or change shall not be effective as to the Agent for
at least thirty (30) days after receipt by the Agent of such notice, unless the effect of
such change is to extend or increase coverage under the policy; and (c) the Agent will have
the right (but no obligation) at its election to remedy any default in the payment of
premiums within thirty (30) days of notice from the insurer of such default. If no Event
of Default (as defined in the Debenture) exists and if the proceeds arising out of any
claim or series of related claims do not exceed $100,000, loss payments in each instance
will be applied by the Debtor to the repair and/or replacement of property with respect to
which the loss was incurred to the extent reasonably feasible, and any loss payments or the
balance thereof remaining, to the extent not so applied, shall be payable to the Debtor,
provided, however, that payments received by Debtor after an Event of Default occurs and is
continuing or in excess of $100,000 for any occurrence or series of related occurrences
shall be paid to the Agent and, if received by Debtor, shall be held in trust for and
immediately paid over to the Agent unless otherwise directed in writing by the Agent.
Copies of such policies or the related certificates, in each case, naming the Agent as
lender loss payee and additional insured shall be delivered to the Agent at least annually
and at the time any new policy of insurance is issued.

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

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

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

9

 

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

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

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

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

     (v) Debtor will not change its name, type of organization, jurisdiction of
organization, organizational identification number (if it has one), legal or corporate
structure, or identity, or add any new fictitious name unless it provides at least 30 days
prior written notice to the Secured Parties of such change and, at the time of such written
notification, Debtor provides any financing statements or fixture filings necessary to
perfect and continue perfected the perfected first priority Security Interest granted and
evidenced by this Agreement.

     (w) Debtor may not consign any of its Inventory or sell any of its Inventory on bill
and hold, sale or return, sale on approval, or other conditional terms of sale without the
consent of a Majority in Interest which shall not be unreasonably withheld, except to the
extent such consignment or sale does not exceed 15% of the total value of all of the
Company’s finished goods in Inventory; provided, the Company may consign inventory to a
contract manufacturer from whom the Company intends to purchased finished products
incorporating such consigned Inventory.

     (x) Debtor may not relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to the Secured Parties and so long as,
at the time of such written notification, Debtor provides any financing statements or
fixture filings necessary to perfect and continue perfected the perfected first priority
Security Interest granted and evidenced by this Agreement.

     (y) Debtor was organized and remains organized solely under the laws of the state set
forth next to Debtor’s name in the first paragraph of this Agreement. Schedule D
attached hereto sets forth Debtor’s organizational

10

 

identification number or, if Debtor does not have one, states that one does not exist.

     (z) (i) The actual name of Debtor is the name set forth in the preamble above; (ii)
Debtor has no trade names except as set forth on Schedule E attached hereto; (iii) Debtor
has not used any name other than that stated in the preamble hereto or as set forth on
Schedule E for the preceding five years; and (iv) no entity has merged into Debtor or been
acquired by Debtor within the past five years except as set forth on Schedule E.

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

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

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

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

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

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

11

 

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

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

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

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

     (kk) Debtor shall register the pledge of the applicable Pledged Securities on its
books. Debtor shall notify each issuer of Pledged Securities to register the pledge of the
applicable Pledged Securities in the name of the Secured Parties on the books of such
issuer. Further, except with respect to certificated securities delivered to the Agent,
Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall
comply with the requirements of the relevant UCC with respect to perfection by
registration) signed by the issuer of the applicable Pledged Securities, which
acknowledgement

12

 

shall confirm that: (a) it has registered the pledge on its books and records; and (b)
at any time directed by Agent during the continuation of an Event of Default, such issuer
will transfer the record ownership of such Pledged Securities into the name of any designee
of Agent, will take such steps as may be necessary to effect the transfer, and will comply
with all other instructions of Agent regarding such Pledged Securities without the further
consent of the Debtor.

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

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

     (nn) Debtor will from time to time, at its own cost and expense, promptly execute and
deliver all such further instruments and documents, and take all such further action as may
be necessary or desirable, or as the Secured Parties may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted hereby or to
enable the Secured Parties to exercise and enforce their rights and remedies hereunder and
with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

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

13

 

Trademark Office and all material copyrights of the Debtor has been duly recorded at
the United States Copyright Office.

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

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

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

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

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

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

     (d) If any provision of this Agreement shall at any time for any reason be declared
to be null and void, or the validity or enforceability thereof shall be contested by
Debtor, or a proceeding shall be commenced by Debtor, or by any governmental authority
having jurisdiction over Debtor, seeking to establish the invalidity or unenforceability
thereof, or Debtor shall deny that Debtor has any liability or obligation purported to be
created under this Agreement.

     7. Duty To Hold In Trust.

     (a) Upon the occurrence of any Event of Default and at any time thereafter, Debtor
shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the
Security Interest, whether payable pursuant to the Debenture or otherwise, or of any check,
draft, note, trade acceptance or other instrument evidencing an obligation to pay any such
sum, hold the same in trust

14

 

for the Secured Parties and shall forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Parties, pro-rata in proportion to their initial
purchases of Debentures for application to the satisfaction of the Obligations (and if any
Debenture is not outstanding, pro-rata in proportion to the initial purchases of the
remaining Debentures).

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

     8. Rights and Remedies Upon Default.

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

     (i) The Secured Parties shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and assistance of any person,
any premises where the Collateral, or any part thereof, is or may be placed and
remove the same, and Debtor shall assemble the Collateral and make it available to
the Secured Parties at places which the Secured Parties shall reasonably select,
whether at Debtor’s premises or elsewhere, and make available to the Secured
Parties, without rent, all of Debtor’s premises and facilities for the purpose of
the Secured Parties taking possession of, removing or putting the Collateral in
saleable or disposable form.

     (ii) Upon notice to the Debtor by Agent, all rights of Debtor to exercise the
voting and other consensual rights which it would otherwise be entitled to exercise
and all rights of Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall

15

 

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

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

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

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

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

16

 

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

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

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

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

17

 

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

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

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

18

 

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

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

     15. Power of Attorney; Further Assurances.

     (a) Debtor authorizes the Secured Parties, and does hereby make, constitute and
appoint the Secured Parties and their respective officers, agents, successors or assigns
with full power of substitution, as Debtor’s true and lawful attorney-in-fact, with power,
in the name of the various Secured Parties or Debtor,

19

 

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

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

     (c) Debtor hereby irrevocably appoints the Secured Parties as Debtor’s
attorney-in-fact, with full authority in the place and instead of Debtor and in the name of
Debtor, from time to time in the Secured Parties’ discretion, to take any action and to
execute any instrument which the Secured Parties may deem necessary or advisable to
accomplish the purposes of this Agreement, including

20

 

the filing, in its sole discretion, of one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral without the signature
of Debtor where permitted by law, which financing statements may (but need not) describe
the Collateral as “all assets” or “all personal property” or words of like import, and
ratifies all such actions taken by the Secured Parties. This power of attorney is coupled
with an interest and shall be irrevocable for the term of this Agreement and thereafter as
long as any of the Obligations shall be outstanding.

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

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

   18. Appointment
of Agent. The Secured Parties hereby appoint Regenmacher Holdings, Ltd. to act as
their agent (“Agent”) for purposes of exercising any and all rights and remedies of the
Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority
in Interest, at which time a Majority in Interest shall appoint a new
Agent; provided, that Regenmacher Holdings, Ltd. may not be removed
as Agent unless  Regenmacher Holdings, Ltd. shall then hold less than
$100,000 principal amount of Debentures.; provided further that such removal may occur only if
each of the other Secured Parties shall then hold not less than
$100,000 principal amount of
Debentures. The Agent shall have the rights, responsibilities and immunities set forth in
Annex B hereto.

     19.  Miscellaneous.

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

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

21

 

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

     (d) In the event any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason, unless such provision is narrowed by
judicial construction, this Agreement shall, as to such jurisdiction, be construed as if
such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not
to be invalid, prohibited or unenforceable. If, notwithstanding the foregoing, any
provision of this Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent
of such invalidity, prohibition or unenforceability without invalidating the remaining
portion of such provision or the other provisions of this Agreement and without affecting
the validity or enforceability of such provision or the other provisions of this Agreement
in any other jurisdiction.

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

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

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

     (h) All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Debtor agrees that all proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement
and the Debenture (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York,
Borough of Manhattan. Debtor hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and

22

 

agrees not to assert in any proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such proceeding is improper. Each party hereto
hereby irrevocably waives personal service of process and consents to process being served
in any such proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If any party shall commence a proceeding
to enforce any provisions of this Agreement, then the prevailing party in such proceeding
shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of such
proceeding.

     (i) This Agreement may be executed in any number of counterparts, each of which when
so executed shall be deemed to be an original and, all of which taken together shall
constitute one and the same Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding obligation of the party
executing (or on whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof.

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

     (k) Nothing in this Agreement shall be construed to subject Agent or any Secured Party
to liability as a partner in Debtor or any if its direct or indirect subsidiaries that is a
partnership or as a member in Debtor or any of its direct or indirect subsidiaries that is
a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed
any obligations under any partnership

23

 

agreement or limited liability company agreement, as applicable, of Debtor or any if
its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party
exercises its right to be substituted for Debtor as a partner or member, as applicable,
pursuant hereto.

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

[SIGNATURE PAGES FOLLOW]

24

 

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

	 	 	 	 	 
	 	BRILLIAN CORPORATION

 	 
	 	By:  	/s/ Wayne Pratt
 	 
	 	 	Name:  	Wayne Pratt 	 
	 	 	Title:  	Vice President and Chief Executive Officer 	 
	 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

25

 

[SIGNATURE PAGE OF HOLDERS TO BRLC SA]

Name of Investing Entity: Regenmacher Holdings Ltd.

Signature of Authorized Signatory of Investing entity: /s/ Jonathan P. Knight

Name of Authorized Signatory: Jonathan P. Knight

Title of Authorized Signatory: President

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

26

 

ANNEX A

to

SECURITY

AGREEMENT

FORM OF ADDITIONAL DEBTOR JOINDER

Security Agreement dated as
of April 18, 2005 made by

Brillian Corporation

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

to and in favor of

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

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

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

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

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

27

 

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

[Name of Additional Debtor]

By:

Name:

Title:

Address:

Dated:

28

 

ANNEX B

to

SECURITY

AGREEMENT

THE AGENT

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

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

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

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Secured Party for any recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith, or for the execution,
effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or
sufficiency of the Agreement or any other Transaction Document, or for the financial condition of
the Debtor or the value of any of the Collateral, or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or conditions of the Agreement
or any other Transaction Document, or the financial condition of the Debtor, or the value of any of
the Collateral, or the existence or possible existence of any default or Event of Default under the
Agreement, the Debentures or any of the other Transaction Documents.

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

          5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying,
upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, radiogram, order or other document or telephone message signed, sent or made by
the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and
the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it
and upon all other matters pertaining to this Agreement and the other Transaction Documents and its
duties thereunder, upon advice of other experts selected by it.

          6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the
Debtor, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in
proportion to their initially purchased respective principal amounts of Debentures, from and
against any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any

30

 

kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in
performing its duties hereunder or under the Agreement or any other Transaction Document, or in any
way relating to or arising out of the Agreement or any other Transaction Document except for those
determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction
to have resulted solely from the Agent’s own gross negligence or willful misconduct. Prior to
taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it
sufficient sums as it determines in good faith is necessary to protect the Agent for costs and
expenses associated with taking such action.

          7. Resignation by the Agent.

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

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

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

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

31

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