Document:

f8k041014ex10i_yappncorp.htm

Exhibit 10.1

 

LOAN AGREEMENT

 

THIS AGREEMENT made the 7th day of April, 2014.

B E T W E E N:

TORONTO TREE TOP HOLDINGS LTD.

(hereinafter called the “Lender”)

OF THE FIRST PART;

- and -

YAPPN CORP.

a corporation incorporated under the laws

of the State of Delaware;

(hereinafter collectively called the “Borrower”)

 OF THE SECOND PART.

 

WHEREAS the Borrower has applied to the Lender for a loan of up to $3,000,000.00 US (collectively, the “Loan”);

 

AND WHEREAS the Lender has agreed to make the Loan available to the Borrower in accordance with the terms of a term sheet (the “Term Sheet”) dated February 26, 2014 and accepted by the Borrower and in accordance with the terms and conditions of this Agreement;

 

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual covenants, agreements and representations hereinafter set forth, the sum of two ($2.00) dollars now paid by each party (the receipt and sufficiency whereof are hereby acknowledged) and other good and valuable consideration, the parties agree as follows:

ARTICLE 1

RECITALS

 

1.1                         The parties hereto acknowledge and agree that the recitals to this Agreement are true and correct in substance and in fact and are incorporated herein by reference and form an integral part hereof.

  

  

  

 

ARTICLE 2

DISBURSEMENT

2.1                         No funds shall be disbursed by the Lender pursuant to this Agreement unless and until the Lender is satisfied that the Lender has obtained and continues to hold valid security against the Borrower.

ARTICLE 3

NOTE

3.1                           Note

 

The indebtedness (the “Indebtedness”) of the Borrower to the Lender from time to time shall be evidenced by the promissory notes (the “Notes”) of the Borrower substantially in the form of promissory note annexed hereto as Schedule “A”.

ARTICLE 4

INTEREST AND REPAYMENT

4.1                           Interest Rate

	
  

	
(a)

	
Interest, at 12% shall be payable on the principal amounts outstanding from time to time pursuant to the Loan and shall be calculated from and after the date of advance, as well after as before maturity, default and/or judgement, with interest on overdue interest calculated at the same rate and in the same manner as provided in this Section until paid.  Interest payments shall be due on the last day of each month.

4.2                           Direction

 

The Borrower hereby irrevocably authorizes and directs the Lender to deduct all legal fees, disbursements and GST incurred by Lender in connection with this Agreement and the Security (as hereinafter defined) directly from the initial disbursement of the Loan.

	
4.3

	
Term

 

The Loan shall be for an initial term of 2 years subject to the Lender’s right to demand payment as specified in this Loan Agreement.

	
4.4

	
Renewal

	
  

	
(a)

	
The term may be renewed for 3 one year terms with the consent of both parties hereto and provided that the Borrower is not then in default;

	
  

	
(b)

	
Either party may terminate this Agreement upon notice in writing to the other party 60 days prior to the expiry of the initial term or any renewal term.

 

  

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4.5

	
Repayment

 

The principal balance of the Loan shall revolve and the Borrower may repay and reborrow the Loan at any time upon notice to the Lender and provide that the Borrower is not then in default pursuant to this Agreement.

 

4.6                           Repayment of Loan on Demand

 

The Borrower covenants, acknowledges and agrees that the outstanding principal balance of its indebtedness to the Lender from time to time, together with all accrued but unpaid interest thereon, will be repayable to the Lender, without any deduction or abatement whatsoever, on demand. Notwithstanding the foregoing, except in the event of default the Lender shall provide the Borrower with 45 days notice of demand.

ARTICLE 5

FEES AND WARRANTY

5.1                           Fees

	
  

	
(a)

	
The following fees shall be payable by the Borrower to the Lender:

	
  

	
(i)

	
an arrangement fee of $60,000.00 US payable from the first disbursement of the Loan; and

	
  

	
(ii)

	
a draw down fee of 1% shall be payable on each draw down of the Loan.

	
5.2

	
Warrants

	
  

	
(a)

	

As a material inducement to the Lender entering into this Agreement and making the Loan to the Borrower, the Borrower covenants and agrees to provide the Lender with up to 8,000,000 warrants to acquire shares in the capital of the Borrower at $0.10 US per share for a period of 5 years from the date each warrant is issued to the Lender.

 

	
  

	
(i)

	
2,000,000 warrants shall be issued with the first draw down of $200,000.00 of the Loan;

	
  

	
(ii)

	
1,000,000 warrants shall be issued with each subsequent $100,000.00 draw down on pursuant to the Loan.

	
  

	
(b)

	

The warrants shall be issued in accordance with all applicable securities laws and in form satisfactory to the Lender and its solicitors.

  

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ARTICLE 6

SECURITY AND SUBORDINATION

 

6.1                           Security

 

As security for all Indebtedness of the Borrower pursuant to this Agreement, the Borrower shall deliver or cause to be delivered to the Lender on or before the date hereof the following documents:

	
  

	
(a)

	
the Note;

	
  

	
(b)

	
a general security agreement constituting a valid first security interest and first charge on all of the assets and undertaking of the Borrower of whatsoever nature or kind;

	
  

	
(c)

	
a general assignment of accounts receivable;

	
  

	
(d)

	
an unlimited guarantee and postponement of claim from each of Intertainment Media Inc. and Yappn Canada Inc. supported by general security agreements constituting a valid first security interest and first charge on all of the assets and undertakings of Yappn Canada Inc. and a second security interest on all of the assets and undertaking of Intertainment Media Inc., subject only to debentures not to exceed $3,215,000;

(e)            satisfactory legal opinions from Borrower’s solicitors; and

(f)            such other documents as the Lender shall specify or require from time to time.

The security set out above in this Section 6.1 is herein called the “Security” and the property, assets and undertaking charged by all or part of the Security is referred to as the “Charged Property”.

6.2                           Subordination

 

Notwithstanding the date, manner or order of grant, attachment or perfection of any security granted to the Lender, the Lender hereby agrees to subordinate its security in favour of the holders of convertible debentures of Intertainment Media Inc., up to a maximum of $3,215,000.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES

7.1                           Representation and Warranties of the Borrower

To induce the Lender to enter into this Agreement, the Borrower hereby makes the following representations and warranties to the Lender which shall survive the execution and delivery of this Agreement, the Note and the Security:

	
  

	
(a)

	
it has full power, authority and capacity to borrow in the manner and on the terms and conditions set out in this Agreement and in the Term Sheet and it has full power, authority and capacity to execute and deliver this Agreement, the Note and the Security;

	
  

	
(b)

	
all necessary action of the directors and shareholders of the Borrower has been taken to authorize the execution and delivery of this Agreement, the Note and the Security, and to observe and perform the provisions of same in accordance with their respective terms;

 

  

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(c)

	
this Agreement, the Note and the Security have been duly authorized, executed and delivered by and the Borrower has received valuable consideration from the Lender with respect thereto;

	
  

	
(d)

	
the Borrower is not in nor will the execution of this Agreement, the Note or the Security constitute a violation of any term of its constating documents or any term of any agreement, mortgage, lease, franchise, licence, judgment, decree, order, statute, rule, regulation or by-law which violation will materially adversely affect or involve a reasonable possibility of a material adverse change in the condition, business, assets or operations of the Borrower, financial or otherwise, or the ability of the Borrower to enter into and perform its obligations under this Agreement, the Note and the Security;

	
  

	
(e)

	
it is a corporation incorporated and organized and is validly subsisting under the laws of the State of Delaware, is up to date in all filings required under the legislation of that State of Delaware.  The Borrower is a reporting issuer in the United States.  Its shares are listed for trading on the Bullets Board of NASDQ.  The Borrower is up to date with all of its filings with all securities regulatory authorities in the United States and is not subject to any cease trading order;

	
  

	
(f)

	
there are no actions, suits or proceedings to its actual knowledge, pending against or involving it at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind; and

	
  

	
(g)

	
all information furnished by it to the Lender to induce the Lender to enter into this Agreement is true and accurate in all material respects and there is no fact known to the Borrower and not disclosed to the Lender which materially adversely affects or in the future may materially adversely affect the properties, business, prospects or financial condition of the Borrower or its ability to perform its obligations under this Agreement, the Note and the Security.

 

  

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7.2                           Survival of Representations and Warranties

 

The representations and warranties made by the Borrower in Section 7.1 shall survive the execution and delivery of this Agreement and shall continue in full force and effect until all sums owing hereunder are paid in full notwithstanding any investigation made at any time by or on behalf of the Lender.  The Borrower shall notify the Lender promptly of any material changes to any aspects of the representations and warranties in Section 7.1.

 

7.3                           Representations and Warranties of the Lender.

To induce the Borrower to enter into this Agreement, the Lender hereby makes the following representations and warranties to the  Borrower which shall survive the execution and delivery of this Agreement, the Note and the Security:

(a)     Authorization.  The execution, delivery and performance by the Lender of this Agreement  have been duly authorized and will each constitute the valid and legally binding obligation of the Lender, enforceable against such Lender in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally;

(b)      Purchase Entirely for Own Account.   The Warrant to be received by the Lender pursuant to this Agreement  (and the shares of common stock of the Borrower issuable upon exercise of the Warrant) will be acquired for such Lender’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, of 1933, as amended (the “Securities Act”) and such Lender has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act, without prejudice, however, to such Lender’s right at all times to sell or otherwise dispose of all or any part of such Warrant (or shares issuable upon exercise of the Warrant)  in compliance with applicable federal and state securities laws.  The Lender is not a broker-dealer registered with the Securities and Exchange Commission under the Exchange Act of 1933, as amended or an entity engaged in a business that would require it to be so registered.

(c)      Investment Experience.  Such Lender acknowledges that the purchase of the Warrant  (and the shares issuable upon exercise of the Warrant) is a highly speculative investment and that it can bear the economic risk and complete loss of its investment in the Warrant (and/or shares issuable upon exercise of the Warrant)  and has such knowledge and experience in financial or business matters such that it is capable of evaluating the merits and risks of the investment contemplated hereby.

(d)      Disclosure of Information.  The Lender has had an opportunity to receive all information related to the Borrower and the Warrant  requested by it and to ask questions of and receive answers from the Borrower regarding the Borrower, its business and the terms and conditions of the offering of the Warrant.

 

  

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(e)      Restricted Securities.  The Lender understands that the Warrant and the shares of common stock issuable upon exercise of the Warrants are characterized as “restricted securities” under the U.S. federal securities laws since they are being acquired from the Borrower in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances.

(f)       Legends.  It is understood that, except as provided below, certificates evidencing the Warrant and the shares of common stock issuable upon exercise of the Warrant will bear the following or any similar legend:

 

(i)       “The securities represented hereby may not be transferred unless (i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended (the “Securities Act”) (ii) such securities may be sold pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, or (iii) Yappn Corp.  has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws.”

 

(ii)      If required by the authorities of any state in connection with the issuance of sale of the Warrants (and exercise of the shares of common stock  issuable upon exercise of the Warrant).

 

(g)       Accredited Investor.    The Lender is an accredited investor as defined in Rule 501(a) of Regulation D, as amended under the Securities Act.

(h)      No Solicitation. The Lender did not learn about the Warrant as a result of any public advertising or general solicitation.

ARTICLE 8

COVENANTS

8.1                        Until all obligations of the Borrower to the Lender herein been fully satisfied, the Borrower shall:

(a)           Payment of Obligation to the Lender

	
  

	
Duly and punctually pay to the Lender all amounts payable by it hereunder or under the Term Sheet as and when the same shall become due;

(b)           Payment of Taxes, etc.

	
  

	
Pay and discharge, before the same shall become delinquent, all taxes, assessments and governmental charges or levies imposed upon it or upon the Charged Assets, income or profit and any and all Governmental claims imposed upon it;

 

  

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(c)           Maintenance of Insurance

	
  

	
Maintain such insurance with responsible and reputable insurance companies covering such risks, in such amounts and on such terms as are commonly insured against in the Province of Ontario to the full insurable value thereof as the Lender shall from time to time reasonably require and pay when due, all premiums required therefor.  The Borrower shall on request promptly furnish or cause to be furnished to the Lender evidence of the maintenance of all such insurance satisfactory to the Lender and deliver to the Lender certified copies of the insurance policies required hereunder;

(d)           Maintain its Status

	
  

	
Maintain its Status as a reporting issuer in the United States and make all prescribed filing with applicable securities regulatory authority in the United States,

(e)           Preservation of Corporate Existence, etc.

	
  

	
Preserve and maintain its corporate existence and rights;

 

(f)            Compliance with Laws, etc.

	
  

	
Comply, and cause its operations upon all lands to comply, in all material respects, with all applicable laws, regulations and orders.

(g)           Disclosure and Access

Provide the Lender with full, complete and timely disclosure of all material matters pertaining to its business, financial condition and the Charged Property and at any reasonable time or times during normal business hours and subject to 24 hour prior notice, permit the Lender and its representatives access to the premises of the Borrower to inspect or to appraise the Charged Property (including the books and records of the Borrower and to make extracts therefrom) of the Borrower and to discuss the affairs, finances and accounts of the Borrower with the officer appointed as (or performing the functions of) the chief financial officer thereof or any person performing a similar function, and permit such representatives to discuss the affairs, finances and accounts of the Borrower with the Lender and such representatives;

(h)           Keeping Books

	
  

	
Keep proper books of record and account in which full and correct entries shall be made of all financial transactions, assets and business of the Borrower in accordance with GAAP;

 

  

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(i)           Reporting Requirements

	
  

	
 Furnish to the Lender:

	
  

	
(i)

	
annually, as soon as available and in any event within 90 days after the end of each fiscal year annual financial statements of the Borrower and each corporate guarantor for such fiscal year, consisting of balance sheets, statements of income and retained earnings and cash flow setting forth the corresponding figures of the previous fiscal year in comparative form, together with the unqualified opinion of the auditors thereon; and

 

	
  

	
(ii)

	
immediately upon demand by the Lender such other information respecting the business and affairs, financial or otherwise of the Borrower and each corporate guarantor, or the Charged Property, as the Lender requires including, without in any way limiting the generality of the foregoing:

	
  

	
 

	
(A)  bank statements;

	
  

	
 

	
(B)   bank reconciliations;

 

	
  

	
 

	
(C)  trial balances;

	
  

	
 

	
(D)  cheque registers and

	
  

	
 

	
(E)   of the Borrower’s cancelled cheques.

(j)           Hazardous Substances

	
  

	
Indemnify and hold the Lender harmless from and against any and all loss, fine, penalty, liability, damages and expense, including legal fees, suffered or incurred by the Lender, as a result of the disposal, storage, release or threat of release on any property of the Borrower of any substance regulated under any environmental law;

 

ARTICLE 9

EVENTS OF DEFAULT

9.1                           Events of Default

Each of the following events shall constitute an event of default (an “Event of Default” or “Default”) under this Agreement:

	
  

	
(a)

	
the non-payment of any principal, interest or other amount payable hereunder or pursuant to the Term Sheet when due; or

 

  

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(b)

	
the commencement of proceedings for the dissolution, liquidation or winding-up of the Borrower or for the suspension of the operations of the Borrower, unless, in the opinion of the Lender, acting reasonably, the same is being actively and diligently contested by the Borrower in good faith by appropriate and timely proceedings; or

	
  

	
(c)

	
if the Borrower ceases carrying on its business or makes a bulk sale of substantially all of its assets or if the Borrower is adjudged or declared bankrupt or insolvent or makes an assignment for the benefit of creditors, petitions or applies or allows the petition or application to any tribunal for the appointment of a receiver or trustee for it, or commences any proceedings relating to it under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction whether now or hereafter in effect, or by any act indicates its consent to, approval of, or acquiescence in, any such proceeding commenced against it, or suffers the appointment of any such receiver or trustee; or

	
  

	
(d)

	
if any representation or warranty made in this Agreement or in any instrument, certificate or letter furnished pursuant hereto by the Borrower or in any information furnished in writing to the Lender by the Borrower in contemplation of this Agreement is incorrect or misleading in any material respect; or

 

	
  

	
(e)

	
if a writ, execution or attachment or similar process is issued or levied against all or substantially all of the property of the Borrower and such writ, execution, attachment or similar process is not released, bonded, satisfied, discharged, vacated or stayed within 10 days after the Borrower becomes aware of its entry, commencement or levy; or

	
  

	
(f)

	
if an encumbrancer or lien holder takes possession of substantially all of the property of the Borrower, including without limitation the Charged Property or a part thereof, or if execution or other similar process is enforced against such property and remains unsatisfied for such period as would permit such property to be sold thereunder, less 5 Business Days;

	
  

	
(g)

	
if, in the opinion of the Lender, there is a material adverse change in the business, affairs or assets of the Borrower.  A material adverse change will include, without limitation, significant or unexplained variances from financial projections submitted to the Lender by the Borrower from time to time; or

	
  

	
(h)

	
the events of default set forth in paragraphs 9.1 (a) to (g) shall apply mutatis, mutandis to the corporate guarantors, except that the disposition by Intertainment Media Inc. of its subsidiary, Ortbo Inc., by sale, exclusive licence or otherwise, with the consent of the Lender, not to be unreasonably withheld, shall not be considered an event of default hereunder.

 

  

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9.2                           Remedies Cumulative

	
  

	
(a)

	
For greater certainty, it is expressly understood and agreed that the rights and remedies of the Lender under this Agreement, the Note and the Security are cumulative and are in addition to and not in substitution for any rights or remedies provided by law.

	
  

	
(b)

	
Further it is acknowledged that the Lender will have on Default the right to appoint a receiver and/or receiver and manager for the Borrower and shall be entitled to all of the rights and remedies of a Secured Party pursuant to the Personal Property Security Act (Ontario) and under the applicable provisions of the Uniform Commercial Code.

	
  

	
(c)

	
At any time, after default pursuant to this Agreement, which is not cured within 10 days following receipt or deemed receipt of notice of default the Lender may appoint a monitor for the Borrower at the Borrower’s sole cost and expense and for such purposes as the Lender may reasonably require.

 

ARTICLE 10

MISCELLANEOUS

10.1                         Expenses and Indemnity

 

The Borrower agrees to indemnify and save harmless the Lender against any loss, expense, liability or claim which the Lender may sustain or incur as a consequence of (i) the exercise by the Lender of its rights and remedies hereunder or any of the instruments and documents comprising the Security, or (ii) any Default by the Borrower hereunder.  This provision shall survive the repayment of the Indebtedness and shall continue in full force and effect so long as the possibility of any such liability, claim or loss exists.

10.2                         Governing Law

 

This Agreement and all documents issued pursuant to it shall be construed in accordance with and governed by the laws of the Province of Ontario and of Canada applicable therein.  Each of the parties hereto expressly attorns to the jurisdiction of the Courts of Ontario to determine  all issues,  whether at  law  or in  equity,  arising from  this Agreement,  the  Note or  the

Security.

 

  

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10.3                         Successors and Assigns

 

All covenants, agreements, representations and warranties made herein or in certificates delivered in connection herewith by or on behalf of the Borrower shall survive the advance of funds herein, the issue and delivery of the Note and the Security, and shall continue in full force and effect so long as the Indebtedness or any part thereof is outstanding and unpaid, and shall bind and enure to the benefit of the successors and permitted assigns of the Borrower, whether so expressed or not, and all such covenants, agreements and representations and warranties shall enure to the benefit of the Lender’s successors and assigns.

10.4                         Notices

 

Any notice or other communication which may be or is required to be given or made pursuant to this Agreement shall be deemed to have been sufficiently and effectively given if signed by or on behalf of the party giving notice and sent by personal service or prepaid registered mail or transmitted by telex, telecopier or other form of recorded communication tested prior to transmission to the party for which it is intended at its or their address as follows:

 

if to the Lender:           c/o 73 Richmond Street West, Suite PH3

                      Toronto, Ontario  M5H 1Z4

if to the Borrower:       1001 Avenue of the Americas

                                                                       New York, New York     10018

 

Any notice or communication which may or is required to be given or made shall be made or given as herein provided or to such other address or in care of such other officer as a party may from time to time advise to the other party hereto by notice in writing as aforesaid.  The date of receipt of any such notice shall be the date of delivery of such notice if delivered, or shall be deemed to be the third Business Day following the date of mailing, if mailed as aforesaid.  Any notice transmitted by telecopier or other form of recorded communication will be deemed given and received on the first business day after its transmission.

 

If a notice is mailed and regular mail service is interrupted by strike or other irregularity on or before the third business day after the mailing thereof, such notice will be deemed to have not been received unless otherwise personally delivered or transmitted by telex, telecopier or other form of recorded communication.

10.5                         Amendment

 

No provision of this Agreement or the documents collateral hereto may be changed, modified or amended other than by an agreement in writing signed by the parties thereto.

 

  

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10.6                         Time

 

Time is of the essence of this Agreement.

10.7                         Assignment

 

This Agreement and all documents and agreements delivered pursuant hereto and all its provisions shall enure to the benefit of the Lender, its successors and assigns, and shall be binding upon the Borrower and its successors and assigns.  The Borrower shall not assign any of its rights or obligations under this Agreement.  The Lender may at any time or from time to time sell, assign, transfer or grant an interest in the whole or any part of its obligations and rights hereunder to any other person provided that the Borrower shall not as a result thereof incur any obligation to pay increased amounts pursuant to this Agreement which it would not otherwise have been obliged to pay pursuant to this Agreement had such sale, assignment or transfer not been made.

10.8                         Counterparts & Facsimile

 

This Agreement and any document or agreement delivered in connection herewith or contemplated herein may be executed in counterparts.  A facsimile counterpart of this Agreement or any document or agreement delivered pursuant hereto shall be fully effective for all purposes and binding on all parties hereto.

 

{The remainder of the page was intentionally left blank}

 

  

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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written.

	  	
YAPPN CORP.

	  	  	  
	  	
Per:

	/s/  David Lucatch
	  	  	
Name:  David Lucatch – A. S. O.

	  	  	  
	  	
TORONTO TREE TOP HOLDINGS LTD.

	  	  	  
	  	
Per:

	/s/ Simon Yakubowicz  
	  	  	
Name: Simon Yakubowicz – A. S. O.

 

We agree to be bound by this Loan Agreement and to provide the security set forth therein to be provided by us.

Dated this 7th day of April, 2014.

	  	
INTERTAINMENT MEDIA INC.

	  	  	  
	  	
Per:

	/s/  David Lucatch
	  	  	
Name:  David Lucatch – A. S. O.

	  	  	  
	  	
YAPPN CANADA INC.

	  	  	  
	  	
Per:

	/s/  David Lucatch
	  	  	
Name: David Lucatch – A. S. O.

 

 

14f8k041014ex10ii_yappncorp.htm

Exhibit 10.2

 

General Security Agreement

 

This General Security Agreement (the “Agreement”) is dated as of April 7, 2014, between Yappn Corp., a corporation (the “Debtor”), with its mailing address as set forth in Section 12(b) hereof, and Toronto Tree Top Holdings Ltd. (the “Secured Party”), with its mailing address as set forth in Section 12(b) hereof.

 

Preliminary Statement

 

A.  The Debtor has requested that the Secured Party from time to time extend credit or otherwise make financial accommodations available to or for the account of the Debtor.  

 

B.       As a condition to extending credit or otherwise making financial accommodations available to or for the account of the Debtor, the Secured Party requires, among other things, that the Debtor grant the Secured Party a security interest in the Debtor’s personal property described herein subject to the terms and conditions hereof.

 

Now, Therefore, in consideration of the benefits accruing to the Debtor, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

Section 1.   Grant of Security Interest.  The Debtor hereby grants to the Secured Party a lien on and security interest in, and acknowledges and agrees that the Secured Party has and shall continue to have a continuing lien on and security interest in, all right, title, and interest of the Debtor, whether now owned or existing or hereafter created, acquired, or arising, in and to all of the following: 

 

	 	
(a)

	
Accounts (including Health-Care-Insurance Receivables, if any);

 

	 	
(b)

	
Chattel Paper;

 

	 	
(c)

	
Instruments (including Promissory Notes);

 

	 	
(d)

	
Documents;

 

	 	
(e)

	
General Intangibles (including Payment Intangibles and Software, patents, trademarks, tradestyles, copyrights, and all other intellectual property rights, including all applications, registration, and licenses therefor, and all goodwill of the business connected therewith or represented thereby);

 

	 	
(f)

	
Letter-of-Credit Rights;

 

	 	
(g)

	
Supporting Obligations;

 

  

  

  

 

	 	
(h)

	
Deposit Accounts;

 

	 	
(i)

	
Investment Property (including certificated and uncertificated Securities, Securities Accounts, Security Entitlements, Commodity Accounts, and Commodity Contracts); 

 

	 	
(j)

	
Inventory;

 

	 	
(k)

	
Equipment (including all software, whether or not the same constitutes embedded software, used in the operation thereof);

 

	 	
(l)

	
Fixtures;

 

	 	
(m)

	
Commercial Tort Claims (as described on Schedule F hereto or on one or more supplements to this Agreement);

 

	 	
(n)

	
Rights to merchandise and other Goods (including rights to returned or repossessed Goods and rights of stoppage in transit) which is represented by, arises from, or relates to any of the foregoing;

 

	 	
(o) 

	
Monies, personal property, and interests in personal property of the Debtor of any kind or description now held by the Secured Party or at any time hereafter transferred or delivered to, or coming into the possession, custody, or control of, the Secured Party, or any agent or affiliate of the Secured Party, whether expressly as collateral security or for any other purpose (whether for safekeeping, custody, collection or otherwise), and all dividends and distributions on or other rights in connection with any such property;

 

	 	
(p)

	
Supporting evidence and documents relating to any of the above-described property, including, without limitation, computer programs, disks, tapes and related electronic data processing media, and all rights of the Debtor to retrieve the same from third parties, written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice copies, delivery receipts, notes, and other evidences of indebtedness, insurance certificates and the like, together with all books of account, ledgers, and cabinets in which the same are reflected or maintained;

 

	 	
(q)

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

 

	 	
(r)

	
Proceeds and products of the foregoing, and all insurance of the foregoing and proceeds thereof;

 

  

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all of the foregoing being herein sometimes referred to as the “Collateral”.   All terms which are used in this Agreement which are defined in the Uniform Commercial Code of the State of New York as in effect from time to time (“UCC”) shall have the same meanings herein as such terms are defined in the UCC, unless this Agreement shall otherwise specifically provide.  For purposes of this Agreement, (a) the term “Receivables” means all rights to the payment of a monetary  obligation, whether or not earned by performance, and whether evidenced by an Account, Chattel Paper, Instrument, General Intangible, or otherwise, and (b) the term “Subsidiary Interests” means all equity interests held by the Debtor in its subsidiaries, whether such equity interests constitute Investment Property or General Intangibles under the UCC, it being acknowledged and agreed that all Receivables and Subsidiary Interests constitute Collateral hereunder. 

 

Section 2.  Obligations Hereby Secured.  The lien and security interest herein granted and provided for is made and given to secure, and shall secure, the payment and performance of (a) any and all indebtedness, obligations and liabilities of whatsoever kind and nature of the Borrower to the Secured Party (including, without limitation, interest which but for the filing of a petition in bankruptcy with respect to the Borrower would accrue on such obligations), whether direct or indirect, absolute or contingent, due or to become due, and whether now existing or hereafter arising and howsoever held, evidenced or acquired, and whether several, joint or joint and several and (b) any and all expenses and charges, legal or otherwise, suffered or incurred by the Secured Party in collecting or enforcing any of such indebtedness, obligations or liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the foregoing being hereinafter referred to as the “Obligations”).  Notwithstanding anything in this Agreement to the contrary, (a) the right of recovery against the Debtor under this Agreement shall not exceed $1.00 less than the lowest amount which would render the Debtor’s obligations under this Agreement void or voidable under applicable law, including fraudulent conveyance law.

 

Section 3.    Covenants, Agreements, Representations and Warranties.  The Debtor hereby covenants and agrees with, and represents and warrants to, the Secured Party that:

 

(a)The Debtor is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its organization. The Debtor shall not change its jurisdiction of organization without the Secured Party’s prior written consent, which shall not be unreasonably withheld.  The Debtor is the sole and lawful owner of the Collateral, and has full right, power and authority to enter into this Security Agreement and to perform each and all of the matters and things herein provided for.  The execution and delivery of this Security Agreement, and the observance and performance of each of the matters and things herein set forth, will not (i) contravene or constitute a default under any provision of law or any judgment, injunction, order or decree binding upon the Debtor or any provision of the Debtor’s organizational documents (e.g., charter, articles or certificate of incorporation and by-laws, articles or certificate of formation and limited liability company operating agreement, partnership agreement, or similar organizational documents) or any covenant, indenture or agreement of or affecting the Debtor or any of its property or (ii) result in the creation or imposition of any lien or encumbrance on any property of the Debtor except for the lien and security interest granted to the Secured Party hereunder.

 

  

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(b)The Debtor’s chief executive office and principal place of business is at, and the Debtor keeps and shall keep all of its books and records relating to Receivables only at, 1001 Avenue of the Americas, 11th Floor, New York, New York 10018; and the Debtor has no other executive offices or places of business other than those listed under Item 1 on Schedule A.  The Collateral is and shall remain in the Debtor’s possession or control at the locations listed under Item 2 on Schedule A attached hereto (collectively, the “Permitted Collateral Locations”), except for (i) Collateral which in the ordinary course of the Debtor’s business is in transit between Permitted Collateral Locations and (ii) Collateral aggregating less than $50,000 in fair market value outstanding at any one time.  If for any reason any Collateral is at any time kept or located at a location other than a Permitted Collateral Location, the Secured Party shall nevertheless have and retain a lien on and security interest therein.  The Debtor owns and shall at all times own all Permitted Collateral Locations, except to the extent otherwise disclosed under Item 2 on Schedule A.  The Debtor shall not move its chief executive office or maintain a place of business at a location other than those specified under Item 1 on Schedule A or permit the Collateral to be located at a location other than those specified under Item 2 on Schedule A, in each case without first providing the Secured Party 30 days’ prior written notice of the Debtor’s intent to do so; provided that the Debtor shall at all times maintain its chief executive office and, unless otherwise specifically agreed to in writing by the Secured Party, Permitted Collateral Locations in the United States of America or Canada and, with respect to any new chief executive office or place of business or location of Collateral, the Debtor shall have taken all action requested by the Secured Party to maintain the lien and security interest of the Secured Party in the Collateral at all times fully perfected and in full force and effect.

 

(c)The Debtor’s legal name and jurisdiction of organization is correctly set forth in the first paragraph of this Agreement.  The Debtor has not transacted business at any time during the immediately preceding 5 year period, and does not currently transact business, under any other legal names or trade names other than the prior legal names and trade names (if any) set forth on Schedule B attached hereto.  The Debtor shall not change its legal name or transact business under any other trade name without first giving 30 days’ prior written notice of its intent to do so to the Secured Party.

 

(d)The Collateral and every part thereof is and shall be free and clear of all security interests, liens (including, without limitation, mechanics’, laborers’ and statutory liens), attachments, levies, and encumbrances of every kind, nature and description, whether voluntary or involuntary, except for the lien and security interest of the Secured Party therein.  The Debtor shall warrant and defend the Collateral against any claims and demands of all persons at any time claiming the same or any interest in the Collateral adverse to the Secured Party.

 

(e)The Debtor shall promptly pay when due all taxes, assessments and governmental charges and levies upon or against the Debtor or any of the Collateral, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings which prevent foreclosure or other realization upon any of the Collateral and preclude interference with the operation of the Debtor’s business in the ordinary course, and the Debtor shall have established adequate reserves therefor.

 

  

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 (f)       The Debtor shall not use, manufacture, sell, or distribute any Collateral in violation of any statute, ordinance, or other governmental requirement. The Debtor shall not waste or destroy the Collateral or any part thereof or be negligent in the care or use of any Collateral. The Debtor shall perform in all material respects its obligations under any contract or other agreement constituting part of the Collateral, it being understood and agreed that the Secured Party has no responsibility to perform such obligations.

 

(g)  Subject to Sections 4(b), 6(b), 6(c), and 7(c) hereof, the Debtor shall not, without the Secured Party’s prior written consent or in the ordinary course of Debtor’s business, sell, assign, mortgage, lease or otherwise dispose of the Collateral or any interest therein. Notwithstanding anything to the contrary herein, nothing in this Agreement shall prohibit or prevent the Debtor from creating, incurring or entering into a Permitted Lien (as hereinafter defined).  “Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Debtor have been established in accordance with GAAP,  (b) Liens imposed by law which were incurred in the ordinary course of the Debtors’ business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Debtor’s biness, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Debtor and its consolidated subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien and (c) Liens or security interest that are junior to the security interest granted pursuant to this Agreement.

 

(h)The Debtor shall at all times insure the Collateral consisting of tangible personal property against such risks and hazards as other persons similarly situated insure against, and including in any event loss or damage by fire, theft, burglary, pilferage, loss in transit and such other hazards as the Secured Party may specify.  All insurance required hereby shall be maintained in amounts and under policies and with insurers acceptable to the Secured Party, and all such policies shall contain loss payable clauses naming the Secured Party as loss payee as its interest may appear (and, if the Secured Party requests, naming the Secured Party as an additional insured therein) in a form acceptable to the Secured Party.  All premiums on such insurance shall be paid by the Debtor.  Certificates of insurance evidencing compliance with the foregoing and, at the Secured Party’s request, the policies of such insurance shall be delivered by the Debtor to the Secured Party.  All insurance required hereby shall provide that any loss shall be payable to the Secured Party notwithstanding any act or negligence of the Debtor, shall provide that no cancellation thereof shall be effective until at least 10 days after receipt by the Debtor and the Secured Party of written notice thereof, and shall be satisfactory to the Secured Party in all other respects.  In case of any material loss, damage to, or destruction of the Collateral or any part thereof, the Debtor shall promptly give written notice thereof to the Secured Party generally describing the nature and extent of such damage or destruction.  In case of any loss, damage to or destruction of the Collateral or any part thereof, the Debtor, whether or not the insurance proceeds, if any, received on account of such damage or destruction shall be sufficient for that purpose, at the Debtor’s cost and expense, shall promptly repair or replace the Collateral so lost, damaged, or destroyed, except to the extent such Collateral, prior to its loss, damage, or destruction, had become uneconomical, obsolete or worn out and is not necessary for or of importance to the proper conduct of the Debtor’s business in the ordinary course.  In the event the Debtor shall receive any proceeds of such insurance,  to the extent not actually utilized by the Debtor to repair or replace the Collateral so lost, damaged or destroyed, the Debtor shall immediately pay over such proceeds to the Secured Party.  The Debtor hereby authorizes the Secured Party, at the Secured Party’s option, to adjust, compromise and settle any losses under any insurance afforded at any time during the existence of any Event of Default or any other event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, and the Debtor does hereby irrevocably constitute the Secured Party, and each of its nominees, officers, agents, attorneys, and any other person whom the Secured Party may designate, as the Debtor’s attorneys-in-fact, with full power and authority to effect such adjustment, compromise and/or settlement and to endorse any drafts drawn by an insurer of the Collateral or any part thereof and to do everything necessary to carry out such purposes and to receive and receipt for any unearned premiums due under policies of such insurance.  Unless the Secured Party elects to adjust, compromise or settle losses as aforesaid, any adjustment, compromise and/or settlement of any losses under any insurance shall be made by the Debtor subject to final approval of the Secured Party (regardless of whether or not an Event of Default shall have occurred) in the case of losses exceeding $50,000.  Net insurance proceeds received by the Secured Party under the provisions hereof or under any policy of insurance covering the Collateral or any part thereof shall be applied to the reduction of the Obligations (whether or not then due); provided, however, that the Secured Party may in its sole discretion release any or all such insurance proceeds to the Debtor.  All insurance proceeds shall be subject to the lien and security interest of the Secured Party hereunder.

 

  

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Unless the Debtor provides the Secured Party with evidence of the insurance coverage required by this Security Agreement, the Secured Party may purchase insurance at the Debtor’s expense to protect the Secured party’s interests in the Collateral.  This insurance may, but need not, protect the debtor’s interests in the Collateral.  The coverage purchased by the Secured Party may not pay any claims that the Debtor makes or any claim that is made against the Debtor in connection with the Collateral.  The Debtor may later cancel any such insurance purchased by the Secured Party, but only after providing the Secured Party with evidence that the Debtor has obtained insurance as required by this Security Agreement.  If the Secured Party purchases insurance for the Collateral, the Debtor will be responsible for the costs of that insurance, including interest and any other charges that are reasonably imposed upon the Secured Party in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance.  The costs of the insurance may be added to the Obligations secured hereby.  The costs of the insurance may be more than the cost of insurance the Debtor may be able to obtain on its own.

 

(i)The Debtor shall at all times allow the Secured Party and its representatives free access to and right of inspection of the Collateral; provided that, unless the Secured Party believes in good faith an Event of Default, or any other event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, exists, any such access or inspection shall only be required during the Debtor’s normal business hours.

 

  

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(j)       If any Collateral is in the possession or control of any of the Debtor’s agents or processors and the Secured Party so requests, the Debtor agrees to notify such agents or processors in writing of the Secured Party’s security interest therein and instruct them to hold all such Collateral for the Secured Party’s account and subject to the Secured Party’s instructions. The Debtor shall, upon the request of the Secured Party, authorize and instruct all bailees and other parties, if any, at any time processing, labeling, packaging, holding, storing, shipping or transferring all or any part of the Collateral to permit the Secured Party and its representatives to examine and inspect any of the Collateral then in such party’s possession and to verify from such party’s own books and records any information concerning the Collateral or any part thereof which the Secured Party or its representatives may seek to verify. As to any premises not owned by the Debtor wherein any of the Collateral is located, the Debtor shall, at the Secured Party’s request, cause each party having any right, title or interest in, or lien on, any of such premises to enter into an agreement (any such agreement to contain a legal description of such premises) whereby such party disclaims any right, title and interest in, and lien on, the Collateral and allows the removal of such Collateral by the Secured Party and is otherwise in form and substance reasonably acceptable to the Secured Party; provided, however, that no such agreement need be obtained with respect to any one location wherein the value of the Collateral as to which such agreement has not been obtained aggregates less than $50,000 at any one time.

 

(k)The Debtor agrees from time to time to deliver to the Secured Party such evidence of the existence, identity and location of the Collateral and of its availability as collateral security pursuant hereto (including, without limitation, schedules describing all Receivables created or acquired by the Debtor, copies of customer invoices or the equivalent and original shipping or delivery receipts for all merchandise and other goods sold or leased or services rendered, together with the Debtor’s warranty of the genuineness thereof, and reports stating the book value of Inventory and Equipment by major category and location), in each case as the Secured Party may reasonably request.  The Secured Party shall have the right to verify all or any part of the Collateral in any manner, and through any medium, which the Secured Party considers appropriate (including, without limitation, the verification of Collateral by use of a fictitious name), and the Debtor agrees to furnish all assistance and information, and perform any acts, which the Secured Party may reasonably require in connection therewith.  The Debtor shall promptly notify the Secured Party of any Collateral which the Debtor has determined to have been rendered obsolete, stating the prior book value of such Collateral, its type and location.  

 

(l)  The Debtor shall comply in all material respects with the terms and conditions of all leases, easements, right-of-way agreements and other similar agreements binding upon the Debtor or affecting the Collateral or any part thereof, and all orders, ordinances, laws and statutes of any city, state or other governmental entity, department, or agency having jurisdiction with respect to the premises wherein such Collateral is located or the conduct of business thereon.

 

  

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(m)      Schedule C attached hereto contains a true, complete, and current listing of all patents, trademarks, tradestyles, copyrights, and other intellectual property rights (including all registrations and applications therefor) owned by the Debtor as of the date hereof that are registered with any governmental authority. The Debtor shall promptly notify the Secured Party in writing of any additional intellectual property rights acquired or arising after the date hereof, and shall submit to the Secured Party a supplement to Schedule C to reflect such additional rights (provided the Debtor’s failure to do so shall not impair the Secured Party’s security interest therein). The Debtor owns or possesses rights to use all franchises, licenses, patents, trademarks, trade names, tradestyles, copyrights, and rights with respect to the foregoing which are required to conduct its business. No event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such rights, and the Debtor is not liable to any person for infringement under applicable law with respect to any such rights as a result of its business operations.

 

(n)Schedule F attached hereto contains a true, complete and current listing of all Commercial Tort Claims held by the Debtor as of the date hereof, each described by reference to the specific incident given rise to the claim.  The Debtor agrees to execute and deliver to the Secured Party a supplement to this Agreement in the form attached hereto as Schedule G, or in such other form acceptable to the Secured Party, promptly upon becoming aware of any other Commercial Tort Claim held or maintained by the Debtor arising after the date hereof (provided the Debtor’s failure to do so shall not impair the Secured Party’s security interest therein).

 

(o)The Debtor agrees to execute and deliver to the Secured Party such further agreements, assignments, instruments, and documents and to do all such other things as the Secured Party may reasonably deem necessary or appropriate to assure the Secured Party its lien and security interest hereunder, including, without limitation, (i) such financing statements, and amendments thereof or supplements thereto, and such other instruments and documents as the Secured Party may from time to time reasonably require in order to comply with the UCC and any other applicable law, (ii) such agreements with respect to patents, trademarks, copyrights, and similar intellectual property rights as the Secured Party may from time to time reasonably require to comply with the filing requirements of the United States Patent and Trademark Office and the United States Copyright Office, and (iii) such control agreements with respect to Deposit Accounts, Investment Property, Letter-of-Credit Rights, and electronic Chattel Paper, and to cause the relevant depository institutions, financial intermediaries, and issuers to execute and deliver such control agreements, as the Secured Party may from time to time reasonably require.  The Debtor hereby agrees that a carbon, photographic or other reproduction of this Security Agreement or any such financing statement is sufficient for filing as a financing statement by the Secured Party without notice thereof to the Debtor wherever the Secured Party in its sole discretion desires to file the same.  The Debtor hereby authorizes the Secured Party to file any and all financing statements covering the Collateral or any part thereof as the Secured Party may require, including financing statements describing the Collateral as “all assets” or “all personal property” or words of like meaning.  The Secured Party may order lien searches from time to time against the Debtor and the Collateral, and the Debtor shall promptly reimburse the Secured Party for all reasonable costs and expenses incurred in connection with such lien searches.  In the event for any reason the law of any jurisdiction other than New York becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, the Debtor agrees to execute and deliver all such instruments and documents and to do all such other things as the Secured Party in its sole discretion deems necessary or appropriate to preserve, protect, and enforce the lien and security interest of the Secured Party under the law of such other jurisdiction.  The Debtor agrees to mark its books and records to reflect the lien and security interest of the Secured Party in the Collateral.

 

  

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(p)On failure of the Debtor to perform any of the covenants and agreements herein contained, the Secured Party may, at its option, perform the same and in so doing may expend such sums as the Secured Party may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claims, and all other expenditures which the Secured Party may be compelled to make by operation of law or which the Secured Party may make by agreement or otherwise for the protection of the security hereof.  All such sums and amounts so expended shall be repayable by the Debtor immediately without notice or demand, shall constitute additional Obligations secured hereunder and shall bear interest from the date said amounts are expended at the “Default Rate” (as such term is defined in the Credit Agreement hereinafter defined, the “Default Rate”). No such performance of any covenant or agreement by the Secured Party on behalf of the Debtor, and no such advancement or expenditure therefor, shall relieve the Debtor of any default under the terms of this Security Agreement or in any way obligate the Secured Party to take any further or future action with respect thereto.  The Secured Party, in making any payment hereby authorized, may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim.  The Secured Party, in performing any act hereunder, shall be the sole judge of whether the Debtor is required to perform same under the terms of this Security Agreement.  The Secured Party is hereby authorized to charge any account of the Debtor maintained with the Secured Party for the amount of such sums and amounts so expended.

 

Section 4.Special Provisions Re: Receivables.

 

(a)As of the time any Receivable becomes subject to the security interest provided for hereby, and at all times thereafter, the Debtor shall be deemed to have warranted as to each and all of such Receivables that all warranties of the Debtor set forth in this Security Agreement are to the Debtor’s knowledge true and correct with respect to each such Receivable; that each Receivable and all papers and documents relating thereto are genuine and in all respects what they purport to be; that each Receivable is valid and subsisting; that no such Receivable is evidenced by any Instrument or Chattel Paper unless such Instrument or Chattel Paper has theretofore been endorsed by the Debtor and delivered to the Secured Party (except to the extent the Secured Party specifically requests the Debtor not to do so with respect to any such Instrument or Chattel Paper); that no surety bond was required or given in connection with such Receivable or the contracts or purchase orders out of which the same arose; that the amount of the Receivable represented as owing is the correct amount actually and unconditionally owing, except for normal cash discounts on normal trade terms in the ordinary course of business; and that the amount of such Receivable represented as owing is not disputed and is not subject to any set-offs, credits, deductions or countercharges other than those arising in the ordinary course of the Debtor’s business which are disclosed to the Secured Party in writing promptly upon the Debtor becoming aware thereof.  Without limiting the foregoing, if any Receivable arises out of a contract with the United States of America, or any state or political subdivision thereof, or any department, agency or instrumentality of any of the foregoing, the Debtor agrees to notify the Secured Party and, at the Secured Party’s request, execute whatever instruments and documents are required by the Secured Party in order that such Receivable shall be assigned to the Secured Party and that proper notice of such assignment shall be given under the federal Assignment of Claims Act (or any successor statute) or any similar state or local statute, as the case may be.

 

  

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(b)Unless and until an Event of Default which has not been cured  occurs, any merchandise or other goods which are returned by a customer or account debtor or otherwise recovered may be resold by the Debtor in the ordinary course of its business as presently conducted in accordance with Section 6(b) hereof; and, during the existence of any Event of Default, such merchandise and other goods shall be set aside at the request of the Secured Party and held by the Debtor as trustee for the Secured Party and shall remain part of the Secured Party’s Collateral.  Unless and until an Event of Default occurs, the Debtor may settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances in the ordinary course of its business as presently conducted for amounts and on terms which the Debtor in good faith considers advisable; and, during the existence of any Event of Default, at the Secured Party’s request, the Debtor shall notify the Secured Party promptly of all returns and recoveries and, on the Secured Party’s written request, deliver any such merchandise or other goods to the Secured Party.  During the existence of any Event of Default, at the Secured Party’s request, the Debtor shall also notify the Secured Party promptly of all disputes and claims and settle or adjust them at no expense to the Secured Party, but no discount, credit or allowance other than on normal trade terms in the ordinary course of business as presently conducted shall be granted to any customer or account debtor and no returns of merchandise or other goods shall be accepted by the Debtor without the Secured Party’s consent.  The Secured Party may, at all times during the existence of any Event of Default, settle or adjust disputes and claims directly with customers or account debtors for amounts and upon terms which the Secured Party considers advisable.

 

(c)Unless delivered to the Secured Party or its agent, all tangible Chattel Paper and Instruments shall contain a legend acceptable to the Secured Party indicating that such Chattel Paper or Instrument is subject to the security interest of the Secured Party contemplated by this Security Agreement. 

 

Section 5.Collection of Receivables.

 

(a)Except as otherwise provided in this Security Agreement, the Debtor shall make collection of all Receivables and may use the same to carry on its business in accordance with sound business practice and otherwise subject to the terms hereof.

 

  

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(b)Upon the occurrence of any Event of Default, and whether or not the Secured Party has exercised any or all of its rights under other provisions of this Section 5, in the event the Secured Party requests the Debtor to do so:

 

(i)all Instruments and Chattel Paper at any time constituting part of the Receivables or any other Collateral (including any postdated checks) shall, upon receipt by the Debtor, be immediately endorsed to and deposited with the Secured Party; and/or 

 

(ii)the Debtor shall instruct all customers and account debtors to remit all payments in respect of Receivables or any other Collateral to a lockbox or lockboxes under the sole custody and control of the Secured Party.

 

(c)Upon the occurrence of any Event of Default, which has not been cured , whether or not the Secured Party has exercised any or all of its rights under other provisions of this Section 5, the Secured Party or its designee may notify the Debtor’s customers and account debtors at any time that Receivables or any other Collateral have been assigned to the Secured Party or of the Secured Party’s security interest therein, and either in its own name, or the Debtor’s name, or both, demand, collect (including, without limitation, through a lockbox analogous to that described in Section 5(b)(ii) hereof), receive, receipt for, sue for, compound and give acquittance for any or all amounts due or to become due on Receivables or any other Collateral, and in the Secured Party’s discretion file any claim or take any other action or proceeding which the Secured Party may deem necessary or appropriate to protect or realize upon the security interest of the Secured Party in the Receivables or any other Collateral.

 

(d)Any proceeds of Receivables or other Collateral transmitted to or otherwise received by the Secured Party pursuant to any of the provisions of Sections 5(b) or 5(c) hereof may be handled and administered by the Secured Party in and through a remittance account at the Secured Party, and the Debtor acknowledges that the maintenance of such remittance account by the Secured Party is solely for the Secured Party’s convenience and that the Debtor does not have any right, title or interest in such remittance account or any amounts at any time standing to the credit thereof. The Secured Party may, after the occurrence and during the continuation of any Event of Default or of any event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, apply all or any part of any proceeds of Receivables or other Collateral received by it from any source to the payment of the Obligations (whether or not then due and payable), such applications to be made in such amounts, in such manner and order and at such intervals as the Secured Party may from time to time in its discretion determine, but not less often than once each week.  The Secured Party need not apply or give credit for any item included in proceeds of Receivables or other Collateral until the Secured Party has received final payment therefor in cash or final solvent credits.  However, if the Secured Party does give credit for any item prior to receiving final payment therefor and the Secured Party fails to receive such final payment or an item is charged back to the Secured Party for any reason, the Secured Party may at its election in either instance charge the amount of such item back against the remittance account or any account of the Debtor maintained with the Secured Party, together with interest thereon at the Default Rate.  Concurrently with each transmission of any proceeds of Receivables or other Collateral to the remittance account, the Debtor shall furnish the Secured Party with a report in such form as the Secured Party shall reasonably require identifying the particular Receivable or other Collateral from which the same arises or relates. Unless and until an Event of Default or an event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default shall have occurred and be continuing, the Secured Party will release proceeds of Collateral which the Secured Party has not applied to the Obligations as provided above from the remittance account from time to time, promptly after receipt thereof.  The Debtor hereby indemnifies the Secured Party from and against all liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and attorneys’ fees suffered or incurred by the Secured Party because of the maintenance of the foregoing arrangements; provided, however, that the Debtor shall not be required to indemnify the Secured Party for any of the foregoing to the extent they arise solely from the gross negligence or willful misconduct of the Secured Party.  The Secured Party shall have no liability or responsibility to the Debtor for accepting any check, draft or other order for payment of money bearing the legend “payment in full” or words of similar import or any other restrictive legend or endorsement whatsoever or be responsible for determining the correctness of any remittance.

 

  

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Section 6.Special Provisions Re:  Inventory and Equipment.

 

(a)The Debtor shall at its own cost and expense maintain, keep and preserve the Inventory in good and merchantable condition and keep and preserve the Equipment in good repair, working order and condition, ordinary wear and tear excepted, and, without limiting the foregoing, make all necessary and proper repairs, replacements and additions to the Equipment so that the efficiency thereof shall be fully preserved and maintained.

 

(b)The Debtor may, until an Event of Default has occurred and is continuing, use, consume and sell the Inventory in the ordinary course of its business, but a sale in the ordinary course of business shall not under any circumstance include any transfer or sale in satisfaction, partial or complete, of a debt owing by the Debtor.

 

(c)The Debtor may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Secured Party, sell obsolete, worn out or unusable Equipment which is concurrently replaced with similar Equipment at least equal in quality and condition to that sold and owned by the Debtor free of any lien, charge or encumbrance other than the security interest granted hereby.

 

(d)As of the time any Inventory or Equipment becomes subject to the security interest provided for hereby and at all times thereafter, the Debtor shall be deemed to have warranted as to any and all of such Inventory and Equipment that all warranties of the Debtor set forth in this Security Agreement are true and correct with respect to such Inventory and Equipment; that all of such Inventory and Equipment is located at a location set forth pursuant to Section 3(b) hereof; and that, in the case of Inventory, such Inventory is new and unused and in good and merchantable condition.  The Debtor warrants and agrees that no Inventory is or will be consigned to any other person without the Secured Party’s prior written consent.

 

(e)The Debtor shall at its own cost and expense cause the lien of the Secured Party in and to any portion of the Collateral subject to a certificate of title law to be duly noted on such certificate of title or to be otherwise filed in such manner as is prescribed by law in order to perfect such lien and shall cause all such certificates of title and evidences of lien to be deposited with the Secured Party.

 

  

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(f)Except for Equipment from time to time located on the real estate described on Schedule D attached hereto and as otherwise disclosed to the Secured Party in writing, none of the Equipment is or will be attached to real estate in such a manner that the same may become a fixture.

 

(g)If any of the Inventory is at any time evidenced by a document of title, such document shall be promptly delivered by the Debtor to the Secured Party except to the extent the Secured Party specifically requests the Debtor not to do so with respect to any such document.

 

Section 7.Special Provisions Re:  Investment Property, Subsidiary Interests and Deposits.

 

(a)Unless and until an Event of Default has occurred and is continuing and thereafter until notified to the contrary by the Secured Party pursuant to Section 9(d) hereof:

 

(i)all the Debtor shall be entitled to exercise all voting and/or consensual powers pertaining to the Investment Property and Subsidiary Interests or any part thereof, for all purposes not inconsistent with the terms of this Security Agreement or any other document evidencing or otherwise relating to any Obligations; and

 

 (i)  the Debtor shall be entitled to receive and retain all cash dividends paid upon or in respect of the Investment Property and Subsidiary Interests.

 

(b)All Investment Property (including all securities, certificated or uncertificated, securities accounts, and commodity accounts) and Subsidiary Interests of the Debtor on the date hereof is listed and identified on Schedule E attached hereto and made a part hereof. The Debtor shall promptly notify the Secured Party of any other Investment Property or Subsidiary Interests acquired or maintained by the Debtor after the date hereof, and shall submit to the Secured Party a supplement to Schedule E to reflect such additional rights (provided the Debtor’s failure to do so shall not impair the Secured Party’s security interest therein).  Certificates for all certificated securities now or at any time constituting Investment Property or Subsidiary Interests shall be promptly delivered by the Debtor to the Secured Party duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto including, without limitation, all stock received in respect of a stock dividend or resulting from a split-up, revision or reclassification of the Investment Property or Subsidiary Interests or any part thereof or received in addition to, in substitution of or in exchange for the Investment Property or Subsidiary Interests or any part thereof as a result of a merger, consolidation or otherwise.  With respect to any uncertificated securities or any Investment Property or Subsidiary Interests held by a securities intermediary, commodity intermediary, or other financial intermediary of any kind, at the Secured Party’s request, the Debtor shall execute and deliver, and shall cause any such issuer or intermediary to execute and deliver, an agreement among the Debtor, the Secured Party, and such issuer or intermediary in form and substance satisfactory to the Secured Party which provides, among other things, for the issuer’s or intermediary’s agreement that it shall comply with entitlement orders, and apply any value distributed on account of any such Investment Property or Subsidiary Interests, as directed by the Secured Party without further consent by the Debtor.  The Secured Party may at any time, after the occurrence of an Event of Default or an event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, cause to be transferred into its name or the name of its nominee or nominees all or any part of the Investment Property and Subsidiary Interests hereunder.  

 

  

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(c)Unless and until an Event of Default, or an event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, has occurred and is continuing, the Debtor may sell or otherwise dispose of any Investment Property, provided that the Debtor shall not sell or otherwise dispose of any Subsidiary Interests without the prior written consent of the Secured Party.  After the occurrence and during the continuation of any Event of Default or of any event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, the Debtor shall not sell all or any part of the Investment Property without the prior written consent of the Secured Party.

 

(d)The Debtor represents that on the date of this Security Agreement, none of the Investment Property or Subsidiary Interests consists of margin stock (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System) except to the extent the Debtor has delivered to the Secured Party a duly executed and completed Form U-1 with respect to such stock.  If at any time the Investment Property or Subsidiary Interests or any part thereof consists of margin stock, the Debtor shall promptly so notify the Secured Party and deliver to the Secured Party a duly executed and completed Form U-1 and such other instruments and documents reasonably requested by the Secured Party in form and substance satisfactory to the Secured Party.

 

(e)The Debtor represents and warrants to, and agrees with, the Secured Party as follows:  (i) as of the date hereof, the Subsidiary Interests listed and described on Schedule E hereto constitute the percentage of the equity interest in each Subsidiary set forth thereon owned by the Debtor; (ii) as of the date hereof, copies of the certificate or articles of incorporation and by-laws, certificate or articles of organization and operating agreement, and partnership agreement of each Subsidiary (each such agreement being hereinafter referred to as an “Organizational Agreement”) heretofore delivered to the Secured Party are true and correct copies thereof and have not been amended or modified in any respect other than as stated therein, and (iii) without the prior written consent of the Secured Party, the Debtor hereby agrees not to amend or modify any Organizational Agreement which would in any manner adversely affect or impair the Subsidiary Interests of the Debtor or reduce or dilute the rights of the Debtor with respect to any Subsidiary Interests, any of such actions done without such prior written consent to be null and void. The Debtor shall perform when due all of its obligations under each Organizational Agreement.

 

(f)All Deposit Accounts of the Debtor on the date hereof are listed and identified (by account number and depository institution) on Schedule E attached hereto and made a part hereof. The Debtor shall promptly notify the Secured Party of any other Deposit Account opened or maintained by the Debtor after the date hereof, and shall submit to the Secured Party a supplement to Schedule E to reflect such additional accounts (provided the Debtor’s failure to do so shall not impair the Secured Party’s security interest therein).  With respect to any Deposit Account maintained by a depository institution other than the Secured Party, and as a condition to the establishment and maintenance of any such Deposit Account except as otherwise agreed to in writing by the Secured Party, the Debtor, the depository institution, and the Secured Party shall execute and deliver an account control agreement in form and substance satisfactory to the Secured Party which provides, among other things, for the depository institution’s agreement that it will comply with instructions originated by the Secured Party directing the disposition of the funds in the Deposit Account without further consent by such Debtor.

 

  

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Section 8. Power of Attorney.  In addition to any other powers of attorney contained herein, the Debtor hereby appoints the Secured Party, its nominee, and any other person whom the Secured Party may designate, as the Debtor’s attorney-in-fact, with full power and authority upon the occurrence and during the continuation of any Event of Default to sign the Debtor’s name on verifications of Receivables and other Collateral; to send requests for verification of Collateral to the Debtor’s customers, account debtors and other obligors; to endorse the Debtor’s name on any checks, notes, acceptances, money orders, drafts and any other forms of payment or security that may come into the Secured Party’s possession or on any assignments, stock powers, or other instruments of transfer relating to the Collateral or any part thereof; to sign the Debtor’s name on any invoice or bill of lading relating to any Collateral, on claims to enforce collection of any Collateral, on notices to and drafts against customers and account debtors and other obligors, on schedules and assignments of Collateral, on notices of assignment and on public records; to notify the post office authorities to change the address for delivery of the Debtor’s mail to an address designated by the Secured Party; to receive, open and dispose of all mail addressed to the Debtor; and to do all things necessary to carry out this Agreement.  The Debtor hereby ratifies and approves all reasonable acts of any such attorney and agrees that neither the Secured Party nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than such person’s gross negligence or willful misconduct.  The Secured Party may file one or more financing statements disclosing its security interest in any or all of the Collateral without the Debtor’s signature appearing thereon.  The Debtor also hereby grants the Secured Party a power of attorney to execute any such financing statements, or amendments and supplements to financing statements, on behalf of the Debtor without notice thereof to the Debtor.  The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Obligations have been fully paid and satisfied and all agreements of the Secured Party to extend credit to or for the account of the Borrower have expired or otherwise have been terminated.

 

Section 9.Defaults and Remedies.

 

(a)For the purposes of this Agreement, “Event of Default” shall have the same meaning as ascribed thereto under the Credit Agreement dated as of April 7, 2014 between the Borrower, the guarantors party thereto and the Secured Party (the “Credit Agreement”).  The occurrence of any one or more Events of Default under the Credit Agreement shall constitute an “Event of Default” hereunder.

 

Nothing herein contained shall impair the demand character of any of the Obligations which are expressed to be payable on demand.

 

  

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(b)Upon the occurrence and during the continuation of any Event of Default, the Secured Party shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further the Secured Party may, without demand and without advertisement, notice, hearing or process of law, all of which the Debtor hereby waives, at any time or times, sell and deliver all or any part of the Collateral (and any other property of the Debtor attached thereto or found therein) held by or for it at public or private sale, for cash, upon credit or otherwise, at such prices and upon such terms as the Secured Party deems advisable, in its sole discretion.  In addition to all other sums due the Secured Party hereunder, the Debtor shall pay the Secured Party all reasonable costs and expenses incurred by the Secured Party, including attorneys’ fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or the Obligations or in the prosecution or defense of any action or proceeding by or against the Secured Party or the Debtor concerning any matter arising out of or connected with this Security Agreement or the Collateral or the Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code (or any successor statute).  Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Debtor in accordance with Section 12(b) hereof at least 10 days before the time of sale or other event giving rise to the requirement of such notice; provided however, no notification need be given to the Debtor if the Debtor has signed, after an Event of Default has occurred, a statement renouncing any right to notification of sale or other intended disposition.  The Secured Party shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given.  The Secured Party may be the purchaser at any such sale.  The Debtor hereby waives all of its rights of redemption from any such sale.  The Secured Party may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be made at the time and place to which the sale was postponed or the Secured Party may further postpone such sale by announcement made at such time and place.  The Secured Party has no obligation to prepare the Collateral for sale.  The Secured Party may sell or otherwise dispose of the Collateral without giving any warranties as to the Collateral or any part thereof, including disclaimers of any warranties of title or the like, and the Debtor acknowledges and agrees that the absence of such warranties shall not render the disposition commercially unreasonable.

 

(c)Without in any way limiting the foregoing, upon the occurrence and during the continuation of any Event of Default, the Secured Party shall have the right, in addition to all other rights provided herein or by law, to take physical possession of any and all of the Collateral and anything found therein, the right for that purpose to enter without legal process any premises where the Collateral may be found (provided such entry be done lawfully), and the right to maintain such possession on the Debtor’s premises (the Debtor hereby agreeing to lease such premises without cost or expense to the Secured Party or its designee if the Secured Party so requests) or to remove the Collateral or any part thereof to such other places as the Secured Party may desire.  Upon the occurrence of any Event of Default, the Secured Party shall have the right to exercise any and all rights with respect to all Deposit Accounts of the Debtor, including, without limitation, the right to direct the disposition of the funds in each Deposit Account and to collect, withdraw and receive all amounts due or to become due or payable under each such Deposit Account.  Upon the occurrence and during the continuation of any Event of Default, the Debtor shall, upon the Secured Party’s demand, promptly assemble the Collateral and make it available to the Secured Party at a place designated by the Secured Party.  If the Secured Party exercises its right to take possession of the Collateral, the Debtor shall also at its expense perform any and all other steps requested by the Secured Party to preserve and protect the security interest hereby granted in the Collateral, such as placing and maintaining signs indicating the security interest of the Secured Party, appointing overseers for the Collateral and maintaining Collateral records.

 

  

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(d)Without in any way limiting the foregoing, upon the occurrence and during the continuation of any Event of Default, all rights of the Debtor to exercise the voting and/or consensual powers which it is entitled to exercise pursuant to Section 7(a)(i) hereof and/or to receive and retain the distributions which it is entitled to receive and retain pursuant to Section 7(a)(ii) hereof, shall, at the option of the Secured Party, cease and thereupon become vested in the Secured Party, which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to exercise all voting and other consensual powers pertaining to the Investment Property (including, without limitation, the right to deliver notice of control with respect to any Investment Property held in a securities account or commodity account and deliver all entitlement orders with respect thereto) and/or to receive and retain the distributions which the Debtor would otherwise have been authorized to retain pursuant to Section 7(a)(ii) hereof and shall then be entitled solely and exclusively to exercise any and all rights of conversion, exchange or subscription or any other rights, privileges or options pertaining to any Investment Property as if the Secured Party were the absolute owner thereof.  Without limiting the foregoing, the Secured Party shall have the right to exchange, at its discretion, any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other readjustment of the respective issuer thereof or upon the exercise by or on behalf of any such issuer or the Secured Party of any right, privilege or option pertaining to any Investment Property and, in connection therewith, to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Party may determine.  In the event the Secured Party in good faith believes any of the Collateral constitutes restricted securities within the meaning of any applicable securities laws, any disposition thereof in compliance with such laws shall not render the disposition commercially unreasonable.

 

(e)Without in any way limiting the foregoing, the Debtor hereby grants to the Secured Party a royalty-free irrevocable license and right to use all of the Debtor’s patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade names, trade styles, copyrights, copyright applications, copyright licenses, and similar intangibles in connection with any foreclosure or other realization by the Secured Party on all or any part of the Collateral.  The license and right granted the Secured Party hereby shall be without any royalty or fee or charge whatsoever.

 

  

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(f)The powers conferred upon the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose on it any duty to exercise such powers.  The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession or control if such Collateral is accorded treatment substantially equivalent to that which the Secured Party accords its own property, consisting of similar type assets, it being understood, however, that the Secured Party shall have no responsibility for ascertaining or taking any action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any such Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters.  This Security Agreement constitutes an assignment of rights only and not an assignment of any duties or obligations of the Debtor in any way related to the Collateral, and the Secured Party shall have no duty or obligation to discharge any such duty or obligation.  The Secured Party shall have no responsibility for taking any necessary steps to preserve rights against any parties with respect to any Collateral or initiating any action to protect the Collateral against the possibility of a decline in market value.  Neither the Secured Party nor any party acting as attorney for the Secured Party shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct.

 

(g)Failure by the Secured Party to exercise any right, remedy or option under this Security Agreement or any other agreement between the Debtor and the Secured Party or provided by law, or delay by the Secured Party in exercising the same, shall not operate as a waiver; and no waiver by the Secured Party shall be effective unless it is in writing and then only to the extent specifically stated.  The rights and remedies of the Secured Party under this Security Agreement shall be cumulative and not exclusive of any other right or remedy which the Secured Party may have.

 

Section 10.  Application of Proceeds.  The proceeds and avails of the Collateral at any time received by the Secured Party after the occurrence and during the continuation of any Event of Default shall, when received by the Secured Party in cash or its equivalent, be applied by the Secured Party as follows:

 

(i)  first, to the payment and satisfaction of all sums paid and costs and expenses incurred by the Secured Party hereunder or otherwise in connection herewith, including such monies paid or incurred in connection with protecting, preserving or realizing upon the Collateral or enforcing any of the terms hereof, including attorneys’ fees and court costs, together with any interest thereon (but without preference or priority of principal over interest or of interest over principal), to the extent the Secured Party is not reimbursed therefor by the Debtor; and

 

(ii) second, to the payment and satisfaction of the remaining Obligations, whether or not then due (in whatever order the Secured Party elects), both for interest and principal.

 

The Debtor shall remain liable to the Secured Party for any deficiency.  Any surplus remaining after the full payment and satisfaction of the foregoing shall be returned to the Debtor or to whomsoever the Secured Party reasonably determines is lawfully entitled thereto.

 

  

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Section 11.   Continuing Agreement.  This Security Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Obligations, both for principal and interest, have been fully paid and satisfied and all agreements of the Secured Party to extend credit to or for the account of the Borrower have expired or otherwise have been terminated and this Security Agreement shall be terminated.  Upon such termination of this Security Agreement, the Secured Party shall, upon the request and at the expense of the Debtor, forthwith release its security interest hereunder and terminate any financing statement filed to perfect such security interest (the provisions and obligations of this sentence  shall survive the termination of this Security Agreement.

 

Section 12.   Miscellaneous.

 

(a)This Security Agreement cannot be changed or terminated orally.  All of the rights, privileges, remedies and options given to the Secured Party hereunder shall inure to the benefit of its successors and assigns, and all the terms, conditions, covenants, agreements, representations and warranties of and in this Security Agreement shall bind the Debtor and its legal representatives, successors and assigns, provided that the Debtor may not assign its rights or delegate its duties hereunder without the Secured Party’s prior written consent.

 

(b)Except as otherwise specified herein, all notices hereunder shall be in writing (including, without limitation, notice by telecopy) and shall be given to the relevant party at its address or telecopier number set forth below (or, if no such address is set forth below, at the address of the Debtor as shown on the records of the Secured Party), or such other address or telecopier number as such party may hereafter specify by notice to the other given by courier, by United States certified or registered mail, by telecopy or by other telecommunication device capable of creating a written record of such notice and its receipt.  Notices hereunder shall be addressed:

 

	 	to the Debtor at: 	1001 Avenue of the Americas, 11th Floor	 
	 	 	New York, New York 10018	 
	 	 	Attention:  President	 

 

	 	To the Secured Party at: 	73 Richmond Street West, Suite PH3	 
	 	 	Toronto, Ontario M5H 1Z4	 
	 	 	Attention:  Phillip Vitug	 

                        

Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and a confirmation of such telecopy has been received by the sender, (ii) if given by mail, five (5) days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid or (iii) if given by any other means, when delivered at the addresses specified in this Section.

 

(c)In the event and to the extent that any provision hereof shall be deemed to be invalid or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Security Agreement shall to such extent be construed as not containing such provision, but only as to such locations where such law or interpretation is operative, and the invalidity or unenforceability of such provision shall not affect the validity of any remaining provisions hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect.

 

  

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(d)This Security Agreement shall be deemed to have been made in the State of New York.  This Agreement and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based on, arising out of, or relating to this Agreement shall be governed by, and construed in accordance with, the law of the State of New York, without regard to conflicts of law provisions (other than Sections 5-1401 and 5-1402 of the New York General Obligations law). The headings in this Security Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof.

 

(e)This Security Agreement may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each constituting an original, but all together one and the same instrument.  The Debtor acknowledges that this Security Agreement is and shall be effective upon its execution and delivery by the Debtor to the Secured Party, and it shall not be necessary for the Secured Party to execute this Security Agreement or any other acceptance hereof or otherwise to signify or express its acceptance hereof. 

 

(f)The Debtor irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the courts of the State of New York sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such Federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

(g)The lien and security interest herein created and provided for stand as direct and primary security for the Obligations of the Borrower arising under or otherwise relating to the Credit Agreement as well as for any of the other Obligations secured hereby.  No application of any sums received by the Secured Party in respect of the Collateral or any disposition thereof to the reduction of the Obligations or any part thereof shall in any manner entitle the Debtor to any right, title or interest in or to the Obligations or any collateral or security therefor, whether by subrogation or otherwise, unless and until all Obligations have been fully paid and satisfied and all agreements of the Secured Party to extend credit to or for the account of the Borrower have expired or otherwise have been terminated.  The Debtor acknowledges that the lien and security interest hereby created and provided for are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of the Secured Party or any other holder of any of the Obligations, and without limiting the generality of the foregoing, the lien and security interest hereof shall not be impaired by any acceptance by the Secured Party or any other holder of any of the Obligations of any other security for or guarantors upon any of the Obligations or by any failure, neglect or omission on the part of the Secured Party or any other holder of any of the Obligations to realize upon or protect any of the Obligations or any collateral or security therefor.  The lien and security interest hereof shall not in any manner be impaired or affected by (and the Secured Party, without notice to anyone, is hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations, or of any collateral or security therefor, or of any guaranty thereof, or of any instrument or agreement setting forth the terms and conditions pertaining to any of the foregoing.  The Secured Party may at its discretion at any time grant credit to the Borrower in such amounts and on such terms as the Secured Party may elect (all of such to constitute additional Obligations hereby secured) without in any manner impairing the lien and security interest created and provided for herein.  In order to realize hereon and to exercise the rights granted the Secured Party hereunder and under applicable law, there shall be no obligation on the part of the Secured Party or any other holder of any of the Obligations at any time to first resort for payment to the Borrower or to any guaranty of the Obligations or any portion thereof or to resort to any other collateral, security, property, liens or any other rights or remedies whatsoever, and the Secured Party shall have the right to enforce this Agreement irrespective of whether or not other proceedings or steps seeking resort to or realization upon or from any of the foregoing are pending.

 

[Signature Page to Follow]

 

  

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In Witness Whereof, the Debtor has caused this General Security Agreement to be duly executed and delivered as of the date and year first above written.

 

	 	
YAPPN CORP.

	 	 	 
	 	
By: 

	/s/ David Lucatch
	 	 	
Name:  David Lucatch – A. S. O.

 

Accepted and agreed to as of the date and year first above written.

 

	 	
TORONTO TREE TOP HOLDINGS LTD. 

	 	 	 
	 	
By: 

	/s/ Simon Yakubowicz 
	 	 	
Name:  Simon Yakubowicz – A. S. O.

 

[Signature Page to General Security Agreement]

 

  

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Schedule A

 

Locations

 

	
Item1.

	
Places of Business (including Debtor’s chief executive office and principal place of business):

 

Address

1001 Avenue of the Americas

New York, New York 10018

 

	
Item2.

	
Permitted Collateral Locations:

 

Address                                     Owner of Premises

1001 Avenue of the Americas

New York, New York 10018

 

  

  

  

Schedule B

 

Other Names

 

	
A.

	
Prior Legal Names

 

	
  

	
None

 

	
B.

	
Trade Names

 

  

  

  

 

Schedule C

 

Intellectual Property Rights

  

  

  

 

Schedule D

 

Real Estate Legal Descriptions

  

  

  

 

Schedule E

 

Investment Property, Subsidiary Interests and Deposits

 

	
A.

	
Investment Property (other than Subsidiary Interests)

 

 

	
B.

	
Subsidiary Interests

 

 

	
C.

	
Deposits

  

  

  

Schedule F

 

Commercial Tort Claims

  

  

  

 

Schedule G

 

Supplement to Security Agreement

 

This Supplement to Security Agreement (the “Supplement”) is dated as of this 7th day of April, 2014, from Yappn Corp. (the “Debtor”), to Toronto Tree Top Holdings Ltd. (the “Secured Party”).

 

Preliminary Statements

 

A.       The Debtor and the Secured Party are parties to that certain Security Agreement dated as of the 7th day of April, 2014 (such Security Agreement, as the same may from time to time be amended, modified or restated, being hereinafter referred to as the “Security Agreement”).  All capitalized terms used herein without definition shall have the same meanings herein as such terms are defined in the Security Agreement.

 

B.       Pursuant to the Security Agreement, the Debtor granted to the Secured Party, among other things, a continuing security interest in all Commercial Tort Claims.

 

C.       The Debtor has acquired a Commercial Tort Claim, and executes and delivers this Supplement to confirm and assure the Secured Party's security interest therein.

 

Now, Therefore, in consideration of the benefits accruing to the Debtor, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.         In order to secure payment of the Obligations, whether now existing or hereafter arising, the Debtor does hereby grant to the Secured Party a continuing lien on and security interest in the Commercial Tort Claim described below:

 

_______________________________________________________________________________________________________________________

 

_______________________________________________________________________________________________________________________

 

_______________________________________________________________________________________________________________________

 

_______________________________________________________________________________________________________________________

 

2. Schedule F (Commercial Tort Claims) to the Security Agreement is hereby amended to include reference to the Commercial Tort Claim referred to in Section 1 above.  The Commercial Tort Claim described herein is in addition to, and not in substitution or replacement for, the Commercial Tort Claims heretofore described in and subject to the Security Agreement, and nothing contained herein shall in any manner impair the priority of the liens and security interests heretofore granted by the Debtor in favor of the Secured Party under the Security Agreement.

 

  

  

  

 

3.        The Debtor agrees to execute and deliver such further instruments and documents and do such further acts and things as the Secured Party may deem necessary or proper to carry out more effectively the purposes of this Supplement.

 

4.        No reference to this Supplement need be made in the Security Agreement or in any other document or instrument making reference to the Security Agreement, any reference to the Security Agreement in any of such items to be deemed a reference to the Security Agreement as supplemented hereby.  The Debtor acknowledges that this Supplement shall be effective upon its execution and delivery by the Debtor to the Secured Party, and it shall not be necessary for the Secured Party to execute this Supplement or any other acceptance hereof or otherwise to signify or express its acceptance hereof.

 

5.        This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to conflicts of law provisions (other than Sections 5-1401 and 5-1402 of the New York General Obligations)).

 

	 	
YAPPN CORP.

	 	 	 
	 	
By: 

	/s/ David Lucatch
	 	 	
Name:  David Lucatch – A. S. O.

 

 

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