Document:

ex4-4.htm

 

Exhibit 4.4

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of April 10, 2015, is entered into by and among Aehr Test Systems, a California corporation (the “Company”), and those persons and entities executing this Agreement as “Investors” (each individually, an “Investor” and together, the “Investors”). 

 

WHEREAS: 

 

A. In connection with the Convertible Note Purchase and Credit Facility Agreement by and among the Company and the “Purchasers” identified on the signature pages thereto of even date herewith (the “Purchase Agreement”), the Notes (as defined below), and the Security Agreement by and among the Company and the “Secured Parties” identified on the signature pages thereto of even date herewith (the “Security Agreement”), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell Notes to the Investors in the amount described in the Purchase Agreement, and whereby each of the Notes is convertible into shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”) upon the terms and conditions and subject to the limitations and conditions set forth in the Notes, all subject to the terms and conditions of the Purchase Agreement and the Transaction Documents (as defined in the Purchase Agreement); and

 

B. To induce the Investors to execute and deliver the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws.

 

NOW, THEREFORE, In consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows: 

 

1. DEFINITIONS. 

 

a. As used in this Agreement, the following terms shall have the following meanings: 

 

(i) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and any successor statute.

 

(ii) “Filing Deadline,” shall mean a date that is thirty (30) calendar days following the date the applicable Note is issued.

 

(iii) “Investor” means any Investor and any transferee or assignee who agrees to become bound by the provisions of this Agreement in accordance with Section 10 hereof. 

 

(iv) “Note(s)” means the convertible notes issued by the Company pursuant to the Purchase Agreement. 

 

(v) “Person” means and includes any natural person, partnership, joint venture, corporation, trust, limited liability company, limited company, joint stock company, unincorporated organization, government entity or any political subdivision or agency thereof, or any other entity.

 

(vi) “Registration Deadline” shall mean a date that is one hundred thirty (130) calendar days following the date the applicable Note is issued. 

 

 

 

 

 

(vii) “Register,” “Registered” and “Registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis, and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the “SEC”). 

 

(viii) “Registrable Securities,” for a given Registration, means (a) any shares of Common Stock issued or issuable upon conversion of or otherwise pursuant to the Notes (without giving effect to any limitations on exercise set forth in the Notes), (b) any additional shares of Common Stock issued or issuable in connection with any anti-dilution provisions in the Notes, (c) any other shares of Common Stock issued or issuable pursuant to the terms of the Purchase Agreement, the Transaction Documents, the Notes or this Agreement, and (d) any securities issued or issuable in exchange for or upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing (collectively, all shares under clauses (a)-(d), the “Note Shares”). 

 

(ix) “Registration Period” means the period from the Registration Deadline until the earlier of (i) the date on which all of the Registrable Securities have been sold or (ii) the date on which all of the Registrable Securities for such Registration Statement (in the opinion of counsel to the Investors) may be immediately sold to the public without registration or restriction (including without limitation as to volume by each holder thereof) under the Securities Act.

 

(x) “Registration Statement(s)” means a registration statement(s) of the Company under the Securities Act required to be filed hereunder. 

 

2. REGISTRATION. 

 

a. MANDATORY REGISTRATION. (i) Following the date on which any or Notes are issued pursuant to the Purchase Agreement (each, an “Issuance Date”), the Company shall prepare, and file with the SEC on or prior to the applicable Filing Deadline a Registration Statement (the “Mandatory Registration Statement”) on Form S-3 (or, if Form S-3 is not then available, on such form of Registration Statement as is then available to effect a registration of the Registrable Securities, subject to the consent of the Investors, which consent will not be unreasonably withheld) covering the resale of the Registrable Securities issued on the applicable Issuance Date, which Registration Statement, to the extent allowable under the Securities Act and the rules and regulations promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable conversion of the Notes or otherwise pursuant to the Notes to prevent dilution resulting from changes in stock prices, stock splits, stock dividends, stock issuances or similar transactions. The number of shares of Common Stock included in such Registration Statement shall be no less than the aggregate number of shares that are then issuable upon conversion of the Notes, and/or otherwise pursuant to the Notes issued on the Issuance Date, without regard to any limitation on the Investors’ ability to convert the Notes. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided to (and subject to the approval of) the Investors and their counsel prior to its filing or other submission. 

 

(ii) If for any reason the SEC does not permit all of the Registrable Securities to be included in the Registration Statement filed pursuant to Section 2(a)(i) above (the “Limited Registration Statement”), the Company will first include in such Limited Registration Statement the maximum amount of Note Shares that are permitted to be so included, with each Investor having the right to sell an amount of Note Shares under such Limited Registration Statement on a pro rata basis amongst the holders of the Notes based on the number of shares of Common Stock issuable upon conversion of the outstanding Notes, and, as soon as additional shares can be included in the Limited Registration Statement or any other Registration 

 

 

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Statement, the Company will include such additional number of Note Shares as are permitted to be included by the SEC, with each Investor having the right to sell an amount of Note Shares under such Limited Registration Statement or any other Registration Statement on a pro rata basis amongst the holders of the Notes based on the number of shares of Common Stock issuable upon conversion of the outstanding Notes. The Company shall continue to register all then unregistered Registrable Securities thereafter as permitted by the SEC as expeditiously as possible. 

 

b. PIGGY-BACK REGISTRATIONS. If at any time prior to the expiration of the Registration Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to file with the SEC a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its securities (other than debt securities or securities being registered on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall send to each Investor written notice of such determination and, if within fifteen (15) days after the receipt of such notice, the Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of such Investor’s Registrable Securities it requests to be registered, except that if, in connection with any underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall impose a limitation on the number of Registrable Securities which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Investor has requested inclusion hereunder as the underwriter shall permit; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all other outstanding securities held by other selling stockholders which are not entitled by contract to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities; provided, further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the contractual right to include such securities in the Registration Statement other than holders of securities entitled to inclusion of their securities in such Registration Statement by reason of demand registration rights. No right to registration of Registrable Securities under this Section 2(b) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(b) is an underwritten offering, then such Investor shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. 

 

c. ALLOWED DELAY. Subject to Section 3 below, for not more than forty-five (45) consecutive days in each instance (and never for more than a total of ninety (90) days in any twelve (12) month period in the aggregate), commencing on the date on which the Company determines a post-effective amendment to the Registration Statement is required (and ending on the earlier of the date that any such post-effective amendment is declared effective or the end of such forty-five (45) day period), the Company may suspend the use of any Registration Statement (an “Allowed Delay”); provided, that the Company shall promptly (a) notify the Investors in writing of the existence of (but in no event, without the prior written consent of an Investor, shall the Company disclose to such Investor any of the facts or circumstances regarding) material non-public information giving rise to an Allowed Delay, (b) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable. Each Investor hereby covenants that it will not sell any Registrable Securities pursuant to the Registration Statement during the existence of an Allowed Delay; provided, that for purposes of clarification, notwithstanding 

 

 

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anything in this Agreement to the contrary, each Investor may continue to sell its shares of Company Common Stock (and any other Company securities) under Rule 144 promulgated under the Securities Act or in any other manner not in violation of applicable securities laws.

 

 

3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall have the following obligations: 

 

a. The Company shall prepare promptly, and file with the SEC as soon as practicable after each Issuance Date (but no later than the Filing Deadline), a Registration Statement with respect to the number of Registrable Securities provided in Section 2(a), and thereafter use its reasonable best efforts to cause each such Registration Statement relating to Registrable Securities to become effective as soon as possible after such filing, but in any event shall cause each such Registration Statement relating to Registrable Securities to become effective no later than the Registration Deadline, which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein), except for information provided by an Investor or any transferee of an Investor pursuant to Section 4(a), shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading. 

 

b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to keep such Registration Statement current and effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement.

 

c. The Company shall furnish to each Investor and its legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of each Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of a Registration Statement referred to in Section 2(a), each letter written by or on behalf of the Company to the SEC, and each item of correspondence from the SEC, in each case relating to such Registration Statement, and (ii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as an Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. The Company will immediately notify the Investors by facsimile or electronic mail of the effectiveness of each Registration Statement or any post-effective amendment. The Company will promptly respond to any and all comments received from the SEC, with a view towards causing each Registration Statement or any amendment thereto to be declared effective by the SEC as soon as practicable and shall file an acceleration request as soon as practicable, but no later than five (5) business days, following the resolution or clearance of all SEC comments or, if applicable, following notification by the SEC that any such Registration Statement or any amendment thereto will not be subject to review. 

 

d. The Company shall use its reasonable best efforts to (i) register and qualify, in any jurisdiction where registration and/or qualification is required, the Registrable Securities covered by the Registration Statements under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investors shall reasonably request and as may be required by law, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the 

 

 

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Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions.

 

e. As promptly as practicable after becoming aware of such event, the Company shall notify each Investor of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in any Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly to prepare a supplement or amendment to any Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request. 

 

f. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof. 

 

g. The Company shall permit a single firm of counsel designated by the Investors to review such Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof), at the Investors’ own cost, a reasonable period of time prior to their filing with the SEC (not less than three (3) business days but not more than five (5) business days) and not file any documents in a form to which such counsel reasonably objects and will not request acceleration of such Registration Statement without prior notice to such counsel. 

 

h. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning such Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Investor prior to making such disclosure, and allow such Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. 

 

i. The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the initial Registration Statement. 

 

j. The Company shall cooperate with each Investor who holds Registrable Securities being offered and the managing underwriter or underwriters with respect to an applicable Registration Statement, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to such Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Investor may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investor may request, and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to each Investor) an appropriate instruction and an 

 

 

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opinion of such counsel in the form required by the transfer agent in order to issue the Registrable Securities free of restrictive legends. 

 

k. At the request of an Investor, to the extent reasonable, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and any prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement. 

 

l. The Company shall not, and shall not agree to, allow the holders of any securities of the Company to include any of their securities in any Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof without the consent of the Investors. In addition, the Company shall not offer any securities for its own account or the account of others in any Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof without the consent of the Investors. 

 

m. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. 

 

n. The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act and the Exchange Act and the rules and regulations promulgated by the SEC). 

 

o. If required by the Financial Industry Regulatory Authority, Inc. Corporate Financing Department, the Company shall promptly effect a filing with FINRA pursuant to FINRA Rule 5110 with respect to the public offering contemplated by resales of securities under the Registration Statement (an “Issuer Filing”), and pay the filing fee required by such Issuer Filing. The Company shall use commercially reasonable efforts to pursue the Issuer Filing until FINRA issues a letter confirming that it does not object to the terms of the offering contemplated by the Registration Statement. 

 

4. OBLIGATIONS OF THE BUYER. In connection with the registration of the Registrable Securities, each Investor shall have the following obligations: 

 

a. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of an Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least ten (10) business days prior to the anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from such Investor. 

 

b. In the event of an underwritten offering pursuant to Section 2(b) in which any Registrable Securities are to be included, the Investor agrees to enter into and perform the Investor’s obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless the Investor has notified the Company in writing of the Investor’s election to exclude all of the Investor’s Registrable Securities from such Registration Statement. 

 

 

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c. Each Investor agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant to Section 2(c) or the happening of an event pursuant to Section 3(e) hereof (which, with respect to Section 3(e) and events thereunder, in no event shall exceed three (3) trading days in any month or ten (10) trading days in any calendar year), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities, until the Investor’s receipt of the copies of the supplemented or amended prospectus filed with the SEC and until any related post-effective amendment is declared effective; provided, that for purposes of clarification, notwithstanding anything in this Agreement to the contrary, each Investor may continue to sell its shares of Company Common Stock (and any other Company securities) under Rule 144 promulgated under the Securities Act or in any other manner not in violation of applicable securities laws.

 

5. Registration Failure. Upon any Registration Failure (as defined below), in addition to all other available remedies that the Investor may pursue hereunder and under the other Transaction Documents, the Company shall pay additional damages to the Investor for each 30-day period (prorated for any partial period) after the date of such Registration Failure in an amount in cash equal to three-quarters of one percent (0.75%) of such Investor’s original principal amount of the Note(s) with respect to and on the date of such Registration Failure. Such payments shall accrue until the earlier of (i) such time as the Registration Failure has been cured and (ii) the date on which all of the Registrable Securities may be sold without restriction under Rule 144 (including, without limitation, volume restrictions and without the need for the availability of current public information under Rule 144). All such payments that accrue under this Section 5 shall be payable no later than five (5) business days following such date of accrual. “Registration Failure” means that (I)(A) the Company fails to file with the SEC on or before a Filing Deadline any Registration Statement required to be filed pursuant to Section 2(a) of this Agreement, (B) the Company fails to obtain effectiveness with the SEC, prior to the Registration Deadline, of any Registration Statement that is required to be filed pursuant to Section 2(a) of this Agreement, or fails to keep such Registration Statement current and effective as required in Section 3 of this Agreement or sales of any Registrable Securities cannot be made under such Registration Statement (whether by reason of the Company’s failure to amend or supplement the prospectus included therein in accordance with this Agreement, the Company’s failure to file and to obtain effectiveness with the SEC of an additional Registration Statement registering Registrable Securities or amended Registration Statement required pursuant to Section 3(b) of this Agreement, as applicable, or otherwise), or (C) the Company fails to provide a commercially reasonable written response to any comments to the foregoing Registration Statement submitted by the SEC within twenty (20) days of the date that such SEC comments are received by the Company or (II) at any time following the six month anniversary of the issuance of any Note, the Registrable Securities issuable upon conversion of such Note are not either eligible for immediate sale (by Investors that are not affiliates of the Company) without volume restriction pursuant to Rule 144(b)(1) without registration under the Securities Act or eligible for resale under the Securities Act under an effective Registration Statement covering the resale of such Conversion Shares; provided that Allowed Delays shall not be deemed to be Registration Failures.

 

6. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualification fees, printers and accounting fees, and the fees and disbursements of counsel for the Company shall be borne by the Company. In no event shall the Company be responsible for any underwriting, broker or similar fees or commissions of the Investors or, except to the extent provided for in the Purchase Agreement, the Notes, the Security Agreement or this Agreement, any legal fees or other costs of the Investors.

 

7. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: 

 

 

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a. The Company will indemnify, hold harmless and defend (i) each Investor, (ii) the directors, officers, partners, managers, members, employees, investment advisors, representatives, agents and each Person who controls any Investor within the meaning of the Securities Act or the Exchange Act, if any, (iii) any underwriter (as defined in the Securities Act) for each Investor in connection with an underwritten offering pursuant to Section 2(b) hereof, and (iv) the directors, officers, partners, employees and each Person who controls any such underwriter within the meaning of the Securities Act or the Exchange Act, if any (each, an “Indemnified Person”), against any joint or several losses, claims, damages, liabilities, fines, penalties, charges, costs, and expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, “Claims”) to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). The Company shall pay and reimburse the Indemnified Person promptly as such expenses are incurred or are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, an Investor shall not be entitled to indemnification under this Section 7(a) to the extent the Violation arises out of or is based upon a Violation to the extent that such Violation occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of such Registration Statement or any such amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 10 and shall survive any termination of this Agreement. 

 

b. Promptly after receipt by an Indemnified Person under this Section 7 of notice of the commencement of any action (including any governmental action), such Indemnified Person shall, if a Claim in respect thereof is to be made against the Company under this Section 7, deliver to the Company a written notice of the commencement thereof, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnified Person, as the case may be; provided, however, that an Indemnified Person shall have the right to retain its own counsel with the reasonable fees and expenses to be paid by the Company, if, in the reasonable opinion of counsel for the Investor, the representation by such counsel of the Indemnified Person would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding. The Company shall pay for only one additional separate legal counsel for the Indemnified Persons, and such legal counsel shall be selected by Investors. The failure to deliver written notice to the Company within a reasonable time of the commencement of any such action shall not relieve the Company of any liability to the Indemnified Person under this Section 7, except to the extent that the Company is actually materially prejudiced in its ability to defend such action. The indemnification required by this Section 7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred or is due and payable. Notwithstanding anything 

 

 

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herein to the contrary, the Company shall not settle any Claim without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld or delayed.

 

c. Each Investor will, severally but not jointly, indemnify, hold harmless and defend (i) the Company, and (ii) the directors, officers, partners, managers, members, employees, or agents of the Company, if any (each, a “Company Indemnified Person”), against any losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, “Indemnity Claims”) to which any of them become subject insofar as such Indemnity Claims directly arise out of a violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities, which occurs due to the inclusion by the Company in a Registration Statement of false or misleading information about such Investor, where such information was furnished in writing to the Company by such Investor expressly for the purpose of inclusion in such Registration Statement. An indemnifying Investor shall have the right to participate in, and, to the extent it so desires, to assume control of the defense (and settlement) thereof with counsel mutually satisfactory to such Investor and the Company. Notwithstanding anything herein to the contrary, the indemnity agreement contained in this Section 7(c) shall not apply to amounts paid in settlement of any Indemnity Claim if such settlement is effected without the prior written consent of the indemnifying Investor which consent shall not be unreasonably withheld or delayed; and provided further, however, that notwithstanding anything else set forth in this Agreement, the aggregate liability of an Investor under this Section 7(c) and under Section 8 (or under any other provision in this Agreement) shall not exceed the net amount of cash proceeds received by such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. In no event shall any Investor be liable under this Section 7(c) (or under any other provision in this Agreement) for any Indemnity Claims arising out of any information furnished to the Company by any other Investor.

 

d. Promptly after receipt by a Company Indemnified Person under this Section 7 of notice of the commencement of any action (including any governmental action), such Company Indemnified Person shall, if an Indemnity Claim in respect thereof is to be made against an Investor under this Section 7, deliver to such Investor a written notice of the commencement thereof, and such Investor shall have the right to participate in, and, to the extent such Investor so desires, to assume control of the defense thereof with counsel mutually satisfactory to such Investor and the Company Indemnified Person, as the case may be.

 

 

8. CONTRIBUTION. To the extent any indemnification by the Company is prohibited or limited by law, the Company agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 7 to the fullest extent permitted by law, based upon a comparative fault standard. To the extent any indemnification by an Investor is prohibited or limited by law, such Investor agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 7 to the fullest extent permitted by law, based upon a comparative fault standard. Notwithstanding anything else set forth in this Agreement, the aggregate liability of an Investor under Section 7(c) and Section 8 (or otherwise in under this Agreement) shall not exceed the net amount of cash proceeds received by such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement.

 

9. REPORTS AND SUBMISSIONS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration, the Company agrees to:

 

 

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a. make and keep public information available, as those terms are understood and defined in Rule 144;

 

b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the filing of such reports and other documents is required for the applicable provisions of Rule 144; 

 

c. submit electronically to the SEC and post on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T under the Exchange Act; and

 

d. so long as the Investors own Registrable Securities, promptly upon reasonable request, furnish to the Investors (i) a written statement by the Company that it has complied with the reporting, submissions or posting requirements of the Securities Act and the Exchange Act as required for applicable provisions of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.

 

10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by each Investor to any transferee of all or any portion of the Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, and (iii) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein. In the event that an Investor transfers all or any portion of its Registrable Securities pursuant to this Section 10, the Company shall have at least ten (10) business days to file any amendments or supplements necessary to keep a Registration Statement current and effective pursuant to Rule 415.

 

11. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company and the holders of a majority in interest of then-outstanding Registrable Securities, which shall include at least one fund managed by QVT Financial LP, if it is a holder at that time. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each of the Investors and the Company.

 

12. MISCELLANEOUS.

 

a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns of record or beneficially through a “street name” holder such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

 

b. Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile or by electronic mail and shall be effective five (5) days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, or when read by electronic mail (sender shall have received a “read by recipient” confirmation) in each case addressed to a party. The addresses for such communications shall be:

 

 

10

 

 

If to the Company:

 

400 Kato Terrace
Fremont, CA. 94539
Email: gerickson@aehr.com

Phone: 510.623.9400
Fax: 510.623.9450

Attn: Gayn Erickson

 

If to an Investor, at the addresses on the signature page to the Purchase Agreement. 

 

Each party shall provide notice to the other party of any change in address.

 

c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

d. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and to be performed in such State. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. THE PARTIES HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY. 

 

e. This Agreement, the Notes, the Purchase Agreement and the Security Agreement, as applicable (including all schedules and exhibits thereto), constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Notes, the Purchase Agreement and the Security Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

 

f. Subject to the requirements of Section 10 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

 

g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

h. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by 

 

 

11

 

 

a party, may be delivered to the other party hereto by .pdf or facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

 

i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

j. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Investors by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for breach of its obligations hereunder will be inadequate and agrees, in the event of a breach or threatened breach by the Company of any of the provisions hereunder, that the Investors shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

 

k. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

l. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

 

m. There shall be no oral modifications or amendments to this Agreement. This Agreement may be modified or amended only in writing.

 

[Remainder of page left intentionally blank]

 

[Signature page follows]

 

 

12

 

 

IN WITNESS WHEREOF, the undersigned Investors and the Company have caused this Registration Rights Agreement to be duly executed as of the date first written above.

 

	
COMPANY:

 

AEHR TEST SYSTEMS

 

By: /s/ Gary L. Larson                                                               

Name: Gary L. Larson 

Title: Chief Financial Officer and Vice 

President of Finance 
	
INVESTORS:

 

Quintessence FUND L.P.

By: QVT Associates GP LLC, 

        its general partner

 

By:/s/ Tracy Fu                                                                

Name:Tracy Fu

Title:Managing Member 

	  	
 

QVT FUND LP 

By: QVT Associates GP LLC, 

        its general partner

 

By:/s/ Tracy Fu                                                                

Name:Tracy Fu

Title: Managing Member

 

 

 

[Signature Page to Registration Rights Agreement]ex10-1.htm

 

Exhibit 10.1

 

SECURITY AGREEMENT

 

This Security Agreement (as amended, modified or otherwise supplemented from time to time, this “Security Agreement”), dated as of April 10, 2015, is executed by Aehr Test Systems, a California corporation (together with its successors and assigns, “Company”), in favor of QVT Fund LP and Quintessence Fund L.P. (collectively, and together with their respective successors and assigns, the “Secured Party”).

 

RECITALS

 

A.     Company and Secured Party have entered into a Convertible Note Purchase and Credit Facility Agreement, dated as of the date hereof (as it may be amended, modified or otherwise supplemented from time to time, the “Purchase Agreement”), pursuant to which Secured Party may extend credit to the Company to be evidenced by one or more promissory notes issued by the Company to Secured Party (as may be amended, modified or otherwise supplemented from time to time, each a “Note” and collectively, the “Notes”).

 

B.      In order to induce Secured Party to extend the credit evidenced by the Notes, Company has agreed to enter into this Security Agreement and to grant to Secured Party, the security interest in the Collateral described below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Company hereby agrees with Secured Party as follows:

 

1.       Definitions and Interpretation. When used in this Security Agreement, the following terms have the following respective meanings:

 

“Collateral” has the meaning given to that term in Section 2 hereof.

 

“Intellectual Property” means all intellectual and similar property of every kind and nature now owned or hereafter acquired by Company, including inventions, designs, patents (whether registered or unregistered), copyrights (whether registered or unregistered), trademarks (whether registered or unregistered), Licenses, trade secrets, trade secret rights, domain names, confidential or proprietary technical and business information, know-how, methods, operating manuals, source code, processes, drawings, specifications or other data or information and all memoranda, notes and records with respect to any research and development, software and databases and all embodiments or fixations thereof whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media and related documentation, registrations, applications for registration and franchises, and all additions, improvements and accessions to, all amendments, renewals and extensions of, claims for damages by way of past, present or future infringement of any of the foregoing, with the right, but not the 

 

 

 

 

 

obligation, to sue for and collect such damages for said use or infringement of rights described above, and books and records describing or used in connection with, any of the foregoing.

 

“IP Security Agreement” means, one or more Copyright Security Agreements, Trademark Security Agreements, or Patent Security Agreements, in the form attached as Exhibit A to this Security Agreement, delivered by the Secured Party in favor of the Company. 

 

"Licenses" means, with respect to any Person (the "Specified Party"), (i) any licenses or other similar rights provided to the Specified Party in or with respect to Intellectual Property owned or controlled by any other Person, and (ii) any licenses or other similar rights provided to any other Person in or with respect to Intellectual Property owned or controlled by the Specified Party, in each case, including (A) any software license agreements (other than license agreements for commercially available off-the-shelf software that is generally available to the public which have been licensed to Company pursuant to end-user licenses) and (B) the right to use any of the licenses or other similar rights described in this definition in connection with the enforcement of the Secured Party's rights under this Security Agreement, the Notes and/or the Purchase Agreement.

 

“Lien” shall mean, with respect to any property, any security interest, mortgage, deed, pledge, lien (statutory or otherwise), claim, charge or other encumbrance, including, without limitation, any capitalized lease and any assignment, deposit arrangement or financing lease indended as, or having the effect of, security.

 

“Obligations” means all loans, advances, debts, liabilities and obligations, howsoever arising, owed by Company to Secured Party of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), now existing or hereafter arising under or pursuant to the terms of the Notes, the Purchase Agreement, this Security Agreement and the other Transaction Documents, including, without limitation, the principal amount of all debts, claims, and indebtedness, all interest, fees, charges, expenses, attorneys' fees and costs and accountants' fees and costs chargeable to and payable by Company hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable in whole or in part as a claim in any such proceeding.

 

“Perfection Certificate” means a certificate substantially in the form of Exhibit B, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a responsible officer of the Company.

 

“Restricted License” is any material license or other agreement with respect to which the Company is the licensee (a) that prohibits or otherwise restricts the Company from granting a security interest in the Company’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Secured Party’s right to sell any Collateral.

 

 

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“UCC” means the Uniform Commercial Code as in effect in the State of New York from time to time; provided, however, to the extent the law of any other state or other jurisdiction applies to the attachment, perfection, priority or enforcement of any Lien granted to Secured Party in any of the Collateral, “UCC” means the Uniform Commercial Code as in effect in such other state or jurisdiction for purposes of the provisions hereof relating to such attachment, perfection, priority or enforcement of a Lien in such Collateral.

 

All capitalized terms not otherwise defined herein shall have the respective meanings given in the Notes or the Purchase Agreement. Unless otherwise defined herein, all terms defined in the UCC have the respective meanings given to those terms in the UCC.

 

2.       Grant of Security Interest. As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, Company hereby pledges to Secured Party and grants to Secured Party a security interest of first priority in all right, title and interests of Company in and to all personal property and Fixtures of the Company, wherever located and whether now or hereafter existing and whether now or hereafter acquired, of every kind and description, tangible or intangible, including, without limitation, the property described in Attachment 1 hereto (collectively, the “Collateral”). 

 

3.       General Representations and Warranties. Company represents and warrants to Secured Party that: 

 

(a)     Company is the record and beneficial owner of, has rights in, and the power to transfer, each item of the Collateral (or, in the case of after-acquired Collateral, at the time Company acquires rights in the Collateral, will be the owner thereof) and that no other Person has (or, in the case of after-acquired Collateral, at the time Company acquires rights therein, will have) any right, title, claim or interest (by way of Lien or otherwise) in, against or to the Collateral, other than Permitted Liens (as defined in the Purchase Agreement); 

 

(b)     this Security Agreement creates a legal, valid and enforceable security interest in favor of Secured Party in the Collateral, as security for the Obligations, and upon the filing of UCC-1 financing statements in the appropriate filing offices, Secured Party has (or in the case of after-acquired Collateral, at the time Company acquires rights therein, will have) a first priority perfected security interest in the Collateral to the extent that a security interest in the Collateral can be perfected by such filing, except for Permitted Liens; 

 

(c)     all Inventory has been (or, in the case of hereafter produced Inventory, will be) produced in compliance with applicable laws, including the Fair Labor Standards Act;

 

(d)     all accounts receivable and payment intangibles are genuine and enforceable against the party obligated to pay the same; 

 

(e)     the originals of all documents evidencing all accounts receivable and payment intangibles of Company and the only original books of account and records of Company relating 

 

 

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thereto are, and will continue to be, kept at the address of the Company set forth in Section 8 of this Security Agreement;

 

(f)     as of the date hereof, the Perfection Certificate sets forth (i) the exact legal name of Company and each of its Subsidiaries, (ii) the state or jurisdiction of organization of Company and each of its Subsidiaries, (iii) the type of organization of Company and each of its Subsidiaries, and (iv) the organizational identification number of Company and each of its Subsidiaries or states that no such organizational identification number exists;

 

(g)     as of the date hereof, (i) the Perfection Certificate provides a complete and correct list of all registered and applications for registration of all Intellectual Property the Company owns, and (ii) Company owns, or holds licenses in, or otherwise possesses legally enforceable rights in, all Intellectual Property that is reasonably necessary to the operation of its business as currently conducted;

 

(h)     except for those claims which Company or its applicable Subsidiary is diligently pursuing the remedy thereof, no claims with respect to any material Intellectual Property rights of Company or any of its Subsidiaries are pending or, to the knowledge of Company, threatened against Company or any of its Subsidiaries or, to the knowledge of Company, any other Person, (i) alleging that the manufacture, sale, licensing or use of any Intellectual Property as now manufactured, sold, licensed or used by Company or any of its Subsidiaries or any third party infringes on any intellectual property rights of any third party, (ii) against the use by Company or any of its Subsidiaries or any third party of any technology, know-how or computer software used in Company's or any of its Subsidiaries' business as currently conducted or (iii) challenging the ownership by Company or any of its Subsidiaries, or the validity or effectiveness, of any such Intellectual Property;

 

(i)     to the knowledge of Company, (i) neither Company nor any of its Subsidiaries has infringed on any intellectual property rights of any third party and (ii) none of the Intellectual Property rights of Company or any of its Subsidiaries infringes on any intellectual property rights of any third party;

 

(j)     all registered copyrights, registered trademarks, and issued patents that are owned by Company and its Subsidiaries and material to or necessary for the conduct of its business (i) are subsisting, (ii) are valid and enforceable and (iii) have at all times been in compliance with all laws, rules, regulations, and orders of any Governmental Authority applicable thereto;

 

(k)     set forth in the Perfection Certificate is a complete and accurate list, as of the date of this Security Agreement, of each Deposit Account, Securities Account and Commodity Account of the Company, together with the name and address of each institution at which each such Account is maintained, the account number for each such Account and a description of the purpose of each such Account;

 

 

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(l)      as of the date hereof, Company does not own any real property; 

 

(m)      no permit, notice to or filing with any governmental authority or any other Person or any consent from any Person is required for the exercise by the Secured Party of its rights (including voting rights) provided for in this Security Agreement or the enforcement of remedies in respect of the Collateral pursuant to this Security Agreement, including the transfer of any Collateral, except as may be required in connection with the disposition of any portion of the Pledged Collateral by laws affecting the offering and sale of securities generally or any approvals that may be required to be obtained from any bailees or landlords to collect the Collateral; 

 

(n)     there is no pending or, to the best knowledge of Company, threatened action, suit, proceeding or claim before any court or other Governmental Authority or any arbitrator, or any order, judgment or award by any court or other Governmental Authority or any arbitrator, that may adversely affect the grant by Company, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise by Company of any of its rights or remedies hereunder; and

 

(o)     in connection with this Security Agreement, the Company has delivered to the Secured Party a completed Perfection Certificate signed by the Company. The Company represents and warrants to the Secured Party that the information set forth on the Perfection Certificate pertaining to the Company and each of its Subsidiaries is accurate and complete (it being understood and agreed that the Company may from time to time update certain information in the Perfection Certificate after the Closing Date to the extent permitted by one or more specific provisions in this Security Agreement, including Section 4(m) below). 

 

4.       Covenants Relating to Collateral. Company hereby agrees: 

 

(a)     to perform all acts that may be necessary to insure, maintain, preserve, protect, perfect and defend the Collateral, the Lien granted to Secured Party therein and the perfection and priority of such Lien, except for Permitted Liens; 

 

(b)     not to use or permit any Collateral to be used (i) in violation in any material respect of any applicable law, rule or regulation, (ii) in violation of any policy of insurance covering the Collateral, or (iii) in violation of any provision of this Security Agreement, the Notes or the Purchase Agreement; 

 

(c)     to pay promptly when due all taxes and other governmental charges, all Liens and all other charges now or hereafter imposed upon or affecting any Collateral; 

 

(d)     without 30 days' prior written notice to Secured Party, (i) not to change Company's name or place of business (or, if Company has more than one place of business, its chief executive office), or the office in which Company's records relating to accounts receivable and payment intangibles are kept, and (ii) not to change Company’s state of incorporation; 

 

 

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(e)     to procure, execute and deliver from time to time any endorsements, assignments, financing statements and other writings reasonably deemed necessary or appropriate by Secured Party to perfect, maintain and protect its Lien hereunder and the priority thereof and to deliver promptly upon the request of Secured Party all originals of Collateral consisting of instruments;

 

(f)     (i) within 60 days after the date of this Security Agreement, to cause each bank and other financial institution with an account held by Company and referred to in the Perfection Certificate to execute and deliver to Secured Party (or its designee) a control agreement, in form and substance satisfactory to Secured Party, duly executed by Company and such bank or financial institution, or enter into other arrangements in form and substance satisfactory to Secured Party, pursuant to which such institution shall irrevocably agree, among other things, that (A) it will comply at any time with the instructions originated by Secured Party (or its designee) to such bank or financial institution directing the disposition of cash, Commodity Contracts, securities, Investment Property and other items from time to time credited to such account, without further consent of Company, which instructions Secured Party (or its designee) will not give to such bank or other financial institution in the absence of a continuing Event of Default, and (B) upon receipt of written notice from Secured Party during the continuance of an Event of Default, such bank or financial institution shall immediately send to Secured Party (or its designee) by wire transfer (to such account as Secured Party (or its designee) shall specify, or in such other manner as Secured Party (or its designee) shall direct) all such cash, the value of any Commodity Contracts, securities, Investment Property and other items held by it, and (ii) without ten days’ prior written notice to Secured Party, Company shall not make or maintain any Deposit Account, Commodity Account or Securities Account except for the accounts set forth in the Perfection Certificate; 

 

(g)     Provide the Secured Party prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any copyright, including any subsequent ownership right of the Company in or to any copyright, patent or trademark not shown in an IP Security Agreement, and (iii) the Company’s knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property; 

 

(h)     if the Company (i) obtains any patent, registered trademark, registered copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any patent or the registration of any trademark, then the Company shall promptly provide written notice thereof to the Secured Party and shall execute such intellectual property security agreements and other documents and take such other actions as the Secured Party shall request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of the Secured Party in such property. If the Company decides to register any copyrights or mask works in the United States Copyright Office, the Company shall: (x) provide the Secured Party with at least fifteen (15) days prior written notice of the Company’s intent to register such copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding

 

 

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exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as the Secured Party may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of the Secured Party in the copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the copyright or mask work application(s) with the United States Copyright Office. The Company shall promptly provide to the Secured Party copies of all applications that it files for patents or for the registration of trademarks, copyrights or mask works, together with evidence of the recording of the intellectual property security agreement necessary for the Secured Party to perfect and maintain a first priority perfected security interest in such property; 

 

(i)     (i) use commercially reasonable efforts to protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise the Secured Party in writing of material infringements of its Intellectual Property; and (iii) not allow any Intellectual Property material to the Company’s business to be abandoned, forfeited or dedicated to the public without the Secured Party’s written consent; 

 

(j)     Provide written notice to the Secured Party within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). The Company shall take such steps as the Secured Party reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for the Secured Party to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) the Secured Party to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with the Secured Party’s rights and remedies under this Security Agreement and the other Transaction Documents; 

 

(k)     to (i) keep its business and the Collateral insured against loss or damage, and (ii) maintain liability and other insurance, in each case in as ordinarily insured against by other owners in businesses similar to the Company’s. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form reasonably satisfactory to Secured Parties, showing Secured Parties as an additional loss payee, and all liability insurance policies shall show Secured Parties as an additional insured and specify that the insurer must give at least 20 days notice to Secured Parties before canceling its policy for any reason. The Company shall cause to be furnished to Secured Parties a copy of its policies or certificate of insurance including any endorsements covering Secured Parties or showing Secured Parties as an additional insured and, if requested, evidence of all premium payments. Proceeds payable under any casualty policy will, at the Company’s option, be payable to the Company to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Secured Parties has been granted a first priority security interest, provided that if an Event of Default has occurred 

 

 

-7-

 

 

and is continuing, all proceeds payable under any such policy shall, at Secured Parties’ option, be payable to Secured Parties to be applied on account of the Obligations;

 

(l)     to allow the Secured Parties to inspect the Collateral and audit and copy the Company’s books and records, including, but not limited to, the Company’s Accounts, upon reasonable notice to the Company. Such inspections or audits shall be at the Borrower’s expense and shall be conducted no more often than once every six (6) months unless an Event of Default has occurred and is continuing (in which case, they may be at any time as determined by the Secured Parties); and 

 

(m)      the Company shall promptly (and in any event not later than the end of each fiscal quarter after acquiring or obtaining such Collateral) notify the Secured Party in writing upon acquiring or otherwise obtaining (i) any Intellectual Property and (ii) any other material Collateral and, in each such case upon the request of the Secured Party, promptly execute such other documents, including any intellectual property security agreement, or if applicable, deliver such Collateral and do such other acts or things deemed necessary by the Secured Party to perfect or protect the Secured Party’s security interest therein.

 

5.       Further Assurances. Company will, at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that Secured Party may reasonably request in order (i) to perfect and protect, or maintain the perfection of, the security interest and Lien purported to be created hereby (including, with respect to any owned real property, mortgages and other real property deliverables reasonably requested by Secured Party in connection therewith); (ii) to enable Secured Party to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) otherwise to effect the purposes of this Security Agreement, including, without limitation: (A) marking conspicuously all Chattel Paper, Instruments and Licenses and, at the request of Secured Party, all of its Records pertaining to the Collateral with a legend, in form and substance satisfactory to Secured Party, indicating that such Chattel Paper, Instrument, License or Collateral is subject to the security interest created hereby, (B) if any Account shall be evidenced by a Promissory Note or other Instrument or Chattel Paper, delivering and pledging to Secured Party such Promissory Note, other Instrument or Chattel Paper, duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party, (C) executing and filing (to the extent, if any, that Company's signature is required thereon) or authenticating the filing of, such financing or continuation statements, or amendments thereto, (D) with respect to Intellectual Property hereafter existing and not covered by an appropriate security interest grant, the executing and recording in the United States Patent and Trademark Office or the United States Copyright Office, as applicable, appropriate instruments granting a security interest, as may be necessary or desirable or that Secured Party may request in order to perfect and preserve the security interest purported to be created hereby, (E) delivering to Secured Party irrevocable proxies in respect of the pledged Investment Property, (F) furnishing to Secured Party from time to time statements further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail, (G) if as of the date hereof or at any 

 

 

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time after the date hereof, Company acquires or holds any Commercial Tort Claim with a maximum potential value in excess of $100,000, promptly notifying Secured Party in a writing signed by Company setting forth a brief description of such Commercial Tort Claim and granting to Secured Party a security interest therein and in the proceeds thereof, which writing shall incorporate the provisions hereof and shall be in form and substance satisfactory to Secured Party, and (H) upon the reasonable request of Secured Party, taking all actions required by law in any relevant Uniform Commercial Code jurisdiction, or by other law as applicable in any foreign jurisdiction. Company shall not take or fail to take any action which would in any manner impair the validity or enforceability of Secured Party's security interest in and Lien on any Collateral, and shall cause any U.S. Subsidiary of Company not in existence on the date hereof to execute and deliver to Secured Party within 30 days after the formation or acquisition thereof by Company a guarantee with respect to the Obligations and a security agreement pursuant to which such U.S. Subsidiary's obligations under such guarantee are secured by all personal property of such new U.S. Subsidiary, in each case in form and substance satisfactory to Secured Party.

 

6.       Authorized Action by Secured Party. 

 

(a)     To the maximum extent permitted by applicable law, and for the purpose of taking any action that Secured Party may deem necessary or advisable to perfect its security interest in the Collateral, Company hereby authorizes Secured Party at any time and from time to time to file, one or more financing or continuation statements and amendments thereto, relating to the Collateral (including, without limitation, any such financing statements that (A) describe the Collateral as "all assets" or "all personal property" (or words of similar effect) or that describe or identify the Collateral by type or in any other manner as Secured Party may determine, regardless of whether any particular asset of Company falls within the scope of Article 9 of the UCC or whether any particular asset of Company constitutes part of the Collateral, and (B) contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including, without limitation, whether Company is an organization, the type of organization and any organizational identification number issued to Company). A photocopy or other reproduction of this Security Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

 

(b)     Company hereby irrevocably appoints Secured Party as its attorney-in-fact and grants an irrevocable proxy (which appointment and proxy is coupled with an interest and is irrevocable until the date on which all Obligations (other than inchoate indemnity obligations) have been paid in full) and agrees that Secured Party may perform (but Secured Party shall not be obligated to and shall incur no liability to Company or any third party for failure so to do) any act which Company is obligated by this Security Agreement to perform, to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Secured Agreement, and to exercise such rights and powers as Company might exercise with respect to the Collateral, including the right to (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or 

 

 

-9-

 

 

hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) ask, demand, sue for, recover, compound, receive, and make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; (d) insure, process and preserve the Collateral and to adjust insurance relating to the Collateral; (e) pay any indebtedness or taxes of Company relating to the Collateral; (f) receive, endorse, and collect any drafts or other Instruments, Documents and Chattel Paper, (g) to execute assignments, licenses and other documents to enforce the rights of Secured Party with respect to any Collateral, and (h) file UCC financing statements execute other documents, instruments and agreements required deemed necessary or desirable by Secured Party to accomplish the purposes of this Security Agreement; provided, however, that Secured Party shall not exercise any such powers granted pursuant to subsections (a) through (g) prior to the occurrence of an Event of Default and shall only exercise such powers during the continuance of an Event of Default. Company agrees to reimburse Secured Party upon demand for any reasonable costs and expenses, including attorneys' fees, Secured Party may incur while acting as Company's attorney-in-fact hereunder, all of which costs and expenses are included in the Obligations. It is further agreed and understood between the parties hereto that such care as Secured Party gives to the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral when in Secured Party 's possession; provided, however, that Secured Party shall not be required to make any presentment, demand or protest, or give any notice and need not take any action to preserve any rights against any prior party or any other person in connection with the Obligations or with respect to the Collateral.

 

7.       Default and Remedies. 

 

(a)     Default. Company shall be deemed in default under this Security Agreement upon the occurrence and during the continuance of an Event of Default. 

 

(b)     Remedies. Upon the occurrence and during the continuance of any such Event of Default, Secured Party shall have the rights of a secured creditor under the UCC, all rights granted by this Security Agreement and by law, including the right to: (a) take immediate possession of all or any portion of the Collateral, (b) require Company to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party; (c) prior to the disposition of the Collateral, store, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent Secured Party deems appropriate, and/or (d) lease, license or otherwise dispose of the Collateral or any part thereof upon such terms as Secured Party may deem commercially reasonable. Company hereby agrees that ten (10) days' notice of any intended sale or disposition of any Collateral is reasonable, it being understood and agreed that Secured Party shall not be obligated to make any sale or other disposition of Collateral regardless of notice of sale or disposition having been given. At any public (or, to the extent permitted by law, private) sale made pursuant to this Security Agreement, Secured Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of Company (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to Secured Party from Company as a credit against the purchase price, and Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property 

 

 

-10-

 

 

without further accountability to Company therefor. In furtherance of Secured Party 's rights hereunder, Company hereby grants to Secured Party an irrevocable, non-exclusive license, exercisable without royalty or other payment by Secured Party, and only in connection with the exercise of remedies hereunder, to use, license or sublicense any patent, trademark, trade name, copyright or other Intellectual Property in which Company now or hereafter has any right, title or interest together with the right of access to all media in which any of the foregoing may be recorded or stored. Company hereby acknowledges that if Secured Party complies with any applicable requirements of law in connection with a disposition of the Collateral, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Collateral.

 

(c)     Application of Collateral Proceeds. The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds and the avails of any remedy hereunder (as well as any other amounts of any kind held by Secured Party at the time of, or received by Secured Party after, the occurrence of an Event of Default) shall be paid to and applied as follows:

 

(i)     First, to the payment of reasonable costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys’ fees, incurred or made hereunder by Secured Party;

 

(ii)     Second, to the payment to Secured Party (ratably, to each entity constituting the "Secured Party") of the amount then owing or unpaid to Secured Party (to be applied first to accrued interest and second to outstanding principal);

 

(iii)     Third, to the payment of other amounts then payable to Secured Party under any of the Transaction Documents; and

 

(iv)     Fourth, to the payment of the surplus, if any, to Company, its successors and assigns, or to whomsoever may be lawfully entitled to receive the same.

 

(d)     Secured Party shall not be required to make any demand upon, or pursue or exhaust any right or remedy against the Company or any other Person with respect to the payment of the Obligations or to pursue or exhaust any right or remedy with respect to any Collateral therefor or any direct or indirect guaranty thereof. All of the rights and remedies of the Secured Party under this Security Agreement or any other Transaction Document shall be cumulative, may be exercised individually or concurrently and are not exclusive of any other rights or remedies provided by any applicable law. Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Security Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence. To the extent it may lawfully do so, Company absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against Secured Party, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or 

 

 

-11-

 

 

defenses it may have as a surety, now or hereafter existing, arising out of the exercise by them of any rights hereunder. 

 

(e)     Deficiency. The Company shall remain liable for any deficiency if the proceeds of any sale or other disposition of any Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorney employed by the Secured Party to collect such deficiency.

 

8.       Miscellaneous.

 

(a)     Notices. Except as otherwise provided herein, all notices, requests, demands, consents, instructions or other communications to or upon Company or Secured Party under this Security Agreement shall be in writing and faxed, mailed or delivered to each party to the facsimile number or its address set forth below (or to such other facsimile number or address as the recipient of any notice shall have notified the other in writing). All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing, on the business day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when faxed, upon confirmation of receipt.

 

 

 

Secured Party:

QVT Fund LP 

Quintessence Fund L.P.

c/o QVT Financial LP

1177 Avenue of the Americas, 9th Floor 

New York, NY 10036

Attn: Tracy Fu and Oren Eisner

Telephone: (212) 705-6213

 

with a copy to:

Hogan Lovells US LLP

Attn: Mark Heimlich

1200 17th Street, Suite 1500

Denver, CO 80202

Telephone: (303) 899-7324

Facsimile: (303) 899-7333     

 

Company: 

Aehr Test Systems

Attn: Chief Financial Officer

400 Kato Terrace

Fremont, CA 93539

 

 

-12-

 

 

Telephone: (510) 623-9400

Facsimile: (510) 623-9686

 

with a copy to:

Wilson Sonsini Goodrich & Rosati, P.C.

Attn: Mark L. Reinstra                    

650 Page Mill Road

Palo Alto, CA 94304-1050

Telephone: (650) 493-9300

Facsimile: (650) 493-6811

 

(b)     Termination of Security Interest. Upon the payment in full of all Obligations and the cancellation or termination of any commitment to extend credit or purchase Notes under the Purchase Agreement, the security interest granted herein shall terminate and all rights to the Collateral shall revert to Company. Upon such termination Secured Party hereby authorizes Company to file any UCC termination statements necessary to effect such termination and Secured Party will execute and deliver to Company any additional documents or instruments as Company shall reasonably request to evidence such termination, in each case at the expense of Company. If any payment made by the Company or other Person and applied to the Secured Obligations is at any time annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of any Collateral are required to be returned by Secured Party to the Company, its estate, trustee, receiver or any other party, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, any Lien or other Collateral securing such liability shall be and remain in full force and effect, as fully as if such payment had never been made. If, prior to any of the foregoing, (a) any Lien or other Collateral securing the Company’s liability hereunder shall have been released or terminated by virtue of the foregoing, such Lien or other Collateral shall be reinstated in full force and effect and such prior release, termination, cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of the Company in respect of any Lien or other Collateral securing such obligation or the amount of such payment.

 

(c)     Nonwaiver. No failure or delay on Secured Party’s part in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right.

 

(d)     Amendments and Waivers. This Security Agreement may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Company and Secured Party. Each waiver or consent under any provision hereof shall be effective only in the specific instances for the purpose for which given.

 

(e)     Assignments. This Security Agreement shall be binding upon and inure to the benefit of Secured Party and Company and their respective successors and assigns; provided,

 

 

-13-

 

 

however, that Company may not sell, assign or delegate rights and obligations hereunder without the prior written consent of Secured Party.

 

(f)     Cumulative Rights, etc. The rights, powers and remedies of Secured Party under this Security Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any applicable law, rule or regulation of any governmental authority, any Transaction Document or any other agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing Secured Party’s rights hereunder. Company waives any right to require Secured Party to proceed against any person or entity or to exhaust any Collateral or to pursue any remedy in Secured Party 's power.

 

(g)     Partial Invalidity. If at any time any provision of this Security Agreement is or becomes illegal, invalid or unenforceable in any respect under the law or any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of this Security Agreement nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.

 

(h)     Construction. Each of this Security Agreement and the other Transaction Documents is the result of negotiations among, and has been reviewed by, Company, Secured Party and their respective counsel. Accordingly, this Security Agreement and the other Transaction Documents shall be deemed to be the product of all parties hereto, and no ambiguity shall be construed in favor of or against Company or Secured Party.

 

(i)     Entire Agreement. This Security Agreement taken together with the other Transaction Documents constitute and contain the entire agreement of Company and Secured Party and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof.

 

(j)     Severability. If any provision of this Security Agreement is held to be unenforceable under applicable law, such provision will be excluded from this Security Agreement and the balance of this Security Agreement will be interpreted as if such provision were so excluded and will be enforceable in accordance with its terms. 

 

(k)     Other Interpretive Provisions. References in this Security Agreement and each of the other Transaction Documents to any document, instrument or agreement (a) includes all exhibits, schedules and other attachments thereto, (b) includes all documents, instruments or agreements issued or executed in replacement thereof, and (c) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Security Agreement or any other Transaction Document refer to this Security Agreement or such other 

 

 

-14-

 

 

Transaction Document, as the case may be, as a whole and not to any particular provision of this Security Agreement or such other Transaction Document, as the case may be. The words “include” and “including” and words of similar import when used in this Security Agreement or any other Transaction Document shall not be construed to be limiting or exclusive.

 

(l)     Governing Law. This Security Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to conflicts of law rules (except to the extent governed by the UCC).

 

(m)      Waiver of Jury Trial. each party hereto, hereby irrevocably waives trial by jury in any suit, action or proceeding with respect to, or directly or indirectly arising out of, under or in connection with, any transaction document or the transactions contemplated therein or related thereto (whether founded in contract, tort or any other theory). Each party hereto, (A) certifies that no other party and no Related Person of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (B) acknowledges that it and the other parties hereto have been induced to enter into this Security agreement by the mutual waivers and certifications in this Section 8(m). 

 

(n)      Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Company shall not assert, and hereby waives, any claim against any Secured Party, on any theory of liability, for special, indirect, consequential, punitive, incidental, exemplary or multiple damages, lost profits, lost revenues or diminution in value (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Security Agreement, any other Transaction Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, the issuance and purchase of the Notes or the use of the proceeds thereof. No Secured Party shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Security Agreement or the other Transaction Documents or the transactions contemplated hereby or thereby, except as determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Secured Party. 

 

(o)     Indemnification. The Company agrees to indemnify, defend and hold the Secured Party and its directors, officers, employees, agents, attorneys, or any other person affiliated with or representing the Secured Party (each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions contemplated by the Transaction Documents; and (b) all losses or expenses in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between the Company and the Secured Party (including reasonable attorneys’ fees and expenses), 

 

 

-15-

 

 

except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct. 

 

(p)     Counterparts. This Security Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall be deemed to constitute one instrument.

 

[The remainder of this page is intentionally left blank]

 

 

-16-

 

 

IN WITNESS WHEREOF, Company has caused this Security Agreement to be executed as of the day and year first above written.

 

AEHR TEST SYSTEMS

 

By:     /s/ Gary L. Larson                                                               

Name:    Gary L. Larson

Title:       Chief Financial Officer and Vice 

               President of Finance     

 

AGREED BY SECURED PARTY:

 

Quintessence FUND L.P. 

 

By: QVT Associates GP LLC, 

        its general partner

 

 

By: /s/ Tracy Fu                                                                     

Name: Tracy Fu

Title: Managing Member

 

 

QVT Fund LP

 

By: QVT Associates GP LLC, 

        its general partner

 

 

By: /s/ Tracy Fu                                                                     

Name: Tracy Fu 

Title: Managing Member

 

 

[Signature page to Security Agreement]

 

 

 

 

ATTACHMENT 1

 

To Security Agreement

 

All right, title, interest, claims and demands of Company in and to the following property:

 

    (i)     All Accounts;

 

   (ii)     All Chattel Paper (whether tangible or electronic);

 

  (iii)     All Commercial Tort Claims;

 

  (iv)     All Deposit Accounts and cash and all property from time to time deposited therein or otherwise credited thereto;

 

   (v)     All Documents;

   

  (vi)     All Equipment;

 

 (vii)     All General Intangibles (including any Licenses);

 

(viii)     All Goods;

 

   (ix)     All Instruments;

 

    (x)     All Intellectual Property;

 

   (xi)     All Inventory;

 

 (xii)     All Investment Property;

 

(xiii)     All Supporting Obligations;

 

(xiv)     All Letter-of-Credit Rights; 

 

 (xv)     All books and records pertaining to the other property described in this Attachment I; and

 

(xvi)     To the extent not otherwise included, all Proceeds (including all Cash Proceeds and Noncash Proceeds) and products of any and all of the foregoing, and all accessions to, substitutions and replacements for, and rents and profits of each of the foregoing, in each case, howsoever the Company's interest therein may arise or appear (whether by ownership, security interest, claim or otherwise). 

 

Notwithstanding the foregoing, the security interest granted herein shall not extend to and shall not include (a) more than 65% of the issued and outstanding voting equity interests of any Subsidiary of the Company that is not organized under the laws of the United States or any of its states, (b) any “intent-to-use” trademarks at all times prior to the first use thereof, whether by the 

 

 

 

 

actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise; (c) any interest of the Company as a lessee or sublessee under a real property lease; (d) rights held under a license that are not assignable by their terms without the consent of the licensor thereof (other than to the extent (i) such term has been waived, (ii) the consent of the other party to such license has been obtained, or (iii) that such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408, 9-409 of the UCC (or any successor provision or provisions) or other applicable provisions of the Uniform Commercial Code of any relevant jurisdiction or any other applicable law or principles of equity); or (e) any interest of the Company as a lessee under an equipment lease if the Company is prohibited by the terms of such lease from granting a security interest in such lease or under which such an assignment or lien would cause a default to occur under such lease; provided, however, that upon termination of such prohibition, such interest shall immediately become Collateral without any action by the Company or Secured Party.

 

All capitalized terms used in this Attachment 1 and not otherwise defined herein or in the Security Agreement shall have the respective meanings given to such terms in the Uniform Commercial Code of the State of New York as in effect from time to time.

 

 

 

 

EXHIBIT A

 

GRANT OF A SECURITY INTEREST --[TRADEMARKS] [PATENTS] [COPYRIGHTS]

 

This [Trademark][Copyright][Patent] Security Agreement (this "[Trademark][Copyright][Patent] Security Agreement") is made as of _____________, 20__, by ___________ ("Grantor"), in favor of [____________] (together with its successors and assigns in such capacity, "Grantee").

 

WHEREAS, the Grantor [has adopted, used and is using, and holds all right, title and interest in and to, the trademarks and service marks listed on the attached Schedule A, which trademarks and service marks are registered or applied for in the United States Patent and Trademark Office (the "Trademarks")] [holds all right, title and interest in the letter patents, design patents and utility patents listed on the attached Schedule A, which patents are issued or applied for in the United States Patent and Trademark Office (the "Patents")] [holds all right, title and interest in the copyrights listed on the attached Schedule A, which copyrights are registered in the United States Copyright Office (the "Copyrights")];

 

WHEREAS, the Grantor has entered into a Security Agreement, dated April 10, 2015 (as amended, restated, supplemented, modified or otherwise changed from time to time, the "Security Agreement"), in favor of Grantee; and

 

WHEREAS, pursuant to the Security Agreement, the Grantor has granted to the Grantee, a continuing security interest in all right, title and interest of the Grantor in, to and under the [Trademarks, together with, among other things, the goodwill of the business symbolized by the Trademarks] [Patents] [Copyrights] and the applications and registrations thereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof and any and all damages arising from past, present and future violations thereof (the "Collateral"), to secure the payment, performance and observance of the Obligations (as defined in the Security Agreement).

 

NOW, THEREFORE, as collateral security for the prompt and complete payment, performance and observance when due of all of the Obligations, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor does hereby grant to the Grantee a continuing security interest in the Collateral to secure the prompt payment, performance and observance of the Obligations.

 

All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement

 

The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Grantee with respect to the Collateral are more fully set forth in the Security Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein.

 

 

Exh. A-1

 

 

This [Trademark][Patent][Copyright] Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart by facsimile or electronic mail shall be equally effective as delivery of an original executed counterpart. 

 

This [Trademark][Patent][Copyright] Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to conflicts of law rules.

 

[Remainder of page intentionally left blank]

 

 

 

 

IN WITNESS WHEREOF, the Grantor has caused this [Trademark][Copyright][Patent] Security Agreement to be duly executed by its officer thereunto duly authorized as of the date first set forth above.

 

[GRANTOR]

 

By:                                                                               
Name:
Title: 

 

 

Quintessence FUND L.P. 

 

By: QVT Associates GP LLC, 

its general partner

By:                                                                               

Name:  

Title: 

 

 

QVT Fund LP

 

By: QVT Associates GP LLC, 

its general partner

 

 

By:                                                                               

Name: 

Title:

 

 

Exh. A-2

 

 

SCHEDULE A TO GRANT OF A SECURITY INTEREST

 

[Trademark Registrations and Applications]

 

[Patents and Patent Applications]

 

[Copyright Registrations and Applications] 

 

 

Exh. A-1

 

 

EXHIBIT B

 

FORM OF PERFECTION CERTIFICATE

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