Document:

f8k0211ex10vi_adsinmotion.htm

 

 

Exhibit 10.6

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of February 8, 2011, between Ads In Motion, Inc., a Delaware corporation (the “Company”), and each of the several purchasers signatory hereto (each such purchaser, a “Purchaser” and, collectively, the “Purchasers”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “Purchase Agreement”).

 

The Company and each Purchaser hereby agrees as follows:

 

Section 1. Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

“Additional Shares” shall mean shares of Common Stock issued to the Initial Purchasers pursuant to Section 2.1 of the Purchase Agreement.

 

“Agreement” shall have the meaning set forth in the Preamble.

 

“Commission Restrictions” shall have the meaning set forth in Section 2.

 

“Company” shall have the meaning set forth in the Preamble.

 

“Cut Back Shares” shall have the meaning set forth in Section 2.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

“Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement.

 

“Liquidated Damages” shall have the meaning set forth in Section 5.

 

“Non-Registration Event” shall have the meaning set forth in Section 5.

 

“Placement Agent Shares” shall mean all shares issued to Spencer Clarke, LLC in connection with the placement of securities under the Purchase Agreement.

 

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

  

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“Purchase Agreement” shall have the meaning set forth in the Preamble.

 

“Purchaser” and “Purchasers” shall have the meaning set forth in the Preamble.

 

“Required Effectiveness Date” means, with respect to the Initial Registration Statement required to be filed hereunder, the 180th calendar day following the date hereof and with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 60th calendar day following the date on which an additional Registration Statement is required to be filed hereunder.

 

“Required Filing Date” means, with respect to the Initial Registration Statement required hereunder, the 60th calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

 

“Registrable Securities” means, as of any date of determination, (a) all shares of Common Stock then issuable upon conversion in full of the Debentures (assuming on such date the Debentures are converted in full without regard to any conversion limitations therein), (b) all Warrant Shares then issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (c) the Additional Shares, (d) the Placement Agent Shares, (e) any additional shares of Common Stock issuable in connection with any anti-dilution provisions in the Debentures or the Warrants (in each case, without giving effect to any limitations on conversion set forth in the Debentures or limitations on exercise set forth in the Warrants) and (f) any securities issued or then issuable upon any stock split, dividend or other distribution,  recapitalization or similar event with respect to the foregoing; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (x) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (y) such Registrable Securities have been previously sold in accordance with Rule 144, or (z) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the transfer agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by “cashless exercise” as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.

 

  

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“Registration Expenses” has the meaning set forth in Section 6.

 

“Registration Statement” means any registration statement required to be filed hereunder pursuant to Section 2, including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

 

“Restriction Termination Date” shall have the meaning set forth in Section 2.

 

 “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Section 2. Registration Statement Requirements.  The Company shall file with the Commission a Form S-1 registration statement (or such other form that it is eligible to use) in order to register all or such portion of the Registrable Securities as permitted by the Commission (provided that the Company shall use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities) pursuant to Rule 415 for resale and distribution under the Securities Act on or before the Required Filing Date and use its best efforts to cause the Registration Statement to be declared effective by the Required Effectiveness Date.  The Company will register not less than all of the Registrable Securities.  In the event that the Company is required by the Commission to cutback the number of shares being registered in the Registration Statement pursuant to Rule 415, then the Company shall reduce the Registrable Securities pro rata, and unless otherwise directed in writing by the Purchaser as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will first be reduced by Registrable Securities represented by Conversion Shares and second by Registrable Securities represented by Warrant Shares and third by the Placement Agent Shares and fourth by the Additional Shares.  The Registration Statement shall also state that, in accordance with Rules 416 and 457 under the Securities Act, it also covers such indeterminate number of additional shares of common stock as may become issuable with respect to the Registrable Securities to prevent dilution resulting from stock splits, stock dividends or similar transactions. Notwithstanding anything to the contrary contained in this Section 2, if the Company receives comments from the Commission with respect to the Registration Statement, and following discussions with and responses to the Commission in which the Company uses its reasonable best efforts and time to cause as many Registrable Securities for as many Purchasers as possible to be included in the Registration Statement filed pursuant to Section 2 without characterizing any Purchaser as an underwriter, the Company is unable to cause the inclusion of all Registrable Securities in such Registration Statement, then the Company may, following not less than three (3) Trading Days prior written notice to the Purchasers, (x) remove from the Registration Statement such Registrable Securities (the “Cut Back Shares”) and/or (y) agree to such restrictions and limitations on the registration and resale of the Registrable Securities, in each case as the Commission may require in order for the Commission to allow such Registration Statement to become effective; provided, that in no event may the Company name any Purchaser as an underwriter without such Purchaser’s prior written consent (collectively, the “Commission Restrictions”). Unless the Commission Restrictions otherwise require, any cut-back imposed pursuant to this Section 2 shall be allocated among the Registrable Securities of the Purchasers on a pro rata basis. No liquidated damages under Section 5 shall accrue on or as to any Cut Back Shares, and the required Required Effectiveness Date with respect to such additional Registration Statement including the Cutback Shares will be tolled, until such time as the Company is able to effect the registration of the Cut Back Shares in accordance with any Commission Restrictions (such date, the “Restriction Termination Date”). From and after the Restriction Termination Date, all provisions of this Section 2 (including, without limitation, the liquidated damages provisions, subject to tolling as provided above) shall again be applicable to the Cut Back Shares (which, for avoidance of doubt, retain their character as Registrable Securities) so that the Company will be required to file with and cause to be declared effective by the Commission such additional Registration Statements in the time frames set forth herein as necessary to ultimately cause to be covered by effective Registration Statements all Registrable Securities (if such Registrable Securities cannot at such time be resold by the Purchasers thereof pursuant to Rule 144).

 

 

  

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Section 3. Registration Procedures. If and whenever the Company is required by the provisions of Section 2 to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible:

 

(a) subject to the timelines provided in this Agreement, prepare and file the Registration Statement with the Commission, with respect to such securities and use its commercially reasonable efforts to cause such Registration Statement to become and remain effective for the period of the distribution contemplated thereby (determined as herein provided), and promptly provide to Purchaser’s counsel copies of all filings and Commission letters of comment and notify the Purchasers (by telecopier and by e-mail addresses provided by the Purchasers) and Purchaser’s counsel (by telecopier and by email to dofsink@golawintl.com on or before the second  business day thereafter that the Company receives notice that (i) the Commission has no comments or no further comments on the registration statement, and (ii) the registration statement has been declared effective;

 

(b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective until such Registration Statement has been effective for the later of (a) a period of one (1) year, or (b) until the Warrant Shares and the Conversion Shares, as applicable, can be sold by the Purchasers pursuant to Rule 144 without volume restrictions;

 

(c) furnish to the Purchasers such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus) as such Purchasers reasonably may request in order to facilitate the public sale or their disposition of the securities covered by such Registration Statement or make them electronically available;

 

  

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(d) use its reasonable best efforts to register or qualify the Registrable Securities covered by such Registration Statement under the securities or “blue sky” laws of such jurisdictions as the Purchasers shall request in writing, provided, however, that the Company shall not for any such purpose be required to qualify to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to service of process in any such jurisdiction;

 

(e) list the Registrable Securities covered by such Registration Statement with any Trading Market on which the common stock of the Company is then listed;

 

(f) notify the Purchasers within twenty-four hours of the Company’s becoming aware that a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such 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 in light of the circumstances then existing or which becomes subject to a Commission, state or other governmental order suspending the effectiveness of the Registration Statement covering any of the Registrable Securities. Each Purchaser hereby covenants that it will not sell any Registrable Securities pursuant to such prospectus during the period commencing at the time at which the Company gives such Purchaser notice of the suspension of the use of such prospectus in accordance with this Section 3(f) and ending at the time the Company gives such Purchaser notice that such Purchaser may thereafter effect sales pursuant to the prospectus, or until the Company delivers to such Purchaser or files with the Commission an amended or supplemented prospectus.

 

Section 4. Provision of Documents.  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 a particular Purchaser that such Purchaser shall furnish to the Company in writing such information and representation letters, including a completed form of the Selling Securityholder Questionnaire attached hereto as Annex A, with respect to itself and the proposed distribution by it as the Company may reasonably request to assure compliance with federal and applicable state securities laws.

 

 

  

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Section 5. Non-Registration Events.  The Company and the Purchasers agree that the Purchasers will suffer damages if the Registration Statement is not filed by the Required Filing Date and not declared effective by the Commission by the Required Effectiveness Date or if, after it is declared effective, its effectiveness is not maintained in the manner and within the time periods contemplated by Section 2 hereof, and it would not be feasible to ascertain the extent of such damages with precision.  Accordingly, if (A) the Registration Statement is not filed on or before the Required Filing Date, (B) the Registration Statement is not declared effective on or before the Required Effectiveness Date, or (C) any Registration Statement described in Section 2 is  declared effective but shall thereafter cease to be effective for a period of time which shall exceed forty (40) days in the aggregate per year (defined as a period of 365 days commencing on the date the Registration Statement is declared effective) (each such event, a “Non-Registration Event”), then the Company shall deliver to the Purchasers, as liquidated damages (“Liquidated Damages”), an amount equal to one percent (1.0%) of the aggregate purchase price paid by such Purchaser pursuant to the Purchase Agreement for any unregistered Registrable Securities then held by such Holder and for each subsequent thirty (30) day period (pro rata for any period less than thirty days) which are subject to such Non-Registration Event. The maximum aggregate Liquidated Damages payable to the Purchaser under this Agreement shall be five percent (5.0%) of the aggregate purchase price paid by such Purchaser pursuant to the Purchase Agreement.  The Company must pay the Liquidated Damages in cash.  In the event a Registration Statement is filed by the Required Filing Date but is withdrawn prior to being declared effective by the Commission, then such Registration Statement will be deemed to have not been filed.

 

Section 6. Expenses.  All expenses incurred by the Company in complying with Section 2, including, without limitation, all registration and filing fees, printing expenses (if required), fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the Financial Industry Regulatory Authority, Inc., transfer taxes, and fees of transfer agents and registrars, are called “Registration Expenses.” The Company will pay all Registration Expenses in connection with any Registration Statement described in Section 2.

 

Section 7. Indemnification and Contribution.

 

(a) In the event of a registration of any Registrable Securities under the Securities Act pursuant to Section 2, the Company will, to the extent permitted by law, indemnify and hold harmless the Purchaser, each of the officers, directors, agents, Affiliates, members, managers, control persons, and principal shareholders of the Purchaser, each underwriter of such Registrable Securities thereunder and each other person, if any, who controls such Purchaser or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser, or such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities was registered under the Securities Act pursuant to Section 2, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances when made, and will, subject to the provisions of Section 7(c), reimburse the Purchaser, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable to the Purchaser to the extent that any such damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) the Purchaser failed to send or deliver a copy of the final prospectus delivered by the Company to the Purchaser with or prior to the delivery of written confirmation of the sale by the Purchaser to the person asserting the claim from which such damages arise, (ii) the final prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (iii) to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such Purchaser in writing specifically for use in such Registration Statement or prospectus.

 

 

  

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(b) In the event of a registration of any of the Registrable Securities under the Securities Act pursuant to Section 2, each Purchaser severally but not jointly will, to the extent permitted by law, indemnify and hold harmless the Company, and each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the Registration Statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to Section 2, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Purchaser will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such Purchaser, as such, furnished in writing to the Company by such Purchaser specifically for use in such Registration Statement or prospectus, and provided, further, however, that the liability of the Purchaser hereunder shall be limited to the net proceeds actually received by the Purchaser from the sale of Registrable Securities pursuant to such Registration Statement.

 

(c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section and shall only relieve it from any liability which it may have to such indemnified party under this Section, except and only if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnifying party shall have reasonably concluded that there may be reasonable defenses available to indemnified party which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties, as a group, shall have the right to select one separate counsel, reasonably satisfactory to the indemnified and indemnifying party, and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred.

 

(d) In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) a Purchaser, or any controlling person of a Purchaser, makes a claim for indemnification pursuant to this Section 7 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 7 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Purchaser or controlling person of the Purchaser in circumstances for which indemnification is not provided under this Section 7; then, and in each such case, the Company and the Purchaser will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Purchaser is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, provided, however, that, in any such case, (y) the Purchaser will not be required to contribute any amount in excess of the public offering price of all such securities sold by it pursuant to such Registration Statement; and (z) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation and provided, further, however, that the liability of the Purchaser hereunder shall be limited to the net proceeds actually received by the Purchaser from the sale of Registrable Securities pursuant to such Registration Statement.

 

 

  

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Section 8. Miscellaneous.

 

(a) Remedies.  In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement.  Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

 

(b) No Piggyback on Registrations; Prohibition on Filing Other Registration Statements. Except as set forth on Schedule 8(b) attached hereto and in connection with transactions contemplated under Exempt Issuance, neither the Company nor any of its security holders (other than the Holders) may include securities of the Company in any Registration Statements other than the Registrable Securities.  The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement.

 

(c) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

(d) Piggy-Back Registrations. If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) 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 the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 8(d) that are eligible for resale pursuant to Rule 144 promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement.

 

 

  

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(e) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 67% or more of the then outstanding Registrable Securities (including, for this purpose any Registrable Securities issuable upon exercise or conversion of any Security).  If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(e).

 

(f) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

 

(g) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.

 

(h) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 8(h), neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

 

(i) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

 

  

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(j) Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

 

(k) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

 

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

 

(m) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

(n) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose.

 

(Signature Pages Follow)

 

 

  

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

 

 

 

	 	ADS IN MOTION, INC.	 
	 	 	 	 
	
 

	
By: 

	/s/ Jordan Glatt	 
	 	 	Jordan Glatt	 
	 	 	
President and Chief Executive Officer

	 
	 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

 

  

  

  

 

[PURCHASER SIGNATURE PAGES TO REGISTRATION RIGHTS AGREEMENT]

 

Name of Holder:  Berdon Venture Associates LLC

 

Signature of Authorized Signatory of Holder: /s/Berdon Venture Associates LLC

 

Name of Authorized Signatory: Frederick Berdon

 

Title of Authorized Signatory: Managing Partner

 

 

 

[SIGNATURE PAGES CONTINUE]

 

  

  

  

 

[PURCHASER SIGNATURE PAGES TO REGISTRATION RIGHTS AGREEMENT]

 

Name of Holder: Cape One Financial Master Fund, Ltd.

 

Signature of Authorized Signatory of Holder: /s/Reid Drescher

 

Name of Authorized Signatory: Reid Drescher

 

Title of Authorized Signatory: Director

 

 

 

[SIGNATURE PAGES CONTINUE]

 

  

  

  

 

[PURCHASER SIGNATURE PAGES TO REGISTRATION RIGHTS AGREEMENT]

 

Name of Holder: Lee Karls

 

Signature of Authorized Signatory of Holder: /s/Lee Karls

 

Name of Authorized Signatory: ____________________

 

Title of Authorized Signatory: _____________________

 

 

 

[SIGNATURE PAGES CONTINUE]

 

  

  

  

 

[PURCHASER SIGNATURE PAGES TO REGISTRATION RIGHTS AGREEMENT]

 

Name of Holder: Rosta, LLC

 

Signature of Authorized Signatory of Holder: /s/R J Goldlein

 

Name of Authorized Signatory: R J Goldlein

 

Title of Authorized Signatory: Managing Director

 

 

 

[SIGNATURE PAGES CONTINUE]

 

  

  

  

 

[PURCHASER SIGNATURE PAGES TO REGISTRATION RIGHTS AGREEMENT]

 

Name of Holder: Herbert Glatt

 

Signature of Authorized Signatory of Holder: /s/ Herbert Glatt

 

Name of Authorized Signatory: ____________________

 

Title of Authorized Signatory: _____________________

 

 

 

[SIGNATURE PAGES CONTINUE]

 

  

  

  

 

 

 

Annex A

 

ADS IN MOTION, INC.

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “Registrable Securities”) of Ads In Motion, Inc., a Delaware corporation (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed.  A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “Selling Stockholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.           Name.

 

(a)           Full Legal Name of Selling Stockholder

 

(b)           Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

 

(c)           Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

 

2.  Address for Notices to Selling Stockholder:

 

Telephone:

 

Fax:

 

Contact Person:

 

 

  

A-1

  

 

3.  Broker-Dealer Status:

 

(a)           Are you a broker-dealer?

 

Yes   •      No   •

 

(b)           If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes   •     No   •

 

Note:       If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c)           Are you an affiliate of a broker-dealer?

 

Yes   •     No   •

 

(d)           If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes   •      No   •

 

Note:       If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4.  Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.

 

(a)           Type and Amount of other securities beneficially owned by the Selling Stockholder:

 

5.  Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:

 

  

A-2

  

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto.  The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date:                      Beneficial Owner:

 

By:

 

Name:

 

Title:

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

 

 

 A-3f8k0211ex10vii_adsinmotion.htm

Exhibit 10.7

 

SECURITY AGREEMENT

1. GRANT OF SECURITY INTEREST. For value received, as security for the Obligations (as defined below) Ads In Motion, Inc., a Delaware corporation and its Subsidiaries  (collectively, the “Debtor”), hereby grants to the persons set forth on Schedule A hereto (the “Secured Parties”) pursuant to the Debentures (as defined below), a second priority security interest in the following property:

 

	
(a)  

	
All of Debtor’s inventory now owned or hereafter acquired.

	
(b)  

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

	
(c)  

	
All of Debtor’s accounts, deposit accounts, investment property, letter of credit rights, and supporting obligations, now existing or hereafter arising, together with all interest of Debtor in any goods, the sale or lease of which give rise to any of Debtor’s accounts, and all chattel paper, documents and instruments relating to accounts.

	
(d)  

	
All of Debtor’s contract rights and general intangibles now owned or hereafter acquired in which Debtor has any interest.

	
(e)  

	
All of Debtor’s equipment now owned or hereafter acquired.

	
(f)  

	
All of Debtor’s fixtures on the real estate leased by the Debtor.

	
(g)  

	
All of Debtor’s commercial tort claims.

	
(h)  

	
All of Debtor’s files, records, books of account, business papers, and computer programs.

	
(i)  

	
All of Debtor’s intellectual property rights and any other patents, trademarks or copyrights.

together with the proceeds, products, increase, issue, accessions, attachments, accessories, parts, additions, repairs, replacements and substitutes of, to, and for all of the foregoing.  Debtor will promptly deliver to Secured Parties, duly endorsed when necessary, all such chattel paper, documents and instruments and related guaranties, now on hand or hereafter received.  The lien and security interest granted hereby is junior and subordinate to all Permitted Liens (as defined in the Securities Purchase Agreement (as defined below)), including without limitation the lien and security interest (the “FGI Security Interest”) previously and separately granted by the Debtor to Faunus Group International, Inc. (the “Senior Lender”).

All such property in which a security interest is granted is herein called the “Collateral.”

2. OBLIGATIONS.  The aforesaid security interests secure payment and performance of the following obligations (the “Obligations”): (a) All obligations of Debtor to Secured Parties under any agreement of even date therewith, including, without limitation, under the Original Issue Discount Senior Subordinated Secured Convertible Debentures, from Debtor to Secured Parties in the aggregate principal amount of $1,585,000 (the “Debentures”), and under the Securities Purchase Agreement between Debtor and the Secured Parties dated of even date herewith (the “Securities Purchase Agreement”) and including, but not limited to, amounts advanced and expenses and reasonable attorneys’ fees incurred pursuant to this Security Agreement; (b) all costs incurred by the Secured Parties to obtain, preserve, perfect and enforce the Debentures, Securities Purchase Agreement or any Security Document, collect the Obligations, and maintain, preserve, collect and enforce the Collateral, including, without limitation, taxes, assessments, attorney fees and reasonable legal expenses and expenses of sale; and (c) any of the foregoing that arises after the filing of a petition by or against Debtor under the Bankruptcy Code, even if the obligations do not accrue because of the automatic stay under Bankruptcy Code Section 362 or otherwise.

 

  

1

  

 

3. COPY - FILING.  A carbon, photocopy or other reproduction of this Security Agreement may be filed as a financing statement. The Debtor authorizes the Secured Parties to file from time to time such lien filings, financing or continuation statements or amendments thereto, as the Secured Parties may reasonably determine to be necessary or desirable, to perfect and preserve the security interest created or purported to be created hereby.  Upon reasonable request of a Secured Party, the Debtor will cause to be filed lien filings, financing or continuation statements or amendments thereto, naming as debtor such lessee or lessees as may be designated by the Secured Parties and assigning the Debtor’s rights under such filing statements to the Secured Parties.

 

4. REPRESENTATIONS.  Debtor represents, warrants and agrees:

 

(a) All Collateral is owned by Debtor with full ownership rights, and is bona fide and genuine and Debtor is authorized to grant a security interest in the Collateral, free and clear of all liens and encumbrances other than the Permitted Liens.

 

(b) Debtor’s principal place of business is the address shown herein, and Debtor shall promptly give Secured Parties written notice of any change thereof, unless prior written consent of Secured Parties is obtained.  All Collateral, except for Collateral located at Debtor’s Statesville, North Carolina warehouse, and all of the Debtor’s business records are now kept, and shall continue to be kept, unless prior written consent of Secured Parties is obtained, at such address.

 

(c) Debtor is a corporation organized under the laws of the State of Delaware.  Debtor’s exact legal name is:  Ads In Motion, Inc.

 

5. TERMINATION.  Upon payment or performance in full of all of the Obligations, the Secured Parties will, at Debtor’s request and expense, release the security interest granted herein and deliver such termination statements as may be necessary therefor.

 

[Intentionally Left Blank]

 

 

  

2

  

 

 

THIS AGREEMENT SPECIFICALLY INCLUDES ALL OF THE ADDITIONAL PROVISIONS SET FORTH ON THE FOLLOWING PAGES. DEBTOR ACKNOWLEDGES RECEIPT OF A FULLY COMPLETED COPY OF THIS SECURITY AGREEMENT.

 

DATED:  _____________

Debtor:

	
ADS IN MOTION, INC.

	  	  
	
 

By:

	
/s/ Jordan Glatt

	  	
Address:

	  	  	
159 South Street

	
Name:

Title:

	
Jordan Glatt

President and Chief Executive Officer

	  	  	Morristown, NJ 07960 

Phone: 973-984-7998

Fax: 973-984-9508

	
 

	
 

	  	  
	  	  	  	  	  

[SIGNATURES OF SECURED PARTIES FOLLOW]

 

 

  

3

  

[SECURED PARTY SIGNATURE PAGE TO SECURITY AGREEMENT]

 

Name of Holder: Berdon Venture Associates LLC

 

Signature of Authorized Signatory of Holder: /s/Berdon Venture Associates LLC

 

Name of Authorized Signatory: Frederick Berdon

 

Title of Authorized Signatory: Managing Partner

 

  

4

  

 

 

[SECURED PARTY SIGNATURE PAGE TO SECURITY AGREEMENT]

Name of Holder: Cape One Financial Master Fund, Ltd.

 

Signature of Authorized Signatory of Holder: /s/Reid Drescher

 

Name of Authorized Signatory: Reid Drescher

 

Title of Authorized Signatory: Director

 

 

 

 

  

5

  

 

[SECURED PARTY SIGNATURE PAGE TO SECURITY AGREEMENT]

Name of Holder: Herbert Glatt

 

Signature of Authorized Signatory of Holder: /s/Herbert Glatt

 

Name of Authorized Signatory: ____________________

 

Title of Authorized Signatory: _____________________

 

  

6

  

 

[SECURED PARTY SIGNATURE PAGE TO SECURITY AGREEMENT]

Name of Holder: Lee Karls

 

Signature of Authorized Signatory of Holder: /s/Lee Karls

 

Name of Authorized Signatory: ____________________

 

Title of Authorized Signatory: _____________________

 

 

  

7

  

 

[SECURED PARTY SIGNATURE PAGE TO SECURITY AGREEMENT]

Name of Holder: Rosta LLC

 

Signature of Authorized Signatory of Holder: /s/R J Goldlein

 

Name of Authorized Signatory: R J Goldlein

 

Title of Authorized Signatory: Managing Partner

 

 

  

8

  

 

 

ADDITIONAL PROVISIONS

1. REPRESENTATIONS AND AGREEMENTS.  Debtor represents and warrants to Secured Parties, and agrees that:

 

(a) Debtor is a corporation duly organized and currently existing under Delaware law and is in good standing in any state where Debtor conducts business.  The execution, delivery and performance of this Security Agreement are within Debtor’s powers, have been duly authorized, and are not in contravention of law or the terms of Debtor’s Certificate of Incorporation, Bylaws, or any indenture, agreement or undertaking to which Debtor is a party, or by which it is bound. Debtor will not change its name, state of formation or type of entity unless written notice is given to Secured Parties at least 30 days in advance.  Notwithstanding the foregoing, the Secured Parties acknowledge that the Debtor intends to change its name promptly following the issuance of the Debentures and hereby consents to and waives any right to notice hereunder with respect to such name change.

 

(b) Within thirty (30) days of the date hereof, Debtor shall obtain insurance upon the Collateral which is tangible property against all customarily insured risks for the full insurable value thereof (and furnish Secured Parties with duplicate policies if Secured Parties so requests), loss to be payable to Debtor and Secured Parties as their respective interests may appear. The Secured Parties’ interest shall be protected in accordance with a standard loss payable clause. In the event of any loss or damage to any Collateral, Debtor will give Secured Parties written notice thereof forthwith, promptly file proof of loss with the appropriate insurer and take all other steps necessary or appropriate to collect such insurance. If the Secured Parties so elect, the Secured Parties shall have full authority to collect all such insurance and to apply any amount collected to amounts owed hereunder, whether or not matured.  The Secured Parties shall have no liability for any loss which may occur by reason of the omission or the lack of coverage of any such insurance.

 

(c) Debtor shall at all times maintain Collateral which is tangible property in good condition and repair, defend at Debtor’s expense all Collateral from all adverse claims and shall not use any of the Collateral for any illegal purpose.

 

(d) Debtor shall (i) keep such books and records pertaining to the Collateral and to Debtor’s business operations as shall be reasonably satisfactory to Secured Parties; (ii) permit representatives of Secured Parties to inspect the Collateral and inspect and make abstracts from Debtor’s books and records during regular business hours upon at least three days’ notice. If an event of default (as defined in the Debentures) has occurred and is continuing, the Secured Parties are hereby authorized to request confirmation of such information or additional information of any kind whatsoever directly from any third party having dealings with Debtor.

 

(e) During the continuance of an event of default under the Debentures subject to the rights of the holders of the Permitted Liens, Debtor shall give such notice in writing (including but not limited to notice of assignment or notice to pay the Secured Parties directly) as the Secured Parties may require at any time to any or all account debtors, with respect to accounts which are Collateral, and, if the Secured Parties shall so request, deliver to the Secured Parties copies of any and all such notices.

 

 

  

5

  

 

(f) Upon Secured Parties’ reasonable request and subject to the rights of the holders of the Permitted Liens, Debtor shall promptly transmit to Secured Parties all information that it may have or receive with respect to Collateral or with respect to any account debtor which might in any way affect the value of the Collateral or Secured Parties’ rights or remedies with respect thereto.

 

(g) Debtor shall not otherwise consume, assign or transfer any Collateral except: (i) pursuant to this Agreement or the Transaction Documents, (ii) in favor of any holder of the Permitted Liens, including the Senior Lender (or any replacement lender), or (iii) as the Secured Parties may consent in writing. Subject to the rights of the Senior Lender, the provision of this Security Agreement granting a security interest in proceeds shall not be construed to mean that Secured Parties consents to any sale or disposition of any Collateral.

 

(h) Debtor shall pay when due all taxes, assessments, and any other governmental levy which is, or may be, levied against any Collateral, and shall otherwise maintain the Collateral free of all liens, charges, and encumbrances (except liens in existence on the date hereof and liens created hereby and Permitted Liens (as defined in the Securities Purchase Agreement).

 

(i) Debtor shall not store any Collateral with any warehouseman other than in the ordinary course of business without Secured Parties’ consent.

 

(j) During the continuance of an event of default under the Debentures and subject to the rights of the holders of the Permitted Liens, Debtor shall promptly, unless the Secured Parties shall waive such requirement in writing, deliver to the Secured Parties all certificates of title, if any (or any other documents evidencing title), to all Collateral with such proper notations, assignments or endorsements as may be necessary or appropriate to create, preserve or perfect the Secured Parties’ security interest in the Collateral.

 

(k) Debtor shall, at its cost and expense, execute, deliver, file or record (in such manner and form as the Secured Parties may reasonably require) any assignment, financing statement or other paper that may be necessary or desirable, or that that Secured Parties may reasonably request, in order to create, preserve or perfect any security interest granted hereby or to enable the Secured Parties to exercise and enforce their rights hereunder or under any Collateral. The Secured Parties are further granted the power, coupled with an interest, to sign on behalf of Debtor as attorney-in-fact (if signature is required) and to file one or more financing statements under the Uniform Commercial Code naming Debtor as debtor and the Secured Parties as secured parties and describing the Collateral herein specified.  Debtor shall take any action reasonably requested by the Secured Parties necessary for the Secured Parties to obtain control of Collateral consisting of deposit accounts, investment property, letter of credit rights, electronic chattel paper and similar property.

 

 

  

6

  

 

(l) Subject to the rights of the holders of the Permitted Liens, the Secured Parties are hereby granted a non-exclusive, world-wide and royalty-free license to use or otherwise exploit all trademarks, trade secrets, franchises, copyrights and patents of the Debtor that the Secured Parties reasonably deems necessary or appropriate for the disposition of any Collateral.

 

2. EXPENSES.  Debtor upon demand shall pay to and indemnify the Secured Parties from the amounts of all expenses, including attorneys’ fees and legal expenses, reasonably incurred by Secured Parties in seeking to collect any sums secured hereunder or to enforce any rights in the Collateral. Such amounts shall be secured hereby, and if not paid on demand shall bear interest at the highest rate payable on any of the Obligations.

 

Debtor shall defend, protect, indemnify and hold harmless the Secured Parties and their respective Affiliates and all of their respective officers, directors, employees, attorneys, consultants and agents from and against any and all losses, damages, liabilities, obligations, penalties, fines, fees, costs and expenses (including, without limitation, reasonable attorneys’ and paralegals’ fees, costs and expenses, and fees, costs and expenses for investigations and experts) incurred by such indemnitees, whether prior to or from and after the date hereof, as a result of or arising from or relating to  the Secured Parties’ preservation, administration and enforcement of its rights hereunder and applicable law, including the reasonable fees and disbursements of counsel for the Secured Parties in connection therewith, whether suit be brought or not and whether incurred at trial or on appeal, and all reasonable costs of repossession, storage, disposition, protection and collection of Collateral, other than for such loss, damage, liability, obligation, penalty, fee, cost or expense arising from any of the Secured Parties’ or their respective Affiliates’ gross negligence or willful misconduct.

3. COLLECTION AUTHORITY ON ACCOUNTS. Subject to the rights of the holders of the Permitted Liens, Debtor hereby irrevocably appoints Secured Parties its true and lawful attorney, with full power of substitution, in the names of the Secured Parties, Debtor’s name or otherwise, for the Secured Parties’ sole use and benefit to exercise, if Secured Parties shall elect if an event of default has occurred and is continuing (whether or not the Secured Parties then elect to exercise any other of its rights arising upon default) all or any of the following powers with respect to all or any accounts which are Collateral:

 

(a) To execute on Debtor’s behalf assignments of any or all accounts which are Collateral to Secured Parties, and to notify account debtors thereunder to make payments directly to Secured Parties;

 

(b) To demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due upon or by virtue thereof;

 

(c) To receive, take, endorse, assign and deliver any and all checks, notes, drafts, documents and other negotiable and non-negotiable instruments and chattel paper taken or received by Secured Parties in connection therewith;

 

 

  

7

  

 

(d) To settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto;

 

(e) To sell, transfer, assign or otherwise deal in or with the same or the proceeds thereof or the relative goods, as fully and effectually as if Secured Parties were the absolute owner thereof; and

 

(f) To extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto.

 

Any funds collected pursuant to such powers shall be applied to the payment of the Obligations. The exercise by Secured Parties of, or failure to so exercise, any of the foregoing authority, shall in no manner affect Debtor’s liability to the Secured Parties on any of the Obligations. The Secured Parties shall be under no obligation or duty to exercise any of the powers hereby conferred upon them and they shall be without liability for any act or failure to act in connection with the collection of or the preservation of any rights under any such accounts.

 

4. SET OFF.  Subject to the rights of the holders of the Permitted Liens, in the event of default under the Debentures, the Secured Parties, at their option at any time, and without notice to Debtor, may apply against the Obligations any property of Debtor held by the Secured Parties. As additional security for payment of the Obligations, Debtor hereby grants to Secured Parties a second priority security interest in any funds or property of Debtor now or hereafter in possession of Secured Parties and with respect thereto Secured Parties will have all rights and remedies herein specified, subject to the rights of the holders of the Permitted Liens.

 

5. DEFAULT.  Debtor will be in default upon the occurrence of any of the following events: (a) an Event of Default under Debentures, (b) failure of the performance of any obligation or covenant contained or referred to herein which continues for a period of thirty (30) days after receipt of written notice from Secured Parties, (c) any warranty, representation or statement made or furnished to Secured Parties by or on behalf of Debtor proves to have been false in any material respect when made or furnished and results in a Material Adverse Effect with respect to the Debtor (as such term is defined in the Securities Purchase Agreement), (d) any acceleration of the maturity of the indebtedness owed to any party with a security interest in the Collateral senior to that of the Secured Parties, (e) the making of any levy, seizure of attachment of the Collateral, or (f) death of, dissolution of, termination of existence of, insolvency of, business failure of, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency law by or against, Debtor or any guarantor or co-maker of any of the Obligations.

 

6. RIGHTS AND REMEDIES ON DEFAULT.  During the continuance of any event of default, the Secured Parties may exercise at any time and from time to time any rights and remedies available to them under applicable law, including but not limited to the right to sell, lease or otherwise dispose of the Collateral and the right to take possession of the Collateral, subject to the rights of the holders of the Permitted Liens. FOR THAT PURPOSE THE SECURED PARTIES MAY ENTER UPON ANY PREMISES ON WHICH THE COLLATERAL OR ANY PART THEREOF MAY BE SITUATED AND REMOVE IT, AND DEBTOR WAIVES ITS RIGHTS TO ASSERT TRESPASS OR SIMILAR CAUSES OF ACTION FOR SUCH ENTRY. The Secured Parties shall have no obligation to marshal any assets, but may require Debtor to assemble the Collateral and make it available at a place to be designated by the Secured Parties which is reasonably convenient to all parties.  If at the time of repossession any of the Collateral contains other personal property not included in the Collateral, Secured Parties may take such personal property into custody and store it at the risk and expense of Debtor; provided, however, that Secured Parties shall return such property promptly upon Debtor’s request. Debtor agrees to notify the Secured Parties within forty-eight (48) hours after repossession of the Collateral of any such other personal property claimed, and failure to do so will release the Secured Parties and its representatives from any liability for loss or damage thereto. Any notice of intended disposition of any of the Collateral required by law shall be deemed reasonable if such notice is given at least ten (10) days before the time of such disposition. Any proceeds of any disposition by Secured Parties of any of the Collateral may be applied by it to the payment of expenses in connection with the Collateral, including but not limited to repossession expenses and reasonable attorneys’ fees and legal expenses, and any balance of such proceeds shall be then applied against the Obligations and other amounts secured hereby in such order of application as Secured Parties may elect.

 

7. RELATIONSHIP TO DEBENTURES.  The rights and remedies of Secured Parties under this Agreement are subject to the terms and conditions of the Debentures and the Securities Purchase Agreement.

 

 

  

8

  

 

8. SUBSQUENT PURCHASERS OF DEBENTURES.  Notwithstanding anything to the contrary contained herein or in the Debentures or the Securities Purchase Agreement, the Secured Parties hereby acknowledge, agree and consent to and waive all remedies hereunder and thereunder with respect to Debtor’s grant of a second priority security interest in the Collateral to purchasers in any subsequent offering (“Subsequent Purchasers”) of Debtor’s securities consisting of debentures and warrants on substantially similar terms as the Debentures and Warrants (as defined in the Securities Purchase Agreement).  The Secured Parties understand and agree that the second priority security interest to be granted in favor of the Subsequent Purchasers shall be pari passu in status to the second priority security interest created hereby.  The Secured Parties hereby consent to the filing of any lien filings, financing or continuation statements or amendments to any existing lien filings, financing or continuation statements, as the Subsequent Purchasers may reasonably determine to be necessary or desirable, to perfect and preserve such security interest.

 

9. GENERAL

 

(a) During the continuance of an event of default under the Debentures, the Secured Parties may, as their option, pay any tax, assessment, or other Governmental levy, or insurance premium or any other expense or charge relating to Collateral which is payable by Debtor (and not timely paid by it), and further may pay any filing or recording fees. Any amount or amounts so paid, with interest thereon at the highest rate payable on any of the Obligations (from the date of payment until repaid) shall be secured hereby and shall be payable upon demand.

 

(b) Secured Parties shall not be deemed to have waived any of their rights hereunder or under any other agreement, instrument or paper signed by Debtor unless such waiver is in writing and signed by Secured Parties. No delay or omission on the part of the Secured Parties in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion.

 

(c)    Any notice, if mailed, shall be given in accordance with the Securities Purchase Agreement.

 

(d) Covenants, representations, warranties and agreements herein set forth shall be binding upon Debtor, its legal representatives, successors and assigns. This Security Agreement may be assigned by Secured Parties and all rights and privileges of Secured Parties under this Security Agreement shall then inure to the benefit of its successors and assigns.

 

(e) If any provision of this Security Agreement shall be for any reason held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Security Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein.

 

(f) Unless otherwise defined or the context otherwise requires, all terms used herein which are defined in the Uniform Commercial Code shall have the meanings therein stated. The rights and remedies herein conferred upon Secured Parties shall be in addition to, and not in substitution or in derogation of, rights and remedies conferred by the Uniform Commercial Code and other applicable law.

 

(g) All words and phrases used herein shall be construed as in the singular or plural number, and as masculine, feminine or neuter gender, as the context may require.

 

(h) Captions are inserted for convenience only and shall not be taken as altering the text.

 

(i) Debtor and Secured Parties hereby waive any right they may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement and/or the transactions contemplated hereunder.

 

(j) All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions that would cause the application of the laws of any other jurisdiction other than the State of New York.

 

[Signature Page on Page 3]

 

 

9

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