Document:

Exhibit
10.17

 

Private
and Confidential                                                                                                         

 

 

 

 

 

	
  

  	
   

  	
   

  
	
   

  	
  Dated 30 November, 2007

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  

  

  

  

  CXR ANDERSON
  JACOBSON S.A.S.

  (Pledgor)

  

  

  GVEC RESOURCE
  IV INC.

  (Administrative Agent)

  and

  

  

  THE LENDERS

  

  

  

  	
  

  

  

  

  (1)

  

  

  

  (2)

  

  

  

  

  (3)

  

  

  

  
	
   

  	
   

  	
   

  
	
   

  	
  GOING CONCERN PLEDGE AGREEMENT

  	
   

  
	
   

  	
   

  	
   

  

 

 

 

	
  Contents

  
	
  Clause

  	
   

  	
   

  
	
  1

  	
   

  	
  Definitions

  
	
  2

  	
   

  	
  Pledge over the business
  as a Going Concern (Nantissement)

  
	
  3

  	
   

  	
  Designation of the
  pledged Going Concern

  
	
  4

  	
   

  	
  Registration, fees
  and expenses

  
	
  5

  	
   

  	
  Representations
  and Warranties

  
	
  6

  	
   

  	
  Undertakings of the
  Pledgor

  
	
  7

  	
   

  	
  Insurance

  
	
  8

  	
   

  	
  Duration

  
	
  9

  	
   

  	
  Enforcement of the
  Pledge

  
	
  10

  	
   

  	
  Notices

  
	
  11

  	
   

  	
  Miscellaneous

  
	
  12

  	
   

  	
  Successors and
  Assigns

  
	
  13

  	
   

  	
  Governing Law -
  Jurisdiction

  

 

 

BETWEEN:

 

	
  (1)

  	
   

  	
  CXR
  ANDERSON JACOBSON, a
  French société par actions simplifiée
  with a share capital of EUR 1,350,000, having its registered
  office at rue de l’Ornette
  28140 Abondant, France, registered with the Registry of Commerce and
  Companies of Dreux under single identification number 785 754 706, represented by the person
  identified on the signature page hereof (hereinafter referred to as the “Pledgor”); and

  
	
  (2)

  	
   

  	
  GVEC
  RESOURCE IV INC.,
  an international business company incorporated under the laws of the British
  Virgin Islands, whose registered office is Walkers
  (BVI) Limited, Walkers Chambers, PO Box 92, Road Town, Tortola, British
  Virgin Islands, registered under number 1027282, acting in its own name and
  in its capacity as Administrative Agent under the Credit Agreement (as such
  term is defined below), represented by the person identified on the signature
  page hereof (hereinafter referred to as the “Administrative
  Agent”); and

  
	
  (3)

  	
   

  	
  Each lender under the Credit Agreement (as such term is defined below), each identified
  in Schedule 1, together with its successors, transferees and assigns,
  represented by the Administrative Agent (hereinafter referred to collectively
  as the “Lenders”).

  

 

WHEREAS:

	
  (A)

  	
   

  	
  Pursuant
  to a credit agreement governed by the laws of the State of California (United
  States of America), entitled “Credit
  Agreement” and dated [•] 2007 (such agreement, as it may
  from time to time be amended, modified or supplemented, being referred to
  hereinafter as the “Credit Agreement”)
  between, inter alia, GVEC Resource IV Inc. as the Arranger and the
  Administrative Agent, the Lenders as lenders, and Emrise Corporation and
  certain of its subsidiaries as Borrowers (the “Borrowers”), the Lenders have granted to the Borrowers a
  credit facility for a maximum principal amount of USD 23,000,000.

  
	
  (B)

  	
   

  	
  Emrise
  Corporation is the holder of 100% of the share capital of the Pledgor.

  
	
  (C)

  	
   

  	
  Pursuant
  to the Guarantee (as such term is defined below), certain of Emrise
  Corporation’s subsidiaries including the Pledgor have agreed to guarantee the
  performance of the payment obligations of the Borrowers to the Beneficiary
  under the Credit Agreement (as defined below under the term “Guaranteed Obligations”).

  
	
  (D)

  	
   

  	
  The Pledgor has agreed to grant to the
  Beneficiary as security for the payment of all amounts due and payable by it
  pursuant to the Guaranteed Obligations, in accordance with the terms and
  conditions set out in this agreement, a first ranking pledge over its going
  concern (hereinafter referred to as the “Agreement)”. The Beneficiary has,
  pursuant to article 2328-1 of the French Code
  civil (hereafter the “Civil Code”),
  appointed the Administrative Agent in order that the Administrative Agent be
  entitled to register, perform and enforce any security interest (sûreté réelle) granted by the Pledgor in
  order to secure the performance and payment of the Guaranteed Obligations.

  

 

NOW, THEREFORE, IT IS AGREED AS FOLLOWS:

1                       Definitions

1.1               Definitions

	
  In this Agreement, unless otherwise stipulated, the
  terms and expressions the first letter of which is capitalised shall have the
  meanings ascribed to such terms below or, if not so defined, shall have the
  meanings ascribed to such terms in the Credit Agreement:

  

 

[PLEASE NOTE: ORDER CORRESPONDS TO ALPHABETICAL ORDER IN ORIGINAL FRENCH
VERSION OF TEXT]

“Administrative Agent” has the meaning
ascribed to such term in the list of parties hereof;

“Arranger” refers to GVEC Resource IV Inc., together with its successors, transferees and
assigns pursuant to the Credit Agreement;

“Schedule” means any of the schedules to the Agreement;

“Clause” means any of the clauses of the
Agreement;

“Beneficiary” means collectively the Administrative Agent,
the Arranger and the Lenders, together with their respective successors,
transferees and assigns;

“Enforcement  Event” means any failure by the Pledgor to perform any of its
obligations under the Guarantee;

“Agreement” means this agreement together with the schedules
hereto, as it or they may be expressly amended, restated or supplemented
hereinafter;

“Intellectual Property Rights” means
patents, licenses, trademarks, drawings and industrial design rights, and more
generally all intellectual property rights (with the exception of the legal
name), including software licenses, attached to the Going Concern;

“Emrise Corporation” means Emrise
Corporation, a
company incorporated under the laws of Delaware, United States of America,
having its principal executive offices at 9485 Haven Avenue, Suite 100, Rancho
Cucamonga, California, 91370, United States of America;

“Going Concern”  means the
going concern (fonds de commerce) of the Pledgor
or one or several components thereof (including, as the case may be, the
components and rights subsequently included therein), pledged in favor of the
Beneficiary, pursuant to this Agreement, as described in Clause 3 hereof entitled “Designation of the Pledged Going Concern”;

“Guarantee” means the agreement dated
[•], entered into between, inter alia, the Pledgor and certain of Emrise
Corporation’s subsidiaries, pursuant to which they have granted in favor of the
Arranger, the Administrative Agent and the Lenders a guarantee securing the payment
obligations of the Lenders pursuant to the Credit Agreement;

“Pledge” means the Going Concern pledge, created in favor of
the Beneficiary pursuant to the present Agreement;

“Guaranteed Obligations” means all present and future payment obligations, whether
in principal, interest, default interest, indemnities, costs, fees, commissions
or accessories due and payable by the Borrowers to the Beneficiary pursuant to
the Credit Agreement and which constitute the obligations of the Pledgor
pursuant to the terms of the Guarantee (it being specified that the intention
of the parties in this agreement is that such term corresponds to the term “Guaranteed
Obligations” in the Guarantee); and

“Parties” means collectively the Pledgor and the Beneficiary.

1.2       Unless otherwise stipulated,
in this Agreement:

	
  1.2.1

  	
   

  	
  the titles of Clauses and Schedules are for ease of reference only and
  shall not affect the interpretation or construction thereof;

  
	
  1.2.2

  	
   

  	
  terms defined in Clause 1.1  may be used in the singular or the plural
  sense as required by the context thereof;

  
	
  1.2.3

  	
   

  	
  references to a person shall be construed as
  including such person’s successors, transferees and assigns and to any other
  person succeeding to the rights and obligations of such person in any manner
  whatsoever;

  
	
  1.2.4

  	
   

  	
  references to an agreement or any other document shall include any
  schedules thereto and any modifications or amendments thereof;

  

 

2

 

	
  1.2.5

  	
   

  	
  references to an obligation shall include any
  accessories attached thereto; and

  
	
  1.2.6

  	
   

  	
  References to time of day are to Paris time.

  

 

2                       Pledge over the business as a Going Concern (Nantissement)

In
order to secure the performance and the payment of the Guaranteed Obligations,
the Pledgor hereby pledges the Going Concern in favor of the Beneficiary,
pursuant to the provisions of articles L.142-1 et seq. of the Code de commerce (the “Commercial Code”) and with regulatory
provisions of the Commercial Code relating to such articles and the Pledgor
hereby agrees, to the extent necessary, that such pledge be registered with the
Commercial court of Dreux.  Upon
completion of the formalities as contemplated in Clause 4.1, the Pledge will constitute a
first ranking security interest over the Going Concern in favor of the
Beneficiary.

3                       Designation of the pledged Going Concern

3.1               The Pledgor hereby pledges its
Going Concern which consists, in France as well as abroad, directly or
indirectly, for its own account of for the account of third parties, in:

	
  (a)

  	
   

  	
  the importation, the exportation, the purchase, the
  sale, the lease, the installation, the maintenance and the repair of any
  goods, devices or equipments in the engineering and computer domain and
  related domains, as well as the marketing of related supplies;

  
	
  (b)

  	
   

  	
  and, more generally, any and all commercial,
  industrial or finance transactions, relating to movable or real-estate
  property, which can be linked, directly or indirectly, with its corporate
  purpose, or with any similar or ancillary purposes, or which are likely to
  facilitate the operation or the development of the Pledgor’s business as well
  as its participation, by every possible means, in any firm or company,
  created or to be created, which can be linked with its corporate purpose, in
  particular by the creation of new companies, contribution (apport), merger, general partnership (commandite), subscription, purchase of
  shares or shareholder interests, alliance, undisclosed partnership (société en participation) or economic
  interest group (groupement d’intérêt
  économique).

  

 

3.2               The said Going Concern so
pledged includes all elements which may be legally included therein pursuant to
article L. 142-2 of the Commercial Code, and in particular:

	
  (a)

  	
   

  	
  the logo, the clients and goodwill in respect
  therewith;

  
	
  (b)

  	
   

  	
  commercial and industrial furniture, material and
  equipment used in the operation thereof;

  
	
  (c)

  	
   

  	
  the commercial names, the patents and licenses, the
  trade marks and trade names, including the Intellectual Property Rights, the
  models and designs and more generally any intangible element and industrial,
  intellectual, literary and artistic rights attached to the Going Concern,
  including the software and any rights granted to the Pledgor pursuant to
  software licenses and agreements and maintenance agreements and which relate
  to its activity;

  
	
  (d)

  	
   

  	
  lessee rights to leased real estate (droit au bail), as
  the case may be, relating to the premises in which the Going Concern is
  operated;

  
	
  (e)

  	
   

  	
  software and maintenance agreements relating to the
  activity of the Pledgor; and

  
	
  (f)

  	
   

  	
  all the elements which may subsequently be created
  and which are to be included in the scope of the Pledge pursuant to Clause
  6.4 of the present Agreement.

  

 

3.3               In addition, the scope of the
Pledge over the Going Concern shall automatically extend, to the extent
permitted by law, to the following elements:

 

3

	
  (a)

  	
   

  	
  furniture, material and equipment which may be
  created or acquired by the Pledgor, including additional furniture, material
  and equipment that shall replace, improve or perfect the existing furniture,
  material and equipment of the Going Concern pledged;

  
	
  (b)

  	
   

  	
  as the case may be, any insurance or eviction
  indemnities and expropriation or any other compensation which would be paid
  to the Pledgor in connection with any of the elements of the Going Concern;

  
	
  (c)

  	
   

  	
  as the case may be, any leasing rights including any
  renewal or extension of such leasing rights with respect to the premises in
  which the Going Concern is operated or with respect to any branch or
  secondary establishment of the Pledgor whether existing, created or to be
  acquired subsequently by the Pledgor;

  
	
  (d)

  	
   

  	
  as the case may be, commercial names, trade marks
  and trade names, copyrights, logos, industrial designs and models and, more
  generally, any intangible assets and rights relating to industrial and
  intellectual rights which may be created, acquired by the Pledgor, as well as
  all licenses or sub-licences, relating to any of these intangible assets;

  
	
  (e)

  	
   

  	
  as the case may be, French or foreign patents or any
  manufacturing process or know-how which may be created or acquired by the
  Pledgor, including all licenses or sub-licenses relating thereto; and

  
	
  (f)

  	
   

  	
  as the case may be, all the elements mentioned above
  which may be held (in its capacity whatsoever) by any secondary establishment
  of the Pledgor which has been subsequently created.

  

 

4                       Registration, fees and expenses

4.1             Tax
registration and registration at commercial court

	
  4.1.1

  	
   

  	
  This Agreement will be registered by the
  Administrative Agent with the relevant tax authorities. In addition, the
  Pledge of Going Concern will be registered by the Administrative Agent with
  the clerk’s office of the Commercial court of Dreux within fifteen (15) days
  from the date hereof.

  
	
  4.1.2

  	
   

  	
  In this respect, all powers are vested in the bearer
  of an original copy of this Agreement.

  

 

4.2             Fees and
expenses of registration, recording and release

All
taxes, imposts, duties or penalties, present or future, of any manner
whatsoever, and any reasonable costs incurred by the Administrative Agent in
connection with this Agreement, including any reasonable fees and expenses of
counsel, relating to the negotiation, preparation execution and registration of
the present Agreement and to the performance thereof or consequent thereupon,
in particular the costs relating to the formalities described in this Clause,
shall be borne by the Pledgor, who undertakes to pay such amounts on first
demand to the Administrative Agent upon presentation of supporting evidence of
such costs.

5                      Representations and Warranties

5.1               In addition to the representations and warranties
of the Pledgor set forth in the Guarantee, the Pledgor hereby represents and warrants to the
Beneficiary that:

	
  5.1.1

  	
   

  	
  it is a duly incorporated, registered and validly
  existing company in accordance with the laws and regulations governing it,
  that it has the power to own its property and other assets and to conduct its
  business as it is now being conducted and hereafter proposed to be conducted;
  that the execution and performance hereof have been duly authorized by the
  relevant corporate bodies;

  

 

4

	
  5.1.2

  	
   

  	
  it has full power and authority to execute this
  Agreement and perform its obligations hereunder and all necessary corporate,
  shareholder and other action has been taken to authorize the execution and
  performance of the same and such authorizations remain in force;

  
	
  5.1.3

  	
   

  	
  that the execution and performance hereof does not
  contravene with any provisions of its articles of association (statuts) nor with any resolution of its
  corporate bodies;

  
	
  5.1.4

  	
   

  	
  that the execution and performance hereof does not
  contravene with any provision of any agreement or undertaking which it is a
  party to or which is binding on it, does not breach any applicable law or
  regulation;

  
	
  5.1.5

  	
   

  	
  that, apart from those referred to in this
  Agreement, the execution and performance hereof does not require any
  authorization, opinion, license, registration or approbation from any third
  authorities, will be required, and that any governmental or administrative
  authorizations required to be obtained or receive by it in order to execute
  and perform its obligations under this Agreement and to ensure the validity
  and enforceability thereof have been obtained and are in force;

  
	
  5.1.6

  	
   

  	
  that this Agreement will constitute from its
  execution and will remain thereafter, a legal, valid and binding undertaking
  under the terms hereof;

  
	
  5.1.7

  	
   

  	
  that there is no pending action nor that it is not aware of any claim
  to be brought, to the effect of preventing or forbid the execution or
  performance hereof or which could have a significant impact on its activity,
  its assets or its financial and economic situation;

  
	
  5.1.8

  	
   

  	
  it is fully aware of the terms of the documentation, from which
  the Guaranteed Obligations arise, and acknowledges to have received a copy
  of each document of which it has neither signed or received, in particular
  the Credit Agreement and the Loan Documents (as such term is defined in the
  Credit Agreement);

  
	
  5.1.9

  	
   

  	
  that no authorization from any third party will be required in the
  event of the sale of the Going Concern, following the enforcement of the
  Pledge;

  
	
  5.1.10

  	
   

  	
  that it is the owner of the Going Concern, as
  evidenced by extracts from its registration certificate at the 

  Registry of Commerce and Companies of Dreux;

  
	
  5.1.11

  	
   

  	
  that it has given to the Beneficiary all information
  requested by the Beneficiary concerning all of the elements pledged or due to
  be pledged hereunder;

  
	
  5.1.12

  	
   

  	
  that it does not at the date hereof, own any
  business, except for the Going Concern which is the subject of this Pledge,
  and that it is, whether or not pursuant to licensing agreements, effectively
  and validly authorized to use the assets and rights included within the scope
  of the Pledge;

  
	
  5.1.13

  	
   

  	
  that at the date hereof, it is not the owner of any
  Intellectual Property Right;

  
	
  5.1.14

  	
   

  	
  that at the date hereof, it is not the holder in any
  capacity whatsoever (and in particular, as a licensee) of any Intellectual
  Property Right, other than the rights included in the scope of the present
  Pledge;

  
	
  5.1.15

  	
   

  	
  that it has legal and valid title to occupation of
  the premises in which the Going Concern is operated;

  
	
  5.1.16

  	
   

  	
  that no license or sub-license concerning any
  Intellectual Property Right or trade name, has been granted at the date
  hereof by the Pledgor to any third parties; and

  
	
  5.1.17

  	
   

  	
  that none of the components of the Going Concern owned by the Pledgor are pledged nor are they
  required to be pledged in favor of third party banks pursuant to articles
  L525-1 and following of the Commercial Code.

  

 

5

5.2               The representations and
warranties set out in Clause 5.1 shall remain in force following the signature
of the Agreement and shall be deemed to be repeated by the Pledgor so that they
remain accurate on each date on which the representations and warranties set
out in the Credit Agreement are repeated.

6                       Undertakings of the Pledgor

The Pledgor hereby undertakes as follows:

6.1             Preservation
of the Going Concern

The Pledgor shall ensure the conservation and preservation of the Going
Concern, it shall maintain (subject to the fair wear and tear) the components
of the Going Concern in a normal state of operation and in activity, it shall
refrain from taking any action which may significantly decrease the value of
the Going Concern (with the exception of actions taken in the normal course of
business), and shall promptly notify the Administrative Agent of any events or
circumstances which are likely to materially and adversely affect (i) the  capacity of the Pledgor to use the Going
Concern, or (ii) the exercise by the Pledgor of its rights and remedies with
respect to the Going Concern whether immediately or in the future.

6.2             Notification
of contemplated pledge

The
Pledgor undertakes to notify the Administrative Agent of any information of
which it is aware and according to which any third party is considering or is
about to take or to be granted a security or privilege over any of the elements
included in the scope of the Pledge over the Going Concern or to be so included
pursuant to this Clause.

6.3             Requirement
of Written Agreement of the Administrative Agent

The
Pledgor shall be required to obtain the express written consent of the
Administrative Agent, acting in the name and on behalf of the Beneficiary,
prior to the completion of any action, the signature of any contract or
agreement, or the making of any undertaking which would result in a significant
decrease in the value of the Going Concern. 
In particular, the Pledgor shall not, without the express prior written
agreement of the Administrative Agent:

	
  6.3.1

  	
   

  	
  modify or permit the modification of the legal
  structure of the company operating the Going Concern;

  
	
  6.3.2

  	
   

  	
  transfer in any manner whatsoever the Going Concern
  or any of the components thereof except for normal business transactions or
  replacement;

  
	
  6.3.3

  	
   

  	
  undertake any transaction which does not clearly
  fall within its corporate purpose or within the normal sphere of its
  operations; or

  
	
  6.3.4

  	
   

  	
  subject or permit the Going Concern to be subjected
  to any charge over the Going Concern, even if ranking behind the Pledge.

  

 

6.4             New going
concern

In
the event that, in the future, the Pledgor becomes the owner of new going
concerns (whether by acquisition, creation, contribution or any other means)
prior to the full payment of the Guaranteed Obligations, it shall immediately
so inform the Administrative Agent.  The
Pledgor further undertakes to grant a pledge in favor of the Administrative
Agent, acting in the name and on behalf of the Beneficiary, as security for the
Guaranteed Obligations, on any such new going concern.

6.5             Renewal
of registration and recording - New recordings

	
  6.5.1

  	
   

  	
  The Pledgor hereby authorizes the Administrative
  Agent, acting in the name and on behalf of the Beneficiary, to renew the
  present Pledge (including any amendments thereto), at the

  

 

6

	
   

  	
   

  	
  Pledgor’s expenses, for a further period of legal
  protection, which shall be the maximum period under the law, upon expiration
  of each period corresponding to the legal period of validity of the Pledge as
  long as any amounts remain due and payable in respect of the Guaranteed
  Obligations.

  
	
  6.5.2

  	
   

  	
  With respect to new intellectual and/or industrial
  property rights created or acquired by the Pledgor after the date hereof
  which are automatically included in the scope of the Pledge pursuant to
  Clause 3 (including all of the trademarks, logos, intellectual rights,
  industrial designs and models, French or foreign patents as well as
  procedures or know-how and more generally, all industrial, literary or
  artistic rights as well as commercial names and any licenses or sub-licenses
  relating to any of such intangible elements granted by the Pledgor to a third
  party, including software, any new rights of the Pledgor under software
  licenses, maintenance agreements and contracts for access to source codes,
  which are or which will be associated with its activity, with the exception
  of such elements as are the property of the Lessee) the Pledgor hereby
  authorizes the Administrative Agent, acting in the name and on behalf of the
  Beneficiary, to immediately register, at the Pledgor’s expenses, with the Institut National de la Propriété Industrielle the pledge
  over such new rights acquired by the Pledgor.

  

 

6.6             Further
covenants

	
  6.6.1

  	
   

  	
  The Pledgor hereby covenants that it will, at its
  own expenses, perform all acts and execute all documents and instruments
  which may be reasonably requested by the Administrative Agent at any time, in
  order to evidence, perfect, maintain or enforce the Pledge created in favor
  of the Beneficiary or, more generally, as a result of the provisions of this
  Agreement.

  
	
  6.6.2

  	
   

  	
  In addition, the Pledgor expressly undertakes to
  inform the Administrative Agent of the creation or acquisition of any
  secondary establishment or branch in which the Pledgor operates part or all
  of its Going Concern or any new going concern, within five (5) Business Days
  of the registration of such secondary establishment or branch with the
  relevant Registry of Commerce and Companies, in order to enable the
  Administrative Agent to make any new or additional registration which may be
  necessary to the creation, extension or conservation of the Pledge, in the
  conditions set out in this Agreement.

  

 

7                       Insurance

The
Pledgor undertakes as from the date hereof to adequately insure or cause to be
insured and maintain insured for so long as this Agreement remains in force,
the materials, furniture, tools and fixtures and fittings and other insurable
property of the Going Concern, against all types of risks usually insured by
commercial companies carrying on the same type of business as the Pledgor, and
in particular, without such list being exhaustive, risks of fire, explosion,
lightning, water damage, loss, destruction, riots, social unrest, acts of
terrorism and theft.  Such insurance must
be taken out by the Pledgor with one or more reputable company(ies) or must be
approved by the Administrative Agent. 
The Pledgor undertakes to renew or cause to be renewed such insurance
upon each renewal date until payment in full of the Guaranteed Obligations and
termination of all commitments under the Credit Agreement and to provide
evidence of such insurance policies to the Administrative Agent at any time
upon the latter’s request.  The Pledgor
acknowledges that, in the event of enforcement of the Pledge, the proceeds of
any insurance policy which would be allocated to the Pledgor in case of damage
shall be paid to the Administrative Agent for the account of the Beneficiary up
to the amount of such proceeds (and for a maximum amount equal to the
Guaranteed Obligations), pursuant to article L.121-13 of the Insurance
Code.  In this respect, the Administrative
Agent, acting in the name and on behalf of the Beneficiary will notify the
relevant insurance companies.  It is
agreed however, that any amounts received by the Administrative Agent on behalf
of the Beneficiary pursuant to this paragraph shall automatically be applied to
reduce the amount owed under the Guaranteed Obligations.

 

7

8                       Duration

	
  8.1

  	
   

  	
  The representations, warranties and covenants set
  out above shall bind the Pledgor and this Agreement shall remain in force for
  so long as any amount remains due and payable in respect of the Guaranteed
  Obligations.

  
	
  8.2

  	
   

  	
  Consequently, the Administrative Agent, acting in
  the name and on behalf of the Beneficiary, undertakes to release the present
  Pledge over the Going Concern, at the Pledgor’s expense when, (i) all
  Guaranteed Obligations are fully and irrevocably satisfied and (ii) no loan
  or credit facility is available for the Borrowers under the Credit Agreement.

  

 

9                       Enforcement of the Pledge

If the Pledgor does not comply with its obligations under the Guaranteed
Obligations (hereinafter an “Enforcement
Event”), the Administrative Agent,
acting in the name and on behalf of the Beneficiary, may:

	
  9.1

  	
   

  	
  with respect to the Pledge created hereunder,
  immediately exercise all rights and privileges and take any action granted by
  law to a secured creditor, and in particular, enforce the pledge pursuant to
  articles L141-5 et seq. and article L521-3 of the Commercial Code (or any
  other legal provision then applicable); and

  
	
  9.2

  	
   

  	
  with respect to any contracts and licenses included
  in the scope of the Pledge over the Going Concern hereunder and for which the
  consent of the co-contractor or grantor of a license is required in order to
  effect a transfer thereof, request (without it being necessary to obtain the
  Pledgor’s consent for this purpose) the consent of any such co-contractor or
  grantor of a license in order to allow the transfer of the relevant licenses
  and agreements to any transferee or proposed transferee of the Going Concern
  upon enforcement of the Pledge.

   

  

IT
BEING SPECIFIED THAT, IN ANY EVENT, the Pledgor hereby undertakes to take all
reasonable actions promptly after the enforcement of the Pledge, in order to
obtain the consent of such co-contractor or grantor of license in respect of
the transfer referred to above; provided that the Pledgor shall not be held
liable in the event where any co-contractor or grantor would refuse to consent
to the above-mentioned transfer; and

IT
BEING ALSO SPECIFIED THAT the Pledgor undertakes to take all reasonable actions
to include, in any agreements and licenses relating to future or additional
rights, provisions that allow the transfer of such agreements or licenses in
case of enforcement of the Pledge, provided that the Pledgor shall not be held
liable in the event that any co-contractor or grantor refuses to consent to the
above-mentioned transfer.

10                Notices

Any
notices and communications made under this Agreement shall be made in
accordance with clause 5.15 of the Guaranty.

11                Miscellaneous

	
  11.1

  	
   

  	
  This Agreement does not affect and shall not affect
  in any way the nature and the scope of any undertaking or any guarantee that
  may have been given or granted by the Pledgor or by any third party, and
  comes in addition to them.

  
	
  11.2

  	
   

  	
  This Agreement is irrevocable and shall remain in
  force notwithstanding:

   

  

 

	
  11.2.1

  	
   

  	
  any renewal, extension or prorogation of the Credit
  Agreement and/or the Guarantee giving rise to the Guaranteed Obligations;

  
	
  11.2.2

  	
   

  	
  any novation or amendment of the Credit Agreement
  an/or the Guarantee giving rise to the Guaranteed Obligations; and

  

 

8

	
  11.2.3

  	
   

  	
  in the event that any provision of the Credit
  Agreement and/or of the Guarantee giving rise to the Guaranteed Obligations
  and/or of any other security or of any other document referred to in the
  Credit Agreement or referring to the Credit Agreement or its schedules, in
  particular in guarantee of any restitution obligation of the Pledgor.

  

 

	
  11.3

  	
   

  	
  This Pledge shall not be extinguished or released,
  either in full or in part, as a result of any partial payment to the
  Beneficiary of the Guaranteed Obligations.

  
	
  11.4

  	
   

  	
  The rights of the Beneficiary pursuant to this
  Agreement or to any document issued pursuant to this Agreement, and any
  right, remedy or other security granted by the Pledgor in favor of the
  Beneficiary or provided by law, may be exercised as often as necessary and
  are cumulative. The Beneficiary may exercise its rights under this Agreement
  regardless of whether or not its other rights, remedies or securities with
  respect to the Guaranteed Obligations have been exercised.

  
	
  11.5

  	
   

  	
  Subject to applicable limitation periods, the
  failure by the Beneficiary and/or the Administrative Agent, acting in the
  name and on behalf of the Beneficiary, to exercise any right or action
  hereunder or any delay in exercising such rights or actions shall not
  constitute a waiver thereof, nor shall any single or partial exercise of any
  such right preclude any other or further exercise of the same, or the
  exercise of any other right. No waiver shall be binding unless effected by
  written instrument signed by all of the Parties and referring expressly to
  this Agreement. The Beneficiary shall have no liability towards the Pledgor
  with respect to the late exercise or the non-exercise of their rights under
  this Agreement.

  
	
  11.6

  	
   

  	
  In the event that any provision of this Agreement
  shall be deemed to be null and void or not binding due to the effect of any
  law or due to the interpretation of such provision, the invalidity of such
  provision shall not affect the validity of any other provision of this
  Agreement. In such a case, the Parties shall negotiate in good faith to
  replace the relevant provision by a new provision which shall be valid, binding,
  enforceable and compliant with the original intention of the Parties.

  

 

12                Successors and Assigns

	
  12.1

  	
   

  	
  All the rights and liabilities of the Beneficiary
  under this Agreement will benefit to its successors, transferees and assigns,
  as well as to any of their own successors, transferees and assigns, and to
  their own successors and assigns and all the terms, conditions, promises,
  representations and warranties hereunder will be binding on the Pledgor and
  on its successors and assigns

  
	
  12.2

  	
   

  	
  The Pledgor acknowledges that the Beneficiary is
  entitled, pursuant to the provisions of the Credit Agreement, to assign all
  or part of its rights under the Credit Agreement, and agrees that the
  provisions of this Agreement will run to the benefit of any assignee of the
  Beneficiary.

  
	
  12.3

  	
   

  	
  The Pledgor shall not be entitled to assign or
  transfer in whole or in part its rights or obligations under this Agreement.

  
	
  12.4

  	
   

  	
  The security under this Agreement shall not be
  affected by any amendment, addition or assignment of the Credit Agreement
  and/or the Guarantee. The Pledgor undertakes to execute any necessary
  documents allowing any assignee, transferee or successor of the Beneficiary
  to benefit from the rights under this Agreement.

  
	
  12.5

  	
   

  	
  In the event that the Administrative Agent is
  replaced in accordance with the terms of clause 15.9 of the Credit Agreement,
  this Agreement and the related Pledge shall inure to the benefit of the new
  Administrative Agent without this constituting a novation. The Pledgor
  undertakes, at the request of the Administrative Agent, to take any measure
  and sign any document in order to ascertain the rights of the new
  Administrative Agent.

  

 

13                Governing Law - Jurisdiction

	
  13.1

  	
   

  	
  This Agreement is governed by French law as to its validity, construction
  and enforcement.

  

 

9

	
  13.2

  	
   

  	
  Any dispute arising out of this Agreement shall be
  submitted to the Commercial court of Paris or the competent courts of the
  State of California, as the case may be, without prejudice to the right of
  the Beneficiary to commence proceedings before any other jurisdiction

  

 

The signature of the
Parties is on the last page hereof.

 

 

10

 

Schedule 1

The Lenders

GVEC Resource IV Inc.

Walkers (BVI) Limited

Walkers Chambers

PO Box 92

Road Town

Tortola, British Virgin Islands

 

11

 

SIGNATURE PAGE

 

Signed in [the State of California (United States of America)],
on November 30, in [four] ([4]) original copies

 

 

	
  CXR ANDERSON JACOBSON SAS

  	
   

  	
   

  
	
  Pledgor

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Represented by:

  	
   Carmine Thomas Oliva

  	
   

  	
  )  /s/ Carmine Thomas Oliva

  
	
  As:

  	
   President

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GVEC
  RESOURCE IV INC.

  	
   

  	
   

  
	
  Administrative
  Agent

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Represented by:

  	
   Robert J. Anderson

  	
   

  	
  )  /s/ Robert J. Anderson

  
	
  As:

  	
   Authorized Signatory

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Represented by:

  	
   Peter Paul Mendel

  	
   

  	
  )  /s/ Peter Paul Mendel

  
	
  As:

  	
   Authorized Signatory

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  THE
  LENDERS

  	
   

  	
   

  
	
  Represented by the Administrative Agent

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Represented by:

  	
   Robert J. Anderson

  	
   

  	
  )  /s/ Robert J. Anderson

  
	
  As:

  	
   Authorized Signatory

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Represented by:

  	
   Peter Paul Mendel

  	
   

  	
  )  /s/ Peter Paul Mendel

  
	
  As:

  	
   Authorized Signatory

  	
   

  	
  )

  
	
   

  	
   

  	
   

  

 

12United States Securities and Exchange Commission EDGAR Filing

EXHIBIT 4.1

WARRANT AGREEMENT

This Warrant Agreement (the “Agreement”) made as of ___________, 2007, between The Quantum Group, Inc., a Nevada corporation, with offices at 3420 Fairlane Farms Road, Wellington, Florida 33414 (the “Company”), and Fidelity Transfer Company, a Utah corporation, with offices at 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115 (“Warrant Agent”).

WHEREAS, the Company is engaged in a secondary public offering (the “Public Offering”) of Units (“Units”) consisting of three (3) shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), two (2) non-callable Class A warrants (the “Class A Warrant”) and two (2) non-callable Class B warrants (the “Class B Warrant”); and,

WHEREAS, each Class A Warrant entitles the holder to purchase one (1) share of Common Stock for $7.00 per share (subject to adjustment) and each Class B Warrant entitles the holder to purchase one (1) share of Common Stock for $11.00 per share (subject to adjustment); and,

WHEREAS, in connection therewith, the Company has determined to issue and deliver up to (i) 2,800,000 Class A Warrants and 2,800,000 Class B Warrants, plus an additional 450,000 Class A Warrants and 450,000 B Warrants if the underwriters’ over-allotment option is exercised in full, to the public investors (the “Public Warrants”) and (ii) 280,000 Class A Warrants and 280,000 Class B Warrants, as part of the grant of the Representative’s Warrants at an exercise price of $________, subject to adjustment as described herein, to Paulson Investment Company, Inc. (the “Representative”) or its designees (the “Representative’s Warrants” and, together with the Public Warrants, the “Warrants”); and

WHEREAS, the Company has filed with the Securities and Exchange Commission a Registration Statement on Form SB-2, File No. 333-142990 (“Registration Statement”), for the registration, under the Securities Act of 1933, as amended (the “Act”) of, among other securities, the Class A Warrants and the Class B Warrants and the Common Stock issuable upon exercise of such Warrants; and

WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange and exercise of the Warrants; and

WHEREAS, the Company desires to provide for the form and provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent and the holders of the Warrants; and

WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants, when executed on behalf of the Company and countersigned by or on behalf of the Warrant Agent, as provided herein, the valid, binding and legal obligations of the Company and to authorize the execution and delivery of this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

1.

Appointment of Warrant Agent.  The Company hereby appoints the Warrant Agent to act as agent for the Company for the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in this Agreement.

			
	 
	 
	 

2.

Warrants.

2.1.

Form of Warrant.  Each Warrant shall be in substantially the form of Exhibit A and Exhibit B hereto, the provisions of which are incorporated herein, and may have such letters, numbers or other marks of identification or designation and such legends summaries or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Warrants may be listed. Each Warrant shall be dated the date of issuance thereof and shall be signed by, or bear the facsimile signature of, the Chairman of the Board or President and Treasurer, Secretary or Assistant Secretary of the Company and shall bear a facsimile of the Company’s seal. In the event the person whose facsimile signature has been placed upon any Warrant shall have ceased to serve in the capacity in which such person signed the Warrant before such Warrant is issued, it may be issued with the same effect as if he or she had not ceased to be such at the date of issuance.

2.2.

Effect of Countersignature.  Unless and until countersigned by the Warrant Agent pursuant to this Agreement, a Warrant shall be invalid and of no effect and may not be exercised by the holder thereof. After countersignature by the Warrant Agent, each Warrant shall be delivered by the Warrant Agent to the Registered Holder (as defined herein) without further action by the Company, except as otherwise provide herein.

2.3.

Registration.  

2.3.1.

Warrant Register.  The Warrant Agent shall maintain books (“Warrant Register”) for the registration of original issuance and the registration of transfer of the Warrants.  Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Warrant Agent by the Company.

2.3.2.

Registered Holder.  Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the person in whose name such Warrant shall be registered upon the Warrant Register (“Registered Holder”) as the absolute owner of such Warrant and of each Warrant represented thereby (notwithstanding any notation of ownership or other writing on the Warrant Certificate made by anyone other than the Company or the Warrant Agent), for the purpose of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

2.4.

Detachability of Warrants.  The securities comprising each Unit, including the Class A Warrants and Class B Warrants will not be separately transferable until thirty (30) days after the date hereof unless the Representative informs the Company of its decision to allow earlier separate trading.  

3.

Terms and Exercise of Warrants.

3.1.

Warrant Price.  Each Public Warrant shall, when countersigned by the Warrant Agent, entitle the registered holder thereof, subject to the provisions of such Warrant and of this Warrant Agreement, to purchase from the Company the number of shares of Common Stock stated therein, at the price set forth in the recitals, subject to the adjustments provided in Section 4 hereof (the “Warrant Price”). 

3.2.

Duration of Warrants.  A Warrant may be exercised only during the period (“Exercise Period”) commencing on the date that the securities comprising each Unit are separately transferable and 

			
	 
	2

	 

terminating at 5:00 PM Eastern Time on the date which is seven (7) years after the date of the final prospectus used in connection with the Public Offering (the “Expiration Date”).  Each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Agreement shall cease at the close of business on the Expiration Date.  

3.3.

Exercise of Warrants.

3.3.1.

Payment.  Subject to the provisions of the Warrant and this Warrant Agreement, a Warrant, when countersigned by the Warrant Agent, may be exercised by the registered holder thereof by surrendering it, at the office of the Warrant Agent, or at the office of its successor as Warrant Agent, in ___________, with the subscription form, as set forth in the Warrant, duly executed, and by paying in full, in lawful money of the United States, in cash, good certified check or good bank draft payable to the order of the Company (or as otherwise agreed to by the Company), the Warrant Price for each full share of Common Stock as to which the Warrant is exercised and any and all applicable taxes due in connection with the exercise of the Warrant, the exchange of the Warrant for the Common Stock and the issuance of the Common Stock.

3.3.2.

Issuance of Certificates.  As soon as practicable after the exercise of any Warrant and the clearance of the funds in payment of the Warrant Price, the Company shall issue to the Registered Holder of such Warrant a certificate or certificates for the number of full shares of Common Stock to which he is entitled, registered in such name or names as may be directed by him, her or it, and if such Warrant shall not have been exercised in full, a new countersigned Warrant for the number of shares as to which such Warrant shall not have been exercised.  Notwithstanding the foregoing, the Company shall not be obligated to deliver any securities pursuant to the exercise of a Warrant unless a registration statement under the Act with respect to the Common Stock underlying the Warrants is effective.  Warrants may not be exercised by, or securities issued to, any Registered Holder in any state in which such exercise would be unlawful. 

3.3.3.

Valid Issuance.  All shares of Common Stock issued upon the proper exercise of a Warrant in conformity with this Agreement shall be validly issued, fully paid and nonassessable.

3.3.4.

Date of Issuance.  Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.

4.

Adjustments.

4.1.

Stock Dividends - Split-Ups.  If after the date hereof, and subject to the provisions of Section 4.6 below, the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock, or by a split-up of shares of Common Stock, or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of Common Stock issuable on exercise of each Warrant shall be increased in proportion to such increase in outstanding shares of Common Stock.

4.2.

Aggregation of Shares.  If after the date hereof, and subject to the provisions of Section 4.6, the number of outstanding shares of Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common Stock or other similar event, 

			
	 
	3

	 

then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Common Stock issuable on exercise of each Warrant shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

4.3.

Adjustments in Exercise Price.  Whenever the number of shares of Common Stock purchasable upon the exercise of the Warrants is adjusted, as provided in Section 4.1 and 4.2 above, the Warrant Price shall be adjusted (to the nearest cent) by multiplying such Warrant Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of the Warrants immediately prior to such adjustment, and (y) the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter.  In the event the Warrant Price is adjusted, as set forth herein, the Company shall keep each Warrant Price in effect for at least ten (10) business days.

4.4.

Replacement of Securities upon Reorganization, etc.  In case of any reclassification or reorganization of the outstanding shares of Common Stock (other than a change covered by Section 4.1 or 4.2 hereof or that solely affects the par value of such shares of Common Stock), or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Warrant holders shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the Warrant holder would have received if such Warrant holder had exercised his, her or its Warrant(s) immediately prior to such event; and if any reclassification also results in a change in shares of Common Stock covered by Section 4.1 or 4.2, then such adjustment shall be made pursuant to Sections 4.1, 4.2, 4.3 and this Section 4.4.  The provisions of this Section 4.4 shall similarly apply to successive reclassifications, reorganizations, mergers or consolidations, sales or other transfers.

4.5.

Notices of Changes in Warrant.  Upon every adjustment of the Warrant Price or the number of shares issuable upon exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Warrant Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Upon the occurrence of any event specified in Sections 4.1, 4.2, 4.3 or 4.4, then, in any such event, the Company shall give written notice to each Warrant holder, at the last address set forth for such holder in the Warrant Register, of the record date or the effective date of the event.  Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event.

4.6.

No Fractional Shares.  Notwithstanding any provision contained in this Warrant Agreement to the contrary, the Company shall not issue fractional shares upon exercise of Warrants.  If, by reason of any adjustment made pursuant to this Section 4, the holder of any Warrant would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, upon such exercise, pay to the holder cash in an amount equal to the fair market value of such fractional interest.

4.7.

Form of Warrant.  The form of Warrant need not be changed because of any adjustment pursuant to this Section 4, and Warrants issued after such adjustment may state the same Warrant Price 

			
	 
	4

	 

and the same number of shares as is stated in the Warrants initially issued pursuant to this Agreement.  However, the Company may at any time in its sole discretion make any change in the form of Warrant that the Company may deem appropriate and that does not affect the substance thereof, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed.

5.

Transfer and Exchange of Warrants.

5.1.

Registration of Transfer.  The Warrant Agent shall register the transfer, from time to time, of any outstanding Warrant upon the Warrant Register, upon surrender of such Warrant for transfer, properly endorsed with signatures properly guaranteed and accompanied by appropriate instructions for transfer.  Upon any such transfer, a new Warrant representing an equal aggregate number of Warrants shall be issued and the old Warrant shall be cancelled by the Warrant Agent.  The Warrants so cancelled shall be delivered by the Warrant Agent to the Company from time to time upon request.

5.2.

Procedure for Surrender of Warrants.  Warrants may be surrendered to the Warrant Agent, together with a written request for exchange or transfer, and thereupon the Warrant Agent shall issue in exchange therefor one or more new Warrants as requested by the registered holder of the Warrants so surrendered, representing an equal aggregate number of Warrants; provided, however, that in the event that a Warrant surrendered for transfer bears a restrictive legend, the Warrant Agent shall not cancel such Warrant and issue new Warrants in exchange therefor until the Warrant Agent has received an opinion of counsel satisfactory to the Company stating that such transfer may be made and indicating whether the new Warrants must also bear a restrictive legend.

5.3.

Fractional Warrants.  The Warrant Agent shall not be required to effect any registration of transfer or exchange, which will result in the issuance of a warrant certificate for a fraction of a warrant.

5.4.

Service Charges.  No service charge shall be made for any exchange or registration of transfer of Warrants.

5.5.

Warrant Execution and Countersignature.  The Warrant Agent is hereby authorized to countersign and to deliver, in accordance with the terms of this Agreement, the Warrants required to be issued pursuant to the provisions of this Section 5, and the Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed on behalf of the Company for such purpose. 

6.

Other Provisions Relating to Rights of Holders of Warrants.

6.1.

No Rights as Stockholder.  A Warrant does not entitle the Registered Holder thereof to any of the rights of a stockholder of the Company, including, without limitation, the right to receive dividends, or other distributions, exercise any preemptive rights to vote or to consent or to receive notice as stockholders in respect of the meetings of stockholders or the election of directors of the Company or any other matter.

6.2.

Lost, Stolen, Mutilated, or Destroyed Warrants.  If any Warrant is lost, stolen, mutilated, or destroyed, the Company and the Warrant Agent may on such terms as to indemnity (including the posting of a bond) or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination, tenor and date as the Warrant so lost, stolen, mutilated or destroyed.  Any such new Warrant shall constitute a 

			
	 
	5

	 

substitute contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

6.3.

Reservation of Common Stock.  The Company shall at all times reserve and keep available a number of its authorized but unissued shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Agreement.

7.

Concerning the Warrant Agent and Other Matters.

7.1.

Payment of Taxes.  The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of shares of Common Stock upon the exercise of Warrants, but the Company or the Warrant Agent shall not be obligated to pay any transfer taxes in respect of the Warrants or such shares.

7.2.

Resignation, Consolidation, or Merger of Warrant Agent.

7.2.1.

Appointment of Successor Warrant Agent.  The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving sixty (60) days’ notice in writing to the Company.  If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent.  If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation or incapacity by the Warrant Agent or by the holder of the Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the Registered Holder of any Warrant may apply to the Court of the State of Florida for the County of Broward for the appointment of a successor Warrant Agent at the Company’s cost.  Any successor Warrant Agent, whether appointed by the Company or by such court, shall be a corporation organized and existing under the laws of its state of incorporation and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority.  After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed; but if for any reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties and obligations.

7.2.2.

Notice of Successor Warrant Agent.  In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the transfer agent for the Common Stock not later than the effective date of any such appointment.

7.2.3.

Merger or Consolidation of Warrant Agent.  Any corporation into which the Warrant Agent may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party shall be the successor Warrant Agent under this Agreement without any further act.

7.3.

Fees and Expenses of Warrant Agent.

7.3.1.

Remuneration.  The Company agrees to pay the Warrant Agent reasonable remuneration for its services as such Warrant Agent hereunder and will reimburse the Warrant Agent 

			
	 
	6

	 

upon demand for all expenditures that the Warrant Agent may reasonably incur in the execution of its duties hereunder.

7.3.2.

Further Assurances.  The Company agrees to perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing of the provisions of this Agreement.

7.4.

Liability of Warrant Agent.

7.4.1.

Reliance on Company Statement.  Whenever in the performance of its duties under this Warrant Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a statement signed by the President, Chief Financial Officer or Chairman of the Board of the Company and delivered to the Warrant Agent.  The Warrant Agent may rely upon such statement for any action taken or suffered in good faith by it pursuant to the provisions of this Agreement.

7.4.2.

Indemnity.  The Warrant Agent shall be liable hereunder only for its own negligence, willful misconduct or bad faith.  The Company agrees to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement except as a result of the Warrant Agent’s negligence, willful misconduct or bad faith.

7.4.3.

Exclusions.  The Warrant Agent shall have no responsibility with respect to the validity of this Agreement or with respect to the validity or execution of any Warrant (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Warrant; nor shall it be responsible to make any adjustments required under the provisions of Section 4 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Warrant or as to whether any shares of Common Stock will when issued be valid and fully paid and nonassessable. 

7.5.

Acceptance of Agency.  The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth and among other things, shall account promptly to the Company with respect to Warrants exercised and concurrently account for, and pay to the Company, all moneys received by the Warrant Agent for the purchase of shares of Common Stock through the exercise of Warrants.

8.

Miscellaneous Provisions.

8.1.

Successors.  All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns.

8.2.

Notices.  Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the Warrant Agent or by the holder of any Warrant to or on the Company shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private 

			
	 
	7

	 

courier service within five (5) days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows:

The Quantum Group, Inc.

3420 Fairlane Farms Road, Suite C

Wellington FL 33414

Attn:

Chief Financial Officer

Fax #:  561-828-0454

Any notice, statement or demand authorized by this Agreement to be given or made by the Registered Holder of any Warrant or by the Company to or on the Warrant Agent shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five (5) days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows:

Fidelity Transfer Company

1800 South West Temple, Ste 301

Salt Lake City, Utah  84115

Attn:

Kevin Kopuanik

with a copy in each case to:

Cozen O’Connor 

The Army and Navy Club Building

1627 I Street, NW, Suite 1100

Washington, DC 20006

Attn:

Ralph V. De Martino, Esq.

8.3.

Applicable law.  The validity, interpretation, and performance of this Agreement and of the Warrants shall be governed in all respects by the laws of the State of Utah, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction.  The Company hereby agrees that any action, proceeding or claim against it arising out of or relating in any way to this Agreement shall be brought and enforced in the courts of the State of Utah or the, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.  The Warrant Agent hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenience forum.  Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8.2 hereof.  Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim.

8.4.

Persons Having Rights under this Agreement.  Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the Registered Holders of the Warrants and, for the purposes of Sections 5.1, 4.4 and 8.2 hereof, Paulson Investment Company, Inc., in its capacity as the representative for certain underwriters in connection with the Public Offering (the “Representative”), any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof.  The Representative shall be deemed to be a third-party beneficiary of this Agreement with respect to Sections 5.1, 5.4 and 8.2 hereof.  All covenants, conditions, stipulations, promises, and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto (and the Representative with respect to the 

			
	 
	8

	 

Sections 5.1, 5.4 and 8.2 hereof) and their successors and assigns and of the registered holders of the Warrants.

8.5.

Examination of the Warrant Agreement.  A copy of this Agreement shall be available at all reasonable times at the office of the Warrant Agent in Salt Lake City, Utah, for inspection by the Registered Holder of any Warrant.  The Warrant Agent may require any such holder to submit his Warrant for inspection by it.

8.6.

Counterparts.  This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

8.7.

Effect of Headings.  The Section headings herein are for convenience only and are not part of this Warrant Agreement and shall not affect the interpretation thereof.

(Remainder of Page Intentionally Left Blank.  Signature Page Follows.)

			
	 
	9

	 

IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written.

				
	Attest:

	 
	The Quantum Group, Inc.

	 
	 

	 
	 

	 
	 

	 
	 

	 
	 
	By:

	 

	 
	 
	Name:

	 

	 
	 
	Title:

	 

	 
	 

	 
	 

	 
	 

	 
	 

	Attest:

	 
	Fidelity Transfer Company

	 
	 

	 
	 

	 
	 

	 
	 

	 
	 
	By:

	 

	 
	 
	Name:

	 

	 
	 
	Title:

	 

			
	 
	10

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