EXHIBIT 10.7
PLEDGE AND SECURITY AGREEMENT
DATED AS OF SEPTEMBER 26, 2005
AMONG
EMISPHERE TECHNOLOGIES, INC., AS GRANTOR
AND EACH OTHER GRANTOR
FROM TIME TO TIME PARTY HERETO
AND
MHR INSTITUTIONAL PARTNERS IIA LP,
AS SECURED PARTY, ON BEHALF OF THE LENDERS
TABLE OF CONTENTS
1. DEFINITIONS.............................................................. 1
1.1. Defined Terms................................................. 1
1.2. Other Terms................................................... 9
1.3. The Exchange.................................................. 9
2. CREATION OF SECURITY INTEREST............................................ 9
2.1. Pledge and Grant of Security Interest......................... 9
2.2. Security for the Obligations.................................. 11
2.3. Excluded Collateral........................................... 11
3. REPRESENTATIONS AND WARRANTIES........................................... 11
3.1. Ownership of Collateral....................................... 12
3.2. Security Interests; Filings................................... 12
3.3. Locations, Jurisdiction of Organization....................... 13
3.4. Authorization; Consent........................................ 13
3.5. Equity Interests.............................................. 13
3.6. Intellectual Property......................................... 14
3.7. Disclosure.................................................... 14
4. COVENANTS................................................................ 14
4.1. Security Interest............................................. 14
4.2. Change of Name, etc........................................... 14
4.3. Records; Inspection........................................... 15
4.4. Intellectual Property......................................... 15
4.5. Delivery of Collateral........................................ 17
4.6. Control of Investment Property and Other Collateral........... 17
4.7. Vehicles...................................................... 18
4.8. Controlled Accounts; Controlled Deposit Accounts.............. 18
4.9. Payment of Obligations........................................ 18
4.10. Special Property............................................. 19
4.11. Additional Information....................................... 19
4.12. Additional Grantors.......................................... 19
5. CERTAIN PROVISIONS RELATING TO EQUITY INTERESTS.......................... 19
5.1. Ownership; After-Acquired Equity Interests.................... 19
5.2. Voting Rights................................................. 20
5.3. Dividends and Other Distributions............................. 20
6. REMEDIES................................................................. 21
6.1. Events of Default............................................. 21
6.2. Remedies...................................................... 21
6.3. Application of Proceeds....................................... 23
6.4. Collateral Accounts........................................... 24
6.5. Grant of License.............................................. 24
6.6. The Grantors Remain Liable.................................... 24
6.7. Registration Rights........................................... 25
6.8. Right of Set-Off.............................................. 26
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6.9. Waivers by the Grantors....................................... 26
7. THE SECURED PARTY........................................................ 27
7.1. Limitation on Duty of Secured Party in Respect of Collateral.. 27
7.2. Further Assurances............................................ 27
7.3. Appointment as Attorney-in-Fact............................... 28
8. MISCELLANEOUS............................................................ 29
8.1. Indemnity and Expenses........................................ 29
8.2. No Waiver by Course of Conduct; Cumulative Remedies........... 29
8.3. Grantors' Obligations Absolute................................ 30
8.4. Amendments, Waivers, etc...................................... 31
8.5. Subrogation; Termination and Release; Survival................ 31
8.6. Notices....................................................... 32
8.7. Severability.................................................. 32
8.8. Headings...................................................... 32
8.9. Bankruptcy; Reinstatement..................................... 32
8.10. Injunctive Relief............................................ 32
8.11. Successors and Assigns....................................... 33
8.12. Counterparts................................................. 33
8.13. Governing Law; Submission to Jurisdiction.................... 33
8.14. WAIVER OF JURY TRIAL......................................... 34
8.15. Entire Agreement............................................. 34
EXHIBIT A: Pledged Equity Interests
EXHIBIT B: Filing Locations
EXHIBIT C: Locations of Chief Executive Offices, Records Relating to
Collateral and Equipment and Inventory
EXHIBIT D: Copyrights and Copyright Applications
EXHIBIT E: Patents and Patent Applications
EXHIBIT F: Trademarks and Trademark Applications
EXHIBIT G: Domain Name Registrations
EXHIBIT H: Special Power of Attorney
EXHIBIT I: Vehicles
EXHIBIT J: Pledge Amendment
EXHIBIT K: Security Agreement (Copyrights)
EXHIBIT L: Security Agreement (Patents)
EXHIBIT M: Security Agreement (Trademarks)
EXHIBIT N: Security Agreement (Domain Name Registrations)
EXHIBIT O: Form of Grantor Addendum
EXHIBIT P: Deposit Account Control Agreement
EXHIBIT Q: Certain Agreements, Property and Assets Constituting "Special
Property"
EXHIBIT R: Domain Name Assignment
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PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of
September 26, 2005, by Emisphere Technologies, Inc. (the "Grantor"), each
subsidiary of the Grantor that, on or after the date hereof, executes an
addendum hereto substantially in the form of Exhibit O (the undersigned Grantor
together with such subsidiaries, the "Grantors"), and MHR Institutional Partners
IIA LP, a Delaware limited partnership (together with its successors and
permitted assigns, the "Secured Party"), on behalf of and for the benefit of the
Lenders (as defined herein).
W I T N E S S E T H:
WHEREAS, contemporaneously with entering into this Agreement, the
Grantor is entering into that certain Investment and Exchange Agreement (the
"Investment and Exchange Agreement") and that certain Senior Secured Term Loan
Agreement (the "Loan Agreement"), each dated as of the date hereof, between the
Grantor and the Secured Party;
WHEREAS, the Lenders (as defined herein) have agreed to lend on the
terms and conditions set forth in the Loan Agreement (the "Secured Loan")
$15,000,000 to the Grantor on the date hereof;
WHEREAS, the Lenders (as defined herein) shall have the right, upon
the terms and conditions contained in the Investment and Exchange Agreement and
the Loan Agreement, to exchange (the "Exchange") the Secured Loan into the
11.00% Senior Secured Convertible Note of the Grantor (the "Convertible Note");
WHEREAS, a condition precedent to the obligation of the Lenders (as
defined herein) to make the Secured Loan is that the Grantor shall have executed
and delivered this Agreement to the Secured Party.
NOW THEREFORE, in consideration of the premises and to induce the
Investor to enter into the Loan Agreement and the Investment and Exchange
Agreement, each Grantor hereby agrees with the Secured Party as follows:
1. DEFINITIONS
1.1. Defined Terms. For purposes of this Agreement, in addition to
the terms defined elsewhere herein, the following terms shall have the meanings
set forth below:
"Accounts" shall have the meaning ascribed thereto in the Uniform
Commercial Code and whether now owned or existing or hereafter acquired or
arising, including, without limitation, the Segregated Account.
"Account Control Agreement" means, with respect to any Deposit
Account or Securities Account, an account control agreement in a form acceptable
to the Secured Party and the Grantor, as each such agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof.
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"Affiliate" means, as to any Person, any other Person (i) that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person; (ii) who is a
director or officer (A) of such Person; (B) of any Subsidiary of such Person; or
(C) of any Person described in clause (i) above with respect to such Person; or
(iii) which, directly or indirectly through one or more intermediaries, is the
beneficial or record owner (as defined in Rule 13d-3 of the Exchange Act, as is
in effect on the date hereof) of 10% or more of any class of the outstanding
voting stock, securities or other equity or ownership interests of such Person;
provided, however, that notwithstanding anything else herein to the contrary,
any Permitted Holder shall be deemed not to be an Affiliate of the Grantor or
any Subsidiary. For purposes of this definition, the term "control" (and the
correlative terms, "controlled by" and "under common control with") shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies, whether through ownership of securities
or other interests, by contract or otherwise.
"Bankruptcy Code" shall mean 11 U.S.C. Sections 101 et seq., as
amended from time to time, and any successor statute.
"Chattel Paper" shall have the meaning ascribed thereto in the
Uniform Commercial Code and whether now owned or existing or hereafter acquired
or arising.
"Closing Date" shall have the meaning ascribed to such term in the
Loan Agreement.
"Collateral" shall have the meaning given to such term in Section
2.1.
"Collateral Accounts" shall have the meaning given to such term in
Section 6.4.
"Commercial Tort Claims" shall have the meaning ascribed thereto in
the Uniform Commercial Code.
"Contracts" shall mean, collectively, all rights of each Grantor
under all leases, contracts and agreements to which such Grantor is now or
hereafter a party, including, without limitation, all rights, privileges and
powers under Investment Agreements and Licenses, together with any and all
extensions, modifications, amendments and renewals of such leases, contracts and
agreements and all rights of such Grantor to receive moneys due or to become due
thereunder or pursuant thereto and to amend, modify, terminate or exercise
rights under such leases, contracts and agreements, but excluding rights under
(but not excluding Proceeds of) any lease, contract or agreement (including,
without limitation, any License) that by the terms thereof, or under applicable
law, cannot be assigned or a security interest granted therein in the manner
contemplated by this Agreement unless consent from the relevant party or parties
has been obtained and under the terms of which lease, contract or agreement any
such assignment or grant of a security interest therein in the absence of such
consent would, or could, result in the termination thereof, but only to the
extent that (y) such rights are subject to such contractual or legal restriction
and (z) such restriction is not, or could not be, rendered ineffective pursuant
to the Uniform Commercial Code of any relevant jurisdiction or any other
applicable law (including the Bankruptcy Code) or principles of equity.
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"Controlled Account" means each Account that is subject to an
Account Control Agreement, and each Controlled Deposit Account.
"Controlled Deposit Account" means each Deposit Account that is
subject to a Deposit Account Control Agreement.
"Copyrights" means all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office, and the right to obtain all renewals of any of
the foregoing.
"Copyright Collateral" shall mean, collectively, all Copyrights and
Copyright Licenses to which any Grantor is or hereafter becomes a party and all
other General Intangibles embodying, incorporating, evidencing or otherwise
relating or pertaining to any Copyright or Copyright License, in each case
whether now owned or existing or hereafter acquired or arising.
"Copyright License" means all written agreements granting any right
under any Copyright, including the grant of rights to manufacture, distribute,
exploit and sell materials derived from any Copyright.
"Deposit Account" shall have the meaning ascribed thereto in the
Uniform Commercial Code, including, without limitation, all bank and other
deposit accounts (including, without limitation, any demand, time, savings,
passbook or like account maintained with any depositary institution) of any
Grantor and all such bank and other deposit accounts of any other Person, held
on behalf of or for the benefit of any Grantor in any jurisdiction.
"Deposit Account Bank" means a financial institution approved by the
Secured Party (which approval shall not be unreasonably withheld) and with
respect to which a Grantor has delivered to the Secured Party an executed
Deposit Account Control Agreement.
"Deposit Account Control Agreement" means a letter agreement,
substantially in the form of Exhibit P attached hereto, or in another form
reasonably acceptable to the Grantor and the Secured Party, executed by the
Grantor, the Secured Party and the relevant Deposit Account Bank.
"Document" shall have the meaning ascribed thereto in the Uniform
Commercial Code.
"Domain Name" shall mean the combination of words and abbreviations
that represents a uniquely identifiable internet protocol address of a World
Wide Web internet location.
"Equipment" shall have the meaning ascribed thereto in the Uniform
Commercial Code including, without limitation, with respect to any Grantor, all
of such Grantor's now owned and hereafter acquired machinery, equipment,
furniture, furnishings, fixtures and other tangible personal property, including
without limitation, data processing hardware and software, computers, motor
vehicles, trailers, aircraft, tools, office equipment, store fixtures, and
leasehold
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improvements, as well as all of such Grantor's rights and interests with respect
thereto under such leases of such types of personal property (including, without
limitation, options to purchase); together with all component and auxiliary
parts and supplies owned by such Grantor's and used or to be used in connection
therewith, and all substitutes for any of the foregoing, all manuals, drawings,
instructions, warranties and rights with respect thereto owned by such
Grantor's, and all proceeds and general intangibles relating to all of the
foregoing, including, without limitation, any claims against third parties for
loss or damage.
"Equity Interest" means, (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of common stock and preferred stock of such Person and all options,
warrants or other rights to purchase or acquire any of the foregoing; and (ii)
with respect to any Person that is not a corporation or a natural person, any
and all partnership, membership or other equity interests of such Person, and
all options, warrants or other rights to purchase or acquire any of the
foregoing.
"Excluded Collateral" means (i) Special Property other than the
following: (A) the right to receive any payment of money (including, without
limitation, general intangibles for money due or to become due); and (B) any
Proceeds, products, offspring, accessions, rents, profits, income, benefits,
substitutions or replacements of any Special Property (unless such proceeds,
products, offspring, accessions, rents, profits, income, benefits, substitutions
or replacements themselves would constitute Special Property); and (ii)
Grantor's leasehold interest as described in Schedule 8.1(n) of the Loan
Agreement.
"Event of Default" shall have the meaning ascribed thereto in
Section 6.1.
"Final Withdrawal Date" shall have the meaning ascribed to such term
in the Loan Agreement.
"Fixtures" shall have the meaning ascribed thereto in the Uniform
Commercial Code.
"GECC" shall mean General Electric Capital Corporation.
"General Intangibles" shall have the meaning ascribed thereto in the
Uniform Commercial Code, including, without limitation, all Contracts, all
Copyright Collateral, all Patent Collateral, all Trademark Collateral, all
Domain Name registrations, all Intercompany Obligations, all rights under or
evidenced by choses in action or causes of action, all judgments, tax refund
claims, claims against carriers and shippers, claims under liens and insurance
policies, all rights under security agreements, guarantees, indemnities and
other instruments and contracts securing or otherwise relating to any of the
foregoing, and all other intangible personal property of every kind and nature,
and all accessions, additions, improvements, modifications and upgrades to,
replacements of and substitutions for the foregoing, in each case whether now
owned or existing or hereafter acquired or arising, but excluding Accounts and
excluding leases, contracts and agreements (including, without limitation,
Licenses) to the extent excluded from Contracts under the definition of such
term herein. For the purposes of this Agreement, General Intangibles shall
include Commercial Tort Claims.
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"Instruments" shall have the meaning ascribed thereto in the Uniform
Commercial Code, whether now owned or existing or hereafter acquired, including
those evidencing, representing, securing, arising from or otherwise relating to
any Accounts, Intercompany Obligations or other Collateral.
"Intercompany Obligations" shall mean, collectively, all
indebtedness, obligations and other amounts at any time owing to any Grantor
from any of the Grantor's subsidiaries or Affiliates and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness, obligations or other amounts.
"Inventory" shall have the meaning ascribed thereto in the Uniform
Commercial Code, including, without limitation, all goods manufactured, acquired
or held for sale or lease, all raw materials, component materials,
work-in-progress and finished goods, all supplies, goods and other items and
materials used or consumed in the manufacture, production, packaging, shipping,
selling, leasing or furnishing of such inventory or otherwise in the operation
of the business of such Grantor, all goods in which such Grantor now or at any
time hereafter has any interest or right of any kind, and all goods that have
been returned to or repossessed by or on behalf of such Grantor, in each case
whether or not the same is in transit or in the constructive, actual or
exclusive occupancy or possession of such Grantor or is held by such Grantor or
by others for the account of such Grantor, and in each case whether now owned or
existing or hereafter acquired or arising.
"Investment Agreement" shall mean any articles or certificate of
incorporation, partnership agreement, joint venture agreement, limited liability
company operating agreement, stockholders agreement or other agreement creating,
governing or evidencing any Equity Interests and to which any Grantor is now or
hereafter becomes a party, as any such agreement may be amended, modified,
supplemented, restated or replaced from time to time.
"Investment Property" shall have the meaning ascribed thereto in the
Uniform Commercial Code.
"Know-How" means any and all proprietary unpatented technical
information, data, ideas, test results, inventions, instructions, processes,
knowledge, techniques, discoveries, formulae, specifications, designs,
regulatory filings, and biological or other materials (including, without
limitation, biological, chemical, toxicological, physical and analytical,
safety, manufacturing and quality control data and information).
"Know-How Collateral" shall mean, collectively, all Know-How,
Know-How Licenses and all other General Intangibles embodying, incorporating,
evidencing or otherwise relating or pertaining to any Know-How whether now owned
or existing or hereafter acquired or arising.
"Know-How License" means all written agreements granting any right
under any Know-How, including the grant of rights to manufacture, distribute,
exploit and sell materials derived from any Know-How.
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"Lenders" means the Lender, as defined in the Loan Agreement, and
all successors and assignees thereof.
"Letter of Credit Rights" shall have the meaning ascribed thereto in
the Uniform Commercial Code.
"License" shall mean any Copyright License, Patent License,
Trademark License or Know-How License.
"Lien" shall have the meaning ascribed to such term in the Loan
Agreement.
"Loan Documents" shall have the meaning ascribed to such term in the
Loan Agreement.
"MHR" means MHR Fund Management LLC and any successor thereto.
"Obligations" shall mean all present and future obligations and
liabilities of each of the Grantors to the Secured Party and each of the Lenders
under this Agreement and the Loan Documents, including, without limitation,
principal of, interest on the Secured Loan, the Convertible Note (as applicable)
and any and all fees, expenses, indemnities, premiums and any other sum
chargeable to the Grantors under this Agreement or any of the other Loan
Documents, including, without limitation, interest accruing at the specified
rate (including any default rate of interest) after the filing of a petition or
commencement of a case by or with respect to the Grantor seeking relief under
any applicable federal and state laws pertaining to bankruptcy, reorganization,
arrangement, moratorium, readjustment of debts, dissolution, liquidation or
other debtor relief, specifically including, without limitation, the Bankruptcy
Code and any fraudulent transfer and fraudulent conveyance laws, whether or not
the claim for such interest is allowed or allowable in such proceeding, whether
due or to become due, secured or unsecured, direct or indirect, absolute or
contingent, joint or several, and howsoever or whensoever incurred by each of
the Grantors or acquired by the Secured Party or each of the Lenders; and in
each case with respect to the foregoing, all such liabilities and obligations
that, but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due, and all fees, costs and expenses payable by
such Grantor under this Agreement.
"Partner Obligations" shall have the meaning given to such term in
Section 6.6.
"Patents" shall mean (i) all letters patent of the United States,
any other country or any political subdivision thereof, all reissues and
extensions thereof and all goodwill associated therewith; (ii) all applications
for letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof; and (iii) all rights to obtain
any reissues or extensions of the foregoing.
"Patent Collateral" shall mean, collectively, all Patents and all
Patent Licenses to which any Grantor is or hereafter becomes a party and all
other General Intangibles embodying, incorporating, evidencing or otherwise
relating or pertaining to any Patent or Patent License, in each case whether now
owned or existing or hereafter acquired or arising.
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"Patent License" shall mean all agreements, whether written or oral,
providing for the grant of any right to manufacture, use or sell any invention
covered in whole or in part by a Patent.
"Payroll Accounts" means accounts #670-0000000, #670-1771913 and
#670-1771816 maintained by the Company at The Bank of New York, which accounts
are used solely to fund the Company's payroll and payroll-related expenses and
Cafeteria Benefit Plan.
"Permitted Holders" shall have the meaning ascribed to such term in
the Loan Agreement.
"Person" means any corporation, limited liability company, natural
person, firm, joint venture, partnership, trust, unincorporated organization or
government, or any political subdivision, department or agency of any
government.
"Pledge Amendment" shall have the meaning given to such term in
Section 5.1.
"Proceeds" shall mean all "proceeds" as such term is defined in the
Uniform Commercial Code and all proceeds and products of any Collateral, and all
proceeds of such proceeds and products, including, without limitation, all cash
and credit balances, all payments under any indemnity, warranty, or guaranty
payable with respect to any Collateral, all awards for taking by eminent domain,
all proceeds of fire or other insurance, and all money and other Property
obtained as a result of any claims against third parties or any legal action or
proceeding with respect to Collateral and all dividends or other income from any
Equity Interests pledged to the Secured Party on its own behalf and on behalf of
the Lenders, collections thereon or distributions or payments with respect
thereto.
"Property" means any right or interest in or to property of any kind
whatsoever of the Grantors, whether real, personal or mixed and whether tangible
or intangible, including, without limitation, Equity Interests held by any
Grantor.
"Related Party" shall have the meaning ascribed to such term in the
Loan Agreement.
"Securities Account" shall have the meaning ascribed thereto in the
Uniform Commercial Code and whether now owned or existing or hereafter acquired
or arising.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Documents" shall have the meaning ascribed to such term in
the Loan Agreement.
"Special Property" shall mean any permit, lease or license held by
any Grantor that prohibits, and any law applicable thereto prohibits, the
creation of a lien or security interest therein, in each case only to the
extent, and for so long as, such permit, lease, license, contract or other
agreement, or law applicable thereto, validly prohibits the creation of a lien
or security interest in such property in favor of the Secured Party on its own
behalf and on behalf of the Lenders (and upon the termination of such
prohibition (howsoever occurring)) such permit,
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lease, license, contract or agreement shall cease to be "Special Property").
Notwithstanding the foregoing, the term "Special Property" shall include (i) the
property and assets pledged to GECC pursuant to that certain Master Lease
Agreement dated as of March 14, 2004 between the Grantor and GECC and the
schedules relating thereto delivered prior to the date of this Agreement, and
(ii) those agreements, properties and assets listed on Exhibit Q hereof.
"Stockholder Approval Default" shall have the meaning ascribed to
such term in the Loan Agreement.
"Subsidiary" means (i) as to the Grantor, any Person in which more
than 25% of all equity, membership, partnership or other ownership interests is
owned directly or indirectly by the Grantor or one or more of its Subsidiaries;
and (ii) as to any other Person, any Person in which more than 25% of all
equity, membership, partnership or other ownership interests is owned directly
or indirectly by such Person or by one or more of such Person's Subsidiaries.
Unless otherwise specified in this Agreement or any Loan Document, references to
a Subsidiary refer to a Subsidiary of the Grantor.
"Voting Stock" of a Person means all classes of capital stock or
other interests of such Person then outstanding and normally entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof.
"Trademarks" shall mean (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common-law
rights related thereto; and (ii) the right to obtain all renewals thereof.
"Trademark Collateral" shall mean, collectively, all Trademarks and
Trademark Licenses to which any Grantor is or hereafter becomes a party and all
other General Intangibles embodying, incorporating, evidencing or otherwise
relating or pertaining to any Trademark or Trademark License, in each case
whether now owned or existing or hereafter acquired or arising.
"Trademark License" means, collectively, each agreement, whether
written or oral, providing for the grant of any right to use any Trademark
herein now or hereafter owned by any third party, and all rights of any Grantor
under any such agreement.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as
the same may be in effect from time to time in the State of New York; provided
that if, by reason of applicable law, the validity or perfection or the effect
of perfection or non-perfection or the priority of any security interest in any
Collateral granted under this Agreement is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than New York, then as to the validity
or perfection or the effect of perfection or non-perfection or the priority, as
the case may be, of such security interest, "Uniform Commercial Code" shall mean
the Uniform Commercial Code as in effect in such other jurisdiction.
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"Vehicles" shall mean all cars, trucks, trailers, construction and
earth moving equipment and other vehicles whether or not covered by a
certificate of title law of any state and, in any event, shall include, without
limitation, the vehicles listed on Exhibit I hereto and all appurtenances to any
of the foregoing.
1.2. Other Terms.
(a) All terms in this Agreement that are not capitalized shall have
the meanings provided by the Uniform Commercial Code to the extent the same are
used or defined therein.
(b) The words "herein," "hereof" and "hereunder" are used in this
Agreement to refer to this Agreement as a whole including all Exhibits and
Schedules, as the same may from time to time be amended, restated, modified, or
supplemented and not to any particular section, subsection, or clause contained
in this Agreement or any such Exhibit or Schedule. The meaning given to terms
defined herein shall be equally applicable to both the singular and plural forms
of such terms. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes," and "including" shall be deemed to be followed by the phrase
"without limitation." The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein); (b) any reference to statute shall be construed to refer to
such statute as amended from time to time, and any rules and regulations
promulgated thereunder; and (c) any reference herein to any Person shall be
construed to include such Person's successors and assigns. The table of contents
and the headings of the articles and sections of this Agreement are included for
convenience of reference. They shall not affect the construction of any
provision of this Agreement. Where the context requires, provisions relating to
the Collateral or any part thereof, when used in relation to a Grantor, shall
refer to such Grantor's Collateral or the relevant part thereof. References to
sections and exhibits without further identification of the document to which
reference is made are references to provisions or parts of this Agreement.
1.3. The Exchange. The obligations under the Convertible Note and
the other "Loan Documents" referred to therein, if executed and delivered, shall
be in substitution for, but not in satisfaction of, the Obligations under the
Loan Agreement and the Loan Documents referred to therein and the obligations
under the Convertible Note shall not constitute a refinancing or novation of the
Obligations. Accordingly, from and after the consummation of the Exchange, (i)
references herein to the term "Loan Agreement" shall be deemed to be references
to the Convertible Note, (ii) references herein to the "Loan Documents" shall be
deemed to refer to the Loan Documents referred to in the Convertible Note and
(iii) references herein to the term "Lenders" shall be deemed to refer to the
holders of the Convertible Note.
2. CREATION OF SECURITY INTEREST
2.1. Pledge and Grant of Security Interest. For value received and
to induce the Lenders to make the Secured Loan, each Grantor hereby collaterally
assigns, mortgages, pledges
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and hypothecates to the Secured Party and grants to the Secured Party, on its
own behalf and on behalf of the Lenders, and their successors and assigns, a
lien upon and security interest in, all of such Grantor's right, title and
interest in and to all of the Grantor's assets, including, without limitation,
the following, in each case whether now owned or existing or hereafter acquired
or arising or in which such Grantor now has or at any time in the future may
acquire any right, title or interest (collectively, the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Copyright Collateral;
(v) all Deposit Accounts;
(vi) all Documents;
(vii) all Equipment;
(viii) all Equity Interests;
(ix) all Fixtures;
(x) all General Intangibles;
(xi) all Instruments and Intercompany Obligations;
(xii) all Inventory;
(xiii) all Investment Property;
(xiv) all Know-How Collateral;
(xv) all Patent Collateral;
(xvi) all Trademark Collateral;
(xvii) all Vehicles;
(xviii) all Commercial Tort Claims;
(xix) all Letter of Credit Rights;
(xx) to the extent not covered or not specifically excluded
by clauses (i) through (xviii) above, or the definitions
of the terms included therein, all of such Grantor's
other personal property, whether now owned or existing
or hereafter arising or acquired; and
10
(xxi) any and all Proceeds, products, rents and profits of or
from any and all of the foregoing and, to the extent not
otherwise included in the foregoing, (a) all Proceeds of
any sale by the Grantor of any shares of Common Stock or
other securities of the Grantor in the event of a
Stockholder Approval Default, including, without
limitation, pursuant to a Registered Repayment Offering
(as such term is defined in the Loan Agreement) (b) all
payments under any insurance (whether or not the Secured
Party is the loss payee thereunder), indemnity, warranty
or guaranty with respect to any of the foregoing
Collateral, (c) all payments in connection with any
requisition, condemnation, seizure or forfeiture with
respect to any of the foregoing Collateral, (d) all
claims and rights to recover for any past, present or
future infringement or dilution of or injury to any
Copyright Collateral, Patent Collateral or Trademark
Collateral, and (e) all other amounts from time to time
paid or payable under or with respect to any of the
foregoing Collateral.
2.2. Security for the Obligations. This Agreement and the Collateral
of each Grantor secure the full and prompt payment, at any time and from time to
time as and when due (whether at the stated maturity, by acceleration or
otherwise), of all of the Obligations. Each Grantor authorizes the Secured Party
to file any such financing statements, financing change statement or amendment
to financing statement or continuation statement relating thereto under the
Uniform Commercial Code describing the Collateral using such other language
which the Secured Party reasonably deems necessary or appropriate (including the
filing of "all assets" financing statements), in each case without the signature
or further authorization of the Grantors to the fullest extent permitted under
applicable law, and to file appropriate statements with the appropriate
jurisdictions set forth with respect to such Grantor on Exhibit B hereto or as
otherwise required to perfect or continue to perfect the security interest
granted under this Agreement.
2.3. Excluded Collateral. Notwithstanding anything to the contrary
contained in this Article 2, no Lien is or shall be created in favor of the
Secured Party for the benefit of the Lenders in any Grantor's right, title and
interest in any Excluded Collateral, and for purposes of the definitions of
"Collateral," "Copyright Collateral," "Know-How Collateral," "Patent
Collateral," and "Trademark Collateral" hereunder, such terms shall not include
"Excluded Collateral"; provided, however, that if and when the prohibition which
prevents the granting by such Grantor to the Secured Party on its own behalf and
on behalf of the Lenders of a security interest in such Excluded Collateral
(other than the Grantor's leasehold interest as described in Schedule 8.1(n) to
the Loan Agreement) is removed or otherwise terminated, such Excluded Collateral
shall be considered Collateral for all purposes herein, including that the
Secured Party will be deemed to have, and at all times from and after the date
hereof to have had, a security interest in such Excluded Collateral, as the case
may be, and all representations and warranties hereunder shall be deemed to have
been made with regard to all such Excluded Collateral.
3. REPRESENTATIONS AND WARRANTIES
Each Grantor represents and warrants as follows:
11
3.1. Ownership of Collateral. Except for the Liens granted to the
Secured Party on its own behalf and on behalf of the Lenders pursuant to this
Agreement and except for other Liens permitted or disclosed pursuant to the Loan
Documents, each Grantor is, and as to Collateral acquired after the date hereof,
the Grantor shall and will be at the time of acquisition, the owner and holder,
or has valid rights as a lessee or licensee of, or the power to transfer or
pledge with respect to, all Collateral free and clear of any claim, security
interest, encumbrance, lien, charge, or other right, title or interest of any
person, has rights in or the power to transfer each other item of Collateral in
which a Lien is granted by it hereunder, free and clear of any and all Liens. No
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral that is effective to perfect a lien or
security interest on the Collateral and is on file or of record in any
government or public office against any Grantor, and no Grantor has filed or
consented to the filing of any such statement or notice, except (i) financing
statements naming the Secured Party, on its own behalf and on behalf of the
Lenders, as secured party and financing statements which have been terminated or
the underlying debt therefor has been extinguished, (ii) security instruments
filed in the U.S. Copyright Office or the U.S. Patent and Trademark Office
naming the Secured Party on its own behalf and on behalf of the Lenders as
secured party, and (iii) as may be otherwise permitted by or disclosed in the
Loan Documents.
3.2. Security Interests; Filings. This Agreement, together with (i)
the filing in the jurisdictions set forth with respect to such Grantor on
Exhibit B hereto, of duly completed financing statements (A) naming each Grantor
as debtor, (B) naming the Secured Party on its own behalf and on behalf of the
Lenders as secured party, and (C) describing the Collateral, (ii) the filing of
duly completed and executed assignments in the forms set forth as Exhibits K, L
and M with the U.S. Copyright Office or the U.S. Patent and Trademark Office or
other appropriate form with the foreign jurisdictions listed on Exhibit B, and
Exhibit N with Network Solutions, Inc. or its successor entity administering any
domain name registrations affected by this Agreement, as appropriate, with
regard to federally registered Copyright Collateral, Patent Collateral,
Trademark Collateral and Domain Names of each Grantor, as the case may be, (iii)
the registration of pledge thereof to the Secured Party (or its bailee or agent)
on the issuer's books or the execution by the issuer of a control agreement
satisfying the requirements of Section 8-106 (or its successor provision) of the
Uniform Commercial Code with regard to uncertificated securities and Investment
Property (other than certificated securities) included in the Collateral, and
(iv) the delivery to the Secured Party (or its bailee or agent) of all
certificated securities and Instruments included in the Collateral together with
undated stock powers or instruments of transfer duly executed in blank, creates,
and at all times shall constitute, a legal, valid and perfected security
interest in and Lien upon the Collateral in favor of the Secured Party on its
own behalf and on behalf of the Lenders to the extent that Articles 8 and 9 of
the Uniform Commercial Code are applicable thereto, superior and prior to the
rights of all other persons therein (except for Permitted Liens as defined in
the Loan Documents), and no other or additional filings, registrations,
recordings or actions are or shall be necessary or appropriate in order to
perfect or maintain the perfection and priority of such lien and security
interest, other than actions required with respect to Collateral of the types
excluded from Articles 8 or 9 of the Uniform Commercial Code or from the filing
requirements under Article 9 of the Uniform Commercial Code in accordance with
the terms thereof and other than continuation statements required under the
Uniform Commercial Code, and that any filing or recording of this Agreement or
any financing statement with respect to the Collateral securing the Obligations
under the Secured Loan shall continue in effect on and after the Exchange Date
(as such term is
12
defined in the Investment and Exchange Agreement) for purposes of the Collateral
securing the Convertible Note, and no additional filing or recording statement
with respect to the Collateral need be filed on or after the Exchange Date as a
result of the exchange of the Secured Loan into the Convertible Note in
accordance with the terms of the Investment and Exchange Agreement.
3.3. Locations, Jurisdiction of Organization. Exhibit B lists, as to
each Grantor, each of the jurisdictions in which filings under Section 3.2 are
necessary. Exhibit C lists, as to each Grantor, (a) the addresses of its chief
executive office and chief place of business for any Grantor and for any Grantor
which is organized under the laws of any state, its state of registration and
registration I.D. number, (b) the address of each location where all original
invoices, ledgers, chattel paper, Instruments and other records or information
evidencing or relating to the Collateral of such Grantor are maintained, (c) the
address of each location at which any Fixtures, Equipment or Inventory owned by
such Grantor is kept or maintained, in each instance except for any new
locations established in accordance with the provisions of Section 4.2 hereof,
(d) all Deposit Accounts or Securities Accounts, including the institution at
which each such Deposit Account or Securities Account is established, the
purpose thereof, the name thereon, and the account number thereafter. Each
Account listed on Exhibit C is a Controlled Account. Except as may be otherwise
noted therein, all locations identified in Exhibit C are owned or leased by the
applicable Grantor. No Grantor presently conducts business under any prior or
other corporate or company name or under any trade or fictitious names, except
as indicated beneath its name on Exhibit C, and no Grantor has entered into any
contract or granted any Lien within the past five years under any name other
than its legal name or a trade or fictitious name indicated on Exhibit C. All
such Accounts are owned solely by the applicable Grantors and are subject to the
Liens and other terms of this Agreement; and any Accounts which may arise with
customers of Grantor with respect to the products invoiced under the name of any
trade or fictitious name are subject to the terms of this Agreement as though
such trade or fictitious name did not exist.
3.4. Authorization; Consent. Subject to Section 3.3 hereof, no
authorization, consent or approval of, or declaration or filing with, any
governmental authority (including, without limitation, any notice filing with
state tax or revenue authorities required to be made by account creditors in
order to enforce any Accounts in such state) is required for the valid
execution, delivery and performance by any Grantor of this Agreement, the grant
by it of the lien and security interest in favor of the Secured Party on its own
behalf and on behalf of the Lenders provided for herein, or the exercise by the
Secured Party of its rights and remedies hereunder.
3.5. Equity Interests. As of the date hereof, each of the Equity
Interests held by each Grantor is listed in Exhibit A, is pledged hereunder, and
consists of the number and type of shares of capital stock (in the case of
issuers that are corporations) or the percentage and type of other Equity
Interests (in the case of issuers other than corporation) as described for such
Grantor in Exhibit A. The Grantor shall supplement Exhibit A promptly upon the
execution of any Pledge Amendments. All of the Equity Interests pledged or to be
pledged hereunder have been or shall be duly and validly issued and are or will
be fully paid and non-assessable (or, in the case of partnership, limited
liability company or similar Equity Interests, not subject to any capital call
or other additional capital requirement) and not subject to any preemptive
rights, warrants, options or similar rights or restrictions in favor of third
parties, other than any Grantor,
13
or any contractual or other restrictions upon transfer other than as may be
permitted under the Loan Documents.
3.6. Intellectual Property. Exhibits D, E, F and G correctly set
forth all pending and registered Copyrights, Patents, Trademarks and Domain
Names owned by any Grantor as of the date hereof.
3.7. Disclosure. All information with respect to Collateral set
forth in any annex, exhibit, schedule, certificate or other writing at any time
heretofore or hereafter furnished by any Grantor to the Secured Party or the
Lenders is and will be true and correct in all respects as of the date
furnished.
4. COVENANTS
4.1. Security Interest. Each Grantor shall not (a) create or suffer
to exist any Lien upon or with respect to any of the Collateral, except for the
lien and security interest created by this Agreement and the Liens disclosed in
or permitted under the Loan Documents, (b) use or permit any Collateral to be
used unlawfully or in violation of any provision of this Agreement, any Loan
Document, any applicable law or any policy of insurance covering the Collateral,
(c) sell, lease, transfer or assign (by operation of law or otherwise) any
Collateral except as permitted under the Loan Documents, (d) enter into any
agreement or undertaking restricting the right or ability of such Grantor or the
Secured Party on its own behalf and on behalf of the Lenders to sell, assign or
transfer any of the Collateral without the prior written consent of the Secured
Party, except as permitted under the Loan Documents. Each Grantor shall use its
best efforts, at its own cost and expense, to take any and all actions necessary
to maintain the security interest and priority of such security interest created
by this Agreement and to take any and all actions necessary to warrant and
defend the right, title and interest of the Secured Party on its own behalf and
on behalf of the Lenders in and to the Collateral against the claims and demands
of all Persons, and shall promptly and duly execute and deliver to the Secured
Party any and all such further instruments and documents and take such further
action as the Secured Party may reasonably request for the purpose of obtaining
or preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, obtaining the substantial
equivalent thereof under the law of any jurisdiction outside of the United
States where the Collateral may be located, together with the filing of any
financing statements, financing change statements or amendments to financing
statements, or continuation statements under the Uniform Commercial Code or any
similar personal property security legislation in effect in any jurisdiction
with respect to the security interest and lien granted hereby.
4.2. Change of Name, etc. No Grantor shall (a) change its name,
identity or structure, or, if applicable, the state in which it is registered,
(b) reorganize under the laws of another jurisdiction or as a different type of
entity, (c) change its chief executive office from the location thereof listed
on Exhibit C, or remove any Collateral or any books, records, or other
information relating to Collateral, from locations listed on Exhibit C or any
other location in the United States, unless in each case such Grantor has (i)
given at least thirty (30) days' prior written notice to the Secured Party of
its intention to do so, together with information regarding any such new
location and such other information in connection with such proposed action as
the Secured Party may reasonably request, (ii) executed and delivered to the
Secured Party thirty
14
(30) days prior to any such change, such additional or supplemental security
agreements, pledges, instruments, financing statements or amendments thereto
(including, without limitation, initial financing statements in lieu of
continuation statements under Article 9 of the Uniform Commercial Code or any
similar personal property security legislation) or other documents as shall be
deemed necessary or appropriate by the Secured Party in its discretion, all in
form and substance satisfactory to the Secured Party, (iii) paid all necessary
filing and recording fees and taxes, and (iv) taken all other actions reasonably
requested by the Secured Party, in order to perfect and maintain the lien upon
and security interest in the Collateral provided for herein in accordance with
the provisions of Section 3.2 hereof.
4.3. Records; Inspection.
(a) Each Grantor will keep and maintain at its own cost and expense
satisfactory and complete records of the Accounts and all other Collateral,
including, without limitation, records of all payments received, all credits
granted thereon, all merchandise returned and all other documentation relating
thereto.
(b) Each Grantor shall, from time to time at such times as may be
reasonably requested and upon reasonable notice, make available to the Secured
Party or any agent thereof for inspection and review at such Grantor's offices
copies of all invoices and other documents and information relating to the
Collateral. At the reasonable request of the Secured Party, each Grantor will
legend, in form and manner reasonably satisfactory to the Secured Party, the
books, records and materials evidencing or relating to the Collateral with an
appropriate reference to the fact that the Collateral has been assigned to the
Secured Party on its own behalf and on behalf of the Lenders and that the
Secured Party on its own behalf and on behalf of the Lenders has a security
interest therein.
4.4. Intellectual Property.
(a) Each Grantor will, at its own expense, execute and deliver on
the Closing Date, a fully completed Copyright Security Agreement, Patent
Security Agreement or Trademark Security Agreement in the respective forms of
Exhibits K, L and M, as applicable, with regard to any Copyright registrations,
Patent or Trademark, as the case may be, of such Grantor, described in Exhibits
D, E and F hereto. In the event that after the date hereof any Grantor shall
acquire any pending or registered Copyright, Patent or Trademark or effect any
registration of any such Copyright, Patent or Trademark or file any application
for registration thereof, whether within the United States or any other country
or jurisdiction, such Grantor shall promptly furnish written notice thereof to
the Secured Party on its own behalf and on behalf of the Lenders together with
information sufficient to permit the Secured Party, upon its receipt of such
notice, to (and each Grantor hereby authorizes the Secured Party to) modify this
Agreement, as appropriate, by amending Exhibits D, E or F hereto or to add
additional exhibits hereto to include any Copyright, Patent or Trademark that
becomes part of the Collateral under this Agreement, and such Grantor shall
additionally, at its own expense, execute and deliver, as promptly as possible
(but in any event within 30 days) after the date of such notice, with regard to
United States Copyrights, Patents and Trademarks, fully completed Copyright
Security Agreements, Patent Security Agreements or Trademark Security Agreements
in the forms of Exhibits K, L and M, as applicable, together in all instances
with any other agreements, instruments
15
and documents that the Secured Party may reasonably request from time to time to
further effect and confirm the security interest created by this Agreement in
such Copyrights, Patents and Trademarks, and each Grantor hereby appoints the
Secured Party its attorney-in-fact, upon the occurrence and during the
continuance of an Event of Default, to execute, deliver and record any and all
such agreements, instruments and documents for the foregoing purposes, all acts
of such attorney being hereby ratified and confirmed and such power, being
coupled with an interest, being irrevocable for so long as this Agreement shall
be in effect with respect to such Grantor. In that connection, each Grantor
shall also execute and deliver on the Closing Date such number of Special Powers
of Attorney in the form of Exhibit H hereto as may be reasonably requested by
the Secured Party. Upon the occurrence and during the continuance of an Event of
Default, the Secured Party on its own behalf and on behalf of the Lenders may
request, and each Grantor shall cause, at its own expense, the execution and
delivery of fully completed assignments in the form of Exhibit R with respect to
any Domain Name described in Exhibit G hereto. If after the date hereof, any
Grantor shall register any Domain Name, such Grantor shall promptly notify the
Secured Party of such registration and the Secured Party is hereby authorized to
amend Exhibit G hereto to reflect such additional registration.
(b) Each Grantor (either itself or through its licensees or
sublicensees) will, for each Trademark owned by it (i) maintain such Trademark
in full force and effect, free from any claim of abandonment or invalidity for
non-use, (ii) maintain the quality of products and services offered under such
Trademark, (iii) display such Trademark with notice of federal registration to
the extent required by applicable law, (iv) take appropriate and reasonable
steps to police and defend such Trademark and prevent or arrest infringement,
dilution or other harm to such Trademark and (v) not knowingly use or knowingly
permit the use of such Trademark in violation of any third-party rights.
(c) Each Grantor (either itself or through its licensees or
sublicensees) will refrain from committing any act, or omitting any act, whereby
any Patent may become invalidated or dedicated to the public, and shall continue
to xxxx any products covered by a Patent with the relevant patent number as
required by applicable patent laws.
(d) Each Grantor (either itself or through its licensees or
sublicensees) will, for each work covered by a Copyright owned by such Grantor,
continue to publish, reproduce, display, adopt and distribute the work with
appropriate copyright notice as required under applicable copyright laws.
(e) Each Grantor (either itself or through its licensee or
sublicensees) will maintain the confidential nature of the Know-How owned by it
and shall refrain from committing any act or omitting any act whereby any such
Know-How may become invalidated or dedicated to the public.
(f) Each Grantor shall notify the Secured Party immediately if it
knows or has reason to know that any Patent, Trademark, Copyright or Know-How
owned by such Grantor may become abandoned or dedicated to the public, or of any
adverse determination or development (including the institution of, or any such
determination or development in, any proceeding in the U.S. Patent and Trademark
Office, U.S. Copyright Office or any court)
16
regarding, such Grantor's ownership of any Patent, Trademark, Copyright or
Know-How, its right to register the same, or to keep and maintain the same.
(g) Each Grantor will take all necessary steps that are consistent
with the practice in any proceeding before the U.S. Patent and Trademark Office,
U.S. Copyright Office or any office or agency in any political subdivision of
the United States or, subject to the provisions of Section 10.36 of the Loan
Agreement, in any other country or any political subdivision thereof, to
maintain and pursue each application relating to any material Patents,
Trademarks or Copyrights (and to obtain the relevant grant or registration) and
to maintain each application and registration of any Patents, Trademarks and
Copyrights owned by Grantor, including the filing of applications for renewal,
affidavits of use, affidavits of incontestability and maintenance fees, and, if
consistent with sound business judgment, to initiate opposition, interference
and cancellation proceedings against third parties.
(h) In the event that any Collateral consisting of a Patent,
Trademark, Copyright or Know-How owned by any Grantor is believed to have been
or be infringed, misappropriated or diluted by a third party, such Grantor shall
notify the Secured Party promptly after it learns thereof and shall, if
consistent with sound business judgment, promptly xxx for infringement,
misappropriation or dilution and to recover any and all damages for such
infringement, misappropriation or dilution, and take such other actions as are
appropriate under the circumstances to protect such Collateral.
(i) Upon the occurrence and during the continuance of any Event of
Default, each Grantor shall use its best efforts to obtain all requisite
consents or approvals from the licensor of each License included within the
Copyright Collateral, Patent Collateral, Trademarks Collateral and Know-How
Collateral to effect the assignment of all of such Grantor's right, title and
interest thereunder to the Secured Party or its designee.
4.5. Delivery of Collateral. All certificates or instruments
representing or evidencing any Account, Intercompany Obligation, Investment
Property, Instruments or Equity Interest pledged hereunder or other Collateral
required to be delivered to the Secured Party (or its bailee or agent) pursuant
hereto, shall be in form suitable for transfer by delivery and shall promptly
be, as applicable, endorsed to the order of the Secured Party (or its bailee or
agent) and delivered to the Secured Party together with undated stock powers
duly executed in blank, appropriate endorsements or other necessary instruments
of registration, transfer or assignment, duly executed and in form and substance
satisfactory to the Secured Party to be held as Collateral hereunder.
4.6. Control of Investment Property and Other Collateral. If any
Investment Property (whether now owned or hereafter acquired) is included in the
Collateral, each applicable Grantor will promptly take and cause to be taken all
actions required under Articles 8 and 9 of the Uniform Commercial Code and any
other applicable law to enable the Secured Party to acquire "control" (within
the meaning of such term under Section 8-106 (or its successor provision) of the
Uniform Commercial Code) of such Investment Property to perfect the security
interest of the Secured Party therein. If any letter-of-credit right or
electronic chattel paper (each as defined in the Uniform Commercial Code) is
included in the Collateral, each applicable Grantor will notify the Secured
Party thereof and will promptly take all actions to enable the
17
Secured Party to acquire "control" (as contemplated by Section 9-314 (or its
successor provision) of the Uniform Commercial Code) of such letter-of-credit
rights or electronic chattel paper.
4.7. Vehicles. Within 30 days after the date of acquisition thereof,
each Grantor shall file all applications for certificates of title/ownership
indicating the Secured Party's first priority security interest in the Vehicle
covered by such certificate, and any other necessary documentation, in each
office in each jurisdiction which the Secured Party shall deem advisable to
perfect its security interests in the Vehicles.
4.8. Controlled Accounts; Controlled Deposit Accounts.
(a) As of and after the date hereof, no Proceeds of Accounts will be
deposited in or at any time transferred to an Account other than to a Controlled
Account. Upon receiving any Proceeds of Accounts that were not paid into a
Controlled Account, the Grantors shall cause such Proceeds to be promptly
deposited into a Controlled Account and promptly segregated from other funds of
the Grantors that are not held in a Controlled Account until such Proceeds are
deposited in a Controlled Account. Each Grantor agrees that, upon the creation
of a new Deposit Account, it will immediately, enter into a Deposit Account
Control Agreement for such Deposit Account. Grantor will (i) deposit in a
Controlled Deposit Account all cash received by such Grantor, and (ii) not
establish or maintain any Deposit Account other than with a Deposit Account
Bank, the Secured Party or an Affiliate of the Secured Party. Such Grantor shall
instruct each Account Debtor or other Person obligated to make a payment to such
Grantor under a General Intangible to make payment, or to continue to make
payment, as the case may be, to a Controlled Deposit Account and will deposit in
a Controlled Deposit Account all Proceeds of such Accounts and General
Intangibles received by such Grantor from any other Person immediately upon
receipt. Any and all such Proceeds held in a Controlled Account (or by any
Grantor, other than in a Controlled Account) shall continue to be held as
collateral security for the Obligations and shall not constitute payment thereof
until applied as provided hereunder. Notwithstanding anything to the contrary
contained herein or in any other Loan Document, Grantor shall not be required to
deliver any Account Control Agreement or Deposit Account Control Agreement with
respect to the Payroll Accounts.
(b) In the event (i) such Grantor or Deposit Account Bank shall,
after the date hereof, terminate an agreement with respect to the maintenance of
a Control Account or Controlled Deposit Account for any reason, (ii) the Secured
Party shall demand such termination as a result of the failure of a Deposit
Account Bank to comply with the terms of the applicable Control Account
Agreement or Deposit Account Control Agreement, or (iii) the Secured Party
determines in its sole discretion that the financial condition of a Deposit
Account Bank, as the case may be, has materially deteriorated, such Grantor
agrees to notify all of its obligors that were making payments to such
terminated Control Account or Controlled Deposit Account, as the case may be, to
make all future payments to another Control Account or Controlled Deposit
Account, as the case may be.
4.9. Payment of Obligations. Each Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including claims for labor,
18
materials and supplies) against or with respect to the Collateral, except that
no such charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of such Grantor and
such proceedings could not reasonably be expected to result in the sale,
forfeiture or loss of any material portion of the Collateral or any interest
therein.
4.10. Special Property. All of the Special Property of the Grantor
as of the date hereof is listed in Exhibit Q (other than any Special Property of
the type described in clause (i) of the second sentence of the definition of
"Special Property"), and each Grantor shall from time to time at the request of
the Secured Party give written notice to the Secured Party identifying in
reasonable detail the Special Property (and stating in such notice that such
Special Property constitutes "Excluded Property") and shall provide to the
Secured Party such other information regarding the Special Property as the
Secured Party may reasonably request and, from and after the Closing Date (as
defined in the Investment and Exchange Agreement) with respect to such Special
Property, no Grantor shall permit to become effective in any document creating,
governing or providing for any permit, lease or license, a provision that would
prohibit the creation of a Lien on such permit, lease, license or equipment in
favor of the Secured Party unless such Grantor believes, in its reasonable
judgment, that such prohibition is usual and customary in transactions of such
type.
4.11. Additional Information. Grantor agrees to furnish the Secured
Party from time to time with such additional information and copies of such
documents relating to this Agreement, the Collateral, the Obligations and
Grantor's financial condition as the Secured Party may reasonably request.
4.12. Additional Grantors. Each Grantor recognizes that the
provisions of the Loan Agreement require Persons that become Subsidiaries of the
Grantor and that are not already parties hereto, to execute and deliver a
Grantor Addendum attached hereto as Exhibit O, whereupon each such Person shall
become a Grantor hereunder with the same force and effect as if originally a
Grantor hereunder on the date hereof, and agrees that its obligations hereunder
shall not be discharged, limited or otherwise affected by reason of the same, or
by reason of the Secured Party's actions in effecting the same or in releasing
any Grantor hereunder, in each case without the necessity of giving notice to or
obtaining the consent of such Grantor or any other Grantor.
5. CERTAIN PROVISIONS RELATING TO EQUITY INTERESTS
5.1. Ownership; After-Acquired Equity Interests.
(a) Each Grantor will cause the Equity Interests pledged by it or
required to be pledged hereunder to constitute at all times 100% of the capital
stock or other Equity Interests in each issuer held by Grantor thereof, and
unless the Secured Party shall have given its prior written consent, no Grantor
will cause or permit any such issuer to issue or sell any new capital stock, any
warrants, options or rights to acquire the same, or other Equity Interests of
any nature to any person other than any Grantor, or cause, permit or consent to
the admission of any other person other than another Grantor as a stockholder,
partner or member of any such issuer.
19
(b) If any Grantor shall, at any time and from time to time after
the date hereof, acquire any additional capital stock or other Equity Interests
in any Person of the types described in the definition of the term "Equity
Interests," the same shall be automatically deemed to be Equity Interests, and
to be pledged to the Secured Party on its own behalf and on behalf of the
Lenders pursuant to Section 2.1, and such Grantor will forthwith pledge and
deposit the same with the Secured Party (or its agent or bailee) and deliver to
the Secured Party (or its agent or bailee) any certificates or instruments
therefor, together with the endorsement of such Grantor (in the case of any
promissory notes or other Instruments), undated stock powers (in the case of
Equity Interests evidenced by certificates) or other necessary instruments of
transfer or assignment, duly executed in blank and in form and substance
satisfactory to the Secured Party, together with such other certificates and
instruments as the Secured Party (or its agent or bailee) may reasonably request
(including financing statements or appropriate amendments thereto), and will
promptly thereafter deliver to the Secured Party (or its agent or bailee) a
fully completed and duly executed amendment to this Agreement in the form of
Exhibit J (each, a "Pledge Amendment") in respect thereof. Each Grantor hereby
authorizes the Secured Party to attach each such Pledge Amendment to this
Agreement, and agrees that all such Collateral listed on any Pledge Amendment
shall for all purposes be deemed Collateral hereunder and shall be subject to
the provisions hereof; provided that the failure of any Grantor to execute and
deliver any Pledge amendment with respect to any such additional Collateral as
required hereinabove shall not impair the security interest of the Secured Party
or the Lenders in such Collateral or otherwise adversely, affect the rights and
remedies of the Secured Party or other Lenders hereunder with respect thereto.
(c) If any Equity Interests (whether now owned or hereafter
acquired) included in the Collateral are "uncertificated securities" within the
meaning of the Uniform Commercial Code or are otherwise not evidenced by any
certificate or instrument, each applicable Grantor will promptly notify the
Secured Party thereof and will promptly take and cause to be taken, and will (if
the issuer of such uncertificated securities is a person other than a subsidiary
of the Grantor) use its best efforts to cause the issuer to take, all actions
required under Articles 8 and 9 of the Uniform Commercial Code and any other
applicable law, to enable the Secured Party to acquire "control" (within the
meaning of such term under Section 8-106 (or its successor provision) of the
Uniform Commercial Code) of such uncertificated securities to perfect the
security interest of the Secured Party therein.
5.2. Voting Rights. So long as no Event of Default shall have
occurred and be continuing (or would occur as a result thereof), each Grantor
shall be entitled to exercise all voting and other consensual rights pertaining
to its Equity Interests pledged hereunder (subject to each Grantor's obligations
under Section 6.2), and for that purpose the Secured Party will execute and
deliver or cause to be executed and delivered to each applicable Grantor all
such proxies and other instruments as such Grantor may reasonably request in
writing to enable the Grantor to exercise such voting and other consensual
rights; provided, however, that such Grantor shall not cast a vote, give consent
or exercise any right or take any action which would impair the Collateral or
which would be inconsistent with or result in any violation of any provision of
the Investment Agreement, this Agreement or any other Loan Document.
5.3. Dividends and Other Distributions. So long as no Event of
Default shall have occurred and be continuing (or would occur as a result
thereof), all interest, income,
20
dividends, distributions and other amounts payable in cash in respect of the
Equity Interests pledged hereunder may be paid to, retained by or used by the
Grantors; provided, however, that all such interest, income, dividends,
distributions and other amounts shall, at all times after the occurrence and
during the continuance of an Event of Default be paid to the Secured Party (or
its bailee or agent) and retained by it (or its bailee or agent) as part of the
Collateral (except to the extent applied upon receipt to the repayment of the
Obligations). The Secured Party (or its bailee or agent) shall also be entitled
at all times (whether or not during the continuance of an Event of Default) to
receive directly, and to retain as part of the Collateral, (i) all interest,
income, dividends, distributions or other amounts paid or payable in cash or
other property in respect of any Equity Interests pledged hereunder in
connection with the dissolution, liquidation, recapitalization or
reclassification of the capital of the applicable issuer to the extent
representing an extraordinary, liquidating or other distribution in return of
capital, (ii) all additional Equity Interests or other securities or property
(other than cash) paid or payable or distributed or distributable in respect of
any Equity Interests pledged hereunder in connection with any non-cash dividend,
distribution, return of capital, spin-off, stock split, split-up,
reclassification, combination of shares or interests or similar rearrangement,
and (iii) without affecting any restrictions against such actions contained in
the Loan Documents, all additional Equity Interests or other securities or
property (including cash) paid or payable or distributed or distributable in
respect of any Equity Interests pledged hereunder in connection with any
consolidation, merger, exchange of securities, liquidation or other
reorganization. All interest, income, dividends, distributions or other amounts
that are received by any Grantor in violation of the provisions of this Section
shall be received in trust for the benefit of the Secured Party, shall be
segregated from other property or funds of such Grantor and shall be forthwith
delivered to the Secured Party (or its bailee or agent) as Collateral in the
same form as so received (with any necessary endorsements).
6. REMEDIES
6.1. Events of Default. As used herein, the term "Default" and
"Event of Default" shall refer to such terms as defined in the Loan Agreement;
provided, however, that for purposes of this Agreement and all other Security
Documents, a Stockholder Approval Default shall not constitute an Event of
Default unless Grantor shall be in breach of its obligations under Section
12.2(b) of the Loan Agreement. In addition, the Grantor hereby acknowledges and
agrees that the failure by any Grantor to perform or fulfill any covenant,
obligation or agreement contained in this Agreement or the Investment and
Exchange Agreement shall also constitute an "Event of Default" for purposes
hereunder.
6.2. Remedies.
(a) If an Event of Default shall have occurred and be continuing,
the Secured Party on its own behalf and on behalf of the Lenders shall be
entitled to exercise in respect of the Collateral all of the rights, powers and
remedies provided for herein or otherwise available to it under the Loan
Agreement or any other Loan Document, by law, in equity or otherwise, including,
without limitation, all rights and remedies of a secured party under the Uniform
Commercial Code. Without limiting the generality of the foregoing, the Secured
Party, on its own behalf and on behalf of the Lenders, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law) to
21
or upon any Grantor or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Secured Party or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Secured
Party on its own behalf and on behalf of the Lenders shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in any Grantor, which right
or equity is hereby waived and released. Each Grantor further agrees that, upon
the occurrence and continuance of an Event of Default, at the Secured Party's
request, to assemble the Collateral and make it available to the Secured Party
at places which the Secured Party shall reasonably select, whether at such
Grantor's premises or elsewhere.
(b) Subject to Article 7 hereof, the Secured Party shall never be
under any obligation to collect, attempt to collect, protect or enforce the
Collateral or any security therefor, which the Grantor agrees and undertake to
do at their expense, but the Secured Party may do so, but without any obligation
to do so, in its discretion at any time after the occurrence and during the
continuance of an Event of Default, and at such time the Secured Party shall
have the right to take any steps by judicial process or otherwise it may deem
proper to effect the collection of all or any portion of the Collateral or to
protect or to enforce the Collateral or any security therefor. During the
continuance of an Event of Default, upon notice by the Secured Party to the
relevant Grantor or Grantors, the Secured Party or its nominee may exercise (A)
all voting, consent, corporate and other rights pertaining to the Collateral at
any meeting of shareholders, partners or members, as the case may be, of the
relevant issuer or issuers of Equity Interests or Collateral or otherwise and
(B) any and all rights of conversion, exchange and subscription and any other
rights, privileges or options pertaining to the Collateral as if it were the
absolute owner thereof (including the right to exchange at its discretion any
and all of the Collateral upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of any
issuer of Equity Interests, the right to deposit and deliver any and all of the
Collateral with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as the Secured Party may
determine), all without liability except to account for property actually
received by it, but the Secured Party shall have no duty to any Grantor to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
(c) In order to permit the Secured Party to exercise the voting and
other consensual rights which it may be entitled to exercise pursuant hereto and
to receive all dividends and other distributions which it may be entitled to
receive hereunder in the event of and during the continuance of an Event of
Default, (i) each Grantor shall promptly execute and deliver (or cause to be
executed and delivered) to the Secured Party all such proxies, dividend payment
orders and other instruments as the Secured Party may reasonably request, and
(ii) without limiting the effect of clause (i) above, such Grantor hereby grants
to the Secured Party an irrevocable proxy to vote all or any part of the
Collateral and to exercise all other rights, powers, privileges and remedies to
which a holder of the Collateral would be entitled (including
22
giving or withholding written consents of shareholders, partners or members, as
the case may be, calling special meetings of shareholders, partners or members,
as the case may be, and voting at such meetings), which proxy shall be
effective, automatically and without the necessity of any action (including any
transfer of any Collateral on the record books of the issuer thereof) by any
other person (including the issuer of such Collateral or any officer or agent
thereof) during the continuance of an Event of Default and which proxy shall
only terminate upon the payment in full of the Obligations.
(d) The Secured Party agrees that, notwithstanding anything to the
contrary set forth in any Deposit Account Control Agreement or any Account
Control Agreement, it shall not issue a Blockage Notice under any Deposit
Account Control Agreement or any Account Control Agreement or issue any other
orders, notices, requests or other instructions asserting exclusive control over
or otherwise directing disposition of funds in any Controlled Deposit Account or
any other Controlled Account, unless and until an Event of Default shall have
occurred and be continuing.
6.3. Application of Proceeds.
(a) Following the occurrence of an Event of Default, and in
connection with the liquidation and sale of any of the Collateral in the
exercise of remedies pursuant to the terms of this Agreement and the Loan
Documents, the Secured Party shall apply the net proceeds of any action taken by
it pursuant to this Section 6.3, after deducting all reasonable costs and
expenses of every kind incurred in connection therewith or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Secured Party and any Secured Party, including
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations, in such order as the Loan Documents shall prescribe, and
only after such application and after the payment by the Secured Party of any
other amount required by any provision of law to any Grantor.
(b) In the event the Secured Party shall pay any taxes, assessments,
interests, costs, penalties or expenses incident to or in connection with the
collection of the Collateral or protection or enforcement of the Collateral or
any security therefore or in connection with any of its rights or duties
hereunder, Grantor, upon demand of the Secured Party, shall pay to the Secured
Party the full amount thereof with interest at a rate per annum equal to the
rate per annum at which interest would then be payable on amounts due under the
Secured Loan or the Convertible Note, as applicable, or as otherwise provided in
the Loan Documents, and so long as the Secured Party shall be entitled to any
such payment, this Agreement shall operate as security therefor as fully and to
the same extent as it operates as security for payment of the other Obligations
secured hereunder, and for the enforcement of such repayment the Secured Party
shall have every right and remedy provided for enforcement of payment of the
Obligations.
(c) The expression "payment in full" or "paid in full" or any
similar term or phrase when used in this Agreement shall mean the indefeasible
payment in full in cash of all Obligations owing to the Secured Party.
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(d) Each Grantor shall remain liable to the extent of any deficiency
between the amount of all Proceeds realized upon sale, other disposition or
collection of the Collateral, and monies held as Collateral pursuant to this
Agreement and the aggregate amount of Obligations.
6.4. Collateral Accounts.
(a) Upon the occurrence and during the continuance of an Event of
Default, the Secured Party shall have the right to cause to be established and
maintained, at its principal office or such other location or locations as it
may establish from time to time in its discretion, one or more accounts
(collectively, "Collateral Accounts") for the collection of cash Proceeds of the
Collateral. Such Proceeds, when deposited into such Collateral Accounts, shall
continue to constitute Collateral for the Obligations and shall not constitute
payment thereof until applied as herein provided. The Secured Party shall have
sole dominion and control over all funds deposited in any Collateral Account,
and such funds may be withdrawn therefrom only by the Secured Party. Upon the
occurrence and during the continuance of an Event of Default, the Secured Party
shall apply amounts held in the Collateral Accounts in payment of the
Obligations in the manner provided for in Section 6.3 hereof.
(b) Upon the request of the Secured Party at any time during the
continuance of an Event of Default, each Grantor shall notify Account Debtors
that the Accounts or General Intangibles have been collaterally assigned to the
Secured Party for its own behalf and on behalf of the Lenders and that payments
in respect thereof shall be made directly to the Secured Party for its own
behalf and on behalf of the Lenders. In addition, without notice to the
Grantors, the Secured Party, for its own behalf and on behalf of the Lenders,
may at any time during the continuance of an Event of Default enforce such
Grantor's rights against such Account Debtors and obligors of General
Intangibles.
6.5. Grant of License. Each Grantor hereby grants to the Secured
Party for its own behalf and on behalf of the Lenders an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to any Grantor) to use, license or sublicense any Patent
Collateral, Trademark Collateral, Copyright Collateral or Know-How Collateral
now owned or licensed or hereafter acquired or licensed by such Grantor (to the
extent and only to the extent any of the foregoing does not constitute Excluded
Collateral), wherever the same may be located throughout the world, for such
term or terms, on such conditions and in such manner as the Secured Party shall
determine, whether general, special or otherwise, and whether on an exclusive or
nonexclusive basis, and including in such license reasonable access to all media
in which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof. The use of
such license or sublicense by the Secured Party shall be exercised, at the
option of the Secured Party, and only upon the occurrence and during the
continuation of an Event of Default; provided that any license, sublicense or
other transaction entered into by the Secured Party in accordance herewith shall
be binding upon each applicable Grantor notwithstanding any subsequent cure of
an Event of Default.
6.6. The Grantors Remain Liable. Notwithstanding anything herein to
the contrary, (i) each Grantor shall remain liable under all Contracts to which
it is a party included within the Collateral (including, without limitation, all
Investment Agreements) to perform all of
24
its obligations thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by the Secured Party on its own behalf and on behalf
of the Lenders of any of its rights or remedies hereunder shall not release any
Grantor from any of its obligations under any of such Contracts, and (iii)
except as specifically provided for herein below, the Secured Party shall not
have any obligation or liability by reason of this Agreement under any of such
Contracts, nor shall the Secured Party be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder. This Agreement shall not in
any way be deemed to obligate the Secured Party or any purchaser at a
foreclosure sale under this Agreement to assume any of a Grantor's obligations,
duties or liabilities under any Investment Agreement, including, without
limitation, any Grantor's obligations, if any, to manage the business and
affairs of the applicable partnership, joint venture, limited liability company,
limited liability partnership or other issuer (collectively, the "Partner
Obligations"), unless the Secured Party or purchaser otherwise agrees in writing
to assume any or all of such Partner Obligations. In the event of foreclosure by
the Secured Party in accordance with the terms of this Agreement, then except as
provided in the preceding sentence, each applicable Grantor shall remain bound
and obligated to perform its Partner Obligations and the Secured Party shall not
be deemed to have assumed any Partner Obligations. In the event the Secured
Party or any purchaser at such a foreclosure sale elects to become a substitute
partner or member in place of a Grantor, the party making such election shall
adopt in writing such Investment Agreement and agree to be bound by the terms
and provisions thereof; and subject to the execution of such written agreement,
each Grantor hereby irrevocably consents in advance to the admission of the
Secured Party or any such purchaser as a substitute partner or member to the
extent of the Equity Interests acquired pursuant to such foreclosure sale, and
agrees to execute any documents or instruments and take any other action as may
be necessary or as may be reasonably requested in connection therewith. The
powers, rights and remedies conferred on the Secured Party hereunder are solely
to protect their interest and privilege in such Contracts, as Collateral, and
shall not impose any duty upon them to exercise any such powers, rights or
remedies.
6.7. Registration Rights.
(a) If the Secured Party on its own behalf and on behalf of the
Lenders shall determine to exercise its right to sell any or all securities that
constitute Collateral pursuant to Section 6.2, and if in the opinion of the
Secured Party it is necessary or advisable to have such Collateral, or any
portion thereof to be registered under the provisions of the Securities Act, the
relevant Grantor shall use its best efforts to cause the issuer thereof to (i)
execute and deliver, and cause the directors and officers of such issuer to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts as may be, in the opinion of the Secured Party,
necessary or advisable to register such securities, or that portion thereof to
be sold, under the provisions of the Securities Act, (ii) use its best efforts
to cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of such securities, or that portion thereof to be sold and (iii) make
all amendments thereto and/or to the related prospectus which, in the opinion of
the Secured Party, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Each Grantor agrees to
cause such issuer to comply with the provisions of the securities or "Blue Sky"
laws of any and all jurisdictions which the Secured Party shall designate
25
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) which will satisfy the provisions
of Section 11(a) of the Securities Act.
(b) Each Grantor recognizes that the Secured Party may be unable to
effect a public sale of any or all such pledged securities by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise or may determine that a public sale is impracticable or not
commercially reasonable and, accordingly, may resort to one or more private
sales thereof to a restricted group of purchasers which will be obliged to
agree, among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Secured Party
shall be under no obligation to delay a sale of any of such pledged securities
for the period of time necessary to permit the issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such issuer would agree to do so.
(c) Each Grantor agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the pledged securities pursuant to this Section 6.7 valid and
binding and in compliance with any and all other applicable requirements of law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section 6.7 will cause irreparable injury to the Secured Party, that the
Secured Party have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 6.7 shall be
specifically enforceable against such Grantor, and such Grantor hereby waives
and agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred
under the Investment and Exchange Agreement.
6.8. Right of Set-Off. Each Grantor recognizes and agrees that with
respect to any time or other deposit, certificate of deposit or any other
balance of account standing to the credit of each of the Grantor on the books of
the Secured Party wherever located, the Secured Party has a right of set-off to
the full extent permitted by law. Each Grantor further agrees that the Secured
Party may exercise such right of set-off at any time when an Event of Default
shall occur and be continuing, regardless of the stated maturity of any time
deposit or other such credit balance.
6.9. Waivers by the Grantors. Each Grantor, to the greatest extent
not prohibited by applicable law, hereby (i) agrees that it will not invoke,
claim or assert the benefit of any rule of law or statute now or hereafter in
effect (including, without limitation, any right to prior notice or judicial
hearing in connection with the Secured Party's possession, custody or
disposition of any Collateral or any appraisal, valuation, stay, extension,
moratorium or redemption law), or take or omit to take any other action, that
would or could reasonably be expected to have the effect of delaying, impeding
or preventing the exercise of any rights and remedies in respect of the
Collateral, the absolute sale of any of the Collateral or the possession thereof
by any purchaser at any sale thereof, and waives the benefit of all such laws
and further agrees that it will not hinder, delay or impede the execution of any
power granted hereunder to the Secured Party on its own behalf and on behalf of
the Lenders, but that it will permit the execution of every such power as though
no such laws were in effect, (ii) waives all rights that it has or may
26
have under any rule of law or statute now existing or hereafter adopted to
require the Secured Party to marshal any Collateral or other assets in favor of
such Grantor or any other party or against or in payment of any or all of the
Obligations, and (iii) waives all rights that it has or may have under any rule
of law or statute now existing or hereafter adopted to demand, presentment,
protest, advertisement or notice of any kind (except notices expressly provided
for herein or in the Loan Documents) or to require the Secured Party to pursue
any third party for any of the Obligations.
7. THE SECURED PARTY
7.1. Limitation on Duty of Secured Party in Respect of Collateral.
The Secured Party will hold all items of the Collateral at any time that may be
received under this Agreement in accordance with the provisions hereof and the
Loan Documents. The obligations of the Secured Party as holder of the Collateral
and interests therein and with respect to the disposition thereof, and otherwise
under this Agreement and the Loan Documents, are only those expressly set forth
in this Agreement and the Loan Documents. The powers conferred on the Secured
Party hereunder are solely to protect its interest, on its own behalf and on
behalf of the Lenders, in the Collateral, and shall not impose any duty upon it
to exercise any such powers. Except for treatment of the Collateral in its
possession in the same manner as that which the Secured Party, in its individual
capacity, accord their own property of a similar nature for their own accounts,
and the accounting for moneys actually received by them hereunder, the Secured
Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to the Collateral. The Secured Party shall not be liable to any
Grantor (i) for any loss or damage sustained by such Grantor, or (ii) for any
loss, damage, depreciation or other diminution in the value of any of the
Collateral that may occur as a result of or in connection with or that is in any
way related to any exercise by Secured Party of any right or remedy under this
Agreement, any failure to demand, collect or realize upon any of the Collateral
or any delay in doing so, or any other act or failure to act on the part of
Secured Party, except to the extent that the same is caused by its own gross
negligence or willful misconduct. In connection with its appointment and acting
hereunder, the Secured Party is entitled to all rights, privileges, protections,
immunities and indemnities provided to it under the Loan Documents. Without
limiting the foregoing, the Secured Party shall not be liable or responsible for
any loss or diminution in the value of any of the Collateral by reason of the
act or omission of any carrier, forwarding agency or other agent or bailee
selected by the Secured Party in good faith.
7.2. Further Assurances. Each Grantor agrees that it will join with
the Secured Party to execute and, at its own expense, file and refile under the
Uniform Commercial Code such financing statements, continuation statements and
other documents and instruments in such offices as necessary or as the Secured
Party may reasonably deem necessary or appropriate, and wherever required or
permitted by law, in order to perfect and preserve the Secured Party's security
interest in the Collateral, and hereby authorizes the Secured Party to sign and
file financing statements and amendments thereto relating to all or any part of
the Collateral without the signature of such Grantor, and agrees to do such
further acts and things (including, without limitation, making any notice
filings with state tax or revenue authorities required to be made by account
creditors in order to enforce any Accounts in such state) and to execute and
deliver to the Secured Party such additional collateral conveyances, collateral
assignments, agreements and
27
instruments as the Secured Party may reasonably require or reasonably deem
advisable to perfect, establish, confirm and maintain the security interest and
Lien provided for herein, to carry out the purposes of this Agreement or to
further assure and confirm unto the Secured Party its rights, powers and
remedies hereunder.
7.3. Appointment as Attorney-in-Fact.
(a) Each Grantor hereby irrevocably appoints the Secured Party its
lawful attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor, and with full power of substitution in
the premises (which power of attorney, being coupled with an interest, is
irrevocable for so long as this Agreement shall be in effect), from time to time
in the Secured Party's discretion after the occurrence and during the
continuance of an Event of Default (except for the actions described in clause
(vii) below which may be taken by the Secured Party without regard to whether an
Event of Default has occurred) to take any action and to execute any instruments
that the Secured Party may deem reasonably necessary or advisable to accomplish
the purpose of this Agreement, including, without limitation:
(i) to ask, demand, collect, xxx for, recover, compound,
receive and give receipts for moneys due and to become
due under or in respect of any of the Collateral;
(ii) to receive, endorse and collect any checks, drafts,
instruments, chattel paper and other orders for the
payment of money made payable to such Grantor
representing any interest, income, dividend,
distribution or other amount payable in respect of any
of the Collateral and to give full discharge for the
same;
(iii) to obtain, maintain and adjust any property or casualty
insurance required to be maintained by such Grantor and
direct the payment of proceeds thereof to the Secured
Party;
(iv) to pay or discharge taxes, Liens or other encumbrances
levied or placed on or threatened against the
Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined
by the Secured Party in its reasonably exercised
discretion, any such payments made by the Secured Party
to become Obligations of the Grantors to the Secured
Party and the Lenders, due and payable immediately and
without demand;
(v) to file any claims or take any action or institute any
proceedings in a court of law or equity that the Secured
Party may deem necessary or advisable for the collection
of any of the Collateral or otherwise to enforce the
rights of the Secured Party with respect to any of the
Collateral;
(vi) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with any and
all of the Collateral as fully and completely as though
the Secured Party was the absolute owner of the
Collateral for all purposes, and to do from time to
time, at the Secured Party's option and the Grantors'
expense, all other acts and things deemed necessary by
the
28
Secured Party to protect, preserve or realize upon the
Collateral for its own behalf and on behalf of the
Lenders and to more completely carry out the purposes of
this Agreement;
(vii) effect any repairs or any insurance called for by the
terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof, or obtain,
maintain and adjust any property or casualty insurance
required to be maintained by such Grantor and direct the
payment of proceeds thereof to the Secured Party; and
(viii) to sign the name of such Grantor on any financing
statement, continuation statement, notice or other
similar document that, in the Secured Party's opinion,
should be made or filed in order to perfect or continue
to perfect the security interest granted under this
Agreement.
(b) Except as otherwise provided herein, if any Grantor fails to
perform or fulfill any covenant, obligation or agreement contained in this
Agreement after written request to do so by the Secured Party (provided,
however, that no such request shall be necessary at any time after the
occurrence and during the continuance of an Event of Default), the Secured Party
may itself perform, or cause the performance of, such covenant or agreement and
may take any other action provided hereunder, and the reasonable expenses so
incurred in connection therewith shall be payable by the Grantors under Section
8.1.
8. MISCELLANEOUS
8.1. Indemnity and Expenses. The Secured Party and the Secured
Party's Affiliates and each of their respective officers, directors, managers,
partners, shareholders, employees, lenders, advisors, agents and other
representatives and any Affiliate of the foregoing, and each of their respective
successors and permitted assigns and each Person who controls any of the
foregoing, within the meaning of the Securities Act and the Exchange Act, shall
be entitled to all indemnities and reimbursement of all fees, costs and expenses
and other protections provided in Article 13 of the Loan Agreement, and such
Article 13 is incorporated by reference herein.
8.2. No Waiver by Course of Conduct; Cumulative Remedies. The rights
and remedies of the Secured Party expressly set forth in this Agreement and the
Loan Documents are cumulative and in addition to, and not exclusive of, all
other rights and remedies available at law, in equity or otherwise. No failure
or delay on the part of the Secured Party in exercising any of its rights,
powers or privileges shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
or be construed to be a waiver of any Default or Event of Default. No course of
dealing between the Grantors and the Secured Party or employees shall be
effective to amend, modify or discharge any provision of this Agreement or any
other Loan Document or to constitute a waiver of any Default or Event of
Default. No notice to or demand upon any Grantor in any case shall entitle such
Grantor or any other Grantor to any other or further notice or demand in similar
or other circumstances or constitute a waiver
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of the right of the Secured Party to exercise any right or remedy or take any
other or further action in any circumstances without notice or demand.
8.3. Grantors' Obligations Absolute. Each Grantor agrees that its
obligations hereunder, and the security interest granted to and all rights,
remedies and powers of the Secured Party hereunder, are irrevocable, absolute
and unconditional and shall not be discharged, limited or otherwise affected by
reason of any of the following, whether or not such Grantor has knowledge
thereof:
(i) any change in the time, manner or place of payment of,
or in any other term of, any Obligations, or any
amendment, modification or supplement to, restatement
of, or consent to any rescission or waiver of or
departure from, or any other Loan Document or any
agreement or instrument delivered pursuant to any of the
foregoing;
(ii) the invalidity or unenforceability of any Obligations or
any provisions of the Loan Documents or any agreement or
instrument delivered pursuant to any of the foregoing;
(iii) the addition or release of Grantors hereunder or the
taking, acceptance or release of any Obligations or
additional Collateral or other security therefor;
(iv) any sale, exchange, release, substitution, compromise,
non-perfection or other action or inaction in respect of
any Collateral or other direct or indirect security for
any Obligations, or any discharge, modification,
settlement, compromise or other action or inaction in
respect of any Obligations;
(v) any agreement not to pursue or enforce or any failure to
pursue or enforce (whether voluntarily or involuntarily
as a result of operation of law, court order or
otherwise) any right or remedy in respect of any
Obligations or any Collateral or other security
therefor, or any failure to create, protect, perfect,
secure, insure, continue or maintain any liens in any
such Collateral or other security;
(vi) the exercise of any right or remedy available under any
of the Loan Documents, at law, in equity or otherwise in
respect of any Collateral or other security for any
Obligations, in any order and by any manner thereby
permitted, including, without limitation, foreclosure on
any such Collateral or other security by any manner of
sale thereby permitted, whether or not every aspect of
such sale is commercially reasonable;
(vii) any bankruptcy, reorganization, arrangement,
liquidation, insolvency, dissolution, termination,
reorganization or like change in the corporate structure
or existence of the Grantors or any other person
directly or indirectly liable for any Obligations;
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(viii) any manner of application of any payments by or amounts
received or collected from any person, by whomsoever
paid and howsoever realized, whether in reduction of any
Obligations or any other obligations of the Grantors or
any other person directly or indirectly liable for any
Obligations regardless of what Obligations may remain
unpaid after any such application; or
(ix) any other circumstance that might otherwise constitute a
legal or equitable discharge of, or a defense, set-off
or counterclaim available to, the Grantors, or a surety
or guarantor generally, other than the occurrence of the
payment in full of the Obligations.
8.4. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by any Grantor from,
any provision of this Agreement, shall be effective unless in a writing executed
by the parties hereto and delivered to the Secured Party, and then the same
shall be effective only in the specific instance and for the specific purpose
for which given.
8.5. Subrogation; Termination and Release; Survival. This Agreement
shall create a continuing security interest in the Collateral and shall secure
the payment and performance of all of the Obligations as the same may arise and
be outstanding at any time and from time to time from and after the date hereof,
and shall terminate when all the Obligations have been paid in full (or, in the
case of the Convertible Note, converted in full into shares of Grantor's common
stock in accordance with the terms of the Convertible Note), and the Secured
Party on its own behalf and on behalf of the Lenders is hereby subrogated to all
of the Grantors' interests, rights and remedies in respect to the Collateral and
all security now or hereafter existing with respect thereto and all guaranties
and endorsements thereof and with respect thereto until such time as all of the
Obligations have been paid in full, at which time the Secured Party shall
execute and deliver to the Grantor all documents reasonably necessary to
evidence termination of such security interest and shall return physical
possession of any Collateral then held by the Secured Party to the Grantor. Upon
any sale or other disposition by any Grantor of any Collateral in a transaction
expressly permitted hereunder or under or pursuant to the Loan Documents, or any
amendment or waiver hereunder or thereunder, the lien and security interest
created by this Agreement in and upon such Collateral shall be automatically
released; and in connection with any such release or termination, the Secured
Party, at the request and expense of the applicable Grantor, will execute and
deliver to such Grantor such documents and instruments evidencing such release
or termination as such Grantor may reasonably request and will assign, transfer
and deliver to such Grantor, without recourse and without representation or
warranty, such of the Collateral as may then be in the possession of the Secured
Party (or, in the case of any partial release of Collateral, such of the
Collateral so being released as may be in its possession). All representations,
warranties, covenants and agreements herein shall survive the execution and
delivery of this Agreement and any Pledge Amendment or Grantor Addendum;
provided, however, that Sections 6.3, 6.5, 6.6, 8.1, 8.5 and 8.13 and all
indemnities of the Grantors in favor of the Secured Party contained in this
Agreement shall survive, and remain in full force and effect regardless of the
termination of the security interest or this Agreement.
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8.6. Notices. All notices and other communications provided for
hereunder shall be given to the parties in the manner and subject to the other
notice provisions set forth in the Loan Documents.
8.7. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
8.8. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenience only and shall not in any
way affect the meaning or construction of any of the provisions hereof.
8.9. Bankruptcy; Reinstatement. This Agreement is a legal, valid and
binding obligation of the Grantor. This Agreement will remain in full force and
effect and enforceable to the maximum extent provided in Section 510(a) of the
Bankruptcy Code, and all references herein to the Grantor will be deemed to
apply to such entity as debtor-in-possession and to any trustee in bankruptcy
for the estate of such entity. Each Grantor further agrees that, if any payment
made by any Grantor or other Person and applied to the Obligations is at any
time annulled, avoided, set aside, rescinded, invalidated, declared to be
fraudulent or preferential or otherwise required to be refunded or repaid, or
the proceeds of Collateral are required to be returned by any the Secured Party
or any Secured Party to such Grantor, its estate, trustee, receiver or any other
party, under any bankruptcy law, state or federal law, common law or equitable
cause, then, to the extent of such payment or repayment, any lien or security
interest or other Collateral securing such liability shall be and remain in full
force and effect, as fully as if such payment had never been made or, if prior
thereto the lien or security interest granted hereby or other Collateral
securing such liability hereunder shall have been released or terminated by
virtue of such cancellation or surrender), such Lien or other Collateral shall
be reinstated in full force and effect, and such prior cancellation or surrender
shall not diminish, release, discharge, impair or otherwise affect any Lien or
other Collateral securing the obligations of any Grantor in respect of the
amount of such payment. Notwithstanding any other provision of this Section, the
Secured Party will be entitled to file any necessary pleadings, motions,
objections or agreement which assert rights or interests available to unsecured
creditors of the Grantor arising under either the Bankruptcy Code or applicable
non-bankruptcy law.
8.10. Injunctive Relief. It is hereby agreed and acknowledged that
it will be impossible to measure in money the damages that would be suffered if
the parties fail to comply with any of the obligations herein imposed on them
and that in the event of any such failure, an aggrieved Person will be
irreparably damaged and will not have an adequate remedy at law. Any such Person
shall, therefore, be entitled (in addition to any other remedy to which it may
be entitled in law or in equity) to injunctive relief, including, without
limitation, specific performance, to enforce such obligations, and if any action
should be brought in equity to enforce any of the provisions of this Agreement,
none of the parties hereto shall raise the defense that there is an adequate
remedy at law.
32
8.11. Successors and Assigns. This Agreement shall be binding upon
the successors and assigns of each Grantor and shall inure to the benefit of the
Secured Party and its successors and permitted assigns; provided, however, that
no Grantor may assign, transfer or delegate any of its rights or obligations
under this Agreement without the prior written consent of the Secured Party;
and; provided, further, however, that Secured Party may not assign, transfer or
delegate any of its rights or obligations as Secured Party under this Agreement
without the prior written consent of the Grantor unless, on and after the Final
Withdrawal Date, MHR and its Affiliates and Related Parties shall not hold any
of the Secured Loan or the Convertible Note. If, on and after the Final
Withdrawal Date, MHR and its Affiliates shall not hold any of the Secured Loan
or the Convertible Note, a new Secured Party satisfactory to Grantor and not
less than a majority in principal amount of the Secured Loan or the Convertible
Note, as applicable, shall be appointed by such parties and upon the acceptance
of its appointment as Secured Party hereunder, the resigning Secured Party shall
be released from all further obligations under this Agreement. Prior to the
Final Withdrawal Date, the Secured Party may not assign, transfer or delegate
any of its rights or obligations as Secured Party under this Agreement without
the prior written consent of the Grantor.
8.12. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute but
one contract, and shall become effective when copies hereof which, when taken
together, bear the signatures of each of the parties hereto shall be delivered
to the Secured Party. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed signature page hereto.
8.13. Governing Law; Submission to Jurisdiction.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK. TO INDUCE THE SECURED PARTY TO ENTER INTO THIS AGREEMENT,
THE GRANTOR HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO THE SECURED PARTY' SOLE
AND ABSOLUTE ELECTION AND INSTRUCTION TO THE SECURED PARTY, ALL ACTIONS OR
PROCEEDINGS WHICH IN ANY MANNER ARISE OUT OF OR IN CONNECTION WITH OR ARE IN ANY
WAY RELATED TO THIS AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN
THE COUNTY OF NEW YORK, STATE OF NEW YORK. THE GRANTOR HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITH THE COUNTY OF NEW YORK,
STATE OF NEW YORK. THE GRANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER
OR CHANGE THE VENUE OF ANY LITIGATION BETWEEN THE GRANTOR AND THE SECURED PARTY
IN ACCORDANCE WITH THIS PARAGRAPH.
(b) EACH OF THE GRANTOR AND THE SECURED PARTY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN ANY
WAY RELATED TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
33
(c) THE PROVISIONS OF THIS SECTION 8.13 ARE A MATERIAL INDUCEMENT
FOR THE SECURED PARTY ENTERING INTO THE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREIN. GRANTOR HEREBY ACKNOWLEDGES THAT IT HAS REVIEWED THE
PROVISIONS OF THIS SECTION 8.13 WITH ITS INDEPENDENT COUNSEL.
(d) Any legal action or proceeding with respect to this Agreement
may be brought in the courts of the State of New York or of the United States of
America for the Southern District of New York, and, by execution and delivery of
this Agreement, each Grantor hereby submits for itself and in respect of its
property, generally and unconditionally, to the jurisdiction of the aforesaid
courts, waives any objection, including, without limitation, any objection to
the laying of venue or based on the grounds of forum non conveniens, which such
Grantor now or hereafter has to the bringing of any such action or proceeding in
such respective jurisdictions and consents to the service of process of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to each such
person, as the case may be, as provided for in Section 9(e) of the Investment
and Exchange Agreement. The Secured Party may also serve process in any other
manner permitted by law or commence legal proceedings or otherwise proceed
against any Grantor in any other jurisdiction.
8.14. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
8.15. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the Grantor and the Secured Party in respect of the
subject matter contained herein. In the event of a conflict between this
Agreement and any of the Loan Documents, the terms of the Loan Agreement shall
govern.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
EMISPHERE TECHNOLOGIES, INC., AS GRANTOR
By: /s/ Xxxxxx X. Xxxx
--------------------------------------
Name: Xxxxxx X. Xxxx
Title: Chief Financial Officer
MHR INSTITUTIONAL PARTNERS IIA LP,
AS SECURED PARTY
By: MHR Institutional Advisors II LLC,
its general partner
By: /s/ Xxx Xxxxxxxxx
--------------------------------------
Name: Xxx Xxxxxxxxx
Title: Authorized Signatory
35
