SECURITY AGREEMENT
SECURITY
AGREEMENT dated February 28, 2996, made by Neonode, Inc. a Delaware corporation
(the “Grantor”), and AIGH Investment Partners, LLC, a Delaware limited liability
company, or assigns, having an office located at 0000 Xxxxxxxx Xxx., Xxxxxxxxx,
XX 00000, as agent for the Investors (as defined herein) (“Secured Party”), in
connection with the Notes (as hereinafter defined).
PRELIMINARY
STATEMENT:
The
Grantor has issued to the parties listed on the attached Schedule I, as amended
from time to time (each an “Investor” and collectively the “Investors”) certain
secured term notes listed opposite the respective Investor’s name on Schedule I,
in the aggregate amount of up to $5,500,000 (initially $4,000,000) and such
other amounts as may be loaned to the Grantor from time to time by the Investors
pursuant to notes of similar tenor to the Senior Secured Notes (collectively,
the “Notes”). The parties desire to provide security for the obligations of the
Grantor to the Investors under the Notes.
NOW,
THEREFORE, in consideration of the premises, and in order to induce the
Investors to make the loan under the Notes, the parties hereby agree as
follows:
SECTION
1. Grant
of Security.
The
Grantor hereby grants to Secured Party, for its benefit and for the ratable
benefit of each Investor, a continuing security interest in all of the Grantor’s
right, title and interest in and to all the securities of Neonode AB the
Grantor, whether now owned or hereafter acquired, and all proceeds of any and
all of the foregoing, including without limitation any dividends or other
distributions in respect of such securities (the “Collateral”). The Grantor
represents and warrants that the Collateral includes all of the equity
securities, including without limitation all securities convertible into,
exchangeable for or exercisable to purchase, equity securities of Neonode AB.
During the term of this Agreement, the Grantor shall not permit Neonode AB,
a
Swedish corporation, to issue any equity securities or securities convertible
into, exercisable to purchase or exchangeable for equity securities or incur
an
indebtedness other than reasonable accounts payable and indebtedness from
affiliates.
SECTION
2. Security
for Obligations.
This
Agreement secures the payment and performance of all obligations of the Grantor
to Secured Party and the Investors now or hereafter existing under this
Agreement and the Notes, whether for principal, interest, fees, expenses, or
otherwise (all such obligations of the Grantor being the
“Obligations”).
SECTION
3. Voting
Rights, Dividends, Etc. in Respect of the Collateral.
So long
as no Event of Default shall have occurred and be continuing, the Grantor may
exercise any and all voting and other consensual rights pertaining to any
Collateral for any purpose not inconsistent with the terms of this Agreement.
The Grantor may receive and retain in trust for the benefit of the Investors
in
case there is an Event of Default, any and all dividends paid in cash with
respect of the Collateral; and Secured Party and the Investors will execute
and
delivery (or cause to be executed and delivered) to the Grantor all such proxies
and other instruments as Grantor may reasonably request for the purpose of
enabling Grantor exercise the voting and other rights which it is entitled
to
exercise and to receive the dividends which it is authorized to receive and
retain in trust herein.
SECTION
4. Voting
Rights, Dividends, Etc. in Respect of the Collateral Upon the Occurrence and
During the Continuance of an Event of Default.
Upon
the occurrence of an Event of Default and while an Event of Default is
continuing, all rights of the Grantor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant
to
Section 3 of this Agreement, and to receive the dividends which it would
otherwise be authorized to receive and retain in trust pursuant to Section
3 of
this Agreement, shall cease, and all such rights shall thereupon become vested
in Secured party and the Investors, who shall thereupon have the sole right
to
exercise such voting and other consensual rights and to receive and hold as
Collateral such dividends.
Without
limiting the generality of the foregoing, Secured Party and the Investors may,
at its option, exercise any and all rights of conversion, exchange, subscription
or any other rights, privileges or options pertaining to any of the Collateral
as if it were the absolute owner thereof, including, without limitation, the
right to exchange, in its discretion, any and all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other adjustment
of
the Grantor, or upon the exercise by the Grantor of any right, privilege or
option pertaining to any Collateral, and, in connection therewith, to deposit
and deliver any and all of the Collateral with any committee, depository,
transfer agent, registrar or other designated agent upon such terms and
conditions as it may determine.
All
dividends which are received by the Grantor contrary to the provisions of this
Section 4 shall be received in trust for the benefit of the Investors,
shall be segregate from other funds of the Grantor, and shall be forthwith
paid
over to the Investors as Collateral in the exact form received with any
necessary endorsement and/or appropriate stock powers duly executed in blank,
to
be held by Secured party as Collateral and as further collateral security for
the Obligations.
SECTION
5. Representations,
Warranties and Covenants.
The
Grantor represents, warrants and covenants as follows:
(1) The
Grantor will notify Secured Party immediately in writing of any change in its
address, name, or state or form of organization.
(2) The
Grantor is the legal and beneficial owner of the Collateral free and clear
of
any Lien except for the security interest created by this Agreement. No
effective financing statement or other document similar in effect covering
all
or any part of the Collateral is on file in any recording office.
(3) The
Grantor has exclusive and absolute right to collect the Collateral.
(4) This
Agreement creates a valid security interest in the Collateral, securing payment
of the Obligations, and all filings and other actions necessary or desirable
to
perfect and protect such security interest have been duly taken, or shall be
taken promptly upon execution hereof.
(5) The
Grantor is a corporation duly incorporated, validly existing, and in good
standing under the laws of Delaware; has the corporate power and authority
to
own its assets and to transact its business, and is duly qualified and in good
standing under the laws of each jurisdiction in which qualification is
required.
(6) The
execution and performance by the Grantor of this Agreement have been duly
authorized by all necessary corporate action and do not and will not
(a) require any consent or approval of the stockholders of such
corporation; (b) contravene such corporation’s character or bylaws;
(c) violate any provision of any law, rule, or regulation; or
(d) result in a breach of or constitute a default under, any indenture or
loan or credit agreement or any other agreement, lease, or instrument to which
such corporation is a party of by which it or its properties may be bound or
affected.
(7) This
Agreement is the legal, valid, and binding obligation of the Grantor,
enforceable in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditor’s rights generally.
(8) No
consent of any other person or entity and no authorization, approval, or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required (a) for the grant by the Grantor of the
assignment and security interest granted hereby or for the execution, delivery,
or performance of this Agreement by the Grantor; (b) for the perfection or
maintenance of this assignment, and security interest created hereby (including
the first priority nature of such assignment, and security interest); or
(c) for the exercise by Secured Party of the rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement.
(9) There
are
no conditions precedent to the effectiveness of this Agreement that have not
been satisfied or waived.
(10) Grantor
shall not pledge, sell, assign, transfer, create or suffer to exist any security
interest in or other lien or encumbrance on any part of the Collateral or grant
or suffer to exist any security interest in or other lien or encumbrance on
any
of Grantor’s inventory or other assets to anyone other than Secured Party,
without Secured Party’s prior written consent. Grantor hereby agrees to defend
the same against any and all persons whatsoever.
SECTION
6. Certain
Grantor Covenants.
(1) The
Grantor, at its sole expense, will take any and all actions as may be necessary
or appropriate to facilitate the perfection and preservation of the security
interest granted herein, or to enable Secured Party to exercise and enforce
its
rights and remedies hereunder with respect to any Collateral.
(2) The
Grantor hereby authorizes Secured Party to file one or more financing or
continuation statements, and amendments thereto, relating to all or any part
of
the Collateral without the signature of the Grantor where permitted by law.
A
photocopy or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law.
(3) The
Grantor will furnish to Secured Party from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as Secured Party may reasonably request, all
in
reasonable detail.
(4) The
Grantor hereby irrevocably appoints Secured Party the Grantor’s
attorney-in-fact, with full authority in the place and stead of the Grantor
and
in the name of the Grantor or otherwise, from time to time in the Secured
party’s discretion, to take any action and to execute any instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of
this
Agreement.
SECTION
7. The
Secured Party’s Duties.
The
powers conferred on Secured Party hereunder are solely to protect the Investor’s
interest in the Collateral and shall not impose any duty upon it to exercise
any
such powers. Except for the safe custody of any Collateral in their possession
and the accounting for moneys actually received by them hereunder, Secured
party
shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to any Collateral, whether or not Secured Party have or are deemed
to have knowledge of such matters, or as to the taking of any necessary steps
to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care
in
the custody and preservation of any Collateral in their possession if such
Collateral is accorded treatment substantially equal to that which it accords
its own property.
SECTION
8. Events
of Default.
It
shall be an event of default (an “Event of Default”) hereunder if:
(a) The
Grantor breaches any of the representations, warranties or covenants under
the
Notes, this Agreement, or any other agreements between the Investors and the
Grantor, of even date herewith, or there occurs an Event of Default under the
Note;
(b) The
Grantor becomes insolvent, admits its inability to pay its debts as they mature,
or is in any form of bankruptcy, arrangement or reorganization proceeding
(whether governed by Federal, state or common law);
(c) The
Grantor fails to comply with, or defaults under, any term of any present or
future agreement between it and any of the Investors.
SECTION
9. Remedies.
If any
Event of Default shall have occurred and be continuing Secured Party may
exercise in respect of the Collateral, in addition to any other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform Commercial Code (the
“Code”) (whether or not the Code applies to the affected Collateral), and also
may (a) require the Grantor to, and the Grantor hereby agrees that it will,
at its expense and upon request of Secured Party forthwith, assemble all or
part
of the Collateral as directed by Secured party and make it available to Secured
Party at a place to be designated by the Secured Party which is convenient
to
the parties and (b) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale,
at any of the Secured Party’s offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as Secured Party may deem
commercially reasonable. The Grantor agrees that, to the extent notice of sale
shall be required by law, at least ten (10) days notice to the Grantor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Secured party shall
not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured party may adjourn any public or private sale from time
to
time by announcement at the time and place fixed therefore, and such sale may.
Without further notice, be made at the time and place to which is was adjourned.
All proceeds of Collateral shall be applied in the following order of priority:
(i) fees and expense incurred by Secured Party as described in Section
10(2) until paid and satisfied in full, (ii) fees and expenses incurred by
any Investor as described in Section 10(2) until paid and satisfied in full,
(iii) due and unpaid interest on the Notes until paid and satisfied in
full, (iv) due and unpaid principal on the Notes until paid and satisfied
in full, and (v) the remainder, if any, to Grantor or any other person or
entity lawfully entitled thereto.
SECTION
10. Indemnity
and Expenses.
(a) The
Grantor agrees to indemnify the Secured Party and the Investors from and against
any and all claims, losses, and liabilities (including, without limitation,
reasonable attorney fees) growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses, or liabilities resulting from the gross negligence or willful misconduct
of the Investors or Secured Party.
(b) The
Grantor will upon demand pay the amount of any and all reasonable expenses,
including, without limitation, the reasonable fees and expenses of its counsel
and of any experts and agents, which the Investors or Secured Party may incur
in
connection with (a) the preparation and administration of this Agreement
and the Note; (b) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of the Investors or
Secured Party hereunder; or (d) the failure by the Grantor to perform or
observe any of the provisions hereof.
SECTION
11. Amendments;
Etc.
No
amendment, modification, termination, or waiver of any provision of this
Agreement, and no consent to any departure by the Grantor here from, shall
in
any event be effective unless the same shall be in writing and signed by Secured
Party and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION
12. Addresses
for Notices.
All
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, and facsimile transmissions) and mailed or
transmitted or delivered to the address for each such party set forth in the
Note Purchase Agreement dated the date hereof or, as to either party, at such
other address as shall be designated by such party in a written notice to the
other party. All such notices and other communications shall be effective when
deposited in the mails or delivered to the telegraph company, or sent, answer
back received, respectively.
SECTION
13. Waiver
of Rights.
The
Grantor waives the right to assert against any of the Investor or Secured party
or other holder any defense , counterclaim or set-off which it could assert
against such person in any action brought by such holder upon the Grantor’s
obligations hereunder.
SECTION
14. Continuing
Security Interest: Assignments Under The Notes.
This
Agreement shall create a continuing security interest in the Collateral and
shall: (1) remain in full force and effect until the payment in full of the
Obligations and all other amounts payable under this Agreement; (2) be binding
upon the Grantor, its successors and assigns; and (3) inure to the benefit
of, and be enforceable by, each of the Secured party and Investors and their
respective successors, transferees, and assigns. Without limiting the generality
of the foregoing clause (3) the Secured Party and Investors may assign or
otherwise transfer all or any portion of their rights and Obligations to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to the respected Secured
Party or Investor therein or otherwise. Upon the payment in full of the
Obligations and all other amounts payable under this Agreement, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the Grantor. Upon any such termination, Secured party will, at the
Grantor’s expense, execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence such termination.
SECTION
15. Governing
Law; Terms.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New Your, except to the extent that the validity or perfection of
the
security interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State
of
New York.
SECTION
16. Submission
to Jurisdiction.
The
Parties hereby submit to the non-exclusive jurisdiction of the United States
District Court for the Southern District of New York and of any State court
sitting in New York County for purposes of all legal proceedings which may
arise
hereunder or under the Note. The parties irrevocably waives to the fullest
extent permitted by law, any objection which it may have or hereafter have
to
the laying of the venue or any such proceeding brought in an inconvenient forum
and trial by jury. The parties hereby consent to process being served in any
such proceeding by the mailing of a copy thereof by registered or certified
mail, postage prepaid, to its address specified above or in any other manner
permitted by law.
SECURED
PARTY AND THE GRANTOR HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING,
CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING
OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT. NO OFFICER OF SECURED PARTY
HAS
AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
SECTION
17. Agency;
Action by Secured Party.
Each
Investor hereby appoints the Secured Party as its agent hereunder with respect
to the Collateral and the creation, perfection, priority, preservation,
protection and enforcement of a security interest therein in accordance with
the
terms of this Agreement. Each Investor hereby authorizes Secured Party to take
such actions with respect to the Collateral, for the pro-rata benefit of the
Investors in accordance with Section 9, as Secured Party determines to take
in
its sole discretion, and each Investors agrees to indemnify and hold harmless
Secured Party for all costs, claims or expenses (including without limitation
attorneys’ fees and expenses) in connection with such actions taken or omitted
to be taken, except to the extent resulting from the gross negligence or willful
misconduct of Secured Party. Secured Party shall provide prompt notice of any
material action under this Agreement to the Investors.
IN
WITNESS WHEREOF, the Investors, the Secured Party and the Grantor have caused
this Agreement to be duly executed and delivered by duly authorized
representatives as of the date first written above.
NEONODE
INC
|
AIGH
INVESTMENT PARTNERS, LLC
|
/s/
|
/s/
|
By:
Per Xxxxxxx
|
By:
Xxxx Xxxxxxxxx
|
Its:
President
|
Its:
President, General Partner
|
SCHEDULE
I
Principal
Amount of
|
|
Name
and Address
|
Existing
Notes
|
Secured
Party Investment
|
[$4,000,000.00]
|
Partners,
LLC
|
|
0000
Xxxxxxxx Xxx.
|
|
Xxxxxxxxx,
XX 00000
|
|
TOTAL
|
$4,000,000.00
|