EXHIBIT 4.2
SECURITY AGREEMENT
Security Agreement (the "SECURITY AGREEMENT") dated as of July 19, 2005
by and among Advanced Technology Industries, Inc. (the "COMPANY"), each
individual or entity (other than the Company and the Collateral Agent) named on
the signature page hereto (collectively, the "SECURED PARTIES") and Xxxxxxx &
Xxxxxx, LLP, as collateral agent for the Secured Parties (the "COLLATERAL
AGENT").
WHEREAS, the Company has issued to each of the Lenders its 9%
Convertible Debentures due August 20, 2006 (the "DEBENTURES");
WHEREAS, in order to induce the Secured Parties to purchase or amend
certain terms of the Debentures, as the case may be, the Company has agreed to
grant a continuing security interest in and to the Collateral (as defined below)
in order to secure the prompt and complete payment of the obligations of the
Company arising from this Agreement and the Debentures (the "SECURED
OBLIGATIONS").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company agrees as follows:
Section 1. GRANT OF SECURITY. The Company hereby grants to the
Collateral Agent for the ratable benefit of the Secured Parties (in proportion
to the outstanding amount of Debentures held by a Secured Party to the aggregate
outstanding amount of Debentures held by all the Secured Parties) a continuing
security interest in all of the Company's right, title and interest in and to
(i) each patent and patent application referred to in Schedule 1 hereto (the
"COLLATERAL"), and (2) all assets of whatever kind and description, now or
hereafter owned by the Company and all accessions, additions or improvements to,
all replacements, substitutions and parts for, and all proceeds and products of
the foregoing, and all books, records and documents relating to the foregoing
(the "Collateral").
Section 2. SECURITY FOR SECURED OBLIGATIONS. The grant of a continuing
security interest in the Collateral by the Company under this Agreement secures
the payment of all Secured Obligations.
Section 3. RECORDATION. (a) The Company hereby permits the Collateral
Agent, at the Company's cost and expense, to file and record, as its attorney in
fact, any financing statements, any carbon, photographic or other reproduction
of a financing statement or this Agreement (which shall be sufficient as a
financing statement hereunder), any specific assignments or other paper that may
be reasonably necessary or desirable, or that the Collateral Agent may request,
in order to create, preserve, perfect or validate the security interest granted
hereunder or to enable the Collateral Agent to exercise and enforce its rights
hereunder with respect to any of the Collateral, including any filing with the
Commissioner for Patents. The Company hereby appoints the Collateral Agent as
the Company's attorney-in-fact to execute in the name and behalf of the Company
such additional financing statements as the Collateral Agent may request.
(b) The Company shall on the date immediately following the date hereof
deliver to the Collateral Agent a UCC-3 Financing Statement terminating the
Financing Statement filed by Eurotech Ltd. ("Eurotech") on March 7, 2001, and
the Collateral Agent may file such Financing Statement in accordance with
Section 509(d)(2) of the Delaware Uniform Commercial Code in the office of the
Secretary of State of Delaware on or after the 20th day following the Company's
demand to Eurotech pursuant to Section 5-113(b) of the Delaware Uniform
Commercial Code (unless Eurotech files such a Financing Statement in accordance
with such demand or it otherwise objects). The Company shall within five days of
the date hereof send such demand to Eurotech.
Section 4. REMEDIES. (a) Upon the occurrence and during the continuance
of a Secured Event of Default (as defined below), subject to paragraph (c)
below, the Collateral Agent, on behalf of the Secured Parties, may exercise in
respect of the Collateral all the rights and remedies of a secured party on
default under the New York Uniform Commercial Code or any other applicable law.
Notwithstanding any provision in this Agreement or any other agreement to the
contrary, neither the Collateral Agent nor any Secured Party shall be entitled
to exercise any remedy with respect to the Collateral upon the occurrence and
during the continuance of an event of default under the Debentures except with
respect to an event of default thereunder that constitutes a Secured Event of
Default.
(b) The following shall constitute a "Secured Event of Default":
(i) The Company shall default in the payment of principal or interest
on a Debenture, any Redemption Amount (as defined in the respective Debentures)
or any Holder Redemption Amount (as defined in the respective Debentures) due
under a Debenture and, in any such instance, the same shall continue for a
period of sixty (60) days; or
(ii) The Company fails to authorize or to cause its transfer agent to
issue shares of its common stock upon exercise by a holder of a Debenture of the
conversion rights of such holder in accordance with the terms of such Debenture,
fails to transfer or to cause its transfer agent to transfer any certificate for
shares of its common stock issued to a holder of a Debenture upon conversion of
such Debenture and when required by such Debenture, and such transfer is
otherwise lawful, or fails to remove any restrictive legend on any certificate
or fails to cause its transfer agent to remove such restricted legend, in each
case where such removal is lawful, as and when required by a Debenture, and any
such failure shall continue uncured for sixty (60) days; or
(iii) The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) commence proceedings for its dissolution; or
(3) apply for or consent to the appointment of a trustee, liquidator or receiver
for its or for a substantial part of its property or business; or
(iv) Any governmental agency of the United States (whether federal or
state) or any court of competent jurisdiction at the instance of any
governmental agency of the United States (whether federal or state) shall assume
custody or control of the whole or any substantial portion of the properties or
assets of the Company and shall not be dismissed within sixty (60) days
thereafter; or
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(v) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company (other than any
such proceeding instituted against the Company by a Secured Party), and if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding.
(c) The Collateral Agent may not take any action with respect to the
exercise of any remedies in connection with the Collateral unless the Required
Secured Parties consent to such action. "Required Secured Parties" means, at a
particular time, Secured Parties holding not less than sixty (60%) of the
aggregate amount of Debentures outstanding at such time
Section 5. RELEASE OF COLLATERAL. Upon the repayment in full of all the
Secured Obligations (including as a result of the conversion of the Debentures
to common stock of the Company in accordance with their terms), the security
interest granted hereunder shall terminate. Upon any such termination, the
Collateral Agent and the Secured Parties will execute and deliver to the Company
such documents as the Company shall reasonably request to evidence the
termination of the security interest granted hereunder.
Section 6. APPLICATION OF PROCEEDS. The proceeds of any sale of, or
other realization upon, all or any part of the Collateral shall be applied in
the following order of priority: (a) first, to pay the reasonable expenses of
such sale or other realization, including, without limitation, reasonable
attorneys' fees, and all expenses, liabilities and advances reasonably incurred
or made by the Collateral Agent or any Secured Party in connection therewith;
(b) second, to the ratable payment of the Secured Obligations (in proportion to
the outstanding amount of Debentures held by a Secured Party to the aggregate
outstanding amount of Debentures held by all the Secured Parties); and (c)
finally, to pay to the Company, or its successors or assigns, or as a court of
competent jurisdiction may direct, any surplus then remaining from such
proceeds.
Section 7. COLLATERAL AGENT.
(a) APPOINTMENT. The Secured Parties hereby designate and appoint
Xxxxxxx & Xxxxxx, LLP as Collateral Agent to act as specified herein. Each
Secured Party hereby authorizes the Collateral Agent to take such action as
agent on its behalf under the provisions of this Agreement and agreements
referred to herein, and to exercise such powers and to perform such duties
hereunder and thereunder, as are specifically delegated to or required of the
Collateral Agent by the terms hereof or thereof and such other powers as are
reasonably incidental thereto. The Collateral Agent may execute any of its
duties under this Agreement by or through agents or attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact that it selects with reasonable care.
(b) NATURE OF DUTIES. The Collateral Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement. Neither
the Collateral Agent nor any of its employees or agents shall be liable for any
action taken or omitted by it or them as such hereunder or in connection
herewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Collateral Agent shall be mechanical in nature; the Collateral
Agent shall not have by reason of this Agreement a fiduciary relationship in
respect of any Secured Party; and nothing in this Agreement, express or implied,
is intended to or shall be so construed as to impose upon the Collateral Agent
any obligations or liabilities in respect of this Agreement except as expressly
set forth herein.
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(c) ABSENCE OF RELIANCE ON THE COLLATERAL AGENT.
(i) Each Secured Party acknowledges that neither the Collateral Agent
nor any of its employees or agents has made any representation or warranty to it
and that no act by the Collateral Agent hereinafter taken shall be deemed to
constitute any representation or warranty by the Collateral Agent to any Secured
Party.
(ii) The Collateral Agent shall not be responsible to any Secured Party
for any recitals, statements, information, representations or warranties herein
or in any document, instrument, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, priority or sufficiency of this Agreement or the
financial condition of the Company, or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement, or the financial condition of the Company or
the existence or possible existence of any Secured Event of Default.
(iii) The Collateral Agent shall be under no obligation or duty to take
any action under this Agreement if taking such action (i) would subject the
Collateral Agent to a tax in any jurisdiction where it is not then subject to a
tax, (ii) would require the Collateral Agent to qualify to do business in any
jurisdiction where it is not then so qualified, unless the Collateral Agent
receives security or indemnity satisfactory to it against any tax or other
liability in connection with such qualification or resulting from the taking of
such action in connection therewith, or (iii) would subject the Collateral Agent
to IN PERSONAM jurisdiction in any location where it is not then so subject.
(d) CERTAIN RIGHTS OF THE COLLATERAL AGENT. If the Collateral Agent
shall request instructions from the Required Secured Parties with respect to any
act or action (including failure to act) in connection with this Agreement, the
Collateral Agent shall be entitled to refrain from such act or taking such
action unless and until it shall have received such instructions from the
Required Secured Parties and the Collateral Agent shall incur no liability by
reason of so refraining. In the event that the Collateral Agent seeks direction
in that regard, it shall be protected in such decision provided:
(i) It has, at the Company's expense, provided written or
facsimile notice of its proposed course of action to each Secured Party
at their last listed address; and
(ii) It has not received within five (5) business days after
date of notice, written or facsimile notice of non-acquiescence duly
executed by the holders of the Required Secured Parties.
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The Collateral Agent shall not be obligated to take any action hereunder (i) if
such action would, in the reasonable opinion of the Collateral Agent, be
contrary to applicable law or this Agreement, (ii) if it shall not receive such
advice or concurrence of the Required Secured Parties as it reasonably deems
appropriate or (iii) if it shall not first be indemnified to its satisfaction by
the Secured Parties requesting such action against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. Without limiting the foregoing, no Secured Party shall have any
right of action whatsoever against the Collateral Agent as a result of the
Collateral Agent's acting or refraining from acting hereunder in accordance with
the instructions of the Required Secured Parties.
(e) RELIANCE BY COLLATERAL AGENT. The Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, statement, consent, certificate, telex, teletype or
facsimile message, order or other documentary or telephone message believed by
it in good faith to be genuine and correct and to have been signed, sent or made
by the proper person. The Collateral Agent may consult with legal counsel and
other experts selected by it with respect to all matters pertaining to this
Agreement and its duties hereunder and shall not be liable for any action taken
or omitted to be taken by it in good faith in accordance with the advice of such
counsel or experts.
(f) INDEMNIFICATION. The Company and the Secured Parties will reimburse
and indemnify the Collateral Agent on a 50-50 basis (and with respect to the
Secured Parties in proportion to the outstanding amount of Debentures held by a
Secured Party to the aggregate outstanding amount of Debentures held by all the
Secured Parties), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including
attorneys' fees and expenses) or disbursements of any kind or nature whatsoever
that may at any time be imposed on, incurred by or asserted against the
Collateral Agent in any way relating to or arising out of this Agreement or the
transactions contemplated hereby or any action taken or omitted by the
Collateral Agent under or in connection with any of the foregoing; PROVIDED,
HOWEVER, that neither the Company nor any Secured Party shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements finally determined by a court
of competent jurisdiction and not subject to any appeal to have resulted from
the Collateral Agent's gross negligence or willful misconduct.
(g) SUCCESSOR COLLATERAL AGENT. The Collateral Agent may resign at any
time upon thirty (30) days' prior written notice to the Company and the Secured
Parties. Upon any such notice of resignation, the Required Secured Parties will
appoint from among the Secured Parties a successor Collateral Agent. If no
successor Collateral Agent shall have been appointed within thirty (30) days
after the retiring Collateral Agent gives notice of its resignation, the
retiring Collateral Agent may appoint, after consulting with the Secured
Parties, a successor Collateral Agent. Upon the written acceptance of any
appointment as Collateral Agent hereunder by a successor Collateral Agent, such
successor Collateral Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Collateral Agent, and
the retiring Collateral Agent shall be discharged from its duties and
obligations hereunder. After any retiring Collateral Agent's resignation as
Collateral Agent, the provisions of this Section shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Collateral Agent.
If no successor to the Collateral Agent has accepted appointment as Collateral
Agent by the thirtieth (30th) day following a retiring Collateral Agent's notice
of resignation, the retiring Collateral Agent's resignation shall nevertheless
thereupon become effective, and the Secured Parties shall thereafter perform all
of the duties of the Collateral Agent hereunder until such time, if any, as the
Required Secured Parties appoint a successor Collateral Agent as provided for
hereinabove.
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(h) COLLATERAL MATTERS.
(i) The Collateral Agent is hereby authorized on behalf of all the
Secured Parties, without the necessity of any notice to or further consent from
the Secured Parties, from time to time (but without any obligation) to take any
action with respect to the Collateral that may be necessary to perfect and
maintain perfected the liens upon the Collateral granted hereunder.
(ii) The Secured Parties hereby irrevocably authorize the Collateral
Agent, at its option and in its discretion, to release any lien granted to or
held by the Collateral Agent upon any Collateral upon the repayment in full of
all the Secured Obligations (including as a result of the conversion of the
Debentures to common stock of the Company in accordance with their terms).
Section 8. AMENDMENT. Each Secured Party and the Collateral Agent
hereby agree that such parties shall promptly, at the request of the Company,
(a) execute an amendment to this Agreement to add additional Secured Parties as
parties hereto with respect to securing up to $800,000 of additional
indebtedness incurred by the Company after the date hereof on terms and
conditions substantially similar to the Debentures and (b) execute any documents
necessary to amend any filings contemplated by Section 3.
Section 9. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants that it owns all the Collateral.
Section 10. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute one and the same
agreement.
Section 11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
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IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
ADVANCED TECHNOLOGY INDUSTRIES, INC.
By:
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Title:
THE GROSS FOUNDATION, INC.
By:
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Title:
DOUBLE U MASTER FUND, L.P.
By:
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Title:
PLATINUM PARTNERS VALUE ARBITRAGE FUND, L.P.
By:
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Title:
JM INVESTORS, INC.
By:
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Title:
Alpha Capital AG
By:
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By:
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Xxx Nebenzhal
By:
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Xxxx Xxxxxxxxxx
By:
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Xxxx Xxxxx
Shalom Torah Center
By:
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By:
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Xxxxxx Xxxxxxxx
By:
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Xxxx Xxxxxxxxxx
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By:
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Ateres Michoel
By:
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Xxxxx Xxxxxx
By:
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Xxxxx Xxxxxx
By:
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Xxxxxx Xxxxxxx
Nite Capital LP
By:
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XXXXXXX & PRAGER, LLP, as
Collateral Agent
By:
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ADDRESS FOR NOTICES:
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SCHEDULE 1
TO
SECURITY AGREEMENT
PATENTS
PATENT NO. TITLE
---------- -----
5,434,382 Electric holder
and electric sensor
6,156,992 Welding device
control method and
welding device
5,507,268 Oil separation
system
PATENT APPLICATIONS
SERIAL NO. FILING TITLE
---------- ------------
PCT/DE02/01582 Container Lid and
Container
PCT/DE03/0046 Catch or Locking
Element
PCT/DE00/02664 Insulation for a
Baby's Feeding
Bottle
