Exhibit 10.1

 

INSPRO TECHNOLOGIES CORPORATION

 

SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT

 

This Secured Convertible Promissory Note Purchase Agreement (the “ Agreement ”) is made as of January 30, 2015 (the “ Effective Date ”) by and among InsPro Technologies Corporation, a Delaware corporation (the “ Company ”), InsPro Technologies, LLC, a Delaware limited liability company (“ InsPro ” and collectively with the Company, the “ Loan Parties ”), and The Co-Investment Fund II, L.P., a Delaware limited partnership (the “ Purchaser ”).

 

Recital

 

To provide the Company with additional resources to conduct its business, the Purchaser is willing to loan to the Company, in one disbursement, One Million Dollars ($1,000,000), subject to the conditions specified herein.

 

Agreement

 

Now, Therefore , in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the Company and the Purchaser, intending to be legally bound, hereby agree as follows:

 

1.              Definitions

 

Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 6.

 

2.              Amount And Terms Of The Loan

 

2.1             The Loan .  Subject to the terms and conditions set forth in this Agreement, the Purchaser agrees to lend to the Loan Parties at the Closing (as hereinafter defined) the amount of One Million Dollars ($1,000,000) (the “ Loan ”).  The Loan will be evidenced by the Secured Convertible Promissory Note in substantially the form attached hereto as Exhibit A   (the “ Note ”).  The Loan shall be secured by a Security Agreement between the Loan Parties and the Purchaser in substantially the form attached hereto as Exhibit B (the “ Security Agreement ”).  This Agreement, the Note, and the Security Agreement may hereinafter be referred to collectively as the “ Loan Documents ” and individually as a “ Loan Document .”

 

3.              Closing And Delivery

 

3.1             Closing.   The closing of the sale and purchase of the Note   (the “ Closing ”) shall be held on the Effective Date, or at such other time as the Company and the Purchaser may mutually agree (such date is hereinafter referred to as the “ Closing Date ”).  The Closing shall take place via remotely via the exchange of documentation and signatures in PDF format or by facsimile on the Closing Date.

 

 

3.2           Delivery.

 

(a)            At the Closing (i) the Loan Parties and the Purchaser shall have executed and delivered the Security Agreement dated as of the date hereof; and (ii) the Purchaser and the Loan Parties shall have executed and delivered that certain Subordination Agreement by and among the Purchase, the Loan Parties and Silicon Valley Bank.

 

(b)            At the Closing (i) the Purchaser shall deliver to the Company a check or wire transfer funds in the amount of the Loan; and (ii) the Loan Parties shall issue and deliver to the Purchaser the Note in favor of the Purchaser payable in the principal amount of the Loan.

 

4.              Representations and Warranties of the Company

 

Each Loan Party hereby represents and warrants to the Purchaser as of the Closing as follows:

 

4.1             Organization and Qualification.   Each Loan Party is duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted and as presently proposed to be conducted, except in each case as would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  No Loan Party is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each Loan Party is duly qualified to conduct its respective businesses and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

 

4.2             Authorization; Enforcement .  Each Loan Party has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by each of the Loan Documents and otherwise to carry out its obligations hereunder and thereunder; including the issuance and delivery of the Note and the reservation of the equity securities issuable upon conversion of the Note (the “ Conversion Securities ”) has been taken or will be taken prior to the issuance of such Conversion Securities.  The execution and delivery of each of the Loan Documents by each Loan Party and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate or limited liability company action on the part of such Loan Party and no consent or further corporate or limited liability company action is required on its part in connection therewith.  Each Loan Document executed and delivered by a Loan Party has been duly executed by it and constitutes the valid and binding obligation of such Loan Party enforceable against it in accordance with its terms.  The Conversion Securities, when issued in compliance with the provisions of the Loan Documents will be validly issued, fully paid and nonassessable and free of any liens or encumbrances and issued in compliance with all applicable federal and securities laws.

 

2

 

4.3             No Conflicts .  The execution, delivery and performance of the Loan  Documents by each Loan Party and the consummation by such Loan Party of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of such Loan Party ’ s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Loan Party debt or otherwise) or other understanding to which a Loan Party is a party or by which any property or asset of a Loan Party is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which a Loan Party is subject (including federal and state securities laws and regulations), or by which any property or asset of a Loan Party is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

 

4.4             Filings, Consents and Approvals .  No Loan Party is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by such Loan Party of the Loan Documents, other than those that have been made or obtained prior to the date of this Agreement.

 

4.5             SEC Reports; Financial Statements .  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such reports) (the foregoing materials and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being collectively referred to herein as the “ SEC Reports ”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  The Company has made available to the Purchaser or its respective representatives true, correct and complete copies of each of the SEC Reports not available on the EDGAR system (if any).  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing (or amendment, as applicable).  Such financial statements have been prepared in accordance with GAAP, applied on a consistent basis, during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments or adjustments which will not be material, either individually or in the aggregate.

 

3

 

4.6             Tax Status .  Each of the Loan Parties (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply, except in each case as would not reasonably be expected to have a Material Adverse Effect.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

4.7             Material Changes .  Since the date of the latest financial statements included in the SEC Reports, except as set forth in the SEC Reports, (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, (v) the Company has not sold any assets outside of the ordinary course of business, (vi) the Company has not made any material capital expenditures and (vi) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans.  The company does not have pending before the Commission any request for confidential treatment of information.  None of the Loan Parties has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.

 

4.8             Litigation .  There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Loan Documents against any Loan Party or (ii) except as specifically disclosed in the SEC Reports, would, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  No Loan Party, nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as specifically disclosed in the SEC Reports.  There has not been, and to the knowledge of the Company, there is not pending any investigation by the Commission involving the Company or any current or former director or officer of the Company (in his or her capacity as such).

 

4

 

4.9             Compliance .  No Loan Party (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default under), nor has any Loan Party received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (except to the extent such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, ordinance, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, pollution, environmental protection, occupational health and safety, product quality and safety or employment and labor matters, except in each case as would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  The Company is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance would not have or reasonably be expected to result in a Material Adverse Effect.

 

4.10           Regulatory Permits .  The Loan Parties possess all certificates, authorizations, licenses and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess any such certificates, authorizations, licenses or permits would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, and no Loan Party has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, license or permit.

 

4.11           Title to Assets .  The Loan Parties have good and marketable title in fee simple to all real property owned by them that is material to their respective businesses and good and marketable title in all personal property owned or used by them that is material to their respective businesses, in each case free and clear of all Liens, except for Permitted Liens.  Any real property and facilities held under lease by the Loan Parties are held by them under valid, subsisting and, to the Loan Parties’ knowledge, enforceable leases of which the Loan Parties are in compliance, except as would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

 

4.12           Patents and Trademarks .  Each Loan Party owns or has the valid right to use all patents, trademarks, service marks, trade names, domain names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted without any violation or infringement of the rights of others.  There are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership of interests of any kind relating to anything referred to above in this Section 4.12 that is to any extent owned by or exclusively licensed to the Loan Parties, nor are the Loan Parties bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, domain names, copyrights, trade secrets, licenses, information, proprietary rights and/or processes of any other person or entity, except, in either case, for standard end-user, object code, internal-use software license and support/maintenance agreements.  The Loan Parties have not received any communications alleging that such Loan Party has violated or would violate any of the patents, trademarks, service marks, domain names, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity.  The Loan Parties are not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Loan Parties or that would conflict with the Loan Parties’ business as presently conducted.  Neither the execution nor delivery of this Agreement or the Loan Documents, nor the carrying on of the Loan Parties’ business by the employees of the Loan Parties, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated.  To the extent the Loan Parties uses any “open source” or “copyleft” software or is a party to “open” or “public source” or similar licenses, the Loan Parties are in compliance with the terms of any such licenses, and the Loan Parties are not required under any such license to (a) make or permit any disclosure or to make available any source code for its (or any of its licensors’) proprietary software or (b) distribute or make available any of the Loan Parties’ proprietary software or intellectual property (or to permit any such distribution or availability).

 

5

 

4.13           Insurance .  The Loan Parties are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Loan Parties are engaged.  The Loan Parties have no reason to believe that they will not be able to renew their existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent in all material respects with market for similar size companies as the Loan Parties for the lines of business of the Loan Parties at a cost that would not have a Material Adverse Effect.  No Loan Party has been refused any insurance coverage sought or applied for.

 

4.14           Transactions With Affiliates and Employees .  Except in connection with the transactions contemplated by this Agreement, none of the officers or directors of the Company and, to the knowledge of Loan Parties, none of the employees of the Loan Parties is presently a party to any transaction with a Loan Party (other than for ordinary course services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Loan Parties, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, which in each case is required to be disclosed in the SEC Reports and has not been so disclosed.

 

4.15           Internal Accounting Controls .  Each Loan Party maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any differences.  The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls and procedures so that they are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Commission, including, without limitation, controls and procedures designed to ensure that material information relating to the Loan Parties is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared.  The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures in accordance with Item 307 of Regulation S-K under the Exchange Act for the Company’s most recently ended fiscal quarter or fiscal year-end (such date, the “ Evaluation Date ”).  The Company presented in its most recently filed Form 10-K or Form 10-Q the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 308(c) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other factors that would significantly affect the Company’s internal controls.  No Loan Party has received any written notice or correspondence from any accountant relating to any potential material weakness in any part of the system of internal accounting controls of the Company.

 

6

 

4.16           Solvency .  Based on the financial condition of the Loan Parties as of the date hereof and as of the Closing Date (assuming that the Closing shall have occurred), (i) the present fair saleable value of each Loan Party’s assets exceeds the amount that will be required to be paid on or in respect of its existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the assets of each Loan Party do not constitute unreasonably small capital to carry on its business, including its capital needs taking into account the particular capital requirements of the business conducted by such Loan Party, and capital availability thereof; and (iii) the current cash flow of each Loan Party, together with the proceeds it would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The foregoing representation and warranty is also true and correct as to the Loan Parties on a consolidated basis.  No Loan Party intends to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its or their debt).

 

4.17           Investment Company .  The Company is not, and is not an Affiliate of, and immediately following the Closing will not have become, an “investment company,” an Affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

4.18           Disclosure .  The Loan Parties confirm that neither they nor, to their knowledge, any Person acting on their behalf has provided the Purchaser or its agents or counsel with any information that the Loan Parties believe constitutes material, non-public information, except insofar as the existence and terms of the proposed transactions hereunder and the information contained herein or in the other Loan Documents may constitute such information.  The Loan Parties understand and confirm that the Purchaser will rely on the foregoing representations and warranties in effecting transactions in securities of the Company.

 

4.19           U.S. Real Property Holding Corporation .  None of the Loan Parties is, or has ever been, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and Company shall so certify upon the request of Purchaser.

 

7

 

4.20           Foreign Corrupt Practices .  No Loan Party nor any director, officer, agent, employee or other Person acting on behalf of a Loan Party has, in the course of its actions for, or on behalf of, a Loan Party (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee, except in each case as would not have a Material Adverse Effect.

 

4.21           Offering.   Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 5 hereof, the offer, issue, and sale of the Note and the Conversion Securities (collectively, the “ Securities ”) are and will be exempt from the registration and prospectus delivery requirements of the Securities Act, and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws.

 

5.            REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

5.1             Purchase for Own Account .  The Purchaser represents that it is acquiring the Securities solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of the Securities or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.

 

5.2             Securities Act; Accredited Investor .  The Purchaser acknowledges its understanding that the offering and sale of the Note has not been registered under the Securities Act, on the basis of the exemption in Section 4(2) thereof relating to transactions not involving a public offering, or any state securities laws.  The Purchaser understands that the Company’s reliance on the Section 4(2) exemption is based on the representations herein made by the Purchaser.  The Purchaser is an “Accredited Investor” as that term is defined in Regulation D under the Securities Act.

 

5.3             Certain Transfer Limitations .  The Purchaser acknowledges that it is familiar with the limitations which are imposed by the Securities Act on any transfer of an interest in the Note.  The Purchaser understands and acknowledges that it may have to bear the economic risk of its investment in the Securities for an indefinite period of time unless the Securities are subsequently registered under the Securities Act or an exemption therefrom is available.  The Purchaser hereby agrees that the Securities will not be transferred other than (i) pursuant to a registration under the Securities Act or pursuant to an exemption therefrom and (ii) in compliance with any applicable state securities laws.

 

5.4             Information .  Without lessening or obviating the representations and warranties of the Loan Parties set forth in Section 4, the Purchaser hereby: (i) represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and (ii) further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment.

 

8

 

5.5             Legend .  The Purchaser understands the Securities will bear the following legend:

 

“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS.  THIS SECURITY MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER AND UNDER APPLICABLE STATE SECURITIES LAWS AS TO WHICH AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SHALL HAVE BEEN DELIVERED TO THE COMPANY.”

 

5.6             Ability to Bear Economic Risk .  The Purchaser acknowledges that investment in the Securities involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

 

6.             Definitions

 

6.1            “ Action ” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting a Loan Party or any of its properties, or the equity securities of the Company, or any officers, directors or key employees of a Loan Party, before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

 

6.2            “ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, owns or controls such Person, is owned or controlled by such Person, or is under common control with such Person. With respect to a corporation, the term “Affiliate” shall also include such corporation’s senior executive officers and its directors. With respect to a limited liability company, the term “Affiliate” shall also include such company’s managers, senior executive officers, and members.

 

6.3            “ Commission ” means the Securities and Exchange Commission.

 

6.4            “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder.

 

6.5            “ GAAP ” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable as of the date of determination.

 

9

 

6.6            “ Lien ” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction.

 

6.7            “ Material Adverse Effect ” means any of (i) a material adverse effect on the legality, validity or enforceability of any Loan Document, (ii) a material adverse effect on operations (including the results thereof), assets, liabilities, business or condition (financial or otherwise) of a Loan Party, or (iii) a material adverse impairment to any Loan Party’s ability to perform on a timely basis its obligations under any Loan Document.

 

6.8            “ Permitted Lien ” shall mean (a) Liens in favor of the Silicon Valley Bank and the Purchaser; (b) Liens for taxes, assessments or other governmental charges not delinquent or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by the Loan Parties; provided, that, a stay of enforcement of any such Lien shall be in effect; (c) deposits or pledges to secure obligations under worker’s compensation, social security or similar laws, or under unemployment insurance; (d) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of Business; (e) Liens arising by virtue of the rendition, entry or issuance against any Loan Party  or any property of any Loan Party, of any judgment, writ, order, or decree for so long as each such Lien (i) is in existence for less than twenty (20) consecutive days after it first arises or is being properly contested and (ii) is at all times junior in priority to any Liens in favor of the Purchaser; (f) mechanics’, workers’, materialmen’s or other like Liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith by the applicable Loan Party; (g) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided that any such lien shall not encumber any other property of any Loan Party (whether structured as a purchase money security interest or a capital lease); and (h) Liens arising under leases incurred in the ordinary course of business of the Loan Parties.

 

6.9            “ Person ” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, estate, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.

 

6.10          “ Securities Act ” means the Securities Act of 1933, as amended and the rules and regulations promulgated by the Commission thereunder.

 

7.            Miscellaneous

 

7.1             Binding Agreement .  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

10

 

7.2             Governing Law; Waiver of Jury Trial .  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applied to contracts to be performed wholly within the Commonwealth of Pennsylvania.  Any judicial proceeding brought by or against any Loan Party with respect to any of the Loan, this Agreement, the other Loan  Documents or any related agreement may be brought in any court of competent jurisdiction in the Commonwealth of Pennsylvania, United States of America, and, by execution and delivery of this Agreement, each Loan Party accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  Each Loan Party hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to the Company at its address set forth in Section 7.5 and service so made shall be deemed completed five (5) days after the same shall have been so deposited in the mails of the United States of America, or, at the Purchaser’s option, by service upon the Company which each Loan Party irrevocably appoints as such Loan Party’s agent for the purpose of accepting service within the Commonwealth of Pennsylvania.  Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of the Purchaser to bring proceedings against any Loan Party in the courts of any other jurisdiction.  Each Loan Party waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  Each Loan Party waives the right to remove any judicial proceeding brought against such Loan Party in any state court to any federal court.  Any judicial proceeding by any Loan Party against the Purchaser involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this Agreement or any related agreement, shall be brought only in a federal or state court located in the County of Delaware, Commonwealth of Pennsylvania.

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE LOAN PARTIES AND THE PURCHASER EACH WAIVE ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS, OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY, AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR ALL PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

7.3             Counterparts.   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

7.4             Titles and Subtitles .  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

11

 

7.5             Notices.   Any notice or request hereunder may be given to any Loan Party or to the Purchaser at their respective addresses set forth below or at such other address as may hereafter be specified in a notice designated as a notice of change of address under this Section.  Any notice, request, demand, direction or other communication (for purposes of this Section only, a “ Notice ”) to be given to or made upon any party hereto under any provision of this Loan Agreement shall be given or made by telephone or in writing (which includes by means of electronic transmission (i.e., “e-mail”) or facsimile transmission.  Any such Notice must be delivered to the applicable parties hereto at the addresses and numbers set forth under their respective names below in accordance with any subsequent unrevoked Notice from any such party that is given in accordance with this Section.  Any Notice shall be effective:

 

 (a)            In the case of hand-delivery, when delivered;

 

 (b)            If given by mail, four days after such Notice is deposited with the United States Postal Service, with first-class postage prepaid, return receipt requested;

 

 (c)            In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of such telephonic Notice is confirmed no later than the next business day by hand delivery, a facsimile or electronic transmission, or an overnight courier delivery of a confirmatory Notice (received at or before noon on such next business day);

 

 (d)            In the case of a facsimile transmission, when sent to the applicable party’s facsimile machine ’ s telephone number, if the party sending such Notice receives confirmation of the delivery thereof from its own facsimile machine;

 

 (e)            In the case of electronic transmission, when actually received; and

 

 (f)             If given by any other means (including by overnight courier), when actually received.

 

 If to the Purchaser, at:

 

The Co-Investment Fund II, L.P.

150 N. Radnor-Chester Road, Suite B-101

Radnor, PA  19087

 

 If to any Loan Party, at:

 

InsPro Technologies Corporation

150 N. Radnor-Chester Road, Suite B-101

Radnor, PA 19087

Facsimile: (484) 654-2212

Attn: Anthony R. Verdi

 

 with a copy to:

 

Morgan, Lewis & Bockius LLP

1701 Market Street

Philadelphia, PA 19103

Facsimile:(215) 963-5001

Email: jmckenzie@morganlewis.com

Attn: James W. McKenzie, Jr., Esq.

 

12

 

7.6             Severability .  If any part of this Agreement is contrary to, prohibited by, or deemed invalid under applicable laws or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.

 

7.7             Expenses.   The Loan Parties and the Purchaser shall bear their respective expenses and legal fees incurred with respect to this Agreement and the transactions contemplated herein.  All costs and expenses including reasonable attorneys’ fees and disbursements incurred by the Purchaser (a) in all efforts made to enforce payment of the Loan or any other obligation under the Loan Documents or effect collection of any collateral under the Loan Documents, or (b) in defending or prosecuting any actions or proceedings arising out of or relating to the Purchaser’s transactions with any Loan Party, shall be paid by the Loan Parties promptly after request by the Lender.

 

7.8             Counterparts; Facsimile Signatures .  This Agreement may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by facsimile transmission, email, or pdf shall be deemed to be an original signature hereto.

 

7.9             Construction .  The parties acknowledge that each party and its counsel have reviewed this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments, schedules or exhibits thereto.

 

7.10           Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to the Purchaser, upon any breach or default of the Company under the Loan Documents shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchaser, shall be cumulative and not alternative.

 

13

 

7.11           Entire Agreement.   This Agreement and the documents executed concurrently herewith contain the entire understanding between each Loan Party and the Purchaser and supersede all prior agreements and understandings, if any, relating to the subject matter hereof.  Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing, signed by each Loan Party’s and the Purchaser’s respective officers.  Neither this Agreement nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged.  Each Loan Party acknowledges that it has been advised by counsel in connection with the execution of this Agreement and other Loan Documents and is not relying upon oral representations or statements inconsistent with the terms and provisions of this Agreement.

 

[ Signature Pages Follow ]

 

14

 

In Witness Whereof , the parties have executed this Secured Convertible Promissory Note Purchase Agreement as of the date first written above.

 

COMPANY:

 

INSPRO TECHNOLOGIES CORPORATION

 

By: /s/ Anthony R. Verdi

Name: Anthony R. Verdi

Title: Chief Financial Officer

 

INSPRO:

 

INSPRO TECHNOLOGIES, LLC

 

By: /s/ Anthony R. Verdi

Name: Anthony R. Verdi

Title: Chief Financial Officer

 

 

In Witness Whereof , the parties have executed this Secured Convertible   Promissory Note Purchase Agreement as of the date first written above.

 

PURCHASER:

 

THE CO-INVESTMENT FUND II, L.P.

 

By:  Co-Invest Management II, L.P., its General Partner

 

By:  Co-Invest II Capital Partners, Inc., its General Partner

 

By: /s/ Brian Adamsky

Name:  Brian Adamsky

Title:    CFO & Treasurer

 

 

---

Exhibit 10.2

 

THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

$1,000,000	January 30, 2015
	Radnor, Pennsylvania

 

For value received, the undersigned, InsPro Technologies Corporation, a Delaware Corporation (the “ Company ”), and InsPro Technologies, LLC, a Delaware limited liability company (“ InsPro ” and collectively with the Company, the “ Makers ”, and individually, each a “ Maker ”), hereby promise to pay to The Co-Investment Fund II, L.P. or its successors and assigns (hereafter referred to as “ Holder ”) the principal sum of One Million Dollars ($1,000,000) in lawful money of the United States of America together with accrued and unpaid interest thereon, each due and payable on the date and in the manner set forth below.

 

This secured convertible promissory note (the “ Note ”) is issued pursuant to the terms of that certain Secured Convertible Promissory Note Purchase Agreement (as may be amended from time to time, the “ Agreement ”) of even date herewith to the Holder.  Capitalized terms used herein without definition shall have the meanings given to such terms in the Agreement.

 

1.               Repayment.   All payments of interest and principal shall be in lawful money of the United States of America and shall be made pro rata among all Holders.  All payments shall be applied first to accrued interest, and thereafter to principal.  The outstanding principal amount of the Loan shall be due and payable on June 30, 2016 (the “ Maturity Date ”).

 

2.               Interest Rate.   The Makers promise to pay simple interest on the outstanding principal amount hereof from the date hereof until payment in full, which interest shall accrue on an annual basis at the rate of 8% per annum or the maximum rate permissible by law, whichever is less.  Interest shall be due and payable on the Maturity Date and shall be calculated on the basis of 365 or 366 days, as the case may be, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable.

 

3.             Conversion.

 

(a)            In the event that the Company issues and sells shares of its Equity Securities to investors (the “ Investors ”) on or before the date of the repayment in full of this Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000 (excluding the conversion of the Note and other debt) (a “ Qualified Financing ”), then the outstanding principal balance of this Note shall automatically convert in whole without any further action by the Holder into such Equity Securities at a conversion price equal to the price per share paid by the Investors for such Equity Securities issued in the Qualified Financing.  Any unpaid accrued interest on this Note shall be converted into Equity Securities on the same terms as the principal of this Note.

 

 

(b)            If the conversion of the Note would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of one share of the class and series of capital stock into which this Note has converted by such fraction.

 

(c)             Notwithstanding any provision of this Note to the contrary, if the Company consummates a Sale of the Company (as defined below) prior to the conversion or repayment in full of this Note, then the Company will give the Holder at least five days prior written notice of the anticipated closing date of such Sale of the Company, and immediately prior to the closing of such Sale of the Company, the Company shall repay the entire outstanding principal balance and all unpaid accrued interest under this Note upon the closing of such Sale of the Company.

 

(d)            For purposes of this Note:

 

(i)            “ Equity Securities ” shall mean the Company’s capital stock or any securities conferring the right to purchase the Company’s capital stock or securities convertible into, or exchangeable for (with or without additional consideration), the Company’s capital stock, except that such defined term shall not include any security granted, issued and/or sold by the Company to any employee, director or consultant in such capacity.

 

(ii)            “ Sale of the Company ” shall mean (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, continue to hold at least a majority of the voting power of the surviving entity in substantially the same proportions (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization; (ii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred; provided , however , that a Sale of the Company shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof; or (iii) a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company.

 

4.               Maturity.   Unless this Note has been previously converted or satisfied in accordance with the terms of Sections 3(a) through 3(c) above, the entire outstanding principal balance and all unpaid accrued interest shall become fully due and payable on the Maturity Date.

 

2

 

5.               Expenses.   In the event of any default hereunder, the Makers shall pay all reasonable attorneys’ fees and court costs incurred by Holder in enforcing and collecting this Note.

 

6.               Prepayment.   The Makers may prepay this Note at any time in whole or in part without payment of penalty or unearned interest; provided, however, that any such prepayment of principal shall be accompanied by the payment of interest accrued to the date of such prepayment and all costs, expenses or charges then owed to Holder pursuant to this Note.

 

7.               Default.   If there shall be any Event of Default hereunder, at the option and upon the declaration of the Requisite Holders and upon written notice to the Makers (which election and notice shall not be required in the case of an Event of Default under Section 7(c) or 7(d)), this Note shall accelerate and all principal and unpaid accrued interest shall become due and payable. The occurrence of any one or more of the following shall constitute an “ Event of Default ”:

 

(a)            The Makers fail to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable;

 

(b)            The Makers shall breach in any material respect (or otherwise fail to perform in any material respect) any covenant under any Loan Document, and such breach or nonperformance shall not have been cured within five (5) business days following receipt of written notice from the Holder (provided, however, that if the breach or nonperformance cannot by its nature be cured within the five (5) business day period or cannot after diligent attempts by the Company be cured within such five (5) business day period, and such breach or nonperformance is likely to be cured within a reasonable time, then the Makers shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such breach or nonperformance, so long as the Makers continues to diligently attempt to cure such breach or nonperformance);

 

(c)            A Maker files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing; or

 

(d)            An involuntary petition is filed against a Maker (unless such petition is dismissed or discharged within 60 days under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of a Maker.

 

8.               Security Agreement .  The Notes are being secured by a security interest in certain collateral of the Makers, which security interest is being granted by the Makers to the holders of the Notes pursuant to the terms of a certain Security Agreement dated as of the date hereof.

 

3

 

9.               Waiver.   The Makers hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.

 

10.            Governing Law.   This Note shall be governed by and construed under the laws of the Commonwealth of Pennsylvania, as applied to agreements among Pennsylvania residents, made and to be performed entirely within the Commonwealth of Pennsylvania, without giving effect to conflicts of laws principles.

 

11.            Modification; Waiver.   Any term of this Note may be amended or waived in accordance with the terms set forth in the Agreement.

 

12.            Notices .  All notices or other communications to be given hereunder shall be in writing and shall be given in accordance with the provisions of Section 7.5 of the Agreement by the sender.

 

13.            Waiver of Trial by Jury .   THE UNDERSIGNED HEREBY EXPRESSLY, KNOWINGLY AND VOLUNTARILY WAIVE ALL BENEFIT AND ADVANTAGE OF ANY RIGHT TO A TRIAL BY JURY, AND EACH OF THE UNDERSIGNED WILL NOT AT ANY TIME INSIST UPON, OR PLEAD OR IN ANY MANNER WHATSOEVER CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF A TRIAL BY JURY IN ANY ACTION ARISING IN CONNECTION WITH THIS NOTE, THE LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

 

14.            Assignment.   This Note may be transferred only upon its surrender to the Company for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Company.  Thereupon, this Note shall be reissued to, and registered in the name of, the transferee, or a new Note for like principal amount and interest shall be issued to, and registered in the name of, the transferee. Interest and principal shall be paid solely to the registered holder of this Note.  Such payment shall constitute full discharge of the Company’s obligation to pay such interest and principal.

 

[Signature Page Follows]

 

4

WITNESS the due execution of this Note, intending to be legally bound, on the day and year written above.

---

Exhibit 10.3

 

SECURITY AGREEMENT

This Security Agreement (this “ Agreement ”) dated as of January 30, 2015, by and among InsPro Technologies Corporation, a Delaware corporation (the “ Company ”) and InsPro Technologies, LLC, a Delaware limited liability company (“ InsPro ” and collectively with the Company, the “ Borrowers ”) and The Co-Investment Fund II, L.P., a Delaware limited partnership (the “ Secured Party ”).  Capitalized terms not defined herein shall have the meaning set forth in the Purchase Agreement (as defined below).

 

RECITALS:

 

The Borrowers have issued and delivered to Secured Party a Note (as defined in the Purchase Agreement) dated on or prior to the date of this Agreement.  Pursuant to the Purchase Agreement and the Note, the Borrowers have agreed to grant a security interest in and to the Collateral (as defined in this Agreement) on the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, for and in consideration of the Debt (as defined in this Agreement), and intending to be legally bound, the parties covenant and agree as follows:

 

1.              Definitions .  In addition to the words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, unless the context otherwise clearly requires:

 

“ Accounts ” shall have the meaning given to that term in the Code and shall include without limitation all rights of the Borrowers, whenever acquired, to payment for goods sold or leased or for services rendered, whether or not earned by performance.

“ Chattel Paper ” shall have the meaning given to that term in the Code and shall include without limitation all writings owned by the Borrowers, whenever acquired, which evidence both a monetary obligation and a security interest in or a lease of specific goods.

“ Code ” shall mean the Uniform Commercial Code as in effect on the date of this Agreement and as amended from time to time, of the state or states having jurisdiction with respect to all or any portion of the Collateral from time to time.

“ Collateral ” shall mean collectively all goods, Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Instruments, Inventory, and all other personal property and Proceeds of each of the foregoing, whether now owned or hereafter acquired, wherever located; provided that, notwithstanding anything to the contrary contained herein, “Collateral” shall not shall not be deemed to include any copyrights (including computer programs, blueprints and drawings), copyright applications, copyright registration and like protection in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; any design rights; any patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, trademarks, servicemarks and applications therefor, whether registered or not, except that the Collateral shall include all accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing.

 

 

“ Debt ” shall mean (i) all indebtedness, both principal and interest, of the Borrowers to the Secured Party now or after the date of this Agreement evidenced by the Note, (ii) all other debts, liabilities, duties and obligations of the Borrowers to the Secured Party now existing or after the date of this Agreement contracted, incurred, or arising in connection with the Loan Documents, and (iii) all costs and expenses incurred by the Secured Party in the collection of any of the indebtedness described in this paragraph or in connection with the enforcement of any of the duties and obligations of the Borrowers to the Secured Party described in this paragraph, including reasonable attorneys’ fees and expenses, and (iv) all future advances made by the Secured Party for the reasonable maintenance, protection, preservation or enforcement of, or realization upon, the Collateral or any portion of the Collateral, including advances for storage, transportation charges, taxes, insurance, repairs and the like.

“ Documents ” shall have the meaning given to that term in the Code and shall include without limitation all warehouse receipts (as defined by the Code) and other documents of title (as defined by the Code) owned by the Borrowers, whenever acquired.

“ Equipment ” shall have the meaning given to that term in the Code and shall include without limitation all goods owned by the Borrowers, whenever acquired and wherever located, used or brought for use primarily in the business or for the benefit of the Borrower and not included in Inventory of the Borrowers, together with all attachments, accessories and parts used or intended to be used with any of those goods or Fixtures, whether now or in the future installed therein or thereon or affixed thereto, as well as all substitutes and replacements thereof in whole or in part.

“ Event of Default ” shall have the meaning given to that term in the Note.  For the avoidance of doubt, if a specific event, matter or circumstance does not become an Event of Default until the passage of time and/or giving of notice, it shall not be considered an Event of Default for purposes of this Agreement until such giving of notice and/or passage of time.

“ Fixtures ” shall have the meaning given to that term in the Code, and shall include without limitation leasehold improvements.

“ General Intangibles ” shall have the meaning given to that term in the Code and shall include, without limitation, all leases under which the Borrowers now or in the future leases and or obtains a right to occupy or use real or personal property, or both, all membership interests in limited liability companies, all of the other contract rights of the Borrowers, whenever acquired, and customer lists, choses in action, claims (including claims for indemnification), books, records, patents and patent applications, copyrights and copyright applications, trademarks, trade names, trade styles, trademark applications, moral rights, blueprints, drawings, designs and plans, trade secrets, methods, processes and any other intellectual property rights, contracts, licenses, license agreements, formulae, tax and any other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer information, software, domain names, URL’s, web pages, records and data, now owned or acquired after the date of this Agreement by the Borrowers.

 

2

 

“ Instrument ” shall have the meaning given to that term in the Code and shall include, without limitation, all negotiable instruments (as defined in the Code), all certificated securities (as defined in the Code) and all other writings which evidence a right to the payment of money now or after the date of this Agreement owned by the Borrowers.

“ Inventory ” shall have the meaning given to that term in the Code and shall include without limitation all goods owned by the Borrowers, whenever acquired and wherever located, held for sale or lease or furnished or to be furnished under contracts of service, and all raw materials, work in process and materials owned by the Borrowers and used or consumed in the Borrowers’ business, whenever acquired and wherever located.

“ Loan Documents ” shall mean collectively, this Agreement, the Note, and the Purchase Agreement, each of even date herewith among the Borrowers and the Secured Party and all other agreements, documents and instruments executed and delivered in connection herewith or therewith, as each may be amended, supplemented or modified from time to time.

“ Note ” shall mean the Secured Convertible Promissory Note executed and delivered by the Borrowers in connection with the Purchase Agreement.

“ Permitted Lien ” shall have the meaning assigned to such term in the Purchase Agreement.

“ Proceeds ” shall have the meaning given to that term in the Code and shall include without limitation whatever is received when Collateral or Proceeds is sold, exchanged, collected or otherwise disposed of, whether cash or non-cash, and includes without limitation proceeds of insurance payable by reason of loss of or damage to Collateral.

“ Purchase   Agreement ” shall mean that certain Secured Convertible Promissory Note Purchase Agreement dated the date hereof among the Borrowers and the Secured Party.

2.              Security Interest .  As security for the full and timely performance and payment of the Debt in accordance with the terms of the Debt including the performance of the obligations of the Borrowers under the Note and this Agreement, the Borrowers agree that the Secured Party shall have, and the Borrowers grant to and create in favor of the Secured Party, a security interest under the Code in and to such of the Collateral as is now owned or acquired after the date of this Agreement by the Borrowers.

 

3

 

3.              Rights and Remedies of a Secured Party .  In addition to all rights and remedies given to the Secured Party by this Agreement, the Note and the other Loan Documents, the Secured Party shall have all the rights and remedies of a secured party under the Code.

 

4.              Provisions Applicable to the Collateral .  The parties agree that the following provisions shall be applicable to the Collateral:

 

(a)           The Borrowers covenant and agree that at all times during the term of this Agreement it shall keep accurate and complete books and records concerning the Collateral that is now owned or acquired after the date of this Agreement by the Borrowers at its principal place of business at 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087 and at no other location without the prior written consent of the Secured Party.

 

(b)           The Secured Party and its representatives shall have the right at all times during regular business hours of the Borrowers, with prior notice, to examine and inspect the Collateral and to review the books and records of the Borrowers concerning the Collateral that is now owned or acquired after the date of this Agreement by the Borrowers and to copy the same and make excerpts therefrom; provided, however, that from and after the occurrence of an Event of Default, the rights of inspection and entry shall be subject to the requirements of the Code.

 

(c)           Except as otherwise agreed by the Secured Party, the Borrowers shall at all times during the term of this Agreement keep the Equipment, Inventory and Fixtures that are now owned or acquired after the date of this Agreement by the Borrowers at its principal place of business at 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087, except to the extent any such Collateral is intended to be portable and not fixed to any particular location (such as portable computers, cellular phones, and other similar property), Inventory and Equipment is located at the facilities of third-party contractors and assemblers or, upon written notice to the Secured Party, at such other locations for which the Secured Party has filed financing statements, and at no other location without prior written notice to the Secured Party, except that the Borrowers shall have the right until one or more Events of Default shall occur to sell or otherwise dispose of Inventory in the ordinary course of business.

 

(d)           Except as otherwise agreed by the Secured Party, the Borrowers shall not move the location of its chief executive offices without prior written notification to the Secured Party, and shall not change its jurisdiction of formation without the prior written consent of the Secured Party.

 

(e)           Without the prior written consent of the Secured Party, such consent not to be unreasonably withheld, the Borrowers shall not sell, lease or otherwise dispose of any Equipment or Fixtures, except Equipment or Fixtures reasonably deemed by the Borrowers to be no longer material to or useful in the conduct of its business or Equipment leased to third parties in the ordinary course of Borrowers’ business.

 

4

 

(f)           Promptly upon request of the Secured Party, from time to time, the Borrowers shall furnish the Secured Party with such information and documents regarding the Collateral and the Borrowers’ financial condition, business, assets or liabilities, at such times and in such form and detail as the Secured Party may reasonably request.

 

(g)           Promptly upon request of the Secured Party, from time to time, the Borrowers shall deliver to the Secured Party all documentation reasonably requested by the Secured Party including, without limitation, (i) all invoices and customer statements rendered to account debtors, documents, contracts, chattel paper, instruments and other writings pertaining to the Borrowers’ contracts or the performance of the Borrowers’ contracts, (ii) evidence of the Borrowers’ accounts and statements showing the aging, identification, reconciliation and collection thereof and (iii) reports as to the Borrowers’ inventory and sales, shipment, damage or loss thereof, all of the foregoing to be certified by authorized officers or other employees of the Borrowers.

 

(h)           Notwithstanding the security interest in the Collateral granted to and created in favor of the Secured Party under this Agreement, the Borrowers shall have the right until one or more Events of Default shall occur, at their own cost and expense, to collect the Accounts and the Chattel Paper and to enforce their contract rights generally.

 

(i)           After the occurrence of an Event of Default, the Secured Party shall have the right, in its sole discretion, to give notice of the Secured Party’s security interest to account debtors obligated to the Borrowers and to take over and direct collection of the Accounts and the Chattel Paper, to notify such account debtors to make payment directly to the Secured Party and to enforce payment of the Accounts and the Chattel Paper and to enforce the Borrowers’ contract rights.  It is understood and agreed by the Borrowers that the Secured Party shall have no liability whatsoever under this Agreement except for its own gross negligence or willful misconduct.

 

(j)           After the occurrence of an Event of Default, the Secured Party shall cause to be opened and maintained a noninterest bearing deposit account (the “ Cash Collateral Account ” ) and after delivery of notice to the Borrowers by the Secured Party, deposit, and require the Borrowers to deposit, therein all cash proceeds of Collateral.  All cash proceeds of the Collateral received directly by the Borrowers shall be held by the Borrowers in trust for the benefit of the Secured Party, shall be segregated from all other funds of the Borrowers and shall, within one business day after receipt, be paid over to the Secured Party in the same form as so received (with any necessary endorsement or assignment) for deposit in the Cash Collateral Account.  The Secured Party shall have sole dominion and control over all items and funds in the Cash Collateral Account and such items and funds may be withdrawn only by the Secured Party, it being the intention of the parties to this Agreement that the Borrowers shall have no control over or withdrawal rights in respect of the Cash Collateral Account.  The Secured Party, in accordance with the Purchase Agreement, may, in its discretion, release to the Borrowers from time to time all or any part of the collected funds deposited in the Cash Collateral Account but the Secured Party shall have the right at any time to apply all or any part of the collected funds on deposit in the Cash Collateral Account to the payment of the Debt, whether on account of principal or interest or otherwise as the Secured Party in its discretion and in good faith may elect, until the Debt is fully paid.

 

5

 

(k)          After the occurrence of an Event of Default and delivery of a written request, the Borrowers shall promptly deliver to the Secured Party all existing leases, and all other leases entered into by the Borrowers from time to time, covering any Equipment or Inventory (“ Leased Inventory ”) which is leased to third parties and will take such action as is necessary to perfect the Secured Party’s security interest in Leased Inventory.

 

(l)           The Borrowers which are limited liability companies shall not issue certificates evidencing the membership interests in such Borrowers.

 

5.              Secured Party’s Actions with Respect to Accounts .  The Borrowers irrevocably make, constitute and appoint the Secured Party its true and lawful attorney-in-fact with power to sign the Borrowers’ name and to take any of the following actions after the occurrence of an Event of Default, such actions only to be taken during the continuance of an Event of Default, in Secured Party’s name, as Secured Party may determine, at any time without notice to the Borrowers and at the Borrowers’ expense:

 

(a)          Verify the validity and amount of, or any other matter relating to, the Collateral by mail, telephone, telegraph or otherwise;

 

(b)          Notify all account debtors that the Accounts have been assigned to the Secured Party and that the Secured Party has a security interest in the Accounts;

 

(c)          Direct all account debtors to make payment of all Accounts directly to the Secured Party;

 

(d)          Take control in any manner of any cash or non-cash items of payment or proceeds of Accounts;

 

(e)          Notify the United States Postal Service to change the address for delivery of mail addressed to the Borrowers to such address as the Secured Party may designate;

 

(f)          Receive, open and dispose of all mail addressed to the Borrowers (any sums received pursuant to the exercise of the rights provided in this Agreement shall be deposited in the Cash Collateral Account);

 

(g)          Take control in any manner of any rejected, returned, stopped in transit or repossessed goods relating to Accounts;

 

(h)          Enforce payment of and collect any Accounts, by legal proceedings or otherwise, and for such purpose the Secured Party may:

 

(1)  Demand payment of any Accounts or direct any account debtors to make payment of Accounts directly to the Secured Party;

(2)  Receive and collect all monies due or to become due to the Borrowers;

 

6

 

(3)    Exercise all of the Borrowers’ rights and remedies with respect to the collection of Accounts;

(4)    Settle, adjust, compromise, extend, renew, discharge or release Accounts;

(5)    Sell or assign Accounts on such terms, for such amount and at such times as the Secured Party deems advisable;

(6)    Prepare, file and sign the Borrowers’ name or names on any Proof of Claim or similar documents in any proceeding filed under federal or state bankruptcy, insolvency, reorganization or other similar law as to any account debtor;

(7)    Prepare, file and sign the Borrowers’ name or names on any notice of lien, claim of mechanic’s lien, assignment or satisfaction of lien or mechanic’s lien or similar document in connection with the Collateral;

(8)    Endorse the name of the Borrowers upon any chattel papers, documents, instruments, invoices, freight bills, bills of lading or similar documents or agreements relating to Accounts or goods pertaining to Accounts or upon any checks or other media of payment or evidence of a security interest that may come into the Secured Party’s possession;

(9)    Sign the name of the Borrowers to verifications of Accounts and notices of Accounts sent by account debtors to the Borrowers; or

(10)  Take all other actions necessary or desirable to protect the Borrowers’ interest in the Accounts.

(i)           Negotiate and endorse any Document in favor of the Secured Party or its designees, covering Inventory including the Leased Inventory, which constitutes Collateral, and related documents for the purpose of carrying out the provisions of this Agreement and taking any action and executing in the name of Borrowers any instrument which the Secured Party may deem necessary or advisable to accomplish the purpose hereof.  Without limiting the generality of the foregoing, the Secured Party shall have the right and power to receive, endorse and collect checks and other orders for the payment of money made payable to the Borrowers representing any payment or reimbursement made under, pursuant to or with respect to, the Collateral or any part thereof and to give full discharge to the same.

 

The Borrowers ratify and approve all acts of said attorney and agrees that said attorney shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, except for said attorney’s own gross negligence or willful misconduct.  This power, being coupled with an interest, is irrevocable until the Debt is paid in full and the Borrowers shall have performed all of its obligations under this Agreement.  The Borrowers further agree to use their commercially reasonable efforts to assist the Secured Party in the collection and enforcement of the Accounts and will not hinder, delay or impede the Secured Party in any manner in its collection and enforcement of the Accounts.

 

7

 

Anything herein to the contrary notwithstanding, (a) the Borrowers shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of their duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Secured Party of any of the rights hereunder shall not release the Borrowers from any of their duties or obligations under the contracts and agreements included in the Collateral, and (c) the Secured Party shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Secured Party be obligated to perform any of the obligations or duties of the Borrowers thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

 

6.            Preservation and Protection of Security Interest .  The Borrowers shall faithfully preserve and protect the Secured Party’s security interest in the Collateral and shall, at its own cost and expense, cause, or assist the Secured Party to cause that security interest to be perfected and continue perfected so long as the Debt or any portion of the Debt is outstanding, unpaid or executory.  For purposes of the perfection of the Secured Party’s security interest in the Collateral in accordance with the requirements of this Agreement, the Borrowers shall from time to time at the reasonable request of the Secured Party file or record, or cause to be filed or recorded, such instruments, documents and notices, including assignments, financing statements and continuation statements, as the Secured Party may deem necessary or advisable from time to time in order to perfect and continue perfected such security interest.  The Borrowers irrevocably appoint the Secured Party as the attorney-in-fact of the Borrowers to do all acts and things which the Secured Party may reasonably deem necessary or advisable from time to time to preserve, perfect and continue perfected the Secured Party’s security interest in the Collateral in accordance with the requirements of this Agreement, including, but not limited to, signing any financing statements or amendments to financing statements evidencing the Secured Party’s security interest in the Collateral for and on behalf of the Borrowers.  The Borrowers agree that a carbon, photographic or other reproduction of this Agreement or a financing statement is sufficient as a financing statement and may be filed instead of the original.

 

7.            Insurance .  Risk of loss of, damage to or destruction of the Equipment, Inventory and Fixtures is on the Borrowers.  The Borrowers shall insure the Equipment, Inventory and Fixtures against such risks and casualties and in such amounts and with such insurance companies in accordance with its past practices.  At the request of the Secured Party, copies of all such policies, or certificates evidencing the same, shall be deposited with the Secured Party.  If the Borrowers fail to effect and keep in full force and effect such insurance or fail to pay the premiums when due, the Secured Party may (but shall not be obligated to) do so for the account of the Borrowers and add the cost thereof to the Debt.  After the occurrence of an Event of Default, the Borrowers shall assign and set over to the Secured Party all monies which may become payable on account of such insurance and shall direct the insurers to pay the Secured Party any amount so due.  In such event, the Secured Party is irrevocably appointed attorney-in-fact of the Borrowers to endorse any draft or check which may be payable to the Borrowers in order to collect the proceeds of such insurance.  The Borrowers shall apply such proceeds either (i) to the repair of damaged Equipment, Inventory or Fixtures, or (ii) to the replacement of destroyed Equipment, Inventory or Fixtures with Equipment, Inventory or Fixtures of the same or similar type and function and of at least equivalent value, provided such replacement Equipment, Fixtures or Inventory is made subject to the security interest created by this Agreement and constitutes a  security interest in the Equipment, Inventory and Fixtures subject only to security interests permitted under this Agreement, and is perfected by the filing of financing statements in the appropriate public offices and the taking of such other action as may be necessary or desirable in order to perfect and continue perfected such security interest.  In the event that there is any balance of insurance proceeds remaining in the possession of the Secured Party after payment in full of the Debt, such balance shall be paid over to the Borrowers or their order.

 

8

 

8.              Maintenance and Repair .  The Borrowers shall maintain the Equipment, Inventory and Fixtures, and every portion thereof, in good condition, repair and working order, reasonable wear and tear alone excepted, and shall pay and discharge all taxes, levies and other impositions assessed or levied thereon as well as the cost of repairs to or maintenance of the same.  If the Borrowers fail to do so, the Secured Party may (but shall not be obligated to) pay the cost of such repairs or maintenance and such taxes, levies or impositions for the account of the Borrowers and add the amount of such payments to the Debt.

 

9.              Preservation of Rights Against Third Parties; Preservation of Collateral in Secured Party’s Possession .  Until such time as the Secured Party exercises its right to effect direct collection of the Accounts and the Chattel Paper and to effect the enforcement of the Borrowers’ contract rights, the Borrowers assume full responsibility for taking any and all steps to preserve rights in respect of the Accounts and the Chattel Paper and its contracts against prior parties.  The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of such of the Collateral as may come into its possession from time to time if the Secured Party takes such action for that purpose as the Borrowers shall request in writing, provided that such requested action shall not, in the judgment of the Secured Party, impair the Secured Party’s security interest in the Collateral or its right in, or the value of, the Collateral, and provided further that the Secured Party receives such written request in sufficient time to permit the Secured Party to take the requested action.

 

10.            Events of Default and Remedies .

 

(a)           If any one or more of the Events of Default shall occur or shall exist, the Secured Party may then, or at any time thereafter, so long as such default shall continue, foreclose the Secured Party’s lien or security interest in the Collateral in any way permitted by law, or upon ten (10) days prior written notice to the Borrowers, sell any or all Collateral at private sale at any time or place in one or more sales, at such price or prices and upon such terms, either for cash or on credit, as the Secured Party, in its sole discretion, may elect, or sell any or all Collateral at public auction, either for cash or on credit, as the Secured Party, in its sole discretion, may elect, and at any such sale, the Secured Party may bid for and become the Secured Party of any or all such Collateral.  Pending any such action the Secured Party may liquidate the Collateral.

 

9

 

(b)           If any one or more of the Events of Default shall occur or shall exist, the Secured Party may then, or at any time thereafter, so long as such default shall continue, grant extensions to, or adjust claims of, or make compromises or settlements with, debtors, guarantors or any other parties with respect to Collateral or any securities, guarantees or insurance applying thereon, without notice to or the consent of the Borrowers, without affecting the Borrowers’ liability under this Agreement or the Note.  The Borrowers waive notice of acceptance, of nonpayment, protest or notice of protest of any Accounts or Chattel Paper or any of their contract rights and any other notices to which the Borrowers may be entitled.

 

(c)           If any one or more of the Events of Default shall occur or shall exist and be continuing, then in any such event, the Secured Party shall have such additional rights and remedies in respect of the Collateral or any portion thereof as are provided by the Code and such other rights and remedies in respect thereof which it may have at law or in equity or under this Agreement, including without limitation the right to enter any premises where Equipment, Inventory and/or Fixtures are located and take possession and control thereof without demand or notice and without prior judicial hearing or legal proceedings, which the Borrowers expressly waive.

 

(d)           The Secured Party shall apply the Proceeds of any sale or liquidation of the Collateral, and, subject to Section 7, any Proceeds received by the Secured Party from insurance, first to the payment of the reasonable costs and expenses incurred by the Secured Party in connection with such sale or collection, including without limitation reasonable attorneys’ fees and legal expenses, second to the payment of the Debt, whether on account of principal or interest or otherwise as the Secured Party in its sole discretion may elect, and then to pay the balance, if any, to the Borrowers or as otherwise required by law.  If such Proceeds are insufficient to pay the amounts required by law, the Borrowers shall be liable for any deficiency.

 

(e)           Upon the occurrence of any Event of Default and delivery of a written request, the Borrowers shall promptly upon demand by the Secured Party assemble the Equipment, Inventory and Fixtures and make them available to the Secured Party at a place or places to be designated by the Secured Party.  The rights of the Secured Party under this paragraph to have the Equipment, Inventory and Fixtures assembled and made available to it is of the essence of this Agreement and the Secured Party may, at their election, enforce such right by an action in equity for injunctive relief or specific performance.

 

(f)           If any one or more of the Events of Default shall occur or shall exist and be continuing, then in any event, the Secured Party have the right to use and operate under all trade names under which the Borrowers do business.

 

11.          Defeasance .  Notwithstanding anything to the contrary contained in this Agreement upon payment and performance in full of the Debt owed to the Secured Party, this Agreement shall terminate and be of no further force and effect as to the Secured Party, and the Secured Party shall thereupon terminate its security interest in the Collateral.  Upon such termination, the Secured Party hereby authorizes the Borrowers to file any UCC termination statements necessary to reflect such termination and Secured Party will execute and deliver to the Borrowers any additional documents or instruments as Borrowers shall reasonably request to evidence such termination.  Until such time, however, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns, provided that, without the prior written consent of the Secured Party, the Borrowers may not assign this Agreement or any of its rights under this Agreement or delegate any of their duties or obligations under this Agreement and any such attempted assignment or delegation shall be null and void.  This Agreement is not intended and shall not be construed to obligate the Secured Party to take any action whatsoever with respect to the Collateral or to incur expenses or perform or discharge any obligation, duty or disability of the Borrowers.

 

10

 

12.            Miscellaneous .

 

(a)           The provisions of this Agreement are intended to be severable.  If any provision of this Agreement shall for any reason be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or any other provision of this Agreement in any jurisdiction.

 

(b)           No failure or delay on the part of the Secured Party in exercising any right, remedy, power or privilege under this Agreement and the Note shall operate as a waiver thereof or of any other right, remedy, power or privilege of the Secured Party under this Agreement, the Note or any of the other Loan Documents; nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other right, remedy, power or privilege or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges of the Secured Party under this Agreement, the Note and the other Loan Documents are cumulative and not exclusive of any rights or remedies which it may otherwise have.

 

(c)           All notices, statements, requests and demands given to or made upon either party in accordance with the provisions of this Agreement shall be deemed to have been given or made when given in accordance with Section 7.5 of the Purchase Agreement.

 

(d)           The section headings contained in this Agreement are for reference purposes only and shall not control or affect its construction or interpretation in any respect.

 

(e)           Unless the context otherwise requires, all terms used in this Agreement which are defined by the Code shall have the meanings stated in the Code.

 

(f)           The Code shall govern the settlement, perfection and the effect of attachment and perfection of the Secured Party’s security interest in the Collateral, and the rights, duties and obligations of the Secured Party and the Borrowers with respect to the Collateral.  This Agreement shall be deemed to be a contract under the laws of the Commonwealth of Pennsylvania and the execution and delivery of this Agreement and, to the extent not inconsistent with the preceding sentence, the terms and provisions of this Agreement shall be governed by and construed in accordance with the laws of that Commonwealth.

 

11

 

(g)           No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Borrowers herefrom, shall in any event be effective unless the same shall be in writing and signed by the Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given..

 

(h)           This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that the Borrowers may not assign the Agreement or any rights or duties hereunder without the Secured Party’s prior written consent and any prohibited assignment shall be absolutely void.  The Secured Party may assign this Agreement and its rights and duties hereunder to another Secured Party or to a transferee of the Note, and no consent or approval by the Borrowers is required in connection with any such assignment.

 

(i)           This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or email shall be equally as effective as delivery of a manually executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or email also shall deliver a manually executed counterpart of this Agreement but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.

 

(j)           The Borrowers shall pay to the Secured Party reasonable costs and expenses (including reasonable attorneys’ fees and disbursements) paid or incurred to enforce the security interest created hereunder, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of this Agreement, or to defend any claims made or threatened against the Secured Party arising out of the transactions contemplated hereby (including preparations for the consultations concerning any such matters).  The foregoing shall not be construed to limit any other provisions of this Agreement or the Loan Documents regarding costs and expenses to be paid by the Borrowers.

 

[Signature Pages Follow]

 

12

 

IN WITNESS WHEREOF, and intending to be legally bound, the parties have executed and delivered this Security Agreement as of the day and year set forth at the beginning of this Security Agreement.

 

 

 

Exhibit 10.4

 

SUBORDINATION AGREEMENT

 

This Subordination Agreement (the “Agreement”) is made as of January 30, 2015, by and among (a) THE CO-INVESTMENT FUND II, L.P. , a Delaware limited partnership, with its principal place of business at 150 N. Radnor-Chester Road, Suite B-101, Radnor, PA 19087 (“Creditor”) and (b) SILICON VALLEY BANK , a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 (“Bank”).

 

Recitals

 

A.            INSPRO TECHNOLOGIES CORPORATION , a Delaware corporation, INSPRO TECHNOLOGIES, LLC , a Delaware limited liability company, and ATIAM TECHNOLOGIES L.P. , a Delaware limited partnership (jointly, severally, individually and collectively, the “Borrower”), have requested and/or obtained certain loans or other credit accommodations from Bank which are or may be from time to time secured by assets and property of Borrower.

 

B.           Creditor has extended loans or other credit accommodations to Borrower, and/or may extend loans or other credit accommodations to Borrower from time to time.

 

C.           To induce Bank to extend credit to Borrower and, at any time or from time to time, at Bank’s option, to make such further loans, extensions of credit, or other accommodations to or for the account of Borrower, or to purchase or extend credit upon any instrument or writing in respect of which Borrower may be liable in any capacity, or to grant such renewals or extension of any such loan, extension of credit, purchase, or other accommodation as Bank may deem advisable, Creditor is willing to subordinate:  (i) all of Borrower’s indebtedness and obligations to Creditor (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations), plus any dividends and/or distributions or other payments pursuant to call, put, or conversion features in connection with equity securities of Borrower issued to or held by Creditor, whether presently existing or arising in the future (the “Subordinated Debt”) to all of Borrower’s indebtedness and obligations to Bank; and (ii) all of Creditor’s security interests, if any, to all of Bank’s security interests in Borrower’s property.

 

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

 

1.            Creditor subordinates to Bank any security interest or lien that Creditor may have in any property of Borrower.  Notwithstanding the respective dates of attachment or perfection of the security interests of Creditor and the security interests of Bank, all now existing and hereafter arising security interests of Bank in any property of Borrower and all proceeds thereof (the “Collateral”), including, without limitation, the “Collateral”, as defined in a certain Amended and Restated Loan and Security Agreement between Borrower and Bank dated as of December 2, 2014 (as may be amended, modified, restated, replaced or supplemented from time to time, the “Loan Agreement”), shall at all times be senior to the security interests of Creditor.   Creditor hereby (a) acknowledges and consents to (i) Borrower granting to Bank a security interest in the Collateral, (ii) Bank filing any and all financing statements and other documents as deemed necessary by Bank in order to perfect Bank’s security interest in the Collateral, and (iii) the entering into of the Loan Agreement and all documents in connection therewith by Borrower, (b) acknowledges and agrees that the Senior Debt, the entering into of the Loan Agreement and all documents in connection therewith by Borrower, and the security interest granted by Borrower to Bank in the Collateral shall be permitted under the provisions of the Subordinated Debt documents (notwithstanding any provision of the Subordinated Debt documents to the contrary), (c) acknowledges, agrees and covenants that Creditor shall not contest, challenge or dispute the validity, attachment, perfection, priority or enforceability of Bank’s security interest in the Collateral, or the validity, priority or enforceability of the Senior Debt , and (d) acknowledges and agrees that the provisions of this Agreement will apply fully and unconditionally even in the event that Bank’s security interest in the Collateral (or any portion thereof) shall be unperfected.

 

2.           All Subordinated Debt is subordinated in right of payment to all obligations of Borrower to Bank now existing or hereafter arising, including, without limitation, the Obligations (as defined in the Loan Agreement), together with all costs of collecting such obligations (including attorneys’ fees), including, without limitation, all obligations under any agreement in connection with the provision by Bank to Borrower of products and/or credit services facilities, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services, all interest accruing after the commencement by or against Borrower of any bankruptcy, reorganization or similar proceeding (such obligations, collectively, the “Senior Debt”).

 

 

3.           Creditor will not demand or receive from Borrower (and Borrower will not pay to Creditor) all or any part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, nor will Creditor exercise any remedy with respect to any property of Borrower, nor will Creditor accelerate the Subordinated Debt, or commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against Borrower, until such time as (a) the Senior Debt has been fully paid in cash, (b) Bank has no commitment or obligation to lend any further funds to Borrower, and (c) all financing agreements between Bank and Borrower are terminated.  Nothing in the foregoing paragraph shall prohibit Creditor from converting all or any part of the Subordinated Debt into equity securities of Borrower, provided that, if such securities have any call, put or other conversion features that would obligate Borrower to declare or pay dividends, make distributions, or otherwise pay any money or deliver any other securities or consideration to the holder, Creditor hereby agrees that Borrower may not declare, pay or make such dividends, distributions or other payments to Creditor, and Creditor shall not accept any such dividends, distributions or other payments.

 

4.           Creditor shall promptly deliver to Bank in the form received (except for endorsement or assignment by Creditor where required by Bank) for application to the Senior Debt any payment, distribution, security or proceeds received by Creditor with respect to the Subordinated Debt other than in accordance with this Agreement.

 

5.           In the event of Borrower’s insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law or laws relating to the relief of debtors, including, without limitation, any voluntary or involuntary bankruptcy, insolvency, receivership or other similar statutory or common law proceeding or arrangement involving Borrower, the readjustment of its liabilities, any assignment for the benefit of its creditors or any marshalling of its assets or liabilities (each, an “Insolvency Proceeding”), (a) this Agreement shall remain in full force and effect in accordance with Section 510(a) of the United States Bankruptcy Code, (b) the Collateral shall include, without limitation, all Collateral arising during or after any such Insolvency Proceeding, and (c) Bank’s claims against Borrower and the estate of Borrower shall be paid in full before any payment is made to Creditor.

 

6.           Creditor shall give Bank prompt written notice of the occurrence of any default or event of default under any document, instrument or agreement evidencing or relating to the Subordinated Debt, and shall, simultaneously with giving any notice of default to Borrower, provide Bank with a copy of any notice of default given to Borrower.  Creditor acknowledges and agrees that any default or event of default under the Subordinated Debt documents shall be deemed to be a default and an event of default under the Senior Debt documents.

 

7.           Until the Senior Debt has been fully paid in cash and Bank’s agreements to lend any funds to Borrower have been terminated, Creditor irrevocably appoints Bank as Creditor’s attorney-in-fact, and grants to Bank a power of attorney with full power of substitution, in the name of Creditor or in the name of Bank, for the use and benefit of Bank, without notice to Creditor, to perform at Bank’s option the following acts in any Insolvency Proceeding involving Borrower:

 

a)

To file the appropriate claim or claims in respect of the Subordinated Debt on behalf of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file claims in such Insolvency Proceeding and if Bank elects, in its sole discretion, to file such claim or claims; and

 

b)

To accept or reject any plan of reorganization or arrangement on behalf of Creditor and to otherwise vote Creditor’s claims in respect of any Subordinated Debt in any manner that Bank deems appropriate for the enforcement of its rights hereunder.

 

2

In addition to and without limiting the foregoing: (x) until the Senior Debt has been fully paid in cash and Bank’s agreements to lend any funds to Borrower have been terminated , Creditor shall not commence or join in any involuntary bankruptcy petition or similar judicial proceeding against Borrower , and (y) if an Insolvency Proceeding occurs: (i) Creditor shall not assert, without the prior written consent of Bank, any claim, motion, objection or argument in respect of the Collateral in connection with any Insolvency Proceeding which could otherwise be asserted or raised in connection with such Insolvency Proceeding, including, without limitation, any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect of the Collateral, (ii) Bank may consent to the use of cash collateral on such terms and conditions and in such amounts as it shall in good faith determine without seeking or obtaining the consent of Creditor as (if applicable) holder of an interest in the Collateral, (iii) if use of cash collateral by Borrower is consented to by Bank, Creditor shall not oppose such use of cash collateral on the basis that Creditor’s interest in the Collateral (if any) is impaired by such use or inadequately protected by such use, or on any other ground, and (iv) Creditor shall not object to, or oppose, any sale or other disposition of any assets comprising all or part of the Collateral, free and clear of security interests, liens and claims of any party, including Creditor, under Section 363 of the United States Bankruptcy Code or otherwise, on the basis that the interest of Creditor in the Collateral (if any) is impaired by such sale or inadequately protected as a result of such sale, or on any other ground (and, if requested by Bank, Creditor shall affirmatively and promptly consent to such sale or disposition of such assets), if Bank has consented to, or supports, such sale or disposition of such assets.

 

8.           Creditor represents and warrants that Creditor has provided Bank with true and correct copies of all of the documents evidencing or relating to the Subordinated Debt.  Creditor shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement.  By the execution of this Agreement, Creditor hereby authorizes Bank to amend any financing statements filed by Creditor against Borrower as follows: “In accordance with a certain Subordination Agreement by and among the Secured Party, the Debtor and Silicon Valley Bank, the Secured Party has subordinated any security interest or lien that Secured Party may have in any property of the Debtor to the security interest of Silicon Valley Bank in all assets of the Debtor, notwithstanding the respective dates of attachment or perfection of the security interest of the Secured Party and Silicon Valley Bank.”

 

9.           No amendment of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt or the subordination of the security interest or lien that Creditor may have in any property of Borrower.  By way of example, such instruments shall not be amended to (a) increase the rate of interest with respect to the Subordinated Debt, or (b) accelerate the payment of the principal or interest or any other portion of the Subordinated Debt.  Bank shall have the sole and exclusive right to restrict or permit, or approve or disapprove, the sale, transfer or other disposition of property of Borrower except in accordance with the terms of the Senior Debt. Upon written notice from Bank to Creditor of Bank’s agreement to release its lien on all or any portion of the Collateral in connection with the sale, transfer or other disposition thereof by Bank (or by Borrower with consent of Bank),  Creditor shall be deemed to have also, automatically and simultaneously, released its lien on the Collateral, and Creditor shall upon written request by Bank, immediately take such action as shall be necessary or appropriate to evidence and confirm such release.  All proceeds resulting from any such sale, transfer or other disposition shall be applied first to the Senior Debt until payment in full thereof, with the balance, if any, to the Subordinated Debt, or to any other entitled party.  If Creditor fails to release its lien as required hereunder, Creditor hereby appoints Bank as attorney in fact for Creditor with full power of substitution to release Creditor’s liens as provided hereunder.  Such power of attorney being coupled with an interest shall be irrevocable.

 

10.          All necessary action on the part of Creditor, its officers, directors, partners, members and shareholders, as applicable, necessary for the authorization of this Agreement and the performance of all obligations of Creditor hereunder has been taken.  This Agreement constitutes the legal, valid and binding obligation of Creditor, enforceable against Creditor in accordance with its terms.  The execution, delivery and performance of and compliance with this Agreement by Creditor will not (a) result in any material violation or default of any term of any of Creditor’s charter, formation or other organizational documents (such as Articles or Certificate of Incorporation, bylaws, partnership agreement, operating agreement, etc.) or (b) violate any material applicable law, rule or regulation.

 

3

 

11.          If, at any time after payment in full of the Senior Debt any payments of the Senior Debt must be disgorged by Bank for any reason (including, without limitation, any Insolvency Proceeding), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made and Creditor shall immediately pay over to Bank all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited hereunder.  At any time and from time to time, without notice to Creditor, Bank may take such actions with respect to the Senior Debt as Bank, in its sole discretion, may deem appropriate, including, without limitation, terminating advances to Borrower, increasing the principal amount, extending the time of payment, increasing applicable interest rates, renewing, compromising or otherwise amending the terms of any documents affecting the Senior Debt and any collateral securing the Senior Debt, and enforcing or failing to enforce any rights against Borrower or any other person.  No such action or inaction shall impair or otherwise affect Bank’s rights hereunder.  Creditor waives the benefits, if any, of any statutory or common law rule that may permit a subordinating creditor to assert any defenses of a surety or guarantor, or that may give the subordinating creditor the right to require a senior creditor to marshal assets, and Creditor agrees that it shall not assert any such defenses or rights.

 

12.          This Agreement shall bind any successors or assignees of Creditor and shall benefit any successors or assigns of Bank, provided, however, Creditor agrees that, prior and as conditions precedent to Creditor assigning all or any portion of the Subordinated Debt: (a) Creditor shall give Bank prior written notice of such assignment, and (b) such successor or assignee, as applicable, shall execute a written agreement whereby such successor or assignee expressly agrees to assume and be bound by all terms and conditions of this Agreement with respect to Creditor.  This Agreement shall remain effective until terminated in writing by Bank. This Agreement is solely for the benefit of Creditor and Bank and not for the benefit of Borrower or any other party.  Creditor further agrees that if Borrower is in the process of refinancing any portion of the Senior Debt with a new lender, and if Bank makes a request of Creditor, Creditor shall agree to enter into a new subordination agreement with the new lender on substantially the terms and conditions of this Agreement.

 

13.          Creditor hereby agrees to execute such documents and/or take such further action as Bank may at any time or times reasonably request in order to carry out the provisions and intent of this Agreement, including, without limitation, ratifications and confirmations of this Agreement from time to time hereafter, as and when requested by Bank.

 

14.          This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

 

15.          This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of laws principles.  Creditor and Bank submit to the exclusive jurisdiction of the state and federal courts located in New York, New York in any action, suit, or proceeding of any kind, against it which arises out of or by reason of this Agreement; provided, however, that if for any reason Bank cannot avail itself of the Courts of The State of New York, Creditor accepts jurisdiction of the Courts and venue in Santa Clara County, California.  CREDITOR AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

 

16.          This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments.  Creditor is not relying on any representations by Bank or Borrower in entering into this Agreement, and Creditor has kept and will continue to keep itself fully apprised of the financial and other condition of Borrower.  This Agreement may be amended only by written instrument signed by Creditor and Bank.

 

[Signature page follows.]

 

4

 

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

 

“Creditor”

 

THE CO-INVESTMENT FUND II, L.P.

 

By:  Co-Invest Management II, L.P., its general partner

 

By:  Co-Invest Capital Partners, Inc., its general partner

 

By:          /s/ Brian Adamsky

 

Name:     Brian Adamsky

 

Title:       CFO & Treasurer

 

“Bank”

 

SILICON VALLEY BANK

 

By:          /s/  Michael McMahon

Name:     Michael McMahon

Title:        Vice President

 

[SIGNATURES CONTINUE ON NEXT PAGE]

 

 

The undersigned approves of the terms of this Agreement.

 

“Borrower”

 

INSPRO TECHNOLOGIES CORPORATION

 

By:  /s/ Anthony R. Verdi

 

Name:  Anthony R. Verdi

 

Title:  Chief Financial Officer

 

INSPRO TECHNOLOGIES, LLC

 

By:  /s/ Anthony R. Verdi

 

Name:  Anthony R. Verdi

 

Title: Chief Financial Officer

 

ATIAM TECHNOLOGIES L.P.

 

By: Atiam Technologies GP, LLC, its General Partner

 

By:  Robert J. Oakes

 

Name: Robert J. Oakes

 

Title: Chief Executive Officer and President