EX-10 2 epatentsfrt.txt MATERIAL CONTRACTS PATENT SECURITY AgREEMENT THIS PATENT SECURITY AGREEMENT (this "Security Agreement") made as of this 26th day of June 2002, by THE SIEGEL FAMILY REVOCABLE TRUST (the "Grantor") in favor of EUREKA I, L.P., as collateral agent (in such capacity, "Collateral Agent"). W I T N E S S E T H WHEREAS, Medical Technology Systems, Inc. ("MTS") has entered into that certain Securities Purchase Agreement of even date herewith with Eureka I, L.P., as purchaser (the "Purchaser") and Collateral Agent (as amended, restated or otherwise modified from time to time, the "Purchase Agreement"), providing, subject to the terms and conditions thereof, for the purchase from MTS by the Purchaser of, among other things, $4,000,000 aggregate principal amount of Notes (as defined in the Purchase Agreement); WHEREAS, Grantor is a shareholder of MTS; WHEREAS, Grantor has heretofore granted MTS a license to the Patents (as hereinafter defined) and is paid royalties for MTS's use of the Patents; WHEREAS, the business of MTS is dependent on its ability to use the Patents and Grantor will be directly benefited by the purchase of the Notes from MTS by the Purchaser; WHEREAS, to induce the Purchaser to enter into the Purchase Agreement with the Company and to purchase the Notes, the Grantor has agreed to execute and deliver this Security Agreement and to assign and grant to Collateral Agent, for its benefit and for the benefit of the Noteholders, a security interest in certain of the Grantor's assets, including, without limitation, its patents and patent applications; NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows: 1. Certain Definitions. All capitalized terms used but not otherwise defined herein shall have the meaning herein as in the Purchase Agreement. 2. Grant of Security Interests. To secure the complete and timely payment and satisfaction of the Liabilities, Grantor hereby grants to Collateral Agent, as agent for itself and the Noteholders, a continuing security interest in Grantor's entire right, title and interest in and to all of its now owned or existing and hereafter acquired or arising patents, patent applications and rights under patent license agreements, whether as licensee or licensor, including, without limitation, the inventions and improvements described and claimed therein, all patentable inventions and those patents and patent applications listed on Schedule A attached hereto and made a part hereof and all patents and the reissues, divisions, continuations, renewals, extensions and continuations-in-part of any of the foregoing, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect to any of the foregoing, including, without limitation, damages and payments for past, present and future infringements of any of the foregoing and the right to sue for past, present and future infringements of any of the foregoing (all of the foregoing are sometimes hereinafter individually and/or collectively referred to as the "Patents"). 2 The term "Liability" or "Liabilities" shall mean the indebtedness and liabilities of MTS to the Collateral Agent and/or the Noteholders under this Agreement, the Notes, the Purchase Agreement and the Security Documents (as defined in the Purchase Agreement), including but not limited to all obligations to perform acts or refrain from taking any action and any obligations of MTS owing to the Collateral Agent and/or the Noteholders. 3. Intercreditor Agreement. The priority of the security interests granted hereby, the exercise by the Collateral Agent of any of its rights or remedies hereunder, and the covenants of the Grantor contained herein (in each case whether or not so expressed) are subject in all respects to the Intercreditor Agreement (as such term is defined in the Purchase Agreement). Any reference to property in the possession of, or to property secured or to be secured to, the Collateral Agent will be deemed to refer to, or to be satisfied by, property in the possession of or secured to the "Senior Lender" under the Intercreditor Agreement. The security interests created in favor of the Collateral Agent hereunder are subordinate and junior to the security interests created in favor of the Senior Lender (as such term is defined in the Intercreditor Agreement). 4. Warranties and Representations. Grantor warrants and represents to Collateral Agent that: (a) no Patent has been adjudged invalid or unenforceable by a court of competent jurisdiction nor has any such Patent been cancelled, in whole or in part and each such Patent is presently subsisting; (b) Grantor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to each Patent, free and clear of any liens, charges and encumbrances, including without limitation, shop rights and covenants by Grantor not to sue third persons, other than Permitted Liens; (c) Grantor has no notice of any suits or actions commenced or threatened with reference to any Patent; and (d) Grantor has the unqualified right to execute and deliver this Security Agreement and perform its terms. 5. Restrictions on Future Agreements. Grantor agrees that, until the Liabilities shall have been paid and satisfied in full, Grantor shall not, without the prior written consent of Collateral Agent, sell or assign its interest in any Patent or enter into any other agreement with respect to any Patent which would affect the validity or enforcement of the rights transferred to Collateral Agent under this Security Agreement. 6. New Patents. Grantor represents and warrants that, based on a diligent investigation by Grantor, the Patents listed on Schedule A constitute all of the federally registered Patents and Patent applications now owned by Grantor. If, before the Liabilities shall have been satisfied in full, Grantor shall (i) become aware of any existing Patents of which Grantor has not previously informed Collateral Agent, (ii) obtain rights to any new patentable inventions or Patents, or (iii) become entitled to the benefit of any Patents, which benefit is not in existence on the date hereof, which are being licensed or are to be licensed to MTS or any of its Subsidiaries, the provisions of this Security Agreement above shall automatically apply thereto and Grantor shall give to Agent prompt written notice thereof. Grantor hereby authorizes Agent to modify this Security Agreement by amending Schedule A to include any such Patents. 3 7. Royalties; Terms. The term of this Security Agreement shall extend until the earlier of (i) the expiration of each of the Patents, and (ii) the payment and satisfaction in full of the Liabilities. Grantor agrees that, during the continuance of an Event of Default, the use by the Collateral Agent of all Patents shall be without any liability for royalties or other related charges from Collateral Agent to Grantor. 8. Release of Security Interest. This Security Agreement is made for Collateral purposes only. Upon payment and satisfaction in full of the Liabilities, Collateral Agent shall take such actions as may be necessary or proper to terminate the security interests created hereby. 9. Expenses. All expenses incurred in connection with the performance of any of the agreements set forth herein shall be borne by Grantor. All fees, costs and expenses, of whatever kind or nature, including reasonable attorneys' fees and legal expenses, actually incurred by Collateral Agent in connection with the filing or recording of any documents (including all taxes in connection therewith) in public offices, the payment or discharge of any taxes, reasonable counsel fees actually incurred, maintenance fees, encumbrances or otherwise in protecting, maintaining or preserving the Patents or in defending or prosecuting any actions or proceedings arising out of or related to the Patents shall be borne by and paid by Grantor and until paid shall constitute Liabilities. 10. Duties of Grantor. Grantor shall have the duty (i) to file and prosecute diligently any patent applications pending as of the date hereof or hereafter until the Liabilities shall have been paid and satisfied in full, (ii) to make application on unpatented but patentable inventions, as commercially reasonable, (iii) to preserve and maintain all rights in the Patents, as commercially reasonable and (iv) to ensure that the Patents are and remain enforceable, as commercially reasonable. Any expenses incurred in connection with Grantor's obligations under this Section 10 shall be borne by Grantor. 11. Agent's Right to Sue. During the continuance of an Event of Default and at the direction of the Required Noteholders and subject to the Intercreditor Agreement, Collateral Agent shall have the right, but shall in no way be obligated, to bring suit in its own name to enforce the Patents and, if Collateral Agent shall commence any such suit, Grantor shall, at the request of Collateral Agent, do any and all lawful acts and execute any and all proper documents required by Collateral Agent in aid of such enforcement and Grantor shall promptly, upon demand, reimburse and indemnify Collateral Agent for all costs and expenses actually incurred by Collateral Agent in the exercise of its rights under this Section 11. 12. Waivers. No course of dealing between Grantor and Collateral Agent, nor any failure to exercise, nor any delay in exercising, on the part of Collateral Agent, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 13. Severability. The provisions of this Security Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Security Agreement in any jurisdiction. 4 14. Modification. This Security Agreement cannot be altered, amended or modified in any way, except as specifically provided in Section 6 hereof or by a writing signed by the parties hereto. 15. Cumulative Remedies; Power of Attorney; Effect on Financing Agreements. All of Collateral Agent's rights and remedies with respect to the Patents, whether established hereby, or by any other agreements or by law shall be cumulative and may be exercised singularly or concurrently. Grantor hereby authorizes Collateral Agent during the continuance of an Event of Default and at the direction of the Required Noteholders and subject to the Intercreditor Agreement, to make, constitute and appoint any officer or agent of Collateral Agent as Collateral Agent may select, in its sole discretion, as Grantor's true and lawful attorney-in-fact, with power to (i) endorse Grantor's name on all applications, documents, papers and instruments necessary or desirable for Collateral Agent in the use of the Patents or (ii) take any other actions with respect to the Patents as Collateral Agent deems to be in the best interest of Collateral Agent, or (iii) grant or issue any exclusive or non-exclusive license under the Patents to anyone, or (iv) assign, pledge, convey or otherwise transfer title in or dispose of the Patents to anyone. Grantor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable until the Liabilities shall have been paid and satisfied in full. Grantor acknowledges and agrees that this Security Agreement is not intended to limit or restrict in any way the rights and remedies of the Collateral Agent and the Noteholders under the Purchase Agreement but rather is intended to facilitate the exercise of such rights and remedies. Collateral Agent and the Noteholders shall have, in addition to all other rights and remedies given to them by the terms of this Security Agreement, all rights and remedies allowed by law and the rights and remedies of a secured party under the Uniform Commercial Code as enacted in the Commonwealth of Pennsylvania. 16. Binding Effect; Benefits. This Security Agreement shall be binding upon Grantor and its respective successors and assigns, and shall inure to the benefit of the Collateral Agent, the Noteholders and their respective successors, nominees and assigns. 17. Governing Law. This Security Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania and applicable federal law. 18. Headings. Paragraph headings used herein are for convenience only and shall not modify the provisions which they precede. 19. Further Assurances. Grantor agrees to execute and deliver such further agreements, instruments and documents, and to perform such further acts, as Collateral Agent (at the direction of the Required Noteholders) shall reasonably request from time to time in order to carry out the purpose of this Security Agreement and agreements set forth herein. 20. Survival of Representations. All representations and warranties of Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement. -S-1- IN WITNESS WHEREOF, Grantor has duly executed this Security Agreement as of the date first written above. THE SIEGEL FAMILY REVOCABLE TRUST By _______________________________________ Its Trustee Agreed and Accepted As of the Date First Written Above EUREKA I, L.P., as Collateral Agent By: EUREKA MANAGEMENT, L.P., its sole general partner By: BERWIND CAPITAL PARTNERS, LLC, its sole general partner By:______________________________ Christine C. Jones, President SCHEDULE A PATENTS Patent Description U.S. Patent No. Issue Date ------------------ --------------- ---------- PATENT APPLICATIONS Patent Application Description U.S. Patent Application No. Date Applied ------------------------------ --------------------------- ------------ PATENT LICENSES Description of License U.S. Patent No. Issue Date ---------------------- --------------- ---------- 2 STATE OF NEW YORK : : SS. COUNTY OF NEW YORK : On this, the ____ day of June, 2002, before me, a Notary Public, personally appeared Christine C. Jones, who acknowledged herself to be the President of Berwind Capital Partners, LLC, and that she as such officer, being duly authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by herself as such officer. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. ____________________________ Notary Public My commission expires STATE OF NEW YORK : : SS. COUNTY OF NEW YORK : On this, the __ day of June, 2002, before me, a Notary Public, personally appeared Todd Siegel who acknowledged himself to be the trustee of the Siegel Family Revocable Trust, a Florida trust, and that he as such officer, being duly authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. ____________________________ Notary Public My commission expires