SECURITY AGREEMENT
SECURITY AGREEMENT (as amended, restated, supplemented or otherwise
modified from time to time and including all attachments, exhibits and schedules
hereto, the "Agreement"), dated as of April 19, 2002, made by APPIANT
---------
TECHNOLOGIES, INC., a Delaware corporation (the "Grantor") in favor of the
parties set forth on Schedule B hereto (collectively, the "Secured Parties").
WHEREAS, the Grantor has issued separate debentures dated the date hereof
to each of the Secured Parties (the "Debentures") in the aggregate principal
amount evidenced by such Debentures pursuant to a Debenture and Warrant Purchase
Agreement by and among the Grantor and the Secured Parties dated the date hereof
(the "Debenture and Warrant Purchase Agreement"); and
WHEREAS, it is a condition precedent to the Secured Parties making the loan
evidenced by the Debentures to the Grantor that the Grantor execute and deliver
to the Secured Parties a security agreement providing for the grant to the
Secured Parties of a continuing security interest in the accounts receivable and
personal property of the Grantor, all in substantially the form hereof to secure
all Obligations (hereinafter defined);
NOW, THEREFORE, the parties agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1. Definition of Terms Used Herein. All capitalized terms
----------------------------------
used herein and not defined herein have the respective meanings provided
therefor in the Debenture and Warrant Purchase Agreement. All terms defined in
the Uniform Commercial Code (hereinafter defined) as in effect from time to time
and used herein and not otherwise defined herein (whether or not such terms are
capitalized) have the same definitions herein as specified therein.
Section 1.2. Definition of Certain Terms Used Herein. As used herein,
---------------------------------------
the following terms have the following meanings:
"Collateral" means all accounts receivable and all personal and fixture
----------
property of every kind and nature, including, without limitation, all furniture,
fixtures, equipment, raw materials, inventory, or other goods, accounts,
contract rights, rights to the payment of money, insurance refund claims and all
other insurance claims and proceeds, tort claims, chattel paper, documents,
instruments, securities and other investment property, deposit accounts, rights
to proceeds of letters of credit and all general intangibles including, without
limitation, all tax refund claims, license fees, patents, patent licenses,
patent applications, trademarks, trademark licenses, trademark applications,
trade names, copyrights, copyright licenses, copyright applications, rights to
xxx and recover for past infringement of patents, trademarks and copyrights,
computer programs, computer software, engineering drawings, service marks,
customer lists, goodwill, and all licenses, permits, agreements of any kind or
nature pursuant to which the Grantor possesses, uses or has authority to possess
or use property (whether tangible or intangible) of others or others possess,
use or have authority to possess or use property (whether tangible or
2
intangible) of the Grantor, and all recorded data of any kind or nature,
regardless of the medium of recording including, without limitation, all books
and records, software, writings, plans, specifications and schematics; and all
proceeds and products of each of the foregoing.
"Debentures" has the meaning assigned to such term in the first recital of
----------
this Agreement.
"Default" means any event or circumstance which, with the giving of notice,
-------
the lapse of time, or both, would (if not cured, waived, or otherwise remedied
during such time) constitute an Event of Default.
"Event of Default" has the meaning specified in the Debenture and Warrant
------------------
Purchase Agreement.
"Indemnitees" has the meaning specified in Section 7.5(b).
-----------
"Lien" means: (i) any interest in property securing an obligation owed to,
----
or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute, or contract, and including a
security interest, charge, claim, or lien arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
agreement, security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes; (ii) to the extent not included
under clause (i), any reservation, exception, encroachment, easement,
-----------
right-of-way, covenant, condition, restriction, lease or other title exception
or encumbrance affecting property; and (iii) any contingent or other agreement
to provide any of the foregoing.
"Obligations" means all indebtedness, liabilities, obligations, covenants
-----------
and duties of the Grantor to the Secured Parties of every kind, nature and
description, direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or unliquidated, arising by operation of law
or otherwise, now existing of hereafter arising under or in connection with the
Debenture and Warrant Purchase Agreement or this Agreement.
"Registered Organization" means an entity formed by filing a registration
------------------------
document with a United States Governmental Authority, such as a corporation,
limited partnership or limited liability company.
"Revised Article 9" has the meaning specified in Section 7.14.
-------------------
"Security Interest" has the meaning specified in Section 2.1 of this
------------------
Agreement.
"Uniform Commercial Code" means the Uniform Commercial Code from time to
-------------------------
time in effect in the State of New York.
ARTICLE II. SECURITY INTEREST
Section 2.1. Security Interest. As security for the payment and
------------------
performance, in full of the Obligations,
3
and any extensions, renewals, modifications or refinancings of the Obligations,
the Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages,
pledges, hypothecates and transfers to the Secured Parties, and hereby grants to
the Secured Parties, its successors and assigns, a security interest in, all of
such Grantor's right, title and interest in, to and under the Collateral (the
"Security Interest").
Section 2.2. No Assumption of Liability. The Security Interest is
-----------------------------
granted as security only and shall not subject the Secured Parties to, or in any
way alter or modify, any obligation or liability of the Grantor with respect to
or arising out of the Collateral.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Grantor represents and warrants to the Secured Parties that:
Section 3.1. Title and Authority. The Grantor has good and valid
---------------------
rights in and title to the Collateral with respect to which it has purported to
grant a security interest hereunder and has full power and authority to grant to
the Secured Parties the Security Interest and to execute, deliver and perform
its obligations in accordance with the terms of this Agreement, without the
consent or approval of any other Person other than any consent or approval which
has been obtained.
Section 3.2. Filings; Actions to Achieve Perfection. Fully executed
----------------------------------------
Uniform Commercial Code financing statements (including fixture filings, as
applicable) or other appropriate filings, recordings or registrations containing
a description of the Collateral have been delivered to the Secured Parties for
filing in each United States governmental, municipal or other office specified
in Schedule A, which are all the filings, recordings and registrations that are
----------
necessary to publish notice of and protect the validity of and to establish a
legal, valid and perfected security interest in favor of the Secured Parties in
respect of all Collateral in which the Security Interest may be perfected by
filing, recording or registration in the United States (or any political
subdivision thereof) and its territories and possessions, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation statements or with
respect to the filing of amendments or new filings to reflect the change of the
Grantor's name, location, identity or corporate structure. The Grantor's name
is listed in the preamble of this Agreement identically to how it appears on its
certificate of incorporation or other organizational documents.
legal and valid security interest in all the Collateral securing the
payment and performance of the Obligations, (b) subject only to the filings
described in Section 3.2 above, a perfected security interest in all Collateral
in which a security interest may be perfected by filing, recording or
registration in the United States pursuant to the Uniform Commercial Code or
other applicable law in the United States (or any political subdivision thereof)
and its territories and possessions or any other country, state or nation (or
any political subdivision thereof). The Security Interest is and shall be prior
to any other Lien on any of the Collateral.
4
Section 3.4. Absence of Other Liens. The Grantor's Collateral is owned
----------------------
by the Grantor free and clear of any Lien. Without limiting the foregoing and
except as set forth on Schedule 3.4 to this Agreement, the Grantor has not filed
------------
or consented to any filing described in Schedule A in favor of any Person other
----------
than the Secured Parties, nor permitted the granting or assignment of a security
interest or permitted perfection of any security interest in the Collateral in
favor of any Person other than the Secured Parties. The Grantor's having
possession of all instruments and cash constituting Collateral from time to time
and the filing of financing statements in the offices referred to in Schedule A
----------
hereto results in the perfection of such security interest. Such security
interest is, or in the case of Collateral in which the Grantor obtain rights
after the date hereof, will be, a perfected, first priority security interest.
Such notices, filings and all other action necessary or desirable to perfect and
protect such security interest have been duly taken.
Section 3.5. Valid and Binding Obligation. This Agreement constitutes
----------------------------
the legal, valid and binding obligation of the Grantor, enforceable against the
Grantor in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in this Agreement may be limited by applicable federal or
state securities laws.
ARTICLE IV. COVENANTS
Section 4.1. Change of Name; Location of Collateral; Place of Business,
----------------------------------------------------------
State of Formation or Organization.
---------------------------------------
(a) The Grantor shall notify the Secured Parties in writing
promptly of any change (i) in its corporate name or in any trade name used
to identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its
principal place of business, any office in which it maintains books or
records relating to Collateral owned by it (including the establishment of
any such new office or facility), (iii) in its identity or corporate
structure such that a filed filing made under the Uniform Commercial Code
becomes misleading or (iv) in its Federal Taxpayer Identification Number.
In extension of the foregoing, the Grantor shall not effect or permit any
change referred to in the preceding sentence unless all filings have been
made under the Uniform Commercial Code or otherwise that are required in
order for the Secured Parties to continue at all times following such
change to have a valid, legal and perfected first priority security
interest in all the Collateral.
(b) Without limiting Section 4.1(a), without the prior written
consent of the Secured Parties in each instance, the Grantor shall not
change its (i) principal residence, if it is an individual, (ii) place of
business, if it has only one place of business and is not a Registered
Organization, (iii) principal place of business, if it has more than one
place of business and is not a Registered Organization, or (iv) state of
incorporation, formation or organization, if it is a Registered
Organization.
5
Section 4.2. Records. The Grantor shall maintain, at its own cost and
--------
expense, such complete and accurate records with respect to the Collateral owned
by it as is consistent with its current practices and in accordance with such
prudent and standard practices used in industries that are the same as or
similar to those in which the Grantor is engaged, but in any event to include
complete accounting records indicating all payments and proceeds received with
respect to any part of the Collateral, and, at such time or times as the Secured
Parties may reasonably request, promptly to prepare and deliver to the Secured
Parties a duly certified schedule or schedules in form and detail satisfactory
to the Secured Parties showing the identity, amount and location of any and all
Collateral.
Section 4.3. Periodic Certification; Notice of Changes. In the event
------------------------------------------
there should at any time be any change in the information represented and
warranted herein or in the documents and instruments executed and delivered in
connection herewith, the Grantor shall immediately notify the Secured Parties in
writing of such change (this notice requirement shall be in extension of and
shall not limit or relieve the Grantor of any other covenants hereunder).
Section 4.4. Protection of Security. The Grantor shall, at its own
-------------------------
cost and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Secured Parties in the Collateral and the priority thereof against any Lien.
Section 4.5. Inspection and Verification. The Secured Parties and such
---------------------------
persons as the Secured Parties may reasonably designate shall have the right to
inspect the Collateral, all records related thereto (and to make extracts and
copies from such records) and the premises upon which any of the Collateral is
located, to discuss the Grantor's affairs with the officers of the Grantor and
its independent accountants and to verify under reasonable procedures the
validity, amount, quality, quantity, value, condition and status of, or any
other matter relating to, the Collateral, including, in the case of collateral
in the possession of any third Person, by contacting any account debtor or third
Person possessing such Collateral for the purpose of making such a verification.
Out-of-pocket expenses in connection with any inspections by representatives of
the Secured Parties shall be (a) the obligations of the Grantor with respect to
any inspection during the continuance of a Default or an Event of Default or in
which a Default or an Event of Default is discovered or (b) the obligation of
the Secured Parties in any other case.
Section 4.6. Taxes; Encumbrances. At its option, the Secured Parties
---------------------
may discharge, Liens at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral to the extent the Grantor
fails to do so and the Grantor shall reimburse the Secured Parties on demand for
any payment made or any expense incurred by the Secured Parties pursuant to the
foregoing authorization; provided, however, that nothing in this Section shall
be interpreted as excusing the Grantor from the performance of, or imposing any
obligation on the Secured Parties to cure or perform, any covenants or other
obligation of the
6
Grantor with respect to any Lien or maintenance or preservation of Collateral as
set forth herein.
Section 4.7. Use and Disposition of Collateral. The Grantor shall not
---------------------------------
make or permit to be made an assignment, pledge or hypothecation of any
Collateral or shall grant any other Lien in respect of the Collateral. The
Grantor shall not make or permit to be made any transfer of any Collateral and
the Grantor shall remain at all times in possession of the Collateral owned by
it.
Section 4.8. Insurance/Notice of Loss. Within a reasonable period of
--------------------------
time following the date of this Agreement, Grantor, at its own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Collateral. In extension of the foregoing and without limitation, such
insurance shall be payable to each of the Secured Parties as loss payee under a
"standard" loss payee clause, and each Secured Party shall be listed as an
"additional insured" on Grantor's general liability insurance. Such insurance
shall not be terminated, cancelled or not renewed for any reason, including
non-payment of insurance premiums, unless the insurer shall have provided the
Secured Parties at least 30 days prior written notice. Grantor irrevocably
makes, constitutes and appoints Intercoastal Financial Services Corp.
("Intercoastal") (and all officers, employees or agents designated by
------------
Intercoastal) as its true and lawful agent and attorney-in-fact for the purpose,
during the continuance of an Event of Default, of making, settling and adjusting
claims in respect of Collateral under policies of insurance, endorsing the name
of Grantor on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and for making all determinations and
decisions with respect thereto. In the event that Grantor at any time or times
shall fail to obtain or maintain any of the policies of insurance required
hereby or to pay any premium in whole or part relating thereto, the Secured
Parties may, without waiving or releasing any obligation or liability of Grantor
hereunder or any Event of Default, in their sole discretion, obtain and maintain
such policies of insurance and pay such premium and take any other actions with
respect thereto as the Secured Parties deem advisable. All sums disbursed by
the Secured Parties in connection and in accordance with this Section, including
reasonable attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable upon demand, by Grantor to the Secured Parties and
shall be additional Obligations secured hereby. Grantor shall promptly notify
the Secured Parties if any material portion of the Collateral owned or held by
Grantor is damaged or destroyed. The proceeds of any casualty insurance in
respect of any casualty loss of any of the Collateral shall (i) so long as no
Default or Event of Default has occurred and is continuing, be disbursed to
Grantor for direct application by Grantor solely to the repair or replacement of
Grantor's property so damaged or destroyed, and (ii) in all other circumstances,
be held by the Secured Parties as cash collateral for the Obligations. The
Secured Parties may, at their sole option, disburse from time to time all or any
part of such proceeds so held as cash collateral, upon such terms and conditions
as the Secured Parties may reasonably prescribe, for direct application by the
Secured Parties solely to the repair or replacement of Grantor's property so
damaged or destroyed, or Grantor may apply all or any part of such proceeds to
the Obligations.
Section 4.9. Legend. Grantor shall legend, in form and manner
------
satisfactory to the Secured Parties, its accounts and its books, records and
documents evidencing or pertaining thereto with an appropriate reference to the
fact that such accounts have been assigned to the Secured Parties and that the
Secured Parties have a security interest therein.
ARTICLE V. FURTHER ASSURANCES; POWER OF ATTORNEY
Section 5.1. Further Assurances. Grantor shall, at its own expense,
-------------------
execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and
7
take all such actions as the Secured Parties may from time to time reasonably
request to better assure, preserve, protect and perfect the Security Interest
and the rights and remedies created hereby, including the payment of any fees
and taxes required in connection with the execution and delivery of this
Agreement, the granting of the Security Interest and the filing of any financing
statements (including fixture filings) or other documents in connection herewith
or therewith. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be immediately pledged and delivered
to the Secured Parties, duly endorsed in a manner satisfactory to the Secured
Parties.
Section 5.2. Power of Attorney.
--------------------
(a) Grantor hereby irrevocably (as a power coupled with an
interest) constitutes and appoints Intercoastal (and all officers, employees or
agents designated by Intercoastal), its attorney-in-fact with full power of
substitution, for the benefit of the Secured Parties,
(i) to take all appropriate action and to execute all documents
and instruments that may be necessary or desirable to accomplish the
purposes of this Agreement, and without limiting the generality of the
foregoing, Grantor hereby grants the power to file one or more financing
statements (including fixture filings), continuation statements, filings
with the United States Patent and Trademark Office or United States
Copyright Office (or any successor office or any similar office in any
other country) or other documents for the purpose of perfecting,
confirming, continuing, enforcing or protecting the Security Interest
granted by Grantor, without the signature of Grantor, and naming Grantor as
debtor and the Secured Parties as secured parties; and
(ii) upon the occurrence and during the continuance of an Event
of Default (i) to receive, endorse, assign and/or deliver any and all
Debentures, acceptances, checks, drafts, money orders or other evidences of
payment relating to the Collateral or any part thereof; (ii) to demand,
collect, receive payment of, give receipt for and give discharges and
releases of all or any of the Collateral; (iii) to sign the name of Grantor
on any invoice or xxxx of lading relating to any of the Collateral; (iv) to
send verifications of accounts to any account debtor or any other Person
liable for an account; (v) to commence and prosecute any and all suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the
Collateral or to enforce any rights in respect of any Collateral; (vi) to
settle, compromise, compound, adjust or defend any actions, suits or
proceeding relating to all or any of the Collateral; and (vii) to use,
sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do all other acts
and things necessary to carry out the purposes of this Agreement, as fully
and completely as though the Secured Parties were the absolute owner of the
Collateral for all purposes; provided, however, that nothing herein
contained shall be construed as requiring or obligating the Secured Parties
to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Secured Parties, or to present
or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in
respect thereof or any property covered thereby, and
no action taken or omitted to be taken by the Secured Parties with respect
to the Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of Grantor or to any claim or action
against the Secured Parties.
(b) The provisions of this Article shall in no event relieve
Grantor of any of its obligations hereunder with respect to the Collateral or
any part thereof or impose any obligation on the Secured Parties to proceed in
any particular manner with respect to the Collateral or any part thereof, or in
any way limit the exercise by the Secured Parties of any other or further right
which it may have on the date of this Agreement or hereafter, whether hereunder,
by law or otherwise.
ARTICLE VI. REMEDIES
Section 6.1. Remedies upon Default.
------------------------
(a) Upon the occurrence and during the continuance of an Event of
Default, Grantor agrees to deliver each item of its Collateral to the
Secured Parties on demand, and it is agreed that the Secured Parties shall
have the right to take any of or all the following actions at the same or
different times: with or without legal process and with or without prior
notice or demand for performance, to take possession of the Collateral and
without liability for trespass to enter any premises where the Collateral
may be located for the purpose of taking possession of or removing the
Collateral, exercise Grantor's right to xxxx and receive payment for
completed work and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law.
Without limiting the generality of the foregoing, Grantor agrees that the
Secured Parties shall have the right, subject to the mandatory requirements
of applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Secured Parties shall deem appropriate. The Secured Parties shall be
authorized at any such sale (if it deems it advisable to do so) to restrict
the prospective bidders or purchasers to persons who will represent and
agree that they are purchasing the Collateral for their own account for
investment and not with a view to the distribution or sale thereof, and
upon consummation of any such sale the Secured Parties shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any such sale shall hold the
property sold absolutely, free from any claim or right on the part of
Grantor, and Grantor hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal which Grantor now has or may at
any time in the future have under any rule of law or statute now existing
or hereafter enacted.
(b) The Secured Parties shall give Grantor ten (10) days' written
notice (which Grantor agrees is reasonable notice within the meaning of
Section 9-504(3) of the Uniform Commercial Code) of the Secured Parties'
intention to make any sale of Collateral. Such notice, in the case of a
public sale, shall state the time and place for such sale and, in the case
of a sale at a broker's board or on a securities exchange, shall state the
board or exchange at which such sale is to be made and the day on which the
9
Collateral, or portion thereof, will first be offered for sale at such
board or exchange. Any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as the Secured
Parties may fix and state in the notice (if any) of such sale. At any such
sale, the Collateral, or portion thereof, to be sold may be sold in one lot
as an entirety or in separate parcels, as the Secured Parties may (in their
sole and absolute discretion) determine. The Secured Parties shall not be
obligated to make any sale of any Collateral if it shall determine not to
do so, regardless of the fact that notice of sale of such Collateral shall
have been given. The Secured Parties may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from
time to time by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place to which
the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold
may be retained by the Secured Parties until the sale price is paid by the
purchaser or purchasers thereof, but the Secured Parties shall not incur
any liability in case any such purchaser or purchasers shall fail to take
up and pay for the Collateral so sold and, in case of any such failure,
such Collateral may be sold again upon like notice. At any public (or, to
the extent permitted by law, private) sale made pursuant to this Section,
the Secured Parties may bid for or purchase, free (to the extent permitted
by law) from any right of redemption, stay, valuation or appraisal on the
part of Grantor (all said rights being also hereby waived and released to
the extent permitted by law), the Collateral or any part thereof offered
for sale and may make payment on account thereof by using any claim then
due and payable to the Secured Parties from Grantor as a credit against the
purchase price, and the Secured Parties may, upon compliance with the terms
of sale, hold, retain and dispose of such property without further
accountability to Grantor therefor. For purposes hereof, a written
agreement to purchase the Collateral or any portion thereof shall be
treated as a sale thereof; the Secured Parties shall be free to carry out
such sale pursuant to such agreement and Grantor shall not be entitled to
the return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Secured Parties shall have entered
into such an agreement all Events of Default shall have been remedied and
the Obligations paid in full. As an alternative to exercising the power of
sale herein conferred upon it, the Secured Parties may proceed by a suit or
suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a proceeding
by a court-appointed receiver.
Section 6.2. Application of Proceeds. The Secured Parties shall apply
-----------------------
the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
(a) FIRST, to the payment of all costs and expenses incurred by
the Secured Parties in connection with such collection or sale or otherwise in
connection with this Agreement or any of the Obligations, including all court
costs and the fees and expenses of its agents and legal counsel, and any other
costs or expenses incurred in connection with the exercise of any right or
remedy hereunder, under the Debenture and Warrant Purchase Agreement or under
the Debentures;
10
(b) SECOND, to the payment in full of the Obligations; and
(c) THIRD, to Grantor, its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same, or as a court of competent
jurisdiction may otherwise direct.
Subject to the foregoing, the Secured Parties shall have absolute
discretion as to the time of application of such proceeds, moneys or balances in
accordance with this Agreement. Upon any sale of the Collateral by the Secured
Parties (including pursuant to a power of sale granted by statute or under a
judicial proceeding), the receipt of any such proceeds, moneys or balances by
the Secured Parties or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Secured Parties or such officer or
be answerable in any way for the misapplication thereof.
Section 6.3. Grant of License to Use Intellectual Property. For the
-----------------------------------------------
purpose of enabling the Secured Parties to exercise rights and remedies under
this Article at such time as the Secured Parties shall be lawfully entitled to
exercise such rights and remedies, Grantor hereby grants to the Secured Parties
an irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to Grantor) to use, license or sub-license any of the
Collateral consisting of intellectual property now owned or hereafter acquired
by Grantor, and wherever the same may be located, and including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Secured Parties
may be exercised, at the option of the Secured Parties, only upon the occurrence
and during the continuation of an Event of Default (after giving effect to any
applicable cure periods).
ARTICLE VII. MISCELLANEOUS
Section 7.1. Notices. All communications and notices hereunder to the
--------
Grantor and to the Secured Parties shall (except as otherwise expressly
permitted herein) be in writing and delivered to the Grantor or the Lenders'
Representative, as the case may be, as provided in the Debenture and Warrant
Purchase Agreement.
Section 7.2. Security Interest Absolute. All rights of the Secured
----------------------------
Parties hereunder, the Security Interest and all obligations of Grantor
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Debenture and Warrant Purchase Agreement, the
Debentures, any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any change in the
time, manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Debenture and Warrant Purchase Agreement, the Debentures or any other
agreement or instrument, (c) any exchange, release or non-perfection of any Lien
on other collateral, or any release or amendment or waiver of or consent under
or departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Grantor in respect of the Obligations
or this Agreement.
11
Section 7.3. Survival of Agreement. All covenants, agreements,
-----------------------
representations and warranties made by Grantor herein and in the certificates or
other instruments prepared or delivered in connection with or pursuant to this
Agreement shall be considered to have been relied upon by the Secured Parties
and shall survive the making of the loan and the execution and delivery to the
Secured Parties of the Debentures, regardless of any investigation made by the
Secured Parties or on their behalf; and shall continue in full force and effect
until this Agreement shall terminate.
Section 7.4. Binding Effect; Several Agreement; Successors and Assigns.
---------------------------------------------------------
This Agreement shall become effective as to Grantor when a counterpart hereof
executed on behalf of Grantor shall have been delivered to the Secured Parties
and a counterpart hereof shall have been executed on behalf of the Secured
Parties, and thereafter shall be binding upon Grantor and the Secured Parties
and their respective successors and assigns, and shall inure to the benefit of
Grantor, the Secured Parties and their respective successors and assigns, except
that Grantor shall not have the right to assign or transfer its rights or
obligations hereunder or any interest herein or in the Collateral (and any such
assignment or transfer shall be void) except as expressly contemplated by this
Agreement, the Debenture and Warrant Purchase Agreement or the Debentures.
Section 7.5. Secured Parties' Fees and Expense; Indemnification.
--------------------------------------------------------
(a) Grantor agrees to pay upon demand to the Secured Parties the
amount of any and all reasonable expenses, including all reasonable fees,
disbursements and other charges of its counsel and of any experts or
agents, which the Secured Parties may incur in connection with (i) the
administration of this Agreement (including the customary fees and charges
of the Secured Parties for any audits conducted by it or on its behalf with
respect to the accounts inventory), (ii) the custody or preservation of, or
the sale of, collection from or other realization upon any of the
Collateral, (iii) the exercise, enforcement or protection of any of the
rights of the Secured Parties hereunder or (iv) the failure of Grantor to
perform or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under
the Debenture and Warrant Purchase Agreement, Grantor agrees to indemnify
the Secured Parties and the agent, contractors and employees of each of the
foregoing (collectively, the "Indemnitees") against, and hold each of them
-----------
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of
counsel, incurred by or asserted against any of them arising out of, in any
way connected with, or as a result of, the execution, delivery, or
performance of this Agreement or any agreement or instrument contemplated
hereby or any claim, litigation, investigation or proceeding relating
hereto or to the Collateral, whether or not any Indemnitee is a party
thereto; provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by
final and nonappealable judgment to have resulted from the gross negligence
or willful misconduct of such Indemnitee.
12
(c) Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby. The provisions of this Section shall
remain operative and in full force and effect regardless of the termination
of this Agreement, the Debenture and Warrant Purchase Agreement or the
Debentures, the consummation of the transactions contemplated hereby, the
repayment of any of the Obligations, the invalidity or unenforceability of
any term or provision of this Agreement, the Debenture and Warrant Purchase
Agreement or the Debentures, or any investigation made by or on behalf of
the Secured Parties. All amounts due under this Section shall be payable on
written demand therefor.
Section 7.6. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
--------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 7.7. Waivers; Amendment.
--------------------
(a) No failure or delay of the Secured Parties in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Secured Parties hereunder and under the Debenture and
Warrant Purchase Agreement are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provisions of this
Agreement, the Debenture and Warrant Purchase Agreement or the Debentures or
consent to any departure by Grantor therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) below, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand on Grantor in any case shall entitle
Grantor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements, in writing
entered into by the Secured Parties and Grantor.
Section 7.8. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
--------------------
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE DEBENTURE AND WARRANT PURCHASE
AGREEMENT OR THE DEBENTURES. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE DEBENTURE AND
WARRANT PURCHASE AGREEMENT AND THE DEBENTURES, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
13
Section 7.9. Severability. In the event any one or more of the
------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
Section 7.10. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract. Each party shall be
entitled to rely on a facsimile signature of any other party hereunder as if it
were an original.
Section 7.11. Jurisdiction; Consent to Service of Process.
-------------------------------------------------
(a) Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York
State court or Federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, the Debenture and
Warrant Purchase Agreement or the Debentures, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. Nothing in
this Agreement shall affect any right that the Secured Parties may
otherwise have to bring any action or proceeding relating to this
Agreement, the Debenture and Warrant Purchase Agreement or the Debentures
against Grantor or its properties in the courts of any jurisdiction.
(b) Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement, the Debenture and
Warrant Purchase Agreement or the Debentures in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 7.1. Nothing in
this Agreement will affect the right of any party to this Agreement to
process in any other manner permitted by law.
Section 7.12. Termination. This Agreement and the Security Interest
-----------
shall terminate when all the Obligations have been paid in full, at which time
the Secured Parties shall execute and deliver to Grantor, at Grantor's expense,
all Uniform Commercial Code termination
14
statements and similar documents which Grantor shall reasonably request to
evidence such termination. Any execution and delivery of termination statements
or documents pursuant to this Section shall be without recourse to or warranty
by the Secured Parties.
Section 7.13. Prejudgment Remedy Waiver. Grantor acknowledges that
---------------------------
this Agreement, the Debenture and Warrant Purchase Agreement and the Debentures
evidence a commercial transaction and that it could, under certain circumstances
have the right, to notice of and hearing on the right of the Secured Parties to
obtain a prejudgment remedy, such as attachment, garnishment and/or replevin,
upon commencing any litigation against Grantor. Notwithstanding, Grantor hereby
waives all rights to notice, judicial hearing or prior court order to which it
might otherwise have the right under any state or federal statute or
constitution in connection with the obtaining by the Secured Parties of any
prejudgment remedy by reason of this Agreement, the Debenture and Warrant
Purchase Agreement, the Debentures or by reason of the Obligations or any
renewals or extensions of the same. Grantor also waives any and all objection
which it might otherwise assert, now or in the future, to the exercise or use by
the Secured Parties of any right of setoff, repossession or self help as may
presently exist under statute or common law.
Section 7.14. Concerning Revised Article 9 of the Uniform Commercial
--------------------------------------------------------
Code. The parties acknowledge and agree to the following provisions of this
Agreement in anticipation of the possible application, in one or more
jurisdictions to the transactions contemplated hereby, of the revised Article 9
-
of the Uniform Commercial Code in the form or substantially in the form approved
in 1998 by the American Law Institute and the National Conference of
Commissioners on Uniform State Law ("Revised Article 9").
-------------------
(a) In applying the law of any jurisdiction in which Revised
Article 9 is in effect, the Collateral is all assets of Grantor, whether or not
within the scope of Revised Article 9. The Collateral shall also include,
without limitation, the following categories of assets as defined in Revised
Article 9: goods (including inventory, equipment and any accessions thereto),
instruments (including promissory notes), documents, accounts (including
health-care-insurance receivables), chattel paper (whether tangible or
electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, general intangibles (including payment
intangibles and software), supporting obligations and any and all proceeds of
any thereof, wherever located, whether now owned and hereafter acquired. If
Grantor shall at any time, whether or not Revised Article 9 is in effect in any
particular jurisdiction, acquire a commercial tort claim, as defined in Revised
Article 9, Grantor shall immediately notify the Secured Parties in a writing
signed by Grantor of the brief details thereof and grant to the Secured Parties
in such writing a security interest therein and in the proceeds thereof, all
upon the terms of this Agreement, with such writing to be in form and substance
satisfactory to the Secured Parties. The Secured Parties may at any time and
from time to time, pursuant to the provisions of Article V, file financing
statements, continuation statements and amendments thereto that describe the
Collateral as all assets of Grantor or words of similar effect and which contain
any other information required by Part 5 of Revised Article 9 for the
sufficiency or filing office acceptance of any financing statement, continuation
statement or amendment, including whether Grantor is an organization, the type
of organization and any organization identification number issued to Grantor.
Grantor shall furnish any such information to the Secured Parties promptly upon
request. Any such
15
financing statements, continuation statements or amendments may be signed by the
Secured Parties on behalf of Grantor, as provided in Article V, and may be filed
at any time in any jurisdiction whether or not Revised Article 9 is then in
effect in that jurisdiction.
(b) Grantor shall at any time and from time to time, whether or
not Revised Article 9 is in effect in any particular jurisdiction, take such
steps as the Secured Parties may reasonably request for the Secured Parties (i)
to obtain an acknowledgement, in form and substance satisfactory to the Secured
Parties, of any bailee having possession of any of the Collateral that the
bailee holds such Collateral for the Secured Parties, (ii) to obtain "control"
of any investment property, deposit accounts, letter-of-credit rights or
electronic chattel paper (as such terms are defined in Revised Article 9 with
corresponding provisions in Sec.Sec. 9-104, 9-105, 9-106 and 9-107 relating to
what constitutes "control" for such items of Collateral), with any agreements
establishing control to be in form and substance satisfactory to the Secured
Parties, and (iii) otherwise to insure the continued perfection and priority of
the Secured Parties' security interest in any of the Collateral and of the
preservation of its rights therein, whether in anticipation and following the
effectiveness of Revised Article 9 in any jurisdiction.
(c) Nothing contained in this Section shall be construed to narrow
the scope of the security interest granted hereby in any of the Collateral or
the perfection or priority thereof or to impair or otherwise limit any of the
rights, powers, privileges or remedies of the Secured Parties hereunder except
as (and then only to the extent) specifically mandated by Revised Article 9 to
the extent then applicable.
IN WITNESS WHEREOF, the parties have duly executed this Security Agreement
as of the day and year first written above.
APPIANT TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
[INVESTOR]
By:
-----------------------------------
Name:
Title:
