Exhibit 10.24
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made and entered into as of
this 9th day of July, 2002, by and between Alpha Virtual, Inc. a California
corporation ("Borrower") and Global Alpha Corporation, a British Virgin Islands
corporation ("Lender"). Borrower and Lender may each be referred to individually
as a "Party" or collectively as "Parties" to the this Agreement. Terms used but
not defined herein shall have the meanings ascribed to them in the Loan
Agreement (as defined below).
RECITALS
A. Borrower and Lender have entered into the Working Capital Loan
Agreement, dated as of the date hereof (as from time to time amended and in
effect, the "Loan Agreement") and the Multiple Advance Convertible Promissory
Note, dated as of the same date, and executed by Borrower (as from time to time
amended and in effect, the "Note").
B. It is a condition precedent to Lender extending further credit to
Borrower under the Loan Agreement that Borrower execute and deliver to Lender
this Agreement and such other agreements as Lender may request in connection
with the implementation of this Agreement, including, but not limited to the
Source Code Escrow Agreement of even date herewith, as from time to time amended
and in effect (the "Escrow Agreement"). The Security Agreement, the Escrow
Agreement and any other documents requested by Lender to be executed in
connection therewith, together are sometimes hereinafter referred to as the
"Security Documents".
C. Borrower wishes to grant security interests in favor of Lender as
herein provided.
NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Grant Of Security Interest. Borrower hereby grants, assigns and
conveys to Lender a first-priority, security interest in and mortgage on all of
Borrower's right, title and interest in and to all now owned or hereafter
acquired or created computer software programs of the Borrower (the "Programs")
as more fully described on Schedule A attached hereto and incorporated herein by
this reference (the "Collateral") to secure the payment and performance in full
of all present and future obligations owing to Lender under the Loan Agreement,
the Note, the Loan Documents and the Security Documents (together, the
"Obligations").
2. Authorization To File Financing Statements. Borrower hereby
irrevocably authorizes Lender at any time and from time to time to file in any
Uniform Commercial Code jurisdiction any initial financing statements and
amendments thereto that (a) indicate the Collateral (i) as all assets of
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Borrower or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the
California Uniform Commercial Code, as amended and supplemented from time to
time (the "Code") or any such jurisdiction, or (ii) as being of equal or lesser
scope or with greater detail; and (b) contain any other information required by
part 5 of Article 9 of the Code for the sufficiency or filing office acceptance
of any financing statement or amendment, including whether Borrower is an
organization, the type of organization and any organization identification
number issued to Borrower and, in the case of a financing statement filed as a
fixture filing or indicating Collateral as extracted collateral or timber to be
cut, a sufficient description of the real property to which the Collateral
relates. Borrower agrees to furnish any such information to Lender promptly upon
request.
3. Source Code Escrow. Borrower agrees to enter into the Escrow
Agreement, to deposit the Source Materials and other items required to be
deposited pursuant to the Escrow Agreement, and to perform its obligations under
the Escrow Agreement, as set forth therein.
4. Representations, Warranties And Covenants. Borrower hereby
represents, warrants, and covenants that:
(a) Power and Authority; Valid and Binding Obligation. Borrower
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is a corporation duly incorporated and in good standing under the laws of the
State of California and duly qualified to do business in each jurisdiction where
such qualification is necessary. The execution and delivery of this Agreement,
and the performance by Borrower of its obligations hereunder are within
Borrower's corporate powers and have been duly authorized by all necessary
corporate action. This Agreement is Borrower's legal, valid and binding
obligation, enforceable in accordance with its terms, the making and performance
of which do not and will not contravene or conflict with Borrower's charter or
by-laws or violate or constitute a default under any law, any presently existing
requirement or restriction imposed by judicial, arbitral or other governmental
instrumentality or any agreement, instrument or indenture by which Borrower or
its property is bound.
(b) Title. Borrower is the sole and exclusive owner of the
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entire and unencumbered right, title, and interest in and to all of the
Collateral, free and clear of any liens, charges, and encumbrances, including
pledges, assignments, licenses, joint ownership rights, shop rights, and
covenants by Borrower not to ▇▇▇ third persons. No financing statement covering
any of the Collateral is on file in any public office.
(c) Perfection of Security Interest. Except for the filing of a
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financing statement with the Secretary of State of California and the filing
with the U.S. Copyright Office necessary to perfect the security interests
created hereunder, no authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required
either for the grant by Borrower of the security interest hereunder or for the
execution, delivery, or performance of this Agreement by Borrower or for the
perfection of or the exercise by Lender of its rights hereunder to the
Collateral in the United States.
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(d) Commercial Transaction. The transactions contemplated by
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this Agreement and the Loan Agreement are commercial transactions and do not
involve: (a) goods used or bought for use primarily for personal, family or
household purpose; or (b) an individual's incurrence of the obligation for
personal, family or household purposes.
(e) No Liens. Borrower will not create, incur, assume or permit
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to exist any pledge, security interest, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority, or
other security agreement or preferential arrangement, charge, or encumbrance of
any kind or nature whatsoever upon the Collateral.
5. Affirmative Covenants
(a) Litigation and Proceedings. Borrower shall commence and
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diligently prosecute in its own name, as the real party in interest, for its own
benefit, and its own expense, such suits, administrative proceedings, or other
action for infringement or other damages as are in its reasonable business
judgment necessary to protect the Collateral. Borrower shall provide to Lender
any information with respect thereto requested by Lender. Lender shall provide
at Borrower's expense all necessary cooperation in connection with any such
suits, proceedings, or action, including, without limitation, joining as a
necessary party.
(b) Right to Inspect. Borrower grants to Lender, its employees
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and agents the right to visit Borrower's principal place of business, plants and
facilities which manufacture, inspect, or store products sold under any of the
Trademarks or incorporating any of the Patents and/or Copyrights, and to inspect
the products and quality control records relating thereto at reasonable times
during regular business hours.
(c) Locations and Notices. Borrower shall maintain and keep (a)
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except as delivered to Lender from time to time, all chattel paper, instruments
and documents, and all records concerning the Collateral, at the address shown
in the first paragraph hereof and not duplicate any records regarding any
Collateral at any other address; (b) the location of its chief office at the
address shown in the first paragraph hereof; and (c) the state of incorporation
and immediately given written notice to Lender of any change in the state of
incorporation.
(d) Insurance. Borrower shall keep all Collateral insured
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against loss, damage, theft and other risks, with amounts and insurance
companies, and under policies, satisfactory to Lender, which policies shall
provide that loss thereunder shall be payable to Lender as its interest may
appear (and Lender may apply any proceeds of such insurance which may be
received by it toward payment of Obligations, whether or not due, in such order
of application as Lender may determine), and such policies or certificates
thereof shall, if Lender so requests, be deposited with Lender.
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6. Events Of Default. An Event of Default under this Agreement shall
occur and be continuing if any of the following occurs: (a) an Event of Default
under the Loan Agreement or any other Loan Document or Security Document occurs;
(b) any representation or warranty made by Borrower in this Agreement, the Loan
Agreement or any other Loan Document or Security Document is incorrect when made
or when affirmed; or (c) Borrower fails to observe or perform any covenant,
condition, or agreement to be observed or performed pursuant to the terms
hereof.
7. Remedies.
(a) Generally. If any Event of Default shall have occurred and
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be continuing, in addition to any other rights given to Lender by law, this
Agreement, the Loan Agreement or any other Loan Document or Security Document,
Lender may exercise all rights and remedies of a secured party on default under
the UCC (whether or not the UCC applies to the affected Collateral) and may
also:
(i) declare all Obligations under the Loan Agreement and
this Agreement immediately due and payable;
(ii) notify any licensees to make royalty payments on
license agreements directly to Lender;
(iii) require Borrower to, and Borrower hereby agrees
that it will, at its expense and upon request of Lender forthwith,
assemble all or part of the Collateral as directed by Lender and make it
available to Lender at a place to be designated by Lender which is reasonably
convenient to both parties;
(iv) without notice or demand or legal process, enter
upon any premises of Borrower and take possession of the Collateral; and
(v) without notice except as specified below, sell any
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Lender's offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at such price or prices and upon such other
terms as Lender may deed commercially reasonable. Borrower hereby expressly
waives, to the fullest extent permitted by applicable law, any and all notices,
advertisements, hearings or process of law in connection with the exercise by
Lender of any of its rights and remedies upon an event of Default and agrees
that, to the extent notice of sale shall be required by law, at least five (5)
days' notice to Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. At any sale of the Collateral, if permitted by law, Lender may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for the
account of Lender. Lender shall not be obligated to make any sale of the
Collateral regardless of notice of sale having been given. Borrower shall remain
liable for any deficiency. Lender may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Lender shall not be required to proceed against any Collateral but
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may proceed against Borrower directly. To the extent permitted by law, Borrower
hereby specifically waives all rights of redemption, stay or appraisal which
Borrower has or may have under any law now existing or hereafter enacted.
(b) Appointment of Attorney-in-Fact. Effective upon and during
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the continuance of an Event of Default, Borrower hereby constitutes and appoints
Lender as Borrower's attorney-in-fact with full authority in the place and stead
of Borrower and in the name of Borrower, from time to time in Lender's
discretion to take any action and to execute any instrument that Lender may deem
necessary or advisable to accomplish the purposes of this Agreement, including:
(i) to ask, demand, collect, ▇▇▇ for, recover,
compound, receive and give acceptance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(ii) to adjust, settle or compromise the amount or
payment of any Account, or release wholly or partly any customer or obligor
thereunder or allow any credit or discount thereon;
(iii) to receive, endorse, and collect any drafts or
other instruments, documents and chattel paper, in connection with clause (a)
above; and
(iv) to file any claims or take any action or institute
any proceedings that Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of Lender with
respect to any of the Collateral. The appointment of Lender as Borrower's
attorney is coupled with an interest and is irrevocable until payment in full
and complete performance of all of the Obligations.
(c) Limitation on Duty of Lender with Respect to Collateral.
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Beyond the safe custody thereof in accordance with the UCC, Lender shall not
have any duty with respect to any Collateral in its possession or control or
with respect to any income thereon or the preservation of rights against prior
parties or any other rights pertaining thereto. Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which it accords its own property. Lender shall not be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or bailee selected by Lender
in good faith.
(d) Proceeds of Collateral. Any proceeds of any disposition by
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Lender of any of the Collateral may be applied by Lender to the payment of
expenses in connection with the Collateral, including reasonable attorneys' fees
and legal expenses, and any balance of such proceeds may be applied by Lender
toward the payment the Obligations, and in such order of application, as Lender
may from time to time elect.
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8. Choice Of Law And Venue; Jury Trial Waiver.
(a) Choice of Law. The validity of this Agreement, its
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construction, interpretation, and enforcement, and the rights of the parties
hereto with respect to all matters arising hereunder or related hereto shall be
determined under, governed by, and construed in accordance with the laws of the
California, without giving effect to its conflict of laws principles.
(b) Venue. The parties agree that all actions or proceedings
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arising in connection with this agreement shall be tried and litigated only in
the state and federal courts located in the County of Los Angeles, California
or, at the sole option of Lender, in any other court in which Lender shall
initiate legal or equitable proceedings and which has subject matter
jurisdiction over the matter in controversy. Borrower and Lender hereby waive,
to the extent permitted under applicable law, any right each may have to assert
the doctrine of forum non conveniens or to object to venue to the extent any
proceeding is brought in accordance with this Section 8.
(c) Waiver of Jury Trial. BORROWER AND LENDER HEREBY WAIVE THEIR
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RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THIS AGREEMENT, THE LOAN AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER
AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
9. Miscellaneous.
(a) Survival of Representations and Warranties. The
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representations, warranties, covenants and agreements contained herein shall
survive the execution of this Agreement.
(b) No Waiver; Cumulative Remedies. No failure or delay on the
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party of either Party in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or,
the exercise of any other right, power or remedy hereunder. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
(c) No Amendments; Entire Agreement. This Agreement may not be
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modified, amended, waived or superseded except in a writing signed by both
Lender and Borrower. This Agreement, the Loan Agreement and the Security
Documents embody the entire agreement and understanding of the Parties and
supersede all prior agreements and understandings relating to the subject
matter.
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(d) Notices. Any notice required or permitted under this
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Agreement shall be given in writing and shall be deemed effectively given: (i)
upon sending the notice by facsimile provided receipt is confirmed by a
machine-generated transmission report; or (ii) three (3) days after sending such
notice by registered or certified mail, postage prepaid and return receipt
requested; or (iii) one (1) day after depositing such notice with a courier
service guaranteeing next day delivery, return receipt requested, and addressed
as follows:
To Borrower: Alpha Virtual, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
To Lender: Global Alpha Corporation
(see address on signature page)
With a copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
Two ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ or (▇▇▇) ▇▇▇-▇▇▇▇
(e) Binding Effect; Assignment. This Agreement is binding upon
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and shall inure to the benefit of each Party's respective successors and
assigns, except that Borrower shall not have the right to delegate its
Obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of Lender.
(f) Governing Law. This Agreement and the Loan Agreement shall
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be governed by and construed in accordance with the internal laws of the State
of California without regard to its principles of conflict of laws.
(g) Attorneys' Fees. Borrower agrees to pay to Lender all costs
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and expenses incurred by Lender in any effort to collect the under the Loan
Agreement and to enforce its rights under this Agreement, including, without
limitation, reasonable attorneys' fees, incurred in enforcing its rights and
protecting its interest under this Agreement and the Loan Agreement, which
amounts shall include fees and costs incurred in any state, federal or
bankruptcy court whether or not in connection with any Chapter 11 proceeding, or
relief from automatic stay or disputes over Lender's claim, or disputes over any
plan of reorganization, or motions for sale of assets, regardless of whether
such attorneys' fees, costs and expenses are incurred before or after an Event
of Default.
(h) Headings. Article, section and subsection headings in this
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Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
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(i) Counterparts. This Agreement may be executed in any number
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of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart; provided that original signatures will be substituted upon
the request of either Party.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF the undersigned, being authorized signers for the
Parties, have executed this Security Agreement as of the date first written
above.
ALPHA VIRTUAL, INC.
By:
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Name:
Its:
GLOBAL ALPHA CORPORATION
By:
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Name:
Its:
Address:
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SCHEDULE A
Description of Collateral
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