SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made
effective as of November 30, 2005, by and between COMPLIANCE SYSTEMS
CORPORATION, a Delaware corporation with its principal place of business
located at 00 Xxxxx Xxxx, Xxxx Xxxx, XX 00000 (the "Company"), and the
BUYER(S) listed on Schedule I attached to the Securities Purchase Agreement
dated the date hereof (the "Secured Party").
RECITALS:
WHEREAS, the Company shall issue and sell to the Secured Party, as
provided in the Securities Purchase Agreement of even date herewith between
the Company and the Secured Party (the "Securities Purchase Agreement"), and
the Secured Party shall purchase up to One Million Dollars ($1,000,000) of
secured convertible debentures (the "Convertible Debentures"), which shall be
convertible into shares of the Company's common stock, par value $0.001 (the
"Common Stock") (as converted, the "Conversion Shares") in the respective
amounts set forth opposite each Buyer(s) name on Schedule I attached to the
Securities Purchase Agreement;
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Convertible
Debentures, the Investor Registration Rights Agreement of even date herewith
between the Company and the Secured Party (the "Investor Registration Rights
Agreement"), the Pledge and Escrow Agreement of even date herewith among the
Company, the Secured Party and Xxxxx Xxxxxxxx, Esq. (the "Pledge Agreement"),
the Escrow Agreement of even date herewith among the Company, the Secured
Party, and Xxxxx Xxxxxxxx, Esq. (the "Escrow Agreement"), and the Irrevocable
Transfer Agent Instructions among the Company, the Secured Party, Worldwide
Stock Transfer, LLC, and Xxxxx Xxxxxxxx, Esq. (the "Transfer Agent
Instructions") (collectively referred to as the "Transaction Documents"), the
Company hereby grants to the Secured Party a security interest in and to the
pledged property identified on Exhibit A hereto (collectively referred to as
the "Pledged Property") until the satisfaction of the Obligations, as defined
herein below.
NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants herein contained, and for other good and valuable consideration,
the adequacy and receipt of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed
to confer upon any person other than the Secured Party any right, remedy or
claim under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the
Company now existing or hereinafter incurred to the Secured Party, whether
oral or written and whether arising before, on or after the date hereof
including, without limitation, those obligations of the Company to the
Secured Party under this Agreement, the Transaction Documents, and any other
amounts now or hereafter owed to the Secured Party by the Company thereunder
or hereunder (collectively, the "Obligations").
ARTICLE 2.
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
AND TERMINATION OF SECURITY INTEREST
Section 2.1. Pledged Property.
(a) Company hereby pledges to the Secured Party, and creates in
the Secured Party for its benefit, a security interest for such time until
the Obligations are paid in full, in and to all of the property of the
Company as set forth in Exhibit "A" attached hereto and the products thereof
and the proceeds of all such items (collectively, the "Pledged Property"):
(b) Simultaneously with the execution and delivery of this
Agreement, the Company shall make, execute, acknowledge, file, record and
deliver to the Secured Party any documents reasonably requested by the
Secured Party to perfect its security interest in the Pledged Property.
Simultaneously with the execution and delivery of this Agreement, the Company
shall make, execute, acknowledge and deliver to the Secured Party such
documents and instruments, including, without limitation, financing
statements, certificates, affidavits and forms as may, in the Secured Party's
reasonable judgment, be necessary to effectuate, complete or perfect, or to
continue and preserve, the security interest of the Secured Party in the
Pledged Property, and the Secured Party shall hold such documents and
instruments as secured party, subject to the terms and conditions contained
herein.
Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter
defined) shall have occurred and be continuing:
(i) the Company shall be entitled to exercise any and all
rights pertaining to the Pledged Property or any part thereof for any purpose
not inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and retain
any and all payments paid or made in respect of the Pledged Property.
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(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) All rights of the Company to exercise the rights
which it would otherwise be entitled to exercise pursuant to
Section 2.2(a)(i) hereof and to receive payments which it would otherwise be
authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall
be suspended, and all such rights shall thereupon become vested in the
Secured Party who shall thereupon have the sole right to exercise such rights
and to receive and hold as Pledged Property such payments; provided, however,
that if the Secured Party shall become entitled and shall elect to exercise
its right to realize on the Pledged Property pursuant to Article 5 hereof,
then all cash sums received by the Secured Party, or held by Company for the
benefit of the Secured Party and paid over pursuant to
Section 2.2(b)(ii) hereof, shall be applied against any outstanding
Obligations; and
(ii) All interest, dividends, income and other payments
and distributions which are received by the Company contrary to the
provisions of Section 2.2(b)(i) hereof shall be received in trust for the
benefit of the Secured Party, shall be segregated from other property of the
Company and shall be forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private
sale in order to recoup all of the outstanding principal plus accrued
interest owed pursuant to the Convertible Debenture as described herein
(c) An "Event of Default" shall be deemed to have occurred
under this Agreement upon an Event of Default under the Convertible
Debentures.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, the Company hereby appoints
the Secured Party as its attorney-in-fact, with full authority in the place
and stead of the Company and in the name of the Company or otherwise, from
time to time in the Secured Party's discretion to take any action and to
execute any instrument which the Secured Party may reasonably deem necessary
to accomplish the purposes of this Agreement, including, without limitation,
to receive and collect all instruments made payable to the Company
representing any payments in respect of the Pledged Property or any part
thereof and to give full discharge for the same. The Secured Party may
demand, collect, receipt for, settle, compromise, adjust, xxx for, foreclose,
or realize on the Pledged Property as and when the Secured Party may
determine. To facilitate collection, the Secured Party may notify account
debtors and obligors on any Pledged Property to make payments directly to the
Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of,
such agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by
the Company under Section 8.3.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken
all action necessary to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby; and upon execution
and delivery, this Agreement shall constitute a valid and binding obligation
of the respective party, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights or by
the principles governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
Except as otherwise indicated in the Disclose Schedule attached hereto
as Schedule A, the Company warrants and represents that it is the legal and
beneficial owner of the Pledged Property free and clear of any lien, security
interest, option or other charge or encumbrance except for the security
interest created by this Agreement.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. Default and Remedies.
(a) If an Event of Default occurs, then in each such case the
Secured Party may declare the Obligations to be due and payable immediately,
by a notice in writing to the Company, and upon any such declaration, the
Obligations shall become immediately due and payable.
(b) Upon the occurrence of an Event of Default, the Secured
Party shall: (i) be entitled to receive all distributions with respect to the
Pledged Property, (ii) to cause the Pledged Property to be transferred into
the name of the Secured Party or its nominee, (iii) to dispose of the Pledged
Property, and (iv) to realize upon any and all rights in the Pledged Property
then held by the Secured Party.
Section 5.2. Method of Realizing Upon the Pledged Property: Other
Remedies.
Upon the occurrence of an Event of Default, in addition to any rights
and remedies available at law or in equity, the following provisions shall
govern the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or
other value in any number of lots at brokers board, public auction or private
sale and may be sold without demand, advertisement or notice (except that the
Secured Party shall give the Company ten (10) days' prior written notice of
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the time and place or of the time after which a private sale may be made (the
"Sale Notice")), which notice period is hereby agreed to be commercially
reasonable. At any sale or sales of the Pledged Property, the Company may
bid for and purchase the whole or any part of the Pledged Property and, upon
compliance with the terms of such sale, may hold, exploit and dispose of the
same without further accountability to the Secured Party. The Company will
execute and deliver, or cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates, and affidavits and supply or
cause to be supplied such further information and take such further action as
the Secured Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged
Property and all cash proceeds received by the Secured Party in respect of,
sale of, collection from, or other realization upon all or any part of the
Pledged Property shall be applied as follows:
(i) to the payment of all amounts due the Secured Party
for the expenses reimbursable to it hereunder or owed to it pursuant to
Section 8.3 hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons
entitled thereto, including, without limitation, the Company.
(c) In addition to all of the rights and remedies which the
Secured Party may have pursuant to this Agreement, the Secured Party shall
have all of the rights and remedies provided by law, including, without
limitation, those under the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the
occurrence of an Event of Default which is continuing, then the Secured Party
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company and collect the monies adjudged or
decreed to be payable in the manner provided by law out of the property of
Company, wherever situated.
(ii) The Company agrees that it shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in
connection with enforcement, collection and preservation of the Transaction
Documents, including, without limitation, reasonable legal fees and expenses,
and such amounts shall be deemed included as Obligations secured hereby and
payable as set forth in Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relating to the Company or the property of the
Company or of such other obligor or its creditors, the Secured Party
(irrespective of whether the Obligations shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether
the Secured Party shall have made any demand on the Company for the payment
of the Obligations), subject to the rights of Previous Security Holders,
shall be entitled and empowered, by intervention in such proceeding or
otherwise:
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(i) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any
claim for the reasonable legal fees and expenses and other expenses paid or
incurred by the Secured Party permitted hereunder and of the Secured Party
allowed in such judicial proceeding), and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by the
Secured Party to make such payments to the Secured Party and, in the event
that the Secured Party shall consent to the making of such payments directed
to the Secured Party, to pay to the Secured Party any amounts for expenses
due it hereunder.
Section 5.4. Duties Regarding Pledged Property.
The Secured Party shall have no duty as to the collection or protection
of the Pledged Property or any income thereon or as to the preservation of
any rights pertaining thereto, beyond the safe custody and reasonable care of
any of the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until
the Obligations have been fully paid and satisfied, unless the Secured Party
shall consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or
proceed with due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain Company's due organization, valid
existence and good standing under the laws of its state of incorporation, and
(ii) to preserve and keep in full force and effect all qualifications,
licenses and registrations in those jurisdictions in which the failure to do
so could have a Material Adverse Effect (as defined below); and (b) the
Company shall not do, or cause to be done, any act impairing the Company's
corporate power or authority (i) to carry on the Company's business as now
conducted, and (ii) to execute or deliver this Agreement or any other
document delivered in connection herewith, including, without limitation, any
UCC-1 Financing Statements required by the Secured Party to which it is or
will be a party, or perform any of its obligations hereunder or thereunder.
For purpose of this Agreement, the term "Material Adverse Effect" shall mean
any material and adverse affect as determined by Secured Party in its sole
discretion, whether individually or in the aggregate, upon (a) the Company's
assets, business, operations, properties or condition, financial or
otherwise; (b) the Company's to make payment as and when due of all or any
part of the Obligations; or (c) the Pledged Property.
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Section 6.2. Financial Statements and Reports.
The Company shall furnish to the Secured Party within a reasonable time
(which for quarterly or monthly financial information shall mean at least 60
days after the close of such period and for annual financial information
shall mean at least 90 days after the close of the fiscal year) such
financial data as the Secured Party may reasonably request, including,
without limitation, the following:
(a) The balance sheet of the Company as of the close of each
fiscal year, the statement of earnings and retained earnings of the Company
as of the close of such fiscal year, and statement of cash flows for the
Company for such fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles consistently
applied, certified by the chief executive and chief financial officers of the
Company as being true and correct and accompanied by a certificate of the
chief executive and chief financial officers of the Company, stating that the
Company has kept, observed, performed and fulfilled each covenant, term and
condition of this Agreement during such fiscal year and that no Event of
Default hereunder has occurred and is continuing, or if an Event of Default
has occurred and is continuing, specifying the nature of same, the period of
existence of same and the action the Company proposes to take in connection
therewith;
(b) A balance sheet of the Company as of the close of each
month, and statement of earnings and retained earnings of the Company as of
the close of such month, all in reasonable detail, and prepared substantially
in accordance with generally accepted accounting principles consistently
applied, certified by the chief executive and chief financial officers of the
Company as being true and correct; and
(c) Copies of all accountants' reports and accompanying
financial reports submitted to the Company by independent accountants in
connection with each annual examination of the Company.
Section 6.3. Accounts and Reports.
The Company shall maintain a standard system of accounting in
accordance with generally accepted accounting principles consistently applied
and provide, at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other
communication alleging any nonpayment or other material breach or default, or
any foreclosure or other action respecting any material portion of its assets
and properties, received respecting any of the indebtedness of the Company in
excess of $25,000 (other than the Obligations), or any demand or other
request for payment under any guaranty, assumption, purchase agreement or
similar agreement or arrangement respecting the indebtedness or obligations
of others in excess of $25,000, including any received from any person acting
on behalf of the Secured Party or beneficiary thereof; and
(b) within fifteen (15) days after the making of each
submission or filing, a copy of any report, financial statement, notice or
other document, whether periodic or otherwise, submitted to the shareholders
of the Company, or submitted to or filed by the Company with any governmental
authority involving or affecting (i) the Company that could have a Material
Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Property;
or (iv) any of the transactions contemplated in this Agreement or the Loan
Instruments.
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Section 6.4. Maintenance of Books and Records; Inspection.
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The Company shall maintain its books, accounts and records in
accordance with generally accepted accounting principles consistently
applied, and permit the Secured Party, its officers and employees and any
professionals designated by the Secured Party in writing, at any time to
visit and inspect any of its properties (including but not limited to the
collateral security described in the Transaction Documents and/or the Loan
Instruments), corporate books and financial records, and to discuss its
accounts, affairs and finances with any employee, officer or director thereof.
Section 6.5. Maintenance and Insurance.
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(a) The Company shall maintain or cause to be maintained, at
its own expense, all of its assets and properties in good working order and
condition, making all necessary repairs thereto and renewals and replacements
thereof.
(b) The Company shall maintain or cause to be maintained, at
its own expense, insurance in form, substance and amounts (including
deductibles), which the Company deems reasonably necessary to the Company's
business, (i) adequate to insure all assets and properties of the Company,
which assets and properties are of a character usually insured by persons
engaged in the same or similar business against loss or damage resulting from
fire or other risks included in an extended coverage policy; (ii) against
public liability and other tort claims that may be incurred by the Company;
(iii) as may be required by the Transaction Documents and/or applicable law
and (iv) as may be reasonably requested by Secured Party, all with adequate,
financially sound and reputable insurers.
Section 6.6. Contracts and Other Collateral.
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The Company shall perform all of its obligations under or with respect
to each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Company is now or hereafter will be party on a
timely basis and in the manner therein required, including, without
limitation, this Agreement.
Section 6.7. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in
and to any part of: (a) the Pledged Property; and (b) if not included within
the Pledged Property, those assets and properties whose loss could have a
Material Adverse Effect, the Company shall defend the Secured Party's right,
title and interest in and to each and every part of the Pledged Property,
each against all manner of claims and demands on a timely basis to the full
extent permitted by applicable law.
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Section 6.8. Payment of Debts, Taxes, Etc.
The Company shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its
obligations in accordance with the respective terms thereof, and pay and
discharge, or cause to be paid or discharged, all taxes, assessments and
other governmental charges and levies imposed upon it, upon any of its assets
and properties on or before the last day on which the same may be paid
without penalty, as well as pay all other lawful claims (whether for
services, labor, materials, supplies or otherwise) as and when due
Section 6.9. Taxes and Assessments; Tax Indemnity.
The Company shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date
of delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or
upon any properties belonging to it, prior to the date on which penalties
attach thereto, and (c) pay all taxes, assessments and governmental charges
or levies that, if unpaid, might become a lien or charge upon any of its
properties; provided, however, that the Company in good faith may contest any
such tax, assessment, governmental charge or levy described in the foregoing
clauses (b) and (c) so long as appropriate reserves are maintained with
respect thereto.
Section 6.10. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned
or used in connection therewith in compliance with (a) all applicable
federal, state and local laws, regulations and ordinances governing such
business operations and the use and ownership of such property, and (b) all
agreements, licenses, franchises, indentures and mortgages to which the
Company is a party or by which the Company or any of its properties is
bound. Without limiting the foregoing, the Company shall pay all of its
indebtedness promptly in accordance with the terms thereof.
Section 6.11. Notice of Default.
The Company shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the
Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.
Section 6.12. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of
(a) any actions, suits or proceedings wherein the amount at issue is in
excess of $50,000, instituted by any persons against the Company, or
affecting any of the assets of the Company, and (b) any dispute, not resolved
within fifteen (15) days of the commencement thereof, between the Company on
the one hand and any governmental or regulatory body on the other hand, which
might reasonably be expected to have a Material Adverse Effect on the
business operations or financial condition of the Company.
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ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing:
Section 7.1. Liens and Encumbrances.
The Company shall not directly or indirectly make, create, incur,
assume or permit to exist any assignment, transfer, pledge, mortgage,
security interest or other lien or encumbrance of any nature in, to or
against any part of the Pledged Property or of the Company's capital stock,
or offer or agree to do so, or own or acquire or agree to acquire any asset
or property of any character subject to any of the foregoing encumbrances
(including any conditional sale contract or other title retention agreement),
or assign, pledge or in any way transfer or encumber its right to receive any
income or other distribution or proceeds from any part of the Pledged
Property or the Company's capital stock; or enter into any sale-leaseback
financing respecting any part of the Pledged Property as lessee, or cause or
assist the inception or continuation of any of the foregoing, except in
connection with the Company leasing or purchasing office equipment, computer
and networking equipment, co-location equipment and other equipment and
supplies in the ordinary course of the Company's business, provided such
equipment and supplies do not, in the aggregate, exceed fifty thousand
dollars ($50,000.00) per annum.
Section 7.2. Certificate of Incorporation, By-Laws, Mergers,
Consolidations, Acquisitions and Sales.
Without the prior express written consent of the Secured Party, the
Company shall not: (a) Amend its Certificate of Incorporation or By-Laws;
(b) issue or sell its stock, stock options, bonds, notes or other corporate
securities or obligations; (c) be a party to any merger, consolidation or
corporate reorganization, (d) purchase or otherwise acquire all or
substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, (e) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of
its assets, nor (f) create any subsidiaries nor convey any of its assets to
any subsidiary.
Section 7.3. Management, Ownership.
The Company shall not materially change its ownership, executive staff
or management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors
in the Secured Party's willingness to institute and maintain a lending
relationship with the Company.
Section 7.4. Dividends, Etc.
The Company shall not declare or pay any dividend of any kind, in cash
or in property, on any class of its capital stock, nor purchase, redeem,
retire or otherwise acquire for value any shares of such stock, nor make any
distribution of any kind in respect thereof, nor make any return of capital
to shareholders, nor make any payments in respect of any pension, profit
sharing, retirement, stock option, stock bonus, incentive compensation or
similar plan (except as required or permitted hereunder), without the prior
written consent of the Secured Party.
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Section 7.5. Guaranties; Loans.
The Company shall not guarantee nor be liable in any manner, whether
directly or indirectly, or become contingently liable after the date of this
Agreement in connection with the obligations or indebtedness of any person or
persons, except for (i) the indebtedness currently secured by the liens
identified on the Pledged Property identified on Exhibit A hereto and (ii)
the endorsement of negotiable instruments payable to the Company for deposit
or collection in the ordinary course of business. The Company shall not make
any loan, advance or extension of credit to any person other than in the
normal course of its business.
Section 7.6. Debt.
The Company shall not create, incur, assume or suffer to exist any
additional indebtedness of any description whatsoever in an aggregate amount
in excess of $100,000 (excluding any indebtedness of the Company to the
Secured Party, trade accounts payable and accrued expenses incurred in the
ordinary course of business and the endorsement of negotiable instruments
payable to the Company, respectively for deposit or collection in the
ordinary course of business).
Section 7.7. Conduct of Business.
The Company will continue to engage, in an efficient and economical
manner, in a business of the same general type as conducted by it on the date
of this Agreement.
Section 7.8. Places of Business.
The location of the Company's chief place of business is 00 Xxxxx Xxxx,
Xxxx Xxxx, XX 00000. The Company shall not change the location of its chief
place of business, chief executive office or any place of business disclosed
to the Secured Party or move any of the Pledged Property from its current
location without thirty (30) days' prior written notice to the Secured Party
in each instance.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as
duly given on: (a) the date of delivery, if delivered in person, by
nationally recognized overnight delivery service or (b) five (5) days after
mailing if mailed from within the continental United States by certified
mail, return receipt requested to the party entitled to receive the same:
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If to the Secured Party: Xxxxxxxxxx Equity Partners, Ltd.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
And if to the Company: Compliance Systems Corporation
00 Xxxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx, LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving
of such notice, such newly designated address shall be such party's address
for the purpose of all notices or other communications required or permitted
to be given pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and this
Agreement shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the
Secured Party the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel, which the Secured Party may
incur in connection with: (i) the custody or preservation of, or the sale,
collection from, or other realization upon, any of the Pledged Property;
(ii) the exercise or enforcement of any of the rights of the Secured Party
hereunder or (iii) the failure by the Company to perform or observe any of
the provisions hereof.
12
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
covenants shall not waiver, affect, or diminish any right of the Secured
Party under this Agreement to demand strict compliance and performance
herewith. Any waiver by the Secured Party of any Event of Default shall not
waive or affect any other Event of Default, whether such Event of Default is
prior or subsequent thereto and whether of the same or a different type.
None of the undertakings, agreements and covenants of the Company contained
in this Agreement, and no Event of Default, shall be deemed to have been
waived by the Secured Party, nor may this Agreement be amended, changed or
modified, unless such waiver, amendment, change or modification is evidenced
by an instrument in writing specifying such waiver, amendment, change or
modification and signed by the Secured Party.
Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the
Pledged Property and shall: (i) remain in full force and effect until payment
in full of the Obligations; and (ii) be binding upon the Company and its
successors and heirs and (iii) inure to the benefit of the Secured Party and
its successors and assigns. Upon the payment or satisfaction in full of the
Obligations, the Company shall be entitled to the return, at its expense, of
such of the Pledged Property as shall not have been sold in accordance with
Section 5.2 hereof or otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has
had the opportunity to receive independent legal counsel of its own choice
and that it has been sufficiently apprised of its rights and responsibilities
with regard to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New Jersey without regard to the principles of
conflict of laws. The parties further agree that any action between them
shall be heard in Xxxxxx County, New Jersey, and expressly consent to the
jurisdiction and venue of the Superior Court of New Jersey, sitting in Xxxxxx
County and the United States District Court for the District of New Jersey
sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS
AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE
COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS
RELATED TO THIS TRANSACTION.
13
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to
the subject matter hereof.
[SIGNATURE PAGE FOLLOWS; REMAINDER OF PAGE INTENTIONALLY BLANK]
14
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the date first above written.
COMPANY:
COMPLIANCE SYSTEMS CORPORATION
By:
-----------------------------
Name: Xxxx Xxxxxxxxx
Title: Chairman
SECURED PARTY:
XXXXXXXXXX EQUITY PARTNERS, LTD.
By: Yorkville Advisors, LLC
Its: General Partner
By:
-----------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
15
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance
by the Company of all of the Obligations, the Company unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest
in and to, and lien upon, the following Pledged Property of the Company:
(a) all goods of the Company, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Company or in which the Company may have or may
hereafter acquire any interest, and all replacements, additions, accessions,
substitutions and proceeds thereof, arising from the sale or disposition
thereof, and where applicable, the proceeds of insurance and of any tort
claims involving any of the foregoing;
(b) all inventory of the Company, including, but not limited
to, all goods, wares, merchandise, parts, supplies, finished products, other
tangible personal property, including such inventory as is temporarily out of
Company's custody or possession and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing;
(c) all contract rights and general intangibles of the Company,
including, without limitation, goodwill, trademarks, trade styles, trade
names, leasehold interests, partnership or joint venture interests, patents
and patent applications, copyrights, deposit accounts whether now owned or
hereafter created;
(d) all documents, warehouse receipts, instruments and chattel
paper of the Company whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other
forms of obligations and rights to payment of the Company (herein
collectively referred to as "Accounts"), together with the proceeds thereof,
all goods represented by such Accounts and all such goods that may be
returned by the Company's customers, and all proceeds of any insurance
thereon, and all guarantees, securities and liens which the Company may hold
for the payment of any such Accounts including, without limitation, all
rights of stoppage in transit, replevin and reclamation and as an unpaid
vendor and/or lienor, all of which the Company represents and warrants will
be bona fide and existing obligations of its respective customers, arising
out of the sale of goods by the Company in the ordinary course of business;
(f) to the extent assignable, all of the Company's rights under
all present and future authorizations, permits, licenses and franchises
issued or granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property.
A-1
SCHEDULE A
DISCLOSURE SCHEDULE
The following is a list of liens, security interests, options and other
charges or encumbrances on the Pledged Property as of the date hereof:
Balance
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Secured Debt (UCC's Filed):
Notes Payable - Xxxxxx Xxxxx 30,000.00
Capitalized Leases Payable:
Dell Financial Services 8,795.00
Bank of the West 32,849.00
GE Capital 27,756.00
Axis Capital Inc. 17,900.00
M&T Credit Services LLC 18,080.00
Netbank Business Finance (formerly Republic Leasing) 30,620.00
US Bancorp 35,615.00
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Total Leases Payable 171,615.00
Secured Lease - Ford Credit 10,400.00
Total Secured Debt 212,015.00
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A-2
