Exhibit 10.3
FRONT PORCH DIGITAL, INC. AND CERTAIN OF ITS SUBSIDIARIES
MASTER SECURITY AGREEMENT
To: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services, Ltd.
X.X. Xxx 0000 G.T
Queensgate House
South Church Street
Grand Cayman, Cayman Islands
Date: May 13, 2004
To Whom It May Concern:
1. To secure the payment of all Obligations (as hereafter
defined), Front Porch Digital, Inc., a Nevada corporation (the "Company"), and
each other entity that is required to enter into this Master Security Agreement
(each an "Assignor" and, collectively, the "Assignors") hereby assigns and
grants to Laurus a continuing security interest in all of the following property
now owned or at any time hereafter acquired by any Assignor, or in which any
Assignor now has or at any time in the future may acquire any right, title or
interest (the "Collateral"): all cash, cash equivalents, accounts, deposit
accounts deposit accounts (including, without limitation, the Restricted Account
(the "Restricted Account") maintained at North Fork Bank (Account Name: Front
Porch Digital, Account Number: 2704051610) referred to in the Restricted Account
Agreement), inventory, equipment, goods, documents, instruments (including,
without limitation, promissory notes), contract rights, general intangibles
(including, without limitation, payment intangibles and an absolute right to
license on terms no less favorable than those current in effect among our
affiliates, but not own intellectual property), chattel paper, supporting
obligations, investment property (including, without limitation, all equity
interests owned by any Assignor), letter-of-credit rights, trademarks and
tradestyles in which any Assignor now have or hereafter may acquire any right,
title or interest, all proceeds and products thereof (including, without
limitation, proceeds of insurance) and all additions, accessions and
substitutions thereto or therefore. In the event any Assignor wishes to finance
the acquisition in the ordinary course of business of any hereafter acquired
equipment and has obtained a commitment from a financing source to finance such
equipment from an unrelated third party, Laurus agrees to release its security
interest on such hereafter acquired equipment so financed by such third party
financing source. Except as otherwise defined herein, all capitalized terms used
herein shall have the meaning provided such terms in the Securities Purchase
Agreement (defined below).
2. The term "Obligations" as used herein shall mean and include
all debts, liabilities and obligations owing by each Assignor to Laurus arising
under, out of, or in connection with: (i) that certain Securities Purchase
Agreement dated as of the date hereof by and between the Company and Laurus (the
"Securities Purchase Agreement") and (ii) the Related Agreements referred to in
the Securities Purchase Agreement (the Securities Purchase Agreement and each
Related Agreement, as each may be amended, modified, restated or supplemented
from time to time, are collectively referred to
herein as the "Documents"), and in connection with any documents, instruments or
agreements relating to or executed in connection with the Documents or any
documents, instruments or agreements referred to therein or otherwise, and in
connection with any other indebtedness, obligations or liabilities of any
Assignor to Laurus, whether now existing or hereafter arising, direct or
indirect, liquidated or unliquidated, absolute or contingent, due or not due and
whether under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or otherwise, in each case, irrespective of the genuineness,
validity, regularity or enforceability of such Obligations, or of any instrument
evidencing any of the Obligations or of any collateral therefor or of the
existence or extent of such collateral, and irrespective of the allowability,
allowance or disallowance of any or all of the Obligations in any case commenced
by or against any Assignor under Xxxxx 00, Xxxxxx Xxxxxx Code, including,
without limitation, obligations or indebtedness of each Assignor for
post-petition interest, fees, costs and charges that would have accrued or been
added to the Obligations but for the commencement of such case.
3. Each Assignor hereby represents, warrants and covenants to
Laurus that:
(a) it is a corporation, partnership or limited liability company,
as the case may be, validly existing, in good standing and
organized under the respective laws of its jurisdiction of
organization set forth on Schedule A, and each Assignor will
provide Laurus thirty (30) days' prior written notice of any
change in its jurisdiction of organization;
(b) its legal name is as set forth in its Certificate of
Incorporation or other organizational document (as applicable)
as amended through the date hereof and as set forth on
Schedule A, and it will provide Laurus thirty (30) days' prior
written notice of any change in its legal name;
(c) its organizational identification number (if applicable) is as
set forth on Schedule A hereto, and it will provide Laurus
thirty (30) days' prior written notice of any change in its
organizational identification number;
(d) it is the lawful owner of its respective Collateral and it has
the sole right to grant a security interest therein and will
defend such Collateral against all claims and demands of all
persons and entities;
(e) it will keep its respective Collateral free and clear of all
attachments, levies, taxes, liens, security interests and
encumbrances of every kind and nature ("Encumbrances"), except
(i) Encumbrances securing the Obligations and (ii) to the
extent said Encumbrance does not secure indebtedness in excess
of $100,000 and such Encumbrance is removed or otherwise
released within ten (10) days of the creation thereof;
(f) it will, at its and the other Assignors joint and several cost
and expense keep the Collateral in good state of repair
(ordinary wear and tear excepted) and will not waste or
destroy the same or
any part thereof other than ordinary course discarding of
items no longer used or useful in its or such other Assignors'
business;
(g) it will not without Laurus' prior written consent, sell,
exchange, lease or otherwise dispose of the Collateral,
whether by sale, lease or otherwise, except in the ordinary
course of business and except for the disposition or transfer
in the ordinary course of business during any fiscal year of
obsolete and worn-out equipment or equipment no longer
necessary for its ongoing needs, having an aggregate fair
market value of not more than $100,000.
(h) it will insure or cause the Collateral to be insured against
loss or damage by fire, theft, burglary, pilferage, loss in
transit and such other hazards consistent with past practices.
If any such Assignor fails to do so, Laurus may procure such
insurance and the cost thereof shall be promptly reimbursed by
the Assignors, jointly and severally, and shall constitute
Obligations;
(i) it will at all reasonable times and upon reasonable notice
allow Laurus or Laurus' representatives free access to and the
right of inspection of the Collateral;
(j) such Assignor (jointly and severally with each other Assignor,
if any) hereby indemnifies and saves Laurus harmless from all
loss, costs, damage, liability and/or expense, including
reasonable attorneys' fees, that Laurus may sustain or incur
to enforce payment, performance or fulfillment of any of the
Obligations and/or in the enforcement of this Master Security
Agreement or in the prosecution or defense of any action or
proceeding either against Laurus or any Assignor concerning
any matter growing out of or in connection with this Master
Security Agreement, and/or any of the Obligations and/or any
of the Collateral except to the extent caused by Laurus' own
negligence or willful misconduct (as determined by a court of
competent jurisdiction in a final and nonappealable decision).
4. The occurrence of any of the following events or conditions
shall constitute an "Event of Default" under this Master Security Agreement:
(a) Breach of any material covenant, warranty, representation or
statement made or furnished to Laurus by any Assignor or on
any Assignor's benefit was false or misleading in any material
respect when made or furnished, and if subject to cure, shall
not be cured for a period of fifteen (15) days; or
(b) the occurrence of an "Event of Default" as defined in the
Securities Purchase Agreement.
5. Upon the occurrence of any Event of Default and at any time
thereafter, Laurus may declare all Obligations immediately due and payable and
Laurus shall have the remedies of a secured party provided in the Uniform
Commercial Code as in effect in the State of New York, this Agreement and
other applicable law. Upon the occurrence of any Event of Default and at any
time thereafter, Laurus will have the right to take possession of the Collateral
and to maintain such possession on its premises or to remove the Collateral or
any part thereof to such other premises as Laurus may desire. Upon Laurus'
request, each of the Assignors shall assemble or cause the Collateral to be
assembled and make it available to Laurus at a place reasonably designated by
Laurus. If any notification of intended disposition of any Collateral is
required by law, such notification, if mailed, shall be deemed properly and
reasonably given if mailed at least ten (10) business days before such
disposition, postage prepaid, addressed to any Assignor either at such
Assignor's address shown herein or in the Securities Purchase Agreement or at
any subsequent address appearing on Laurus' records for such Assignor. Any
proceeds of any disposition of any of the Collateral shall be applied by Laurus
to the payment of all expenses in connection with the sale of the Collateral,
including reasonable attorneys' fees and other legal expenses and disbursements
and the reasonable expense of retaking, holding, preparing for sale, selling,
and the like, and any balance of such proceeds may be applied by Laurus toward
the payment of the Obligations in such order of application as Laurus may elect,
and each Assignor shall be liable for any deficiency. Following the occurrence
and during the continuance of an Event of Default, Laurus shall have the
immediate right to withdraw any and all monies contained in the Restricted
Account and apply same pursuant to Section 2.4 of the Note.
6. If any Assignor defaults in the performance or fulfillment of
any of the terms, conditions, promises, covenants, provisions or warranties on
such Assignor's part to be performed or fulfilled under or pursuant to this
Master Security Agreement, Laurus may, at its option without waiving its right
to enforce this Master Security Agreement according to its terms, immediately or
at any time thereafter and without notice to any Assignor, perform or fulfill
the same or cause the performance or fulfillment of the same for each Assignor's
joint and several account and at each Assignor's joint and several cost and
expense, and the reasonable cost and expense thereof (including reasonable
attorneys' fees) shall be added to the Obligations and shall be payable on
demand with interest thereon at the highest rate permitted by law, or, following
an Event of Default, at Laurus' option, debited by Laurus from the Restricted
Account referred to in the Restricted Account Agreement.
7. Each Assignor appoints Laurus, any of Laurus' officers,
employees or any other person or entity whom Laurus may designate as its
attorney, with power to execute such documents in its behalf and to supply any
omitted information and correct patent errors in any documents executed by any
Assignor or on any Assignor's behalf; to file financing statements against the
Assignors covering the Collateral; to sign the name of each Assignor on public
records; and to do all other things Laurus deem necessary to carry out this
Master Security Agreement. Each Assignor hereby ratifies and approves all acts
of the attorney and neither Laurus nor the attorney will be liable for any acts
of commission or omission, nor for any error of judgment or mistake of fact or
law other than gross negligence or willful misconduct (as determined by a court
of competent jurisdiction in a final and non-appealable decision). This power
being coupled with an interest, is irrevocable so long as any Obligations
remains unpaid.
8. No delay or failure on Laurus' part in exercising any right,
privilege or option hereunder shall operate as a waiver of such or of any other
right, privilege, remedy or option, and no waiver whatever shall be valid unless
in writing, signed by Laurus and then only to the extent therein set forth, and
no waiver by Laurus of any default shall operate as a waiver of any other
default or of the same default on a future occasion. Laurus' books and records
containing entries with respect to the Obligations shall be admissible in
evidence in any action or proceeding, shall be binding upon each Assignor for
the purpose of establishing the items therein set forth (absent manifest error)
and shall constitute prima facie proof thereof. Laurus shall have the right to
enforce any one or more of the remedies available to Laurus, successively,
alternately or concurrently. Each Assignor agrees to join with Laurus in
executing financing statements or other instruments to the extent required by
the Uniform Commercial Code in form satisfactory to Laurus and in executing such
other documents or instruments as may be required or reasonably deemed necessary
by Laurus for purposes of affecting or continuing Laurus' security interest in
the Collateral.
9. This Master Security Agreement shall be governed by and
construed in accordance with the laws of the State of New York and cannot be
terminated orally. All of the rights, remedies, options, privileges and
elections given to Laurus hereunder shall inure to the benefit of Laurus'
successors and assigns. The term "Laurus" as herein used shall include Laurus,
any parent of Laurus', any of Laurus' subsidiaries and any co-subsidiaries of
Laurus' parent, whether now existing or hereafter created or acquired, and all
of the terms, conditions, promises, covenants, provisions and warranties of this
Agreement shall inure to the benefit of and shall bind the representatives,
successors and assigns of each Assignor and each of the foregoing. Laurus and
each Assignor hereby (a) waive any and all right to trial by jury in litigation
relating to this Agreement and the transactions contemplated hereby and each
Assignor agrees not to assert any counterclaim in such litigation, (b) submit to
the nonexclusive jurisdiction of any New York State court sitting in the borough
of Manhattan, the City of New York and (c) waive any objection Laurus or each
Assignor may have as to the bringing or maintaining of such action with any such
court.
10. All notices from Laurus to any Assignor shall be sufficiently
given if mailed or delivered to such Assignor's address set forth below.
Very truly yours,
FRONT PORCH DIGITAL, INC.
By: /s/ Xxxxxx X. Xxxxxxx III
--------------------------------
Name: Xxxxxx X. Xxxxxxx III
Title: Chairman
ACKNOWLEDGED:
LAURUS MASTER FUND, LTD.
By:/s/ Xxxxx Grin
--------------------------------
Name: Xxxxx Grin
Title: Director
