AMENDED AND RESTATED SECURITY AGREEMENT
AMENDED
AND RESTATED
This
Amended and Restated Security Agreement (this “Security
Agreement”), dated as of February 9, 2010 is by and between Compliance Systems
Corporation, a Nevada corporation (the “Debtor”),
and Agile Opportunity Fund,
LLC, a Delaware limited liability company (the “Secured
Party”).
Background
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1.
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The
Secured Party has agreed to acquire from the Debtor an Amended and
Restated Secured Convertible Debenture (the “Debenture”)
in the principal amount of $1,765,000.00, pursuant to an Amended and
Restated Securities Purchase Agreement among the Debtor, the Secured Party
and the other parties thereto dated as of the date hereof (the “Securities
Purchase Agreement”). Capitalized terms used herein and not
otherwise defined herein shall have the meanings specified in the
Securities Purchase Agreement.
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2.
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To
induce the Secured Party to purchase the Debenture, the Debtor has agreed
to provide the Secured Party with a first priority security interest in
the Collateral (as hereinafter defined) and to amend and restate in its
entirety, the existing Security Agreement between the Debtor and the
Secured Party dated as of May 6, 2008, as amended (the “Original
Security Agreement”).
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NOW,
THEREFORE,
In
consideration of the promises and the mutual covenants and agreements herein set
forth, and in order to induce the Secured Party to purchase the Debenture, the
Debtor hereby agrees with the Secured Party as follows:
Section
1. Grant of
Security Interest. The Debtor hereby grants to the Secured
Party, on the terms and conditions hereinafter set forth a first priority
security interest in the collateral hereinafter identified (the “Collateral”).
Section
2. Collateral. The
Collateral is all tangible and intangible assets of the Debtor of whatever kind
and nature (including, without limitation, all intellectual property of whatever
kind or nature of the Debtor including patents, trademarks, tradenames,
copyrights and all other intellectual property and any applications or
registrations therefore, accounts, chattel paper, commercial tort claims,
documents, equipment, farm products, general intangibles, instruments,
inventory, investment property, and the stock of all of Debtor’s subsidiaries),
in each case whether now owned or hereafter acquired and wherever located, and
all proceeds thereof, together with all proceeds, products, replacements and
renewals thereof. The Debtor agrees that it will not sell, transfer,
pledge, mortgage or encumber any of the Collateral (other than sales of goods or
services in the ordinary course of business) without the prior written consent
of the Secured Parties, except that Debtor is permitted to grant subordinated
security interests to the holders of Existing Security Interests (as hereinafter
defined). A breach of this Section 2 shall automatically constitute
an Event of Default under the Note without any further action of the Secured
Party.
Section
3. Representations
and Warranties; Covenants. The Debtor hereby represents,
warrants and covenants as follows:
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(a)
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The
Debtor has title to the Collateral free from any lien, security interest,
encumbrance or claim, other than security interests (the “Existing
Security Interests”) previously granted to Nascap Corp., Xxxxx X.
Xxxxxx and Xxxxx X. Xxxxxxxxxx, which security interest shall be
subordinate to the security interest granted to the Secured Party pursuant
to the Security Agreement.
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(b)
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The
Debtor will maintain the Collateral so as to preserve its value subject to
wear and tear in the ordinary
course.
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(c)
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The
Debtor is a corporation duly organized, validly existing and in good
standing under the laws of the State of
Nevada.
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(d)
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The
Debtor will pay when due all existing or future charges, liens, or
encumbrances on the Collateral, and will pay when due all taxes and
assessments now or hereafter imposed or affecting the Collateral unless
such taxes or assessments are diligently contested by the Debtor in good
faith and reasonable reserves are established
therefor.
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(e)
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All
factual information with respect to the Debenture and the Collateral and
account debtors set forth in any schedule, certificate or other writing at
any time heretofore or hereafter furnished by the Debtor to the Secured
Party, and all other written factual information heretofore or hereafter
furnished by the Debtor to the Secured Party, is or will be true and
correct in all material respects, as of the date
furnished.
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(f)
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Intentionally
Omitted.
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(g)
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The
Debtor will keep its records concerning the Collateral at its address
shown in Section 18 below. Such records will be of such
character as to enable the Secured Party or their representatives to
determine at any time the status thereof, and the Debtor will not, unless
the Secured Party shall otherwise consent in writing, maintain any such
record at any other address.
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(h)
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The
Debtor will furnish the Secured Party information on a quarterly basis
concerning the Debtor, the Debenture and the Collateral as the Secured
Party may at any time reasonably
request.
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(i)
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The
Debtor will permit the Secured Party and its representatives at any
reasonable time on five days’ prior written notice to inspect any and all
of the Collateral, and to inspect, audit and make copies of and extracts
from all records and all other papers in possession of the Debtor
pertaining to the Debenture and the
Collateral.
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(j)
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The
Debtor will, at such times as the Secured Party may reasonably request,
deliver to the Secured Party a schedule identifying the Collateral subject
to the security interest of this Security Agreement, and such additional
schedules, certificates, and reports respecting all or any of the
Collateral at the time subject to the security interest of this Security
Agreement, and the items or amounts received by the Debtor in full or
partial payment or otherwise as proceeds received in connection with any
Collateral. Any such schedule, certificate or report shall be
executed by a duly authorized officer of the Debtor on behalf of the
Debtor and shall be in such form and detail as the Secured Party may
reasonably specify. The Debtor shall immediately notify the Secured Party
of the occurrence of any event causing loss or depreciation in the value
of the Collateral, and the amount of such loss or
depreciation.
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(k)
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If
and when so requested by the Secured Party, the Debtor will stamp on the
records of
the Debtor concerning the Collateral a notation, in a form satisfactory to
the Secured Party, of the security interest of the Secured Party under
this Security
Agreement.
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Section
4. Disposition
of Collateral in Ordinary Course. Debtor shall not sell,
transfer, assign, convey, license, grant any right to use or otherwise dispose
of any Collateral except in the ordinary course of business, without the prior
written consent of the Secured Party.
Section
5. Secured
Party May Perform. Upon the occurrence and continuation of an
“Event of
Default” under the Debenture, at the option of the Secured Party, the
Secured Party may discharge taxes, liens or security interests, or other
encumbrances at any time hereafter levied or placed on the Collateral; may pay
for insurance required to be maintained on the Collateral pursuant to Section 3;
and may pay for the maintenance and preservation of the
Collateral. The Debtor agrees to reimburse the Secured Party on
demand for any payment reasonably made, or any expense reasonably incurred, by
the Secured Party pursuant to the foregoing authorization. Until the
occurrence and continuation of an Event of Default, the Debtor may have
possession of the Collateral and use the Collateral in any lawful manner not
inconsistent with this the Security Agreement.
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Section
6. Obligations
Secured; Certain Remedies. This Security Agreement secures the
payment and performance of all obligations of the Debtor to the Secured Party
under (x) the Debenture, whether now existing or hereafter arising and whether
for principal, interest, costs, fees or otherwise, and (y) Section 1.7 of the
Securities Purchase Agreement with respect to the Remaining Combined Accrued
Interest Amount (collectively, the “Obligations”). Upon
the occurrence and continuation of an Event of Default under the Debenture or
the failure to pay to Secured Party the Remaining Combined Accrued Interest
Amount no later than the Maturity Date of the Debenture, the Secured Party may
declare all obligations secured hereby immediately due and payable and may
exercise the remedies of a secured party under the Uniform Commercial
Code. Without limiting the foregoing, the Secured Party may require
the Debtor to assemble the Collateral and make it available to the Secured Party
at a place to be designated by the Secured Party which is reasonably convenient
to both parties or to execute appropriate documents of assignment, transfer and
conveyance, in each case, in order to permit the Secured Party to take
possession of and title to the Collateral. Unless the Collateral is
perishable or threatens to decline rapidly in value or is of a type customarily
sold on a recognized market, the Secured Party will give the Debtor reasonable
notice of the time and place of any public sale thereof or of the time after
which any private sale or any other intended disposition thereof is to be
made. The requirements of reasonable notice shall be met if such
notice is mailed to the Debtor via registered or certified mail, postage
prepaid, at least fifteen days before the time of sale or
disposition. Expenses of retaking, holding, preparing for sale,
selling or the like, shall include the Secured Party’s reasonable attorneys’
fees and legal expenses.
Section
7. Debtor
Remains Liable. Anything herein to the contrary
notwithstanding:
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(a)
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Notwithstanding
the exercise of any remedy available to the Secured Party hereunder or at
law in connection with an Event of Default, the Debtor shall remain liable
to repay the balance remaining unpaid and outstanding under the Debenture
after the value or proceeds received by the Secured Party in connection
with such remedy is subtracted. The Secured Party shall
promptly deliver and pay over to the Debtor any portion of the value or
proceeds received in connection with such remedy that remains after the
unpaid and outstanding portion of the Debenture is paid in
full.
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(b)
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The
Debtor shall remain liable under the contracts and agreements included in
the Collateral to the extent set forth therein, and shall perform all of
its duties and obligations under such contracts and agreements to the same
extent as if this Security Agreement had not been
executed.
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(c)
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The
exercise by the Secured Party of any of Secured Party’s rights hereunder
shall not release the Debtor from any of Debtor’s duties or obligations
under any such contracts or agreements included in the
Collateral.
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(d)
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The
Secured Party shall not have any obligation or liability under any such
contracts or agreements included in the Collateral by reason of this
Security Agreement, nor shall the Secured Party be obligated to perform
any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned
hereunder.
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Section
8. Security
Interest Absolute. All rights of the Secured Party and the
security interests granted to the Secured Party hereunder shall be absolute and
unconditional, to the maximum extent permitted by law, irrespective
of:
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(a)
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Any
lack of validity or enforceability of the Debenture or any other document
or instrument relating thereto;
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(b)
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Any
change in the time, manner or place of payment of, or in any other term
of, all or any part of the Obligations or any other amendment to or waiver
of or any consent to any departure from the Debenture or any other
document or instrument relating
thereto;
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(c)
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Any
exchange, release or non-perfection of any collateral (including the
Collateral), or any release of or amendment to or waiver of or consent to
or departure from any guaranty, for all or any of the Obligations;
or
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(d)
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Any
other circumstance which might otherwise constitute a defense available
to, or a discharge of, the Debtor, a guarantor or a third party grantor of
a security interest.
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Section
9. Additional
Assurances. At the request of the Secured Party, the Debtor
will join in executing or will execute, as appropriate, all necessary financing
statements in a form reasonably satisfactory to the Secured Party, and the
Debtor will pay the reasonable cost of filing such statements, including all
statutory fees. The Debtor will further execute all other instruments
reasonably deemed necessary by the Secured Party and pay the reasonable cost of
filing such instruments. The Debtor warrants that no financing
statement covering Collateral or any part or proceeds thereof is presently on
file in any public office, except for financing statements with respect to the
Existing Security Interest. The Debtor covenants that it will not
grant any other security interest in the Collateral without first obtaining the
written consent of the Secured Party, except with respect to extensions, if any,
of the Existing Security Interests.
Section
10. Representations,
Warranties and Covenants Concerning Debtor’s Legal Status.
(a) The
Debtor has previously executed and delivered to the Secured Party a Perfection
Certificate in the form of Schedule I
hereto. The Debtor represents and warrants to the Secured Party as
follows:
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(i)
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Debtor’s
exact legal name is as indicated on the Perfection Certificate and on the
signature page hereof;
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(ii)
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Debtor
is an organization of the type, and is organized in the jurisdiction, set
forth in the Perfection
Certificate;
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(iii)
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the
Perfection Certificate accurately sets forth Debtor’s organizational
identification number or accurately states that Debtor has
none;
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(iv)
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the
Perfection Certificate accurately sets forth Debtor’s place of business
or, if more than one, its chief executive office as well as Debtor’s
mailing address, if different;
and
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(v)
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all
other information set forth on the Perfection Certificate is accurate and
complete.
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(b)
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The
Debtor covenants with the Secured Party as
follows:
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(i)
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without
providing fifteen days’ prior written notice to the Secured Party, Debtor
will not change its name, its place of business, or, if more than one, its
chief executive offices or its mailing address or organizational
identification number, if it has
one;
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(ii)
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if
Debtor does not have an organizational identification number and later
obtains one, Debtor shall forthwith notify the Secured Party of such
organizational identification number;
and
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(iii)
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Debtor
will not change its type of organization, jurisdiction of organization or
other legal structure.
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Section
11. Expenses.
The Debtor will upon demand pay to the Secured Party the amount of any
and all reasonable expenses, including the reasonable fees and disbursements of
its counsel and of any experts and agents, which the Secured Party may incur in
connection with (i) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral upon the
occurrence and continuation of an Event of Default, (ii) the exercise or
enforcement of any of the rights of the Secured Party hereunder, or (iii) the
failure by the Debtor to perform or observe any of the provisions
hereof.
Section
12. Notices
of Loss or Depreciation. The Debtor will immediately notify
the Secured Party of any claim, suit or proceeding against any Collateral or any
event causing loss or depreciation in the value of Collateral, including the
amount of such loss or depreciation
Section
13. No
Waivers. No waiver by the Secured Party of any default shall
operate as a waiver of any other default or of the same default on any
subsequent occasion.
Section
14. Successor
and Assigns. The Secured Party shall have the right to assign
this Security Agreement and its rights hereunder without the consent of the
Debtor. All rights of the Secured Party shall inure to the benefit of
the successors and assigns of the Secured Party. All obligations of
the Debtor shall be binding upon the Debtor’s successors and
assigns.
Section
15. Governing
Law; Jurisdiction. This Security Agreement shall be governed
by the laws of the State of New York, without giving effect to such
jurisdiction’s principles of conflict of laws, except to the extent that the
validity or the perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Each of the parties
hereto submits to the personal jurisdiction of and each agrees that all
proceedings relating hereto shall be brought in federal or state courts located
within Nassau or Suffolk Counties in the State of New York.
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Section
16. Counterparts. This
Security Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together shall constitute one and
the same instrument.
Section
17. Remedies
Cumulative. The rights and remedies herein are cumulative, and
not exclusive of other rights and remedies which may be granted or provided by
law.
Section
18. Notices. Any
demand upon or notice to a party hereunder shall be effective when delivered by
hand, against written receipt therefor, two business days following the business
day on which it is properly deposited in the mails postage prepaid, certified or
registered mail, return receipt requested, or one business day following deposit
with an overnight courier, in each case addressed to such party at the address
shown below or such other address as the party may advise the other party in
writing:
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If
to the Secured Party:
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Agile
Opportunity Fund, LLC
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0000
Xxxx Xxxxxxx Xxxx, Xxxxx 000X
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Xxxxxxxx,
XX 00000
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With
a copy to:
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Xxxxxxxxx
Ball Xxxxxx Xxxxxx & Xxxxxxxxxx, LLP
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0000
XXX Xxxxx
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Xxxxxxxxx,
XX 00000
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Attn: Xxxx
X. Xxxxxx, Esq.
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If
to the Debtor:
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Compliance
Systems Corporation
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00
Xxxx Xxxxxx - Xxxxx 000
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Xxxx
Xxxx, XX 00000
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Attn.: Xxxx
Xxxxxxxxx, President
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With
a copy to:
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Moritt
Xxxx Hamroff & Xxxxxxxx LLP
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000
Xxxxxx Xxxx Xxxxx
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Xxxxxx
Xxxx, XX 00000
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Attn: Xxxxxx
X. X’Xxxxxx, Esq.
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Section
19. Entire
Agreement. This Security Agreement and the documents and
instruments referred to herein embody the entire agreement entered into between
the parties relating to the subject matter hereof, amends and restates the
Original Security Agreement in its entirety and may not be amended, waived, or
discharged except by an instrument in writing executed by the Secured
Party.
Section
20. Termination. This
Security Agreement shall terminate upon the repayment in full of the Debenture
or conversion in full of the Debenture upon which the Secured Party shall
cooperate in the filing of the necessary or appropriate documents and
instruments to release the security interest created hereby and will execute and
deliver any and all documents and/or instruments reasonably requested by Debtor
in connection therewith.
[Remainder
of Page Intentionally Left Blank]
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IN
WITNESS WHEREOF, the parties hereto, by their duly authorized agents, have
executed this Security Agreement as of the date set forth above.
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COMPLIANCE
SYSTEMS CORPORATION
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By:
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/s/ Xxxx Xxxxxxxxx
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Name: Xxxx
Xxxxxxxxx
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Title: President
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AGILE
OPPORTUNITY FUND, LLC
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By:
AGILE INVESTMENTS, LLC, Managing Member
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By:
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/s/ Xxxxx X. Xxxxxx
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Name: Xxxxx
X. Xxxxxx
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Title: Managing
Member
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