XXXXXXXXX.XXX, INC.
SECURITY AGREEMENT
August 31, , 2004
To: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
P.O. Box 1234 XX
Xxxxxx House
South Church Street
Grand Cayman, Cayman Islands
Gentlemen:
1. To secure the payment of all Obligations (as hereafter defined), we hereby
grant to you a continuing security interest in all of the following
property now owned or at any time hereafter acquired by us, or in which we
now have or at any time in the future may acquire any right, title or
interest (the "Collateral"): all cash, deposit accounts, accounts
receivable, accounts, 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 currently
in effect among our affiliates, but not own intellectual property), chattel
paper, supporting obligations, investment property, letter-of-credit
rights, trademarks and tradestyles in which we 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 we wish to
finance the acquisition of any hereafter acquired equipment and have
obtained a commitment from a financing source to finance such equipment
from an unrelated third party, you agree to release your security interest
on such hereafter acquired equipment so financed by such third party
financing source.
2. The term "Obligations" as used herein shall mean and include all debts,
liabilities and obligations owing by our parent corporation, Pipeline Data
Inc. ("Pipeline"), to you under, whether arising under, out of, or in
connection with that certain Securities Purchase Agreement dated as of the
date hereof by and between Pipeline and Laurus Master Fund, Ltd. ("Laurus")
(the "Securities Purchase Agreement"), that certain Secured Convertible
Term Note dated as of the date hereof made by Pipeline in favor of Laurus
(the "Term Note"), the Warrant dated as of the date hereof made by Pipeline
in favor of Laurus in connection with the Term Note (the "Term Note
Warrant"), that certain Registration Rights Agreement dated as of the date
hereof by and between Pipeline and Laurus in connection with the Term Note
(the "Term Note Registration Rights Agreement"), that certain Security
Agreement dated as of the date hereof by and between Pipeline and Laurus
(the "Security Agreement"), and any and all and all other documents entered
into by Laurus, Pipeline, and/or a subsidiary of Pipeline in connection
with the Term Note (the "Other Documents") (the Securities Purchase
Agreement, the Term Note, the Term Note Warrant and the Term Note
Registration Rights Agreement, the Security Agreement, and the Other
Documents, as each may be amended, modified, restated or supplemented from
time to time, are collectively referred to herein as the "Documents").
3. We hereby represent, warrant and covenant to you that:
(a) we are a company validly existing, in good standing and formed under
the laws of the State of Delaware and we will provide you thirty (30)
days' prior written notice of any change in our state of formation;
(b) our legal name is XxxxxxXxx.Xxx, Inc. as set forth in our Certificate
of Incorporation as amended through the date hereof;
(c) we have no subsidiaries;
(d) we are the lawful owner of the Collateral and have the sole right to
grant a security interest therein and will defend the Collateral
against all claims and demands of all persons and entities;
(e) we will keep the Collateral free and clear of all attachments, levies,
taxes, liens, security interests and encumbrances of every kind and
nature ("Encumbrances"), except (i) any Encumbrance subordinate to the
Obligations or (ii) to the extent said Encumbrance does not secure
indebtedness in excess of $100,000 and such Encumbrance is removed or
otherwise released within twenty (20) days of the creation thereof;
(f) we will at our own 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 our business;
(g) we will not without your prior written consent, sell, exchange, lease
or otherwise dispose of the Collateral, whether by sale, lease or
otherwise, except for the sale of inventory in the ordinary course of
business and 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 our ongoing needs, having an
aggregate fair market value of not more than $25,000 and only to the
extent that:
(i) the proceeds of any such disposition are used to acquire
replacement Collateral which is subject to your first priority
security interest (subject to the $100,000 allowance set forth in
paragraph (f) of this Section 3) or are used to repay Obligations
or to pay general corporate expenses; or
(ii) following the occurrence of an Event of Default which continues
to exist the proceeds of which are remitted to you to be held as
cash collateral for the Obligations;
(h) we will insure the Collateral in your name against loss or damage by
fire, theft, burglary, pilferage, loss in transit and such other
hazards as you shall specify in amounts and under policies by insurers
acceptable to you and all premiums thereon shall be paid by us and the
policies delivered to you. If we fail to do so, you may procure such
insurance and the cost thereof shall constitute Obligations;
(i) we will at all reasonable times allow you or your representatives free
access to and the right of inspection of the Collateral;
(j) we hereby indemnify and save you harmless from all loss, costs,
damage, liability and/or expense, including reasonable attorneys'
fees, that you may sustain or incur to enforce payment, performance or
fulfillment of any of the Obligations and/or in the enforcement of
this Agreement or in the prosecution or defense of any action or
proceeding either against you or us concerning any matter growing out
of or in connection with this Agreement, and/or any of the Obligations
and/or any of the Collateral except to the extent caused by your own
gross negligence or willful misconduct.
4. We shall be in default under this Agreement upon the happening of any of
the following events or conditions, each such event or condition an "Event
of Default:"
(a) we shall fail to pay when due or punctually perform any of the
Obligations and such failure shall continue for a period of three (3)
days following any failure to make payment, or for a period of thirty
(30) days following default for any other such failure;
(b) any covenant, warranty, representation or statement made or furnished
to you by us or on our behalf was false in any material respect when
made or furnished;
(c) the loss, theft, substantial damage, destruction, sale or encumbrance
to or of any of the Collateral or the making of any levy, seizure or
attachment thereof or thereon except to the extent:
(i) such loss is covered by insurance proceeds which are used to
replace the item or repay us; or
(ii) said levy, seizure or attachment does not secure indebtedness in
excess of $100,000 and such levy, seizure or attachment has not
been removed or otherwise released within twenty (20) days of the
creation or the assertion thereof;
(d) we shall become insolvent, cease operations, dissolve, terminate our
business existence, make an assignment for the benefit of creditors,
suffer the appointment of a receiver, trustee, liquidator or custodian
of all or any part of our property;
(e) any proceedings under any bankruptcy or insolvency law shall be
commenced by or against us and if commenced against us shall not be
dismissed within ninety (90) days;
(f) we shall repudiate, purport to revoke or fail to perform any of our
obligations under the Note (after passage of applicable cure period,
if any); or
(g) an Event of Default shall have occurred under and as defined in the
Note.
5. Upon the occurrence of any Event of Default and at any time thereafter, you
may declare all Obligations immediately due and payable and you 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, you will have the right to take possession of the Collateral
and to maintain such possession on our premises or to remove the Collateral
or any part thereof to such other premises as you may desire. Upon your
request, we shall assemble the Collateral and make it available to you at a
place designated by you. 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) days
before such disposition, postage prepaid, addressed to us either at our
address shown herein or at any address appearing on your records for us.
All notices shall be sent though a nationally reputable overnight courier
to arrive the next day. Any proceeds of any disposition of any of the
Collateral shall be applied by you 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 you toward the payment of the
Obligations in such order of application as you may elect, and we shall be
liable for any deficiency.
6. If we default in the performance or fulfillment of any of the terms,
conditions, promises, covenants, provisions or warranties on our part to be
performed or fulfilled under or pursuant to this Agreement, you may, at
your option without waiving your right to enforce this Agreement according
to its terms, immediately or at any time thereafter and without notice to
us, perform or fulfill the same or cause the performance or fulfillment of
the same for our account and at our sole cost and expense, and the 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, at your option, debited by you from the
Collateral.
7. We appoint you, any of your officers, employees or any other person or
entity whom you may designate as our attorney, with power to execute such
documents in our behalf and to supply any omitted information and correct
patent errors in any documents executed by us or on our behalf; to file
financing statements against us covering the Collateral; to sign our name
on public records; and to do all other things you deem necessary to carry
out this Agreement. We hereby ratify and approve all acts of the attorney
and neither you 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. This power being coupled with
an interest, is irrevocable so long as any Obligations remains unpaid.
8. No delay or failure on your 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 you and then only to the extent therein set forth,
and no waiver by you of any default shall operate as a waiver of any other
default or of the same default on a future occasion. Your books and records
containing entries with respect to the Obligations shall be admissible in
evidence in any action or proceeding, shall be binding upon us for the
purpose of establishing the items therein set forth and shall constitute
prima facie proof thereof. You shall have the right to enforce any one or
more of the remedies available to you, successively, alternately or
concurrently. We agree to join with you in executing financing statements
or other instruments to the extent required by the Uniform Commercial Code
in form satisfactory to you and in executing such other documents or
instruments as may be required or deemed necessary by you for purposes of
affecting or continuing your security interest in the Collateral.
9. This 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 you hereunder
shall inure to the benefit of your successors and assigns. The term "you"
as herein used shall include your company, any parent of your company, any
of your subsidiaries and any co-subsidiaries of your 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 of us and them. You and we hereby (a) waive
any and all right to trial by jury in litigation relating to this Agreement
and the transactions contemplated hereby and we agree 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 you or we may
have as to the bringing or maintaining of such action with any such court.
10. All notices from you to us shall be sufficiently given if mailed or
delivered to us at our address set forth below.
Very truly yours,
XXXXXXXXX.XXX, INC.
By:
/S/ MacAlister Xxxxx
ACKNOWLEDGED: Title:
Chief Executive Officer
LAURUS MASTER FUND, LTD. Address: 00 Xxxx Xxxx Xxxxxx,
Xxxxxxx Xxxxx, Xxx Xxxx 00000
By: /s/ Xxxxxx Grin Attention: Xxxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
With copy to: Xxxxxx Xxxxxxx, Esq.
000 Xxxxxx Xxxx Xxxx
Xxxxxx , Xxxxxxx 00000
Facsimile: (000) 000-0000
