EXHIBIT 99.5
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SECURITY AGREEMENT dated as of July [26], 2001, among EXCHANGE
APPLICATIONS, INC., a Washington corporation (the "Borrower"), EXSTATIC
SOFTWARE, INC., (f/k/a/ Xxxx Xxxxxxx, Inc.), a [_______] corporation
("Exstatic", together with the Borrower, the "Grantors"), and the secured
parties (each a "Secured Party" and together, the "Secured Parties") identified
on the signature page hereto.
Reference is made to the (i) Securities Purchase Agreement, dated as of
July [26], 2001 (the "Purchase Agreement"), among the Borrower and the Secured
Parties, (ii) U.S. $[7,241,307.37] million principal amount 12% Senior Secured
Convertible Debenture (the "Note Debenture"), and (iii) U.S. $5 million
principal amount 12% Senior Secured Convertible Debenture (the "Cash Debenture")
together with the Note Debenture, the "Convertible Debentures"), each of (i),
(ii) and (iii) dated as of July [26], 2001 and issued by the Corporation to the
Investors.
The Secured Parties have agreed to (i) exchange U.S. $[7,241,307.37]
million aggregate principal amount of the Borrower's 12% Bridge Promissory Note,
dated June 1, 2001, plus the amount of accrued and unpaid interest thereon
through the Closing Date, and (ii) lend U.S. $5,000,000.00 in cash, each of (i)
and (ii) pursuant to, and upon the terms and subject to the conditions specified
in, the Financing Documents. The obligations of the Secured Parties to
consummate the transactions contemplated by the Financing Documents are
conditioned upon, among other things, the execution and delivery by the Grantors
of an agreement in the form hereof to secure (A) the due and punctual payment by
the Borrower of (i) the principal of and premium, if any, and interest
(including interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Note Debenture, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each other amount required to be paid by the Borrower under the
Note Debenture, when and as due, including payments in respect of reimbursement
of disbursements, interest thereon and obligations to provide cash collateral
and (iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Secured Parties under the Note
Debenture, (B) the due and punctual payment by the Borrower of (i) the principal
of and premium, if any, and interest (including interest accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Cash Debenture, when and as due, whether at maturity, by acceleration, upon
one or more dates set for prepayment or otherwise, (ii) each other amount
required to be paid by the Borrower under the Cash Debenture, when and as due,
including payments in respect of reimbursement of disbursements, interest
thereon and obligations to provide cash collateral and (iii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed
or allowable in such proceeding), of the Borrower to the Secured Parties under
the Cash Debenture and (C) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or pursuant to the
Financing Documents (all the monetary and other obligations described in the
preceding clauses (A) through (C) being collectively called the "Obligations").
Accordingly, each of the Grantors and the Secured Parties (and
each of their respective successors or assigns), hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITION OF TERMS USED HEREIN.
Unless the context otherwise requires, all capitalized terms used but
not defined herein shall have the meanings set forth in the Purchase Agreement.
1.2 DEFINITION OF CERTAIN TERMS USED HEREIN.
As used herein, the following terms shall have the following meanings:
"Account Debtor" shall mean any Person who is or who may
become obligated to any Grantor under, with respect to or on account of an
Account.
"Accounts" shall mean any and all right, title and interest of
the Grantors to payment for goods and services sold or leased, including any
such right evidenced by chattel paper, whether due or to become due, whether or
not it has been earned by performance, and whether now or hereafter acquired or
arising in the future, including accounts receivable from Affiliates of the
Grantors.
"Accounts Receivable" shall mean all Accounts and all right,
title and interest in any returned or repossessed goods, together with all
rights, titles, securities and guarantees with respect thereto, including any
rights to stoppage in transit, replevin, reclamation and resales, and all
related security interests, liens and pledges, whether voluntary or involuntary,
in each case whether now existing or owned or hereafter arising or acquired.
"Affiliate" shall mean, with respect to any Person, any
director, officer, parent or subsidiary of such Person, or any Person
controlling, controlled by or under common control with such Person.
"Borrower" shall have the meaning assigned to such term in the
Preamble to this Agreement.
"Cash Debenture" shall have the meaning assigned to such term
in the Preamble of this Agreement.
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"Collateral" shall mean all (a) Accounts Receivable, (b)
Documents, (c) Equipment, (d) General Intangibles, (e) Inventory, (f) cash and
cash accounts, (g) Investment Property, (h) Instruments (as defined in the UCC),
and (i) Proceeds. Secured Parties may place a "hold" on any Deposit Account
pledged as collateral. Notwithstanding the foregoing, it is expressly
acknowledged and agreed that the security interest created in this Agreement
only with respect to Exim Eligible Foreign Accounts (as such term is defined in
the Exim Agreement) is subject to and subordinate to the security interest
granted to SVB in the Exim Agreement with respect to such Exim Eligible Foreign
Accounts, but only to the extent any Advances are actually made to the Grantors
under the Exim Agreement based upon such Exim Eligible Foreign Accounts. In
anticipation of the possible application, in one or more jurisdictions to the
transactions contemplated hereby, of the revised Article 9 of the Uniform
Commercial Code in the form approved by the American Law Institute and the
National Conference of Commissioners on Uniform State Law and contained in the
1999 Official Text of the Uniform Commercial Code ("Revised Article 9"), it is
hereby agreed that applying the law of any jurisdiction which Revised Article 9
is in effect, the Collateral is all assets of the Grantors, whether or not
within the scope of Revised Article 9. The collateral shall include, without
limitation, the following categories of assets as defined in Revised Article 9:
goods (including inventory, equipment and any accessions thereto), instruments
(including promissory notes), documents, accounts (including
health-care-insurance receivables, and license fees), chattel paper (whether
tangible or electronic), deposit accounts, letter-of-credit rights (whether or
not the letter of credit is evidenced by a writing), commercial tort claims,
securities and all other investment property, general intangibles (including
payment intangibles and software, but excluding Intellectual Property),
supporting obligations and any and all proceeds of any thereof, wherever
located, whether now owned or hereafter acquired. If the Grantors shall at any
time, whether or not Revised Article 9 is in effect in any particular
jurisdiction, acquire a commercial tort claim, as defined in Revised Article 9,
the Grantors shall promptly notify the Secured Parties in a writing signed by
the Grantors of the brief details thereof and grant to the Secured parties in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
satisfactory to the Secured Parties.
"Commodity Account" shall mean an account maintained by a
Commodity Intermediary in which a Commodity Contract is carried out for a
Commodity Customer.
"Commodity Contract" shall mean a commodity futures contract,
an option on a commodity futures contract, a commodity option or any other
contract that, in each case, is (a) traded on or subject to the rules of a board
of trade that has been designated as a contract market for such a contract
pursuant to the federal commodities laws or (b) traded on a foreign commodity
board of trade, exchange or market, and is carried on the books of a Commodity
Intermediary for a Commodity Customer.
"Commodity Customer" shall mean a Person for whom a Commodity
Intermediary carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a Person who is
registered as a futures commission merchant under the federal commodities laws
or (b) a Person who in the ordinary course of its business provides clearance or
settlement services for a board of trade that has been designated as a contract
market pursuant to federal commodities laws.
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"Convertible Debentures" shall have the meaning assigned to
such term in the Preamble to this Agreement.
"Copyright License" shall mean any written agreement, now or
hereafter in effect, granting any right to any third party under any Copyright
now or hereafter owned by the Grantors or which the Grantors otherwise has the
right to license, or granting any right to the Grantors under any Copyright now
or hereafter owned by any third party, and all rights of the Grantors under any
such agreement.
"Copyrights" shall mean all of the following now owned or
hereafter acquired by the Grantors: (a) all copyright rights in any work subject
to the copyright laws of the United States, whether as author, assignee,
transferee or otherwise, and (b) all registrations and applications for
registration of any such copyright in the United States, including
registrations, recordings, supplemental registrations and pending applications
for registration in the United States Copyright Office.
"Deposit Account" has the meaning set forth in Section 9.102
of the UCC.
"Documents" shall mean all instruments, files, records, ledger
sheets and documents (including documents as defined in the UCC) covering or
relating to any of the Collateral.
"Entitlement Holder" shall mean a Person identified in the
records of a Securities Intermediary as the Person having a Security Entitlement
against the Securities Intermediary. If a Person acquires a Security Entitlement
by virtue of Section 8-501(b)(2) or (3) of the UCC, such Person is the
Entitlement Holder.
"Equipment" shall mean all equipment, furniture, furnishings,
machinery, molds, machine tools, motors, fixtures, trade fixtures, motor
vehicles, dyes, jigs, goods and other tangible personal property (other than
Inventory) of every kind and description used in Grantors' operations or owned
by Grantors and any interest in any of the foregoing, including tools, parts and
supplies of every kind and description, and all attachments, accessories,
improvements, accessions, replacements, substitutions, additions or
appurtenances thereto, that are now or hereafter owned by the Grantors.
"Exim Agreement" is that certain Export-Import Bank Loan and
Security Agreement dated as of April 25, 2001, by and between the Grantors and
SVB and all documents, instruments and agreements executed in conjunction
therewith, each as may be amended from time to time.
"Financial Asset" shall mean (a) a Security, (b) an obligation
of a Person or a share, participation or other interest in a Person or in
property or an enterprise of a Person, which is, or is of a type, dealt with in
or traded on financial markets, or which is recognized in any area in which it
is issued or dealt in as a medium for investment or (c) any property that is
held by a Securities Intermediary for another Person in a Securities Account if
the Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Article 8 of the UCC. As
the context requires, the term Financial Asset shall mean either the interest
itself or the means by which a Person's claim to it is evidenced,
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including a certificated or uncertificated Security, a certificate representing
a Security or a Security Entitlement.
"Financing Documents" shall mean each of the Purchase
Agreement, Subordination Agreement, Convertible Debentures, Intercreditor
Agreement and Registration Rights Agreement.
"General Intangibles" shall mean all choses in action and
causes of action and all other assignable intangible personal property of the
Grantors of every kind and nature (other than Accounts Receivable) now owned or
hereafter acquired by the Grantors, including corporate or other business
records, Deposit Accounts, indemnification claims, contract rights (including
rights under leases, whether entered into as lessor or lessee, and other
agreements), Intellectual Property, drawings, blueprints, customer lists,
security and other deposits, goodwill, registrations, franchises, tax refund
claims and any letter of credit, guarantee, claim, security interest or other
security held by or granted to the Grantors to secure payment by an Account
Debtor of any of the Accounts Receivable, rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, all claims of
Grantors against Secured Parties, rights to purchase or sell real or personal
property, rights as a licensor or licensee of any kind, royalties, telephone
numbers, purchase orders, and all insurance policies and claims (including
without limitation life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance).
"Grantors" shall have the meaning assigned to such term in the
Preamble of this Agreement.
"Intellectual Property" shall mean all intellectual and
similar property of the Grantors of every kind and nature now owned or hereafter
acquired by the Grantors, including inventions, designs, Patents, Copyrights,
Licenses, Trademarks, trade secrets, confidential or proprietary technical and
business information, know-how, show-how or other data or information, software
and databases and all embodiments or fixations thereof and related documentation
and registrations, and all additions, improvements and accessions to, and books
and records describing or used in connection with, any of the foregoing, to the
extent a security interest has been granted to SVB pursuant to the SVB Security
Interest.
"Inventory" shall mean all goods of the Grantors, whether now
owned or hereafter acquired, held for sale or lease, or furnished or to be
furnished by the Grantors under contracts of service, or consumed in the
Grantors' business, including raw materials, intermediates, work in process,
goods in transit, packaging materials, finished goods, semi-finished inventory,
scrap inventory, manufacturing supplies and spare parts, all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Grantors' business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, all such goods that have been returned to or
repossessed by or on behalf of the Grantors, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.
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"Investment Property" shall mean all Securities (whether
certificated or uncertificated), Security Entitlements, Securities Accounts,
Commodity Contracts and Commodity Accounts of the Grantors, whether now owned or
hereafter acquired by the Grantors.
"License" shall mean any Patent License, Trademark License,
Copyright License or other franchise agreement, license or sublicense to which
any Grantor is a party.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, operations, assets, conditions
(financial or otherwise), operating results, liabilities or prospects of such
Person and its Subsidiaries, taken as a whole.
"Note Debenture" shall have the meaning assigned to such term
in the Preamble of this Agreement.
"Obligations" shall have the meaning assigned to such term in
the preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now or
hereafter in effect, granting to any third party any right to make, use or sell
any invention on which a Patent, now or hereafter owned by the Grantors or which
the Grantors otherwise has the right to license, is in existence, or granting to
the Grantors any right to make, use or sell any invention on which a Patent, now
or hereafter owned by any third party, is in existence, and all rights of the
Grantors under any such agreement.
"Patents" shall mean all of the following now owned or
hereafter acquired by the Grantors: (a) all letters patent of the United States,
all registrations and recordings thereof, and all applications for letters
patent of the United States, including registrations, recordings and pending
applications in the United States Patent and Trademark Office, and (b) all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof, and the inventions disclosed or claimed therein, including
the right to make, use and/or sell the inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate
substantially in the form of Annex 1 hereto, completed and supplemented with the
schedules and attachments contemplated thereby, and duly executed by a Financial
Officer and the chief legal officer of the Grantors.
"Permitted Liens" shall mean the following: (i) purchase money
security interests in specific items of Equipment; (ii) leases of specific items
of Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by the Secured Parties, which
consent shall not be unreasonably withheld; (v) security interests being
terminated substantially concurrently with this Agreement; (vi) liens of
materialmen, mechanics, warehousemen, carriers, or other similar liens arising
in the ordinary course of business and securing obligations which are not
delinquent; (vii) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (i) or (ii) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; (viii) liens in favor of
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customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; (ix) the SVB Security Interest and (x)
liens arising from the Exim Agreement. The Secured Parties will have the right
to require, as a condition to its consent under subsection (iv) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement satisfactory to the Secured Parties, acknowledge that the security
interest is subordinate to the security interest in favor of the Secured
Parties, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that the Grantors
agree that any uncured default in any obligation secured by the subordinate
security interest shall also constitute an Event of Default (as defined in the
Convertible Debentures) under this Agreement.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, government, or any agency or political division thereof, or any
other entity.
"Proceeds" shall mean any consideration received from the
sale, exchange, license, lease or other disposition of any asset or property
that constitutes Collateral, any value received as a consequence of the
possession of any Collateral and any payment received from any insurer or other
person or entity as a result of the destruction, loss, theft, damage or other
involuntary conversion of whatever nature of any asset or property which
constitutes Collateral, and shall include, (a) any claim of the Grantors against
any third party for (and the right to xxx and recover for and the rights to
damages or profits due or accrued arising out of or in connection with) (i)
past, present or future infringement of any Patent now or hereafter owned by the
Grantors, or licensed under a Patent License, (ii) past, present or future
infringement or dilution of any Trademark now or hereafter owned by the Grantors
or licensed under a Trademark License or injury to the goodwill associated with
or symbolized by any Trademark now or hereafter owned by the Grantors, (iii)
past, present or future breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any Grantor or licensed
under a Copyright License and (b) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Purchase Agreement" shall have the meaning assigned to such
term in the Preamble to this Agreement.
"Registration Rights Agreement" shall mean the Fourth Amended
and Restated Registration Rights Agreement among the Secured Parties and the
Borrower, dated as of July [26], 2001.
"Secured Parties" shall mean as a group Insight Capital
Partners IV, L.P., Insight Capital Partners (Cayman) IV, L.P., Insight Capital
Partners IV, (Fund B), L.P., and Insight Capital Partners IV (Co-Investors),
L.P., or their respective successors and assigns.
"Securities" shall mean any obligations of an issuer or any
shares, participations or other interests in an issuer or in property or an
enterprise of an issuer which (a) are represented by a certificate representing
a security in bearer or registered form, or the transfer of which may be
registered upon books maintained for that purpose by or on behalf of the issuer,
(b) are one of a class or series or by its terms is divisible into a class or
series of shares, participations, interests
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or obligations and (c)(i) are, or are of a type, dealt with or traded on
securities exchanges or securities markets or (ii) are a medium for investment
and by their terms expressly provide that they are a security governed by
Article 8 of the UCC.
"Securities Account" shall mean an account to which a
Financial Asset is or may be credited in accordance with an agreement under
which the Person maintaining the account undertakes to treat the Person for whom
the account is maintained as entitled to exercise rights that comprise the
Financial Asset.
"Security Entitlements" shall mean the rights and property
interests of an Entitlement Holder with respect to a Financial Asset.
"Security Interest" shall have the meaning assigned to such
term in Section 2.1.
"Security Intermediary" shall mean (a) a clearing corporation
or (b) a Person, including a bank or broker, that in the ordinary course of its
business maintains securities accounts for others and is acting in that
capacity.
"Subordination Agreement" means the Subordination Agreement
among the Secured Parties and SVB, dated as of May 3, 2002, as such agreement
may be amended from time to time.
"SVB" shall mean Silicon Valley Bank.
"SVB Facility" shall mean the Loan and Security Agreement,
dated April 25, 2001, among the Company, SVB and the other party named therein.
"SVB Security Interest" shall mean the security interest
granted by the Grantors to Silicon Valley Bank on April 25, 2001.
"Trademark License" shall mean any written agreement, now or
hereafter in effect, granting to any third party any right to use any Trademark
now or hereafter owned by any Grantor or which any Grantor otherwise has the
right to license, or granting to the Borrowers any right to use any Trademark
now or hereafter owned by any third party, and all rights of any Grantor under
any such agreement.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by the Grantors: (a) all trademarks, service marks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, other source or business identifiers,
designs and general intangibles of like nature, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
registration and recording applications filed in connection therewith, including
registrations and registration applications in the United States Patent and
Trademark Office, any State of the United States, and all extensions or renewals
thereof, (b) all goodwill associated therewith or symbolized thereby and (c) all
other assets, rights and interests that uniquely reflect or embody such
goodwill.
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of New York.
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1.3 RULES OF INTERPRETATION.
The rules of interpretation specified in Section 8.7 of the Purchase
Agreement shall be applicable to this Agreement.
ARTICLE II
SECURITY INTEREST
2.1 SECURITY INTEREST.
As security for the payment or performance, as the case may be, in full
of the Obligations, each Grantor hereby bargains, sells, conveys, assigns, sets
over, mortgages, pledges, hypothecates and transfers to the Secured Parties, its
successors and assigns, for the ratable benefit of the Secured Parties, and
hereby grants to the Secured Parties, its successors and assigns, for the
ratable benefit of the Secured Parties, a security interest in, all of such
Grantor's right, title and interest in, to and under the Collateral (the
"Security Interest"). Without limiting the foregoing, the Secured Parties are
hereby authorized to file one or more financing statements, continuation
statements, filings with the United States Patent and Trademark Office or United
States Copyright Office (or any successor office) or other documents for the
purpose of perfecting, confirming, continuing, enforcing or protecting the
Security Interest granted by the Grantors, without the signature of the
Grantors, and naming the Grantors as debtors and the Secured Parties as secured
parties.
2.2 NO ASSUMPTION OF LIABILITY.
The Security Interest is granted as security only and shall not subject
the Secured Parties or any other Secured Parties to, or in any way alter or
modify, any obligation or liability of the Grantors with respect to or arising
out of the Collateral.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Grantor represents and warrants to the Secured Parties that:
3.1 NAME; TRADE NAMES AND STYLES; STATE OF INCORPORATION.
The name of each Grantor and state of incorporation set forth in the
Preamble to this Agreement is its correct name and state of incorporation.
Listed on the Schedule are all prior names of each Grantor and all of such
Grantor's present and prior trade names. Each Grantor shall give Secured Parties
30 days' prior written notice before changing its name or doing business under
any other name. Each Grantor has complied, and will in the future comply, with
all laws relating to the conduct of business under a fictitious business name.
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3.2 PLACE OF BUSINESS; LOCATION OF COLLATERAL.
The address set forth in the Notice Section of the Purchase Agreement
is each Grantor's chief executive office. In addition, each Grantor has places
of business and Collateral is located only at the locations set forth on the
Schedule. Each Grantor will give to Secured Parties at least 30 days' prior
written notice before opening any additional place of business, changing its
chief executive office, changing its state of formation or moving any of the
Collateral to a location other than each Grantor's address or the present
address of such Collateral.
3.3 TITLE AND AUTHORITY.
Each Grantor has good and valid rights in and title to the Collateral
with respect to which it has purported to grant a Security Interest hereunder
and has full power and authority to grant to the Secured Parties the Security
Interest in such Collateral pursuant hereto and to execute, deliver and perform
its obligations in accordance with the terms of this Agreement, without the
consent or approval of any other Person other than any consent or approval which
has been obtained or the failure of which to obtain could not reasonably be
expected to have a Material Adverse Effect.
3.4 VALIDITY OF SECURITY INTEREST.
The Security Interest constitutes (a) a legal and valid security
interest in all the Collateral securing the payment and performance of the
Obligations, (b) subject to the filings described in Section 2.1, a perfected
security interest in all Collateral in which a security interest may be
perfected by filing, recording or registering a financing statement or analogous
document in the United States (or any political subdivision thereof) pursuant to
the Uniform Commercial Code or other applicable law in such jurisdictions. The
Security Interest is and shall be prior to any other Lien on any of the
Collateral, other than the SVB Security Interest.
3.5 MAINTENANCE OF COLLATERAL.
Each Grantor will maintain the Collateral in good working condition,
and each Grantor will not use the Collateral for any unlawful purpose. Each
Grantor will immediately advise the Secured Parties in writing of any material
loss or damage to the Collateral.
3.6 FINANCIAL CONDITION, STATEMENTS AND REPORTS.
All financial statements now or in the future delivered to Secured
Parties have been, and will be, prepared in conformity with generally accepted
accounting principles and now and in the future will completely and accurately
reflect the financial condition of the Grantors, at the times and for the
periods therein stated. Between the last date covered by any such statement
provided to Secured Parties and the date hereof, there has been no material
adverse change in the financial condition or business of the Grantors. Each
Grantor is now and will continue to be solvent.
3.7 COMPLIANCE WITH LAW.
Each has complied, and will comply, in all material respects, with all
provisions of all foreign, federal, state and local laws and regulations
relating to such Grantor, including, but not
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limited to, those relating to such Grantor's ownership of real or personal
property, the conduct and licensing of such Grantor's business, and all
environmental matters.
3.8 ABSENCE OF OTHER LIENS.
The Collateral is owned by the Grantors free and clear of any Lien,
except for Permitted Liens. No Grantor has filed nor consented to the filing of
(a) any financing statement or analogous document under the UCC or any other
applicable laws covering any Collateral, (b) any assignment in which any Grantor
assigns any Collateral or any security agreement or similar instrument covering
any Collateral in the United States Patent and Trademark Office or the United
States Copyright Office or (c) any assignment in which any Grantor assigns any
Collateral or any security agreement or similar instrument covering any
Collateral with any foreign governmental, municipal or other office, which
financing statement or analogous document is still in effect, except, in each
(a), (b) and (c) above, for filings in connection with Permitted Liens.
ARTICLE IV
COVENANTS
4.1 RECORDS.
Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral, and, at such time or times as the Secured Parties
may reasonably request, promptly to prepare and deliver to the Secured Parties a
duly certified schedule or schedules in form and detail reasonably satisfactory
to the Secured Parties showing the identity, amount and location of any and all
Collateral.
4.2 PROTECTION OF SECURITY.
Each Grantor shall, at its own cost and expense, take any and all
actions necessary to defend title to the Collateral against all persons and to
defend the Security Interest of the Secured Parties in the Collateral and the
priority thereof against any Lien which is not a Permitted Lien.
4.3 FURTHER ASSURANCES.
Each Grantor agrees, at its own expense, to execute, acknowledge,
deliver and cause to be duly filed all such further instruments and documents
and take all such actions as the Secured Parties may from time to time
reasonably request to better assure, preserve, protect and perfect the Security
Interest and the rights and remedies created hereby, including the payment of
any fees and taxes required in connection with the execution and delivery of
this Agreement, the granting of the Security Interest and the filing of any
financing statements or other documents in connection herewith or therewith. If
any amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note or other instrument, such note or
11
instrument shall be immediately pledged and delivered to the Secured Parties,
duly endorsed in a manner satisfactory to the Secured Parties.
4.4 TAXES; ENCUMBRANCES.
At its option, each Secured Party may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral other than Permitted Liens, and may
pay for the maintenance and preservation of the Collateral to the extent the
Grantors fail to do so as required this Agreement, and the Grantors jointly and
severally agree to reimburse the Secured Parties on demand for any payment made
or any expense incurred by the Secured Parties pursuant to the foregoing
authorization; provided, however, that nothing in this Section 4.4 shall be
interpreted as excusing the Grantors from the performance of, or imposing any
obligation on the Secured Parties to cure or perform, any covenants or other
promises of the Grantors with respect to taxes, assessments, charges, fees,
liens, security interests or other encumbrances and maintenance as set forth
herein or in the Financing Documents.
4.5 ASSIGNMENT OF SECURITY INTEREST.
If at any time the Grantors shall take a security interest in any
property of an Account Debtor or any other Person to secure payment and
performance of an Account, the Grantors shall promptly assign such security
interest to the Secured Parties, subject only to Permitted Liens. Such
assignment need not be filed of public record unless necessary to continue the
perfected status of the security interest against creditors of and transferees
from the Account Debtor or other Person granting the security interest.
4.6 CONTINUING OBLIGATIONS OF THE GRANTORS.
The Grantors shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by it under each
contract, agreement or instrument relating to the Collateral, all in accordance
with the terms and conditions thereof, and each Grantor agrees to indemnify and
hold harmless the Secured Parties from and against any and all liability for
such performance.
4.7 LIMITATION ON MODIFICATION OF ACCOUNTS.
No Grantor shall without the Secured Parties' prior written consent,
grant any extension of the time of payment of any of the Accounts Receivable,
compromise, compound or settle the same for less than the full amount thereof,
release, wholly or partly, any Person liable for the payment thereof or allow
any credit or discount whatsoever thereon, other than extensions, credits,
discounts, compromises or settlements granted or made in the ordinary course of
business and consistent with its current practices and in accordance with such
prudent and standard practices used in industries that are the same as or
similar to those in which such Grantor is engaged.
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4.8 LEGEND.
Each Grantor shall legend, in form and manner reasonably satisfactory
to the Secured Parties, its Accounts Receivable and its books, records and
documents evidencing or pertaining thereto with an appropriate reference to the
fact that such Accounts Receivable have been assigned to the Secured Parties for
the benefit of the Secured Parties and that the Secured Parties have a security
interest therein.
4.9 USE AND DISPOSITION OF COLLATERAL.
No Grantor shall make or permit to be made an assignment, pledge or
hypothecation of the Collateral or shall grant any other Lien in respect of the
Collateral, except for Permitted Liens. Unless and until the Secured Parties
shall notify the Grantors that (i) an Event of Default (as defined in the
Convertible Debentures) shall have occurred and be continuing and (ii) during
the continuance thereof no Grantor shall sell, convey, lease, assign, transfer
or otherwise dispose of any Collateral (which notice may be given by telephone
if promptly confirmed in writing), each Grantor may use and dispose of the
Collateral in any lawful manner not inconsistent with the provisions of this
Agreement, the Convertible Debenture or any other Financing Document. Without
limiting the generality of the foregoing, each Grantor agrees that it shall not
permit any Collateral to be in the possession or control of any warehouseman,
bailee, agent or processor at any time, other than Collateral that is in transit
by any means, unless such warehouseman, bailee, agent or processor shall have
been notified of the Security Interest and each Grantor shall have to obtained
therefrom a written agreement in form and substance reasonably satisfactory to
the Secured Parties to hold the Grantor subject to the Security Interest and the
instructions of the Secured Parties and to waive and release any Lien held by it
with respect to such Collateral, whether arising by operation of law or
otherwise.
4.10 COVENANTS REGARDING PATENT, TRADEMARK AND COPYRIGHT COLLATERAL.
(a) Each Grantor agrees that it will not, nor will it permit any of its
licensees to, do any act, or omit to do any act, whereby any Patent which is
material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees, to the extent practicable, that it shall
continue to xxxx any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its maximum rights
under applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each
work covered by a material Copyright, continue to publish, reproduce, display,
adopt and distribute the work
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with appropriate copyright notice as necessary and sufficient to establish and
preserve its maximum rights under applicable copyright laws.
(d) Each Grantor shall notify the Secured Parties promptly if it knows
that any Patent, Trademark or Copyright material to the conduct of its business
may become abandoned, lost or dedicated to the public, or of any adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office or United States Copyright Office) regarding such Grantor's
ownership of any Patent, Trademark or Copyright, its right to register the same,
or to keep and maintain the same.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States, unless it
promptly informs the Secured Parties, and, upon request of the Secured Parties,
executes and delivers any and all agreements, instruments, documents and papers
as the Secured Parties may request to evidence the Secured Parties' security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Secured Parties as its attorney-in-fact to execute and file such
writings for the foregoing purposes (and, prior to the occurrence of any Event
of Default or Default (as defined in the Convertible Debentures), such Grantors
shall be notified of such filing), all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States, to maintain and pursue each material
application relating to the Patents, Trademarks and/or Copyrights (and to obtain
the relevant grant or registration) and to maintain each issued Patent and each
registration of the Trademarks and Copyrights that is material to the conduct of
any Grantors' business, including timely filings of applications for renewal,
affidavits of use, affidavits of incontestability and payment of maintenance
fees, and, if consistent with good business judgment, to initiate opposition,
interference and cancellation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantors' business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantors promptly shall notify
the Secured Parties and shall, if consistent with good business judgment,
promptly xxx for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
(h) Upon and during the continuance of an Event of Default (as defined
in the Convertible Debentures), each Grantor shall use its reasonable best
efforts to obtain all requisite consents or approvals by the licensor of each
Copyright License, Patent License or Trademark
14
License to effect the assignment of all of such Grantor's right, title and
interest thereunder to the Secured Parties or their designees.
ARTICLE V
POWER OF ATTORNEY
Each Grantor irrevocably makes, constitutes and appoints the
Secured Parties (and all officers, employees or agents designated by the Secured
Parties) as such Grantor's true and lawful agent and attorney-in-fact, and in
such capacity the Secured Parties shall have the right, with power of
substitution for each Grantor and in each Grantor's name or otherwise, for the
use and benefit of the Secured Parties, upon the occurrence and during the
continuance of an Event of Default (as defined in the Convertible Debentures)
(a) to receive, endorse, assign and/or deliver any and all notes, acceptances,
checks, drafts, money orders or other evidences of payment relating to the
Collateral or any part thereof; (b) to demand, collect, receive payment of, give
receipt for and give discharges and releases of all or any of the Collateral;
(c) to sign the name of any Grantor on any invoice or xxxx of lading relating to
any of the Collateral; (d) to send verifications of Accounts Receivable to any
Account Debtor; (e) to commence and prosecute any and all suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect or otherwise realize on all or any of the Collateral or to enforce any
rights in respect of any Collateral; (f) to settle, compromise, compound, adjust
or defend any actions, suits or proceedings relating to all or any of the
Collateral; (g) to notify, or to require any Grantor to notify, Account Debtors
to make payment directly to the Secured Parties; and (h) to use, sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with all
or any of the Collateral, and to do all other acts and things necessary to carry
out the purposes of this Agreement, as fully and completely as though the
Secured Parties were the absolute owner of the Collateral for all purposes;
provided, however, that nothing herein contained shall be construed as requiring
or obligating any Secured Party to make any commitment or to make any inquiry as
to the nature or sufficiency of any payment received by any Secured Party, or to
present or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken or omitted to be
taken by any Secured Party with respect to the Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in favor of any Grantor
or (unless such action is the result of gross negligence or willful misconduct)
to any claim or action against any Secured Party. It is understood and agreed
that the appointment of the Secured Parties as the agent and attorney-in-fact of
the Grantors for the purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event relieve any
Grantor of any of its obligations hereunder or under any other Financing
Documents with respect to the Collateral or any part thereof or impose any
obligation on any Secured Party to proceed in any particular manner with respect
to the Collateral or any part thereof, or in any way limit the exercise by any
Secured Party of any other or further right which it may have on the date of
this Agreement or hereafter, whether hereunder, under any other Financing
Document, by law or otherwise.
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ARTICLE VI
REMEDIES
6.1 REMEDIES UPON DEFAULT.
(a) Upon the occurrence and during the continuance of an Event of
Default (as defined in the Convertible Debentures), each Grantor agrees to
deliver each item of Collateral to the Secured Parties on demand, and it is
agreed that the Secured Parties shall have the right to take any of or all the
following actions at the same or different times: (a) with respect to any
Collateral consisting of Intellectual Property, on demand, to cause the Security
Interest to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Secured Parties, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Secured Parties shall determine (other
than in violation of any then-existing licensing or contractual arrangements to
the extent that waivers cannot be obtained), and (b) with or without legal
process and with or without prior notice or demand for performance, to take
possession of the Collateral and without liability for trespass to enter any
premises where the Collateral may be located for the purpose of taking
possession of or removing the Collateral and, generally, to exercise any and all
rights afforded to a secured party under the UCC or other applicable law.
Without limiting the generality of the foregoing, each Grantor agrees that the
Secured Parties shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the Secured
Parties shall deem appropriate. The Secured Parties shall be authorized at any
such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Secured Parties shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely, free from any claim or
right on the part of any Grantor, and each Grantor hereby waives (to the extent
permitted by law) all rights of redemption, stay and appraisal which such
Grantor now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted.
(b) The Secured Parties shall give the Grantors 10 days' prior written
notice (which each Grantor agrees is reasonable notice within the meaning of
Section [9-504(3)] of the UCC or its equivalent in other jurisdictions) of the
Secured Parties' intention to make any sale of Collateral. Such notice, in the
case of a public sale, shall state the time and place for such sale and, in the
case of a sale at a broker's board or on a securities exchange, shall state the
board or exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Secured Parties may
fix and state in the notice (if any) of such sale. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Secured Parties may (in their sole and absolute
discretion) determine. The Secured Parties shall not be obligated to make any
sale of any Collateral if it shall determine not
16
to do so, regardless of the fact that notice of sale of such Collateral shall
have been given. The Secured Parties may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Secured Parties until the sale price is paid by the purchaser or purchasers
thereof, but the Secured Parties shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Secured Parties shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Secured Parties
shall have entered into such an agreement all Events of Default (or defined in
the Convertible Debentures) shall have been remedied and the Obligations paid in
full. As an alternative to exercising the power of sale herein conferred upon
it, the Secured Parties may proceed by a suit or suits at law or in equity to
foreclose this Agreement and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
6.2 APPLICATION OF PROCEEDS.
The Secured Parties shall apply the proceeds of any collection or sale
of the Collateral, as well as any Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses
incurred by the Secured Parties (in their capacity as such
hereunder or under any other Financing Document) in connection
with such collection or sale or otherwise in connection with
this Agreement or any of the Obligations, including all court
costs and the fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Secured
Parties hereunder or under any other Financing Document on
behalf of any Grantor and any other costs or expenses incurred
in connection with the exercise of any right or remedy
hereunder or under any other Financing Document;
SECOND, to the payment in full of the Obligations
(the amounts so applied to be distributed among the Secured
Parties pro rata in accordance with the amounts of the
Obligations owed to them on the date of any such
distribution); and
17
THIRD, to the Grantors, their successors or assigns,
or as a court of competent jurisdiction may otherwise direct.
The Secured Parties shall have absolute discretion as to the time of application
of any such proceeds, moneys or balances in accordance with this Agreement. Upon
any sale of the Collateral by the Secured Parties (including pursuant to a power
of sale granted by statute or under a judicial proceeding), the receipt of the
Secured Parties or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Secured Parties or such officer or
be answerable in any way for the misapplication thereof.
6.3 GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY.
For the purpose of enabling the Secured Parties to exercise rights and
remedies under this Article at such time as the Secured Parties shall be
lawfully entitled to exercise such rights and remedies, each Grantor hereby
grants to the Secured Parties an irrevocable, non-exclusive license (exercisable
without payment of royalty or other compensation to the Grantors) to the extent
that such license does not violate any then existing licensing arrangements (to
the extent that waivers cannot be obtained) to use, license or sub-license any
of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located, and including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof and sufficient rights of quality control in
favor of Grantor to avoid the invalidation of the Trademarks subject to the
license. The use of such license by the Secured Parties shall be exercised, at
the option of the Secured Parties, upon the occurrence and during the
continuation of an Event of Default (as defined in the Convertible Debentures);
provided that any license, sub-license or other transaction entered into by the
Secured Parties in accordance herewith shall be binding upon the Grantors
notwithstanding any subsequent cure of an Event of Default (as defined in the
Convertible Debentures).
ARTICLE VII
MISCELLANEOUS
7.1 NOTICES.
All communications and notices hereunder shall (except as otherwise
expressly permitted herein) be in writing and given as provided in Section 8.3
of the Purchase Agreement. Any notice properly delivered to the Borrower shall
be deemed notice properly delivered to Exstatic.
7.2 SECURITY INTEREST ABSOLUTE.
All rights of the Secured Parties hereunder, the Security Interest and
all obligations of the Grantors hereunder shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Convertible
Debentures, any Financing Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
18
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Convertible Debentures, any
Financing Document or any other agreement or instrument, (c) any exchange,
release or non-perfection of any Lien on other collateral, or any release or
amendment or waiver of or consent under or departure from any guarantee,
securing or guaranteeing all or any of the Obligations, or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Grantors in respect of the Obligations or this Agreement.
7.3 SURVIVAL OF AGREEMENT.
All covenants, agreements, representations and warranties made by the
Grantors herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement shall be considered
to have been relied upon by the Secured Parties and shall survive the
consummation of the transactions contemplated by the Financing Documents, and
the execution and delivery to the Secured Parties of the Convertible Debentures,
regardless of any investigation made by the Secured Parties or on their behalf,
and shall continue in full force and effect until this Agreement shall
terminate.
7.4 BINDING EFFECT ASSIGNMENT.
This Agreement shall be binding upon the Grantors and the Secured
Parties and their respective successors and assigns, and shall inure to the
benefit of the Grantors, the Secured Parties and their respective successors and
assigns, except that no Grantor shall have the right to assign or transfer its
rights or obligations hereunder or any interest herein or in the Collateral (and
any such assignment or transfer shall be void) except as expressly contemplated
by this Agreement or the other Financing Documents.
7.5 SUCCESSORS AND ASSIGNS.
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of the
Grantors or the Secured Parties that are contained in this Agreement shall bind
and inure to the benefit of their respective successors and assigns.
7.6 SECURED PARTIES' EXPENSES; INDEMNIFICATION.
(a) The Grantors agree to pay upon demand to the Secured Parties the
amount of any and all reasonable expenses, including the reasonable fees,
disbursements and other charges of its counsel and of any experts or agents,
which the Secured Parties may incur in connection with (i) the administration of
this Agreement, (ii) the custody or preservation of, or the sale of, collection
from or other realization upon any of the Collateral, (iii) the exercise,
enforcement or protection of any of the rights of the Secured Parties hereunder
or (iv) the failure of the Grantors to perform or observe any of the provisions
hereof.
(b) Without limitation of its indemnification obligations under the
Financing Documents, the Grantors jointly and severally agrees to indemnify the
Secured Parties against, and hold each of them harmless from, any and all
losses, claims, damages, liabilities and related
19
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral is a party thereto; provided that such indemnity shall not,
as to any Secured Party, be available to the extent that such losses, claims,
damages, liabilities or related expenses have resulted from the gross negligence
or willful misconduct of such Secured Party.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the Financing Documents. The provisions of
this Section 7.6 shall remain operative and in full force and effect regardless
of the termination of this Agreement or any other Financing Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Convertible Debentures, the invalidity or unenforceability of any term or
provision of this Agreement or any Financing Document, or any investigation made
by or on behalf of the Secured Parties. All amounts due under this Section 7.6
shall be payable on written demand therefor.
7.7 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
7.8 WAIVERS; AMENDMENT.
(a) No failure or delay of the Secured Parties in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Secured Parties hereunder and of the Secured Parties under
the Financing Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provisions of this
Agreement or any Financing Document or consent to any departure by the Grantors
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on the Grantors in any case shall entitle the Grantors to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Secured Parties and the Grantors with respect to which such
waiver, amendment or modification is to apply.
7.9 WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE FINANCING
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DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE FINANCING DOCUMENTS, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
7.9.
7.10 SEVERABILITY.
In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
7.11 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute but one contract (subject to Section 7.4). Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
7.12 HEADINGS.
Article and Section headings used herein are for the purpose of
reference only, are not part of this Agreement and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Agreement.
7.13 JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) Each Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York State
court or Federal court of the United States of America sitting in New York City,
and any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement or the Financing Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Secured Parties may otherwise have to bring any action or
proceeding relating to this Agreement or the Financing Documents against the
Grantors or its properties in the courts of any jurisdiction.
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(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the Financing Documents in any
New York State court or Federal court of the United States of America sitting in
New York City. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.1. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
7.14 TERMINATION.
This Agreement and the Security Interest shall terminate when all the
Obligations have been indefeasibly paid in full, at which time the Secured
Parties shall execute and deliver to each Grantor, at each Grantor's expense,
all UCC termination statements and similar documents which the Grantors shall
reasonably request to evidence such termination. Any execution and delivery of
termination statements or documents pursuant to this Section 7.14 shall be
without recourse to or warranty by the Secured Parties.
7.15 RIGHT OF SET-OFF.
Each Grantor and any guarantor hereby grant to the Secured Parties, a
lien, security interest and right of setoff as security for all Obligations to
the Secured Parties, whether now existing or hereafter arising upon and against
all deposits, credits, collateral and property, now or hereafter in the
possession, custody, safekeeping or control of the Secured Parties or any entity
under the control of the Secured Parties. At any time after the occurrence and
during the continuance of an Event of Default (as defined in the Convertible
Debentures), without demand or notice, the Secured Parties may set off the same
or any part thereof and apply the same to any liability or obligation of the
Grantors and any guarantor even though unmatured and regardless of the adequacy
of any other collateral securing the loan. ANY AND ALL RIGHTS TO REQUIRE THE
SECURED PARTIES TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE GRANTORS OR ANY
GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
22
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
GRANTORS:
EXCHANGE APPLICATIONS, INC.,
By:
------------------------------------------
Name:
Title:
EXSTATIC SOFTWARE, INC.
By:
------------------------------------------
Name:
Title:
SECURED PARTIES:
---------------
INSIGHT CAPITAL PARTNERS IV, L.P.
INSIGHT CAPITAL PARTNERS (CAYMAN) IV, L.P.
INSIGHT CAPITAL PARTNERS IV (FUND B), L.P.
INSIGHT CAPITAL PARTNERS IV (CO-INVESTORS), L.P.
By: Insight Venture Associates IV, L.L.C.,
the general partner to each of the
above-referenced entities:
By: _______________________________
Name:
Title:
Annex 1 to the
Security Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to the Securities Purchase Agreement dated
as of July [26], 2001, (as amended, supplemented or otherwise modified from time
to time, the "Purchase Agreement"), among EXCHANGE APPLICATIONS, INC., a
Delaware corporation (the "Borrower"), EXSTATIC SOFTWARE, INC., a [_____]
corporation ("Exstatic", together with the Borrower, the "Grantors") and the
secured parties (each a "Secured Party" and together, the "Secured Parties")
identified on the signature page hereto. Capitalized terms used herein and not
defined herein shall have meanings assigned to such terms in the Purchase
Agreement.
The undersigned, a Financial Officer and a Legal Officer,
respectively, of each Grantor, hereby certify to the Secured Parties and each
other Secured Parties:
1. Names. (a) The exact corporate name of each Grantor, as such
name appears in its respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor
has had in the past five years, together with the date of the relevant
change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has
changed its identity or corporate structure in any way within the past
five years. Changes in identity or corporate structure would include
mergers, consolidations and acquisitions, as well as any change in the
form, nature or jurisdiction of corporate organization. If any such
change has occurred, include in Schedule 1 the information required by
Sections 1 and 2 of this certificate as to each acquiree or constituent
party to a merger or consolidation.
(d) The following is a list of all other names (including
trade names or similar appellations) used by each Grantor or any of its
divisions or other business units in connection with the conduct of its
business or the ownership of its properties at any time during the past
five years:
(e) Set forth below is the Federal Taxpayer Identification
Number of each Grantor:
2. Current Locations. (a) The chief executive office of each Grantor
is located at the address set forth opposite its name below:
Grantor Mailing Address County State
(b) Set forth below opposite the name of each Grantor are all
locations where such Grantor maintains any books or records relating to
any Accounts Receivable (with each location at which chattel paper, if
any, is kept being indicated by an "*"):
Grantor Mailing Address County State
(c) Set forth below opposite the name of each Grantor are all
the material places of business of such Grantor not identified in
paragraph (a) or (b) above:
Grantor Mailing Address County State
(d) Set forth below opposite the name of each Grantor are all
the locations where such Grantor maintains any Collateral not
identified above:
Grantor Mailing Address County State
(e) Set forth below opposite the name of each Grantor are the
names and addresses of all Persons other than such Grantor that have
possession of any of the Collateral of such Grantor:
Grantor Mailing Address County State
3. Unusual Transactions. All Accounts Receivable have been originated
by the Grantors and all Inventory has been acquired by the Grantors in the
ordinary course of business.
4. File Search Reports. Attached hereto as Schedule 4(A) are true
copies of file search reports from the Uniform Commercial Code filing offices
where filings described in Section 2.1 are to be made. Attached hereto as
Schedule 4(B) is a true copy of each financing statement or other filing
identified in such file search reports.
5. UCC Filings. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto have been prepared for filing in the
Uniform Commercial Code filing office in each jurisdiction where any Grantor has
Collateral as identified in Section 2 hereof.
6. Schedule of Filings. Attached hereto as Schedule 6 is a schedule
setting forth, with respect to the filings described in Section 5 above, each
filing and the filing office in which such filing is to be made.
ii
7. Filing Fees. All filing fees and taxes payable in connection with
the filings described in Section 5 above have been paid.
8. Stock Ownership. Attached hereto as Schedule 8 is a true and correct
list of all the duly authorized, issued and outstanding stock of each Subsidiary
and the record and beneficial owners of such stock. Also set forth on Schedule 8
is each Subsidiary that represents 50% or less of the equity of the entity in
which such investment was made.
9. Notes. Attached hereto as Schedule 9 is a true and correct list of
all notes held by each Subsidiary and all intercompany notes between each
Grantor and each Subsidiary of such Grantor and between each Subsidiary of such
Grantor and each other such Subsidiary.
10. Advances. Attached hereto as Schedule 10 is (a) a true and correct
list of all advances made by each Grantor to any Subsidiary of such Grantor or
made by any Subsidiary of such Grantors to such Grantor or any other Subsidiary
of such Grantor, which advances will be on and after the date hereof evidenced
by one or more intercompany notes pledged to the Secured Parties, and (b) a true
and correct list of all unpaid intercompany transfers of goods sold and
delivered by or to any Grantor or any Subsidiary of such Grantor.
11. Mortgage Filings. Attached hereto as Schedule 11 is a schedule
setting forth, with respect to each Mortgaged Property, (i) the exact corporate
name of the corporation that owns such property as such name appears in its
certificate of incorporation, (ii) if different from the name identified
pursuant to clause (i), the exact name of the current record owner of such
property reflected in the records of the filing office for such property
identified pursuant to the following clause and (iii) the filing office in which
a Mortgage with respect to such property must be filed or recorded in order for
the Secured Parties to obtain a perfected security interest therein.
* * * * *
iii
IN WITNESS WHEREOF, the undersigned have duly executed this
certificate on this [26] day of July, 2001.
GRANTORS:
EXCHANGE APPLICATIONS, INC.,
By:
------------------------------------------
Name:
Title: [Financial Officer]
EXSTATIC SOFTWARE, INC.
By:
------------------------------------------
Name:
Title:
SECURED PARTIES:
---------------
INSIGHT CAPITAL PARTNERS IV, L.P.
INSIGHT CAPITAL PARTNERS (CAYMAN) IV, L.P.
INSIGHT CAPITAL PARTNERS IV (FUND B), L.P.
INSIGHT CAPITAL PARTNERS IV (CO-INVESTORS), L.P.
By: Insight Venture Associates IV, L.L.C.,
the general partner to each of the
above-referenced entities:
By: _______________________________
Name:
Title:
iv