[Execution Copy]
EXHIBIT 10.2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of October 17, 2001, made by CIDCO,
INCORPORATED, a Delaware corporation (the "Borrower"), to EARTHLINK, INC. a
Delaware corporation (the "Lender").
PRELIMINARY STATEMENT. As a condition precedent to the Lender making
loans, advances and other financial accommodations to the Borrower up to an
aggregate principal amount of $5,000,000 under the provisions of an Advance
Agreement dated as of even date herewith (the same as it may be amended,
modified, supplemented, or replaced from time to time being referred to as the
"Advance Agreement"), the Lender has required that Borrower shall have granted
the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lender to make loans and advances to the Borrower, the Borrower and the
Lender hereby agree as follows:
SECTION 1. DEFINITIONS. For the purposes of this Agreement, unless
otherwise defined herein, the terms herein shall have the meaning ascribed to
them in the Advance Agreement and the following terms shall have the indicated
definitions:
(a) "AFFILIATE" means, with respect to a Person, (a) any partner,
officer, shareholder (if holding more than ten percent (10%) of the outstanding
shares of capital stock of such Person), director, employee or managing agent of
such Person, (b) any spouse, parents, siblings, children or grandchildren of
such Person, and (c) any other Person that, (i) directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such given Person, (ii) directly or indirectly beneficially owns
or holds ten percent (10%) or more of any class of voting stock or partnership
or other voting interest of such Person or any majority owned subsidiary of such
Person, or (iii) ten percent (10%) or more of the voting stock or partnership or
other voting interest of which is directly or indirectly beneficially owned or
held by such Person or a majority owned subsidiary of such Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities or partnership or other voting interest,
by contract or otherwise.
(b) "ADVANCE AGREEMENT" has the meaning set forth in the Preliminary
Statement.
(c) "COLLATERAL" means and includes all of the property in which a
security interest is purported to be granted pursuant to SECTION 2 hereof.
(d) "DEPOSIT ACCOUNTS" has the meaning set forth in SECTION 2(e) hereof.
(e) "EQUIPMENT" has the meaning set forth in SECTION 2(c) hereof.
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(f) "GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and, when used with
reference to the Borrower, consistent with the prior financial practice of the
Borrower.
(g) "GENERAL INTANGIBLES" has the meaning set forth in SECTION 2(d)
hereof.
(h) "INVENTORY" has the meaning set forth in SECTION 2(b) hereof.
(i) "INTELLECTUAL PROPERTY COLLATERAL" means and includes:
(i) patents and patent applications, including, without
limitation, the patents and patent applications listed on SCHEDULE 1(k)(i)
hereto, along with any and all (A) inventions and improvements described
and claimed therein, (B) reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, (C) income, royalties,
damages, claims and payments now and hereafter due and/or payable under
and with respect thereto, including, without limitation, damages and
payments for past and future infringements thereof, (D) rights to xxx for
past, present and future infringements thereof, and (E) patents, patent
applications and any other rights corresponding thereto throughout the
world (collectively, the "Patents");
(ii) trademarks (including service marks), trademark registrations,
and trade names and applications for any thereof, including, without
limitation, the trademarks and applications listed on SCHEDULE 1(k)(ii)
thereto, along with any and all (A) renewals thereof, (B) income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including, without limitation, damages, claims and
payments for past or future infringements thereof, (C) rights to xxx for
past, present and future infringements thereof, and (D) trademarks,
trademark registrations, and trade name applications for any thereof and
any other rights corresponding thereto throughout the world (collectively,
the "Trademarks");
(iii) copyrights, whether statutory or common law, including,
without limitation, the registered copyrights listed on SCHEDULE 1(k)(iii)
hereto, along with any and all (A) renewals and extensions thereof, (B)
income, royalties, damages, claims and payments now and hereafter due
and/or payable with respect thereof, including, without limitation,
damages and payments for past, present or future infringements thereof,
(C) rights to xxx for past, present and future infringements thereof, and
(D) copyrights and any other rights corresponding thereto throughout the
world (collectively, the "Copyrights"); and
(iv) the entire goodwill of the Borrower's business connected with
the use of and symbolized by the Trademarks of the Borrower.
(j) "LIEN" as applied to the property of any Person means:
(i) any mortgage, deed to secure debt, deed of trust, lien,
pledge, charge, lease constituting a capitalized lease obligation,
conditional sale or other title retention agreement, or other security
interest, security title or encumbrance of any kind in respect of any
property of such Person, or upon the income or profits therefrom,
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(ii) any arrangement, express or implied, under which any property
of such Person is transferred, sequestered or otherwise identified for the
purpose of subjecting the same to the payment of Debt or performance of
any other obligation in priority to the payment of the general, unsecured
creditors of such Person,
(iii) any Debt which is unpaid more than thirty (30) days after the
same shall have become due and payable and which if unpaid might by law
(including, but not limited to, bankruptcy and insolvency laws), or
otherwise, be given any priority whatsoever over the claims of general
unsecured creditors of such Person, and
(iv) the filing of, or any agreement to give, any financing
statement under the Uniform Commercial Code or its equivalent in any
jurisdiction, excluding informational financing statements relating to
property leased by the Borrower.
(k) "PERMITTED LIENS" means
(i) Liens securing taxes, assessments and other governmental
charges or levies (excluding any Lien imposed pursuant to any of the
provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals
incurred in the ordinary course of business, in each case which are not
delinquent,
(ii) Liens consisting of deposits or pledges made in the ordinary
course of business in connection with, or to secure payment of,
obligations under workers' compensation, unemployment insurance or similar
legislation or under payment or performance bonds,
(iii) Liens constituting encumbrances in the nature of zoning
restrictions, easements, and rights or restrictions of record on the use
of real property, which do not materially detract from the value of such
property or impair the use thereof in the business of the Borrower,
(iv) Liens set forth on SCHEDULE 4(1) hereto, and
(v) Liens of the Lender arising under this Agreement.
(l) "RECEIVABLES" has the meaning set forth in SECTION 2(a) hereof.
(m) "RELATED CONTRACTS" has the meaning set forth in SECTION 2(a)
hereof.
(n) "RESTRICTED DIVIDEND PAYMENT" means any dividend, distribution or
payment on or with respect to (i) any shares of a Person's capital stock (other
than dividends payable solely in shares of its capital stock) or (ii) any
partnership or membership interest in a Person.
(o) "RESTRICTED PAYMENT" means (i) any redemption or prepayment or other
retirement, prior to the stated maturity thereof or prior to the due date of any
regularly scheduled installment or amortization payment with respect thereto, of
any Debt for borrowed money (other than the loans under the Advance Agreement)
or of any Debt that is junior and subordinate to the
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Secured Obligations, (ii) the payment by any Person of the principal amount of
or interest on any Debt (other than trade debt) owing to a shareholder, partner
or equity holder of such Person or to any Affiliate of any such shareholder,
partner or equity holder and (iii) the payment of any management, consulting or
similar fee by any Person to any Affiliate of such Person.
(p) "RESTRICTED PURCHASE" means any payment on account of the purchase,
redemption or other acquisition or retirement by a Person of any (i) shares of
such Person's capital stock (except shares acquired on the conversion thereof
into other shares of capital stock of such Person) or (ii) a partnership
interest in such Person, if such Person is a partnership.
(q) "SECURED OBLIGATIONS" means the principal, interest, fees, expenses
and other indebtedness, obligations and liabilities under the Advance Agreement
and this Agreement and all other indebtedness, obligations and liabilities of
the Borrower to the Lender, whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising.
SECTION 2. GRANT OF SECURITY. As security for payment and performance of
the Secured Obligations, the Borrower hereby conveys, mortgages, pledges,
assigns, transfers, sets over, grants and delivers to the Lender a continuing
security interest in all of the Borrower's right, title and interest in and to
the following Collateral, wherever located, whether now owned or existing or
hereafter acquired or arising:
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the CODE as accounts,
payment intangibles, contract rights, chattel paper, general intangibles or
otherwise), including, but not limited to, accounts receivable, letters of
credit and the right to receive payment thereunder, chattel paper, tax refunds,
insurance proceeds, any rights under contracts not yet earned by performance and
not evidenced by an instrument or chattel paper, notes, drafts, instruments,
documents, acceptances and all other debts, obligations and liabilities in
whatever form from any Person, (ii) all guaranties, security and liens securing
payment thereof, (iii) all goods, whether now owned or hereafter acquired, and
whether sold, delivered, undelivered, in transit or returned, which may be
represented by, or the sale or lease of which may have given rise to, any such
right to payment or other debt, obligation or liability, and (iv) all proceeds
of any of the foregoing (the foregoing, collectively, "RECEIVABLES"), and all
rights in and to all security agreements, leases and other contracts securing or
otherwise relating to any such Receivables (the foregoing, collectively "RELATED
CONTRACTS");
(b) (i) all inventory, (ii) all goods intended for sale or lease or for
display or demonstration, (iii) all work in process, (iv) all raw materials and
other materials and supplies of every nature and description used or which might
be used in connection with the manufacture, packing, shipping, advertising,
selling, leasing or furnishing of goods or services or otherwise used or
consumed in the conduct of business, and (v) all documents evidencing and
general intangibles relating to any of the foregoing, (the foregoing,
collectively, "INVENTORY"),
(c) (i) all machinery, computer and other information technology
hardware, switches, routers, servers, apparatus, equipment, motor vehicles,
fittings, fixtures and other tangible personal property (other than Inventory)
of every kind and description, (ii) all tangible personal property (other than
Inventory) and fixtures used in the Borrower's business operations or owned
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by the Borrower or in which the Borrower has an interest, and (iii) all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor (the foregoing, collectively,
"EQUIPMENT"),
(d) all general intangibles, choses in action and causes of action and
all other intangible personal property of every kind and nature (other than
Receivables), including, without limitation, Intellectual Property Collateral,
the domain name "CIDCO", corporate or other business records, inventions,
designs, blueprints, plans, specifications, trade secrets, goodwill, computer
software, customer lists, registrations, licenses, franchises, tax refund
claims, reversions or any rights thereto and any other amounts payable to such
Person from any benefit plan, multiemployer plan or other employee benefit plan,
rights and claims against carriers and shippers, rights to indemnification,
business interruption insurance and proceeds thereof, property, casualty or any
similar type of insurance and any proceeds thereof, the beneficiary's interest
in proceeds of insurance covering the lives of key employees and any letter of
credit, guarantee, claims, security interest or other security for the payment
by an account debtor of any of the Receivables (the foregoing, collectively,
"GENERAL INTANGIBLES"),
(e) any demand, time, savings, passbook, money market or like depository
account, and all certificates of deposit, maintained with a bank, savings and
loan association, credit union or like organization, other than an account
evidenced by a certificate of deposit that is an instrument under the CODE (the
foregoing, collectively, "DEPOSIT ACCOUNTS"),
(f) all goods and other property, whether or not delivered, (i) the sale
or lease of which gives or purports to give rise to any Receivable, including,
but not limited to, all merchandise returned or rejected by or repossessed from
customers, or (ii) securing any Receivable, including, without limitation, all
rights as an unpaid vendor or lienor (including, without limitation, stoppage in
transit, replevin and reclamation) with respect to such goods and other
properties,
(g) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements and other agreements
and property which secure or relate to any Receivable or other Collateral or are
acquired for the purpose of securing and enforcing any item thereof,
(h) all documents of title, including bills of lading and warehouse
receipts, policies and certificates of insurance, securities, chattel paper and
other documents and instruments,
(i) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any account debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
(j) all cash or property deposited with the Lender or any affiliate
thereof or which the Lender is entitled to retain or otherwise possess as
collateral pursuant to the provisions of this Agreement, and
(k) any and all products and cash and non-cash proceeds of the foregoing
(including, but not limited to, any claims to any items referred to in this
definition and any claims against
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third parties for loss of, damage to or destruction of any or all of the
Collateral or for proceeds payable under or unearned premiums with respect to
policies of insurance) in whatever form, including, but not limited to, cash,
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements and other documents.
SECTION 3. BORROWER REMAINS LIABLE. Anything contained herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Lender of any of the rights hereunder shall not release the Borrower from any of
its duties or obligations under the contracts and agreements included in the
Collateral, and (c) the Lender shall not have any obligation or liability under
the contracts and agreements included in the Collateral by reason of this
Agreement, nor shall the Lender be obligated to perform any of the obligations
or duties of the Borrower thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, has the power and
authority to own its properties and to carry on its business as now being and as
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification or authorization.
(b) The Borrower has the right and power, and has taken all necessary
action to authorize it, to execute, deliver and perform this Agreement in
accordance with its terms. This Agreement has been duly executed and delivered
by the duly authorized officers of the Borrower and is a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms.
(c) The execution, delivery and performance of this Agreement in
accordance with its terms does not and will not, by the passage of time, the
giving of notice or otherwise,
(i) require any government approval or violate any applicable law
relating to the Borrower,
(ii) conflict with, result in a breach of or constitute a default
under the articles of incorporation or bylaws of the Borrower, any
indenture, agreement or other instrument to which the Borrower is a party
or by which it or any of its property may be bound or any governmental
approval relating to the Borrower, or
(iii) result in or require the creation or imposition of any Lien
upon or with respect to any property now owned or hereafter acquired by
the Borrower, other than the security interest contemplated by this
Agreement.
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(d) There is no pending or threatened action or proceeding affecting the
Borrower before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Borrower.
(e) The Borrower has made all necessary filings and recordations to
protect its interests in the Intellectual Property Collateral, including,
without limitation, recordations of all of its interests in the Patents and the
Trademarks in the United States Patent and Trademark Office and in corresponding
offices throughout the world and its claims to Copyrights in the United States
Copyright Office, except where failure to make such filings or recordations
would not have reasonably been expected to have a material adverse effect upon
the Intellectual Property Collateral or the business of the Borrower.
(f) The Borrower owns directly or is entitled to use by license or
otherwise, all patents, trademarks, trade names, copyrights, licenses,
technology, know-how, processes and service marks and rights with respect to any
of the foregoing used in, necessary for or of importance to the Borrower's
business as currently conducted. The use of such patents, trademarks, service
marks, trade names, copyrights, licenses, technology, know-how, processes and
rights with respect to the foregoing by the Borrower does not, to the best of
Borrower's knowledge after due inquiry, infringe on the rights of any Person nor
has any claim of such infringement been made, except for such claims and uses as
would not give rise to any liability on the part of the Borrower which,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the business of the Borrower to which the use or
uses, claim or claims pertain. Except as set forth on SCHEDULE 4(f), the
consummation of this Agreement does not require any consents to be obtained with
respect to the Intellectual Property Collateral of the Borrower.
(g) The Borrower's rights in and to the Intellectual Property Collateral
are free and clear of any Lien except for the security interest created by this
Agreement and the Borrower has the full corporate power to grant the first
priority security interests in the Intellectual Property. The Borrower has made
no previous assignment, conveyance, transfer or agreement in conflict herewith
and warrants to the Lender that SCHEDULES 1(k)(i), 1(K)(II) AND 1(k)(iii)
hereto, respectively, are true and correct lists as of the date hereof of all
Patents, Trademarks and Copyrights which are of importance to the Borrower's
business as currently conducted.
(h) All of the Equipment and Inventory are located at the address set
forth in PART I of SCHEDULE 4(h) hereto. Additional locations of the Equipment
and Inventory during the last five years are set forth in PART II of SCHEDULE
4(h) hereto.
(i) The Borrower is a registered organization within the meaning of the
CODE organized under the laws of Delaware. The address of the chief executive
office of the Borrower is set forth in SCHEDULE 4(i) hereto. The addresses of
such chief executive office has not been changed since the organization of
Borrower. The Borrower has no place of business outside of California.
(j) The office where the Borrower keeps its records concerning the
Receivables and originals of chattel paper which evidence Receivables is located
at the address set forth in SCHEDULE 4(i) hereto and, such office has been
located at such address continuously since the
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organization of Borrower. None of the Receivables is evidenced by a promissory
note or other instrument, not in the possession of the Lender.
(k) If the business of the Borrower has been conducted under a different
name or names during the last five years, such name(s) is (are) set forth in
SCHEDULE 4(k) hereto.
(l) The Borrower owns the Collateral free and clear of any Lien, except
for the security interest created by this Agreement and except as may be set
forth in SCHEDULE 4(l) attached hereto and made a part hereof. Except as may be
set forth on SCHEDULE 4(l), no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Lender
relating to this Agreement.
(m) Except as may be set forth on SCHEDULE 4(l), this Agreement creates
a valid and perfected first priority security interest in the Collateral,
securing the payment of the Secured Obligations.
(n) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the grant by the Borrower of the security interest granted hereby or for
the execution, delivery or performance of this Agreement by the Borrower or (ii)
for the exercise by the Lender of its rights and remedies hereunder.
SECTION 5. FURTHER ASSURANCES.
(a) The Borrower agrees that from time to time, at the expense of the
Borrower, the Borrower shall promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Lender may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Lender to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing, the
Borrower shall: (i) xxxx conspicuously each chattel paper included in the
Receivables and each Related Contract and, at the request of the Lender, each of
its records pertaining to the Collateral, with a legend, in form and substance
satisfactory to the Lender, indicating that such chattel paper, Related Contract
or Collateral is subject to the security interest granted hereby; (ii) if any
Receivable shall be evidenced by a promissory note or other instrument or
chattel paper deliver and pledge to the Lender such note, instrument or chattel
paper duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Lender; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Lender may reasonably request, in order to perfect and
preserve the security interests granted or purported to be granted hereby.
(b) The Borrower hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of the Borrower where permitted
by law and agrees that a photographic or other reproduction of this Agreement
may be used and filed as a financing statement.
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(c) The Borrower shall furnish to the Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.
SECTION 6. AS TO EQUIPMENT AND INVENTORY. The Borrower shall:
(a) Keep the Equipment and Inventory (other than Inventory sold in the
ordinary course of business) at the places therefor specified in SECTION 4(h)
or, upon 15 days' prior written notice to the Lender, at such other places in
jurisdictions where all action required by SECTION 5 shall have been taken with
respect to the Equipment and Inventory and notify the Lender in writing of any
other proposed change in any facts set forth in SCHEDULE 4(h) not less than 15
days in advance of such change.
(b) Cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual, and shall forthwith,
or in the case of any loss or damage to any of the Equipment as quickly as
practicable after the occurrence thereof and make or cause to be made all
repairs, replacements, and other improvements in connection therewith which are
necessary or desirable to such end. The Borrower shall promptly furnish to the
Lender a statement respecting any material loss or damage to any of the
Equipment.
(c) Pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Equipment and Inventory, except
to the extent the validity thereof is being contested in good faith.
SECTION 7. INSURANCE.
(a) The Borrower shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in such amounts, against such risks, in
such form and with such insurers, as shall be satisfactory to the Lender from
time to time. Each policy for (i) liability insurance shall provide for all
losses to be paid on behalf of the Lender and the Borrower as their respective
interests may appear and (ii) property damage insurance shall provide for all
losses to be paid directly to the Lender. Each such policy shall in addition (i)
name the Borrower and the Lender as insured parties thereunder (without any
representation or warranty by or obligation upon the Lender) as their interests
may appear, (ii) contain the agreement by the insurer that any loss thereunder
shall be payable to the Lender notwithstanding any action, inaction or breach of
representation or warranty by the Borrower, (iii) provide that there shall be no
recourse against the Lender for payment of premiums or other amounts with
respect thereto, and (iv) provide that at least 10 days' prior written notice of
cancellation or of lapse shall be given to the Lender by the insurer. The
Borrower shall, if so requested by the Lender, deliver to the Lender original or
duplicate policies of such insurance and, as often as the Lender may reasonably
request, a report of a reputable insurance broker with respect to such
insurance. Further, the Borrower shall, at the request of the Lender, duly
execute and deliver instruments of assignment of such insurance policies to
comply with the requirements of SECTION 5 and cause the respective insurers to
acknowledge notice of such assignment.
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(b) Reimbursement under any liability insurance maintained by the
Borrower pursuant to this SECTION 7 may be paid directly to the Person who shall
have incurred liability covered by such insurance. In case of any loss involving
damage to Equipment or Inventory when SUBSECTION (c) of this SECTION 7 is not
applicable, the Borrower shall make or cause to be made the necessary repairs to
or replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by the Borrower pursuant to this SECTION 7 shall be paid to the
Borrower as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuance of any Event of
Default, or (ii) the actual or constructive total loss of any Equipment and
Inventory in excess of $100,000, all insurance payments in respect of such
Equipment or Inventory shall be paid to and applied by the Lender as specified
in SECTION 16(b).
SECTION 8. AS TO INTELLECTUAL PROPERTY.
(a) On a continuing basis, the Borrower will, at the expense of the
Borrower, subject to any prior licenses, encumbrances and restrictions and
prospective licenses, encumbrances and restrictions permitted hereunder, make,
execute, acknowledge and deliver, and file and record in the proper filing and
recording places, all such instruments, including, without limitation,
appropriate financing and continuation statements and collateral agreements, and
take all such action as may reasonably be deemed necessary or advisable by the
Lender (i) to carry out the intent and purposes of this Agreement, (ii) to
assure and confirm to the Lender the grant or perfection of a first priority
security interest in the Intellectual Property Collateral for the benefit of the
Lender or (iii) to enable the Lender to exercise and enforce its rights and
remedies hereunder with respect to any Intellectual Property Collateral. Without
limiting the generality of the foregoing, the Borrower (i) will not enter into
any agreement that would impair or conflict with the Borrower's obligations
hereunder, (ii) will, from time to time, upon the Lender's reasonable request,
cause its books and records to be marked with such legends or segregated in such
manner as the Lender may reasonably specify and take or cause to be taken such
other action and adopt such procedures as the Lender may reasonably specify to
give notice of or to perfect the security interest in the Intellectual Property
Collateral intended to be created hereby, (iii) will, promptly following its
becoming aware thereof, notify the Lender of (A) any materially adverse
determination in any proceeding in the United States Patent and Trademark Office
or United States Copyright Office or comparable foreign bodies or (B) the
institution of any proceeding or any adverse determination in, any federal,
state, local or foreign court or administrative bodies, regarding the Borrower's
claim of ownership in or right to use any of the Intellectual Property
Collateral, its right to register the same, or its right to keep and maintain
such registration; provided, however, that the Borrower shall have no obligation
to provide any information to the Lender that might constitute a waiver of
Borrower's attorney-client privilege, (iv) will properly maintain and care for
the Intellectual Property Collateral to the extent necessary for the conduct of
the Borrower's business and consistent with Borrower's current practice, (v)
will not grant or permit to exist any Lien upon or with respect to the
Intellectual Property Collateral or any portion thereof except Liens in favor of
the Lender, and will not execute any security agreement or financing statement
covering any of the Intellectual Property Collateral except in the name of the
Lender or as permitted under this Agreement, (vi) will not contract for sale or
otherwise dispose of the Intellectual Property Collateral or any portion
thereof, (vii) upon any officer of the Borrower obtaining knowledge thereof,
will promptly notify
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the Lender in writing of any event which may reasonably be expected to
materially and adversely affect the value of the Intellectual Property
Collateral or any portion thereof material to the business of Borrower to which
it pertains, the ability of the Borrower or the Lender to dispose of the
Intellectual Property Collateral or any portion thereof material to the business
of Borrower to which it pertains or the rights and remedies of the Lender in
relation thereto including, without limitation, a levy or threat of levy of any
legal process against the Intellectual Property Collateral or any portion
thereof material to the business of Borrower to which it pertains, (viii) will
diligently keep reasonable records respecting the Intellectual Property
Collateral; (ix) hereby authorizes the Lender, in its sole discretion, to file
one or more financing or continuation statements, and after 10 days' prior
notice to the Borrower, amendments thereto, relative to all or any part of the
Intellectual Property Collateral without the signature of the Borrower where
permitted by law, (x) will furnish to the Lender from time to time statements
and schedules further identifying and describing the Intellectual Property
Collateral and such other materials evidencing or reports pertaining to the
Intellectual Property Collateral as the Lender may reasonably request, all in
reasonable detail, (xi) will, subject to CLAUSE (iv) above and SUBSECTION (d)
below, pay when due any and all taxes, levies, maintenance fees, charges,
assessments, license fees and similar taxes or impositions payable in respect of
the Intellectual Property Collateral, and (xii) comply in all material respect
with all laws, rules and regulations applicable to the Intellectual Property
Collateral.
(b) If, before the Secured Obligations shall have been paid and
satisfied in full, the Borrower shall, (i) obtain any rights to any new
inventions (whether or not patentable), know-how, trade secrets, design,
process, procedure, formula, diagnostic test, service marks, trademarks,
trademark registrations, trade names, copyrights or licenses or (ii) become
entitled to the benefit of any patent, service xxxx or trademark application,
trademark, trademark registrations, license renewal, copyright renewal or
extension, or patent for any reissue, division, continuation, renewal,
extension, or continuation-in-part of any Patent or any improvement on any
Patent, the provisions of this Agreement shall automatically apply thereto and
any item enumerated in CLAUSE (i) OR (ii) with respect to Borrower shall
automatically constitute Intellectual Property Collateral if such would have
constituted Intellectual Property Collateral at the time of execution of this
Agreement and be subject to the Lien created hereby without further action by
any party. The Borrower shall promptly give to the Lender written notice
thereof. The Borrower agrees, promptly following the written request by the
Lender, to confirm the attachment of the Lien created hereby to any rights
described in CLAUSES (i) AND (ii) if such would have constituted Intellectual
Property Collateral at the time of execution of this Agreement by execution of
an instrument in form acceptable to the Borrower.
(c) The Borrower authorizes the Lender to modify this Security Agreement
by amending SCHEDULES 1(k)(i), 1(k)(ii), 1(k)(iii) hereto to include any future
Intellectual Property Collateral of the Borrower.
(d) The Borrower shall have the duty through counsel reasonably
acceptable to the Lender, to prosecute diligently any and all applications for
the Patents, the Trademarks, or the Copyrights now or hereafter pending that in
Borrower's reasonable judgment would be materially beneficial to the businesses
of Borrower to which any such applications pertain until the Secured Obligations
shall have been paid in full, to make application on unpatented but patentable
inventions and registrable but unregistered Trademarks and Copyrights, that in
11
Borrower's reasonable judgment would be materially beneficial to the operation
of any business of the Borrower, to file and prosecute opposition and
cancellation proceedings and do all other acts necessary to preserve and
maintain all rights in the Intellectual Property Collateral, unless in the
reasonable judgment of Borrower the failure to do so would not have a materially
adverse effect on any business of the Borrower or if such Intellectual Property
Collateral has become obsolete to the Borrower's business. Any expenses incurred
in connection with such applications shall be borne by the Borrower. The
Borrower shall not abandon any right to file a patent, trademark or copyright
application, or any pending patent, trademark or copyright application or
patent, trademark or copyright application, or any pending patent, trademark or
copyright application or patent, trademark or copyright without consent of the
Lender (which consent shall not be unreasonably withheld), unless in the
reasonable judgment of Borrower abandoning such Intellectual Property Collateral
would not have a materially adverse effect on any business of the Borrower or if
such Intellectual Property Collateral has become obsolete to the Borrower's
business.
SECTION 9. AS TO RECEIVABLES.
(a) the Borrower shall remain a registered organization within the
meaning of the CODE organized under the laws of Delaware and keep its chief
place of business and chief executive office and the office where it keeps its
records concerning the Receivables, and all originals of all chattel paper which
evidence Receivables, at the location therefor specified in SCHEDULE 4(i) or,
upon 30 days' prior written notice to the Lender, at such other location(s) in a
jurisdiction where all action required by Section 5 shall have been taken with
respect to the Receivables. The Borrower will hold and preserve such records and
chattel paper and will permit representatives of the Lender at any time during
normal business hours to inspect and make abstracts from such records and
chattel paper.
(b) Except as otherwise provided in this subsection (b), the Borrower
shall continue to collect, at its own expense, all amounts due or to become due
the Borrower under the Receivables. In connection with such collections, the
Borrower may take (and, at the Lender's direction, shall take) such action as
the Borrower or the Lender may deem necessary or advisable to enforce collection
of the Receivables; provided, however, that the Lender shall have the right at
any time, upon the occurrence and during the continuation of an Event of
Default, to notify the account debtors or obligors under any Receivables of the
assignment of such Receivables to the Lender and to direct such account debtors
or obligors to make payment of all amounts due or to become due to the Borrower
thereunder directly to the Lender and, upon such notification and at the expense
of the Borrower, to enforce collection of any such Receivables, and to adjust,
settle or compromise the amount or payment thereof, in the same manner and to
the same extent as the Borrower might have done. After receipt by the Borrower
of the notice from the Lender referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Borrower in respect of the Receivables shall be received in trust for the
benefit of the Lender hereunder, shall be segregated from other funds of the
Borrower and shall be forthwith paid over to the Lender in the same form as so
received (with any necessary endorsement) to be held as cash collateral and
either (A) released to the Borrower so long as no Event of Default shall have
occurred and be continuing or (B) if any Event of Default shall have occurred
and be continuing, applied as provided by SECTION 16(b), and (ii) the Borrower
shall not
12
adjust, settle or compromise the amount or payment of any Receivable, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
SECTION 10. MISCELLANEOUS COVENANTS. The Borrower agrees that:
(a) Borrower shall use the proceeds of the Advance Agreement in the
manner set forth in the Advance Agreement;
(b) Borrower shall not effect any transaction with any Affiliate on a
basis less favorable to the Borrower than would be the case if such transaction
had been effected with a Person not an Affiliate and all such transactions
whether existing on the date hereof or hereafter arising shall be disclosed in
writing to the Lender;
(c) Borrower shall, promptly upon preparation thereof, provide to the
Lender copies of its monthly internal financial statements;
(d) Borrower shall provide the Lender with prompt notice of the
commencement of any and all proceedings and investigations by or before any
governmental or non governmental body and all actions and proceedings in any
court or before any arbitrator against or in any other way relating to or
affecting the Borrower or its properties, assets or business;
(e) The Borrower shall promptly notify the Lender of any material
adverse change in the business, assets, liabilities, financial condition,
results of operation or business prospects;
(f) Except for the Borrower's Debt as of the date of this Agreement and
of which the Borrower has notified Lender in writing prior to the execution of
this Agreement, the Borrower shall not create, assume or otherwise become or
remain obligated in respect of, or permit to exist, or to be created assumed or
incurred or to be outstanding, any Debt, except Debt under the Advance Agreement
and debt incurred in the ordinary course of its business; and
(g) The Borrower shall not declare or make any Restricted Payment,
Restricted Dividend Payment or Restricted Purchase.
SECTION 11. TRANSFERS AND OTHER LIENS. The Borrower shall not without the
prior written consent of the Lender:
(a) Sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral, except Inventory in the ordinary course of business.
(b) Create or suffer to exist any Lien, upon or with respect to any of
the Collateral to secure Debt of any Person or entity, except for the security
interest created by this Agreement and Permitted Liens.
SECTION 12. LENDER APPOINTED ATTORNEY-IN-FACT. The Borrower hereby
irrevocably appoints the Lender the Borrower's attorney-in-fact, with full
authority in the place and stead of the Borrower and in the name of the
Borrower, the Lender or otherwise, from time to time in the Lender's discretion,
to take any action and to execute any instrument which the Lender may
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deem necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of the Borrower under SECTION 9), including, without
limitation:
(i) to obtain and adjust insurance required to be paid to the
Lender pursuant to SECTION 7,
(ii) to ask demand, collect, xxx for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (i) or
(ii) above, and
(iv) to file any claims or take any action or institute any
proceedings which the Lender may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Lender with respect to any of the Collateral.
This appointment shall be effective, without further action on the part of any
party, upon the occurrence of an Event of Default, except, however, this
appointment shall be effective as of the date hereof with respect to matters
necessary to perfect the Lender's security interests created hereunder.
SECTION 13. LENDER MAY PERFORM. If the Borrower fails to perform any
agreement contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of the Lender incurred in connection
therewith shall be payable by the Borrower under SECTION 17.
SECTION 14. THE LENDER'S DUTIES. The powers conferred on the Lender
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Lender shall have no duty as to any Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral.
SECTION 15. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default hereunder:
(a) The failure of the Borrower to pay, as and when the same shall
become due and payable, whether at maturity, by reason of acceleration or
otherwise, any of the Secured Obligations;
(b) The failure of the Borrower to perform any of its other agreements
or obligations as specified in this Agreement, under the Advance Agreement or in
any other agreement now or hereinafter existing between the Borrower and the
Lender and such default shall continue for a period of fifteen (15) days after
written notice thereof has been given to the Borrower by Lender;
14
(c) If at any time any representation, warranty, statement, certificate,
schedule or report made by the Borrower to the Lender shall prove to have been
false or misleading in any material respect as of the time made or furnished;
(d) Should the Borrower or any endorser or guarantor of the Secured
Obligations generally not pay its debts as such debts become due, or admit in
writing its inability to pay its debts generally, or make a general assignment
for the benefit of creditors, or should any proceedings be instituted by or
against the Borrower or any such endorser or guarantor seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debt
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian, or other similar official for it or for any
substantial part of its property (and, in the case of any such proceeding
instituted against the Borrower or any such endorser or guarantor, should the
same remain undismissed or unstayed for a period of sixty days), or should the
Borrower or any such endorser or guarantor take corporate, partnership or other
action to authorize any of the actions set forth in this CLAUSE (d); or
(e) If the Borrower, or any endorser or guarantor of any of the Secured
Obligations, is liquidated or dissolved or its certificate of formation, or
articles of incorporation expire or are revoked.
(f) If the Borrower shall fail to pay when due and payable the principal
of or interest on any Debt (other than the Loans) in an amount in excess of
$100,000, or
(i) the maturity of any such Debt shall have (A) been accelerated
in accordance with the provisions of any indenture, contract or instrument
providing for the creation of or concerning such Debt, or (B) been
required to be prepaid prior to the stated maturity thereof, or
(ii) any event shall have occurred and be continuing which would
permit any holder or holders of such Debt, any trustee or agent acting on
behalf of such holder or holders or any other Person so to accelerate such
maturity, and the Borrower shall have failed to cure such default prior to
the expiration of any applicable cure or grace period.
(g) The Borrower shall challenge the validity and binding effect of any
provision of this Agreement, the Advance Agreement or any other agreement
between Lender and Borrower, or shall state in writing its intention to make
such a challenge.
(h) A final, unappealable judgment or order for the payment of money in
an amount that exceeds the uncontested insurance available therefor by $100,000
or more shall be entered against the Borrower by any court and such judgment or
order shall continue undischarged or unstayed for ten (10) days.
(i) A warrant or writ of attachment or execution or similar process
which exceeds $100,000 in value shall be issued against any property of the
Borrower and such warrant or process shall continue undischarged or unstayed for
ten (10) days.
15
(j) The occurrence of any event or condition which, in the Lender's
discretion, constitutes a material adverse change in the business, condition
(financial or otherwise) or results of operations of the Borrower which
materially and adversely affects the ability of the Borrower to perform its
obligations to the Lender under this Agreement or the Advance Agreement.
SECTION 16. REMEDIES. If any Event of Default shall have occurred and be
continuing:
(a) The Lender may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it under
applicable law or in equity or otherwise, all the rights and remedies of a
Lender on default under the applicable Uniform Commercial Code (the "Code")
(whether or not the Code applies to the affected Collateral) and also may do any
or all of the following:
(i) Declare any or all of the Secured Obligations then existing to
be immediately due and payable and they shall thereupon become forthwith
due and payable, without notice of any kind to the Borrower and without
any other presentment, demand, protest, or notice of any kind, all of
which are hereby expressly waived.
(ii) Terminate Lender's obligations, if any, to make further loans
or extensions of credit or other financial accommodations to the Borrower.
(iii) In the name of the Lender or in the name of the Borrower or
otherwise, demand, xxx for, collect or receive any money or property at
any time payable or receivable on account of or in exchange for, or make
any compromise or settlement deemed desirable with respect to, any of the
Collateral, but the Lender shall be under no obligation so to do, and the
Lender may extend the time of payment, arrange for payment installments,
or otherwise modify the terms of, or release, any of the Collateral
without thereby incurring responsibility to, or discharging or otherwise
affecting any liability of, the Borrower.
(iv) Enter upon the premises, or wherever the Collateral may be,
and take possession thereof, and demand and receive such possession from
any person who has possession thereof.
(v) Require the Borrower to, and the Borrower hereby agrees that
it will at its expense and upon request of the Lender forthwith, assemble
all or part of the Collateral as directed by the Lender and make it
available to the Lender at a place to be designated by the Lender which is
reasonably convenient to both parties.
(vi) Without notice except as specified below and with or without
taking the possession thereof, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any location chosen by
the Lender, for cash, on credit or for future delivery, and at such price
or prices and upon such other terms as the Lender may deem commercially
reasonable. The Borrower agrees that, to the extent notice of sale shall
be required by law, at least ten days' notice to the Borrower of the time
and place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification, but notice given in
any other reasonable manner or at any other
16
reasonable time shall constitute reasonable notification. The Lender shall
not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Lender may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor,
and such sale may, without further notice, be made at the time and place
to which it was so adjourned.
(vii) Exercise any and all rights as beneficial and legal owner of
the Intellectual Property Collateral, including, without limitation, any
and all consensual rights and powers with respect to the Intellectual
Property Collateral.
(viii) Sell or assign or grant a license to use, or cause to be sold
or assigned or grant a license to use any or all of the Intellectual
Property Collateral or any part thereof, in each case, free of all rights
and claims of the Borrower therein and thereto and in that connection, the
Lender shall have the right to cause any or all of the Intellectual
Property Collateral to be transferred of record into the name of the
Lender or its nominee and the right to impose (A) such limitations and
restrictions on the sale or assignment of the Intellectual Property
Collateral as the Lender may deem to be necessary or appropriate to comply
with any law, rule or regulation (federal, state or local) having
applicability to the sale or assignment and (B) requirements for any
necessary governmental approvals.
(ix) In any action hereunder, the Lender shall be entitled to the
appointment of a receiver, without notice, to take possession of all or
any portion of the Collateral and to exercise such power as the court
shall confer upon the receiver.
(x) Apply, without notice, any cash or cash items constituting
Collateral in the Lender's possession to payment of any of the Secured
Obligations.
The undersigned waives, to the extent permitted by applicable law, all
rights it has to prior notice and hearing under the Constitution of the United
States and the Uniform Commercial Code and constitution of the States of Georgia
and California and under any other applicable statute or constitution.
(b) All cash proceeds received by the Lender in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Lender, be held by the Lender as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Lender pursuant to SECTION 15) in whole or in part by the Lender
against, all or any part of the Secured Obligations in such order as the Lender
shall elect. Any surplus of such cash or cash proceeds held by the Lender and
remaining after payment in full of all the Secured Obligations shall be paid
over to the Borrower or to whomsoever may be lawfully entitled to receive such
surplus. The Borrower shall remain liable for any deficiency.
SECTION 17. INDEMNITY AND EXPENSES.
(a) The Borrower agrees to indemnify the Lender from and against any and
all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting from the Lender's gross negligence or
willful misconduct.
17
(b) The Borrower will upon demand pay to the Lender 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 Lender may incur in
connection with (i) the perfection of any security interest granted hereunder,
(ii) the administration of this Agreement, (iii) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iv) the exercise or enforcement of any of the rights of the
Lender hereunder, or (v) the failure by the Borrower to perform or observe any
of the provisions hereof.
SECTION 18. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Borrower herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 19. NOTICES. All notices and other communications hereunder shall
be in writing or by telephone, subsequently confirmed in writing. Notices in
writing shall be delivered personally or sent by certified or registered mail,
postage pre-paid, or by telegraph, telex or telecopier and shall be deemed
received in the case of personal delivery, when delivered, in the case of
mailing, on the third day after mailing, in the case of telegraph, on the day
after delivery to the telegraph office and in the case of telex or telecopier,
upon transmittal, provided that in the case of notices to the Lender, notice
shall be deemed to have been given only when such notice is actually received by
the Lender. A telephonic notice to the Lender, as understood by the Lender, will
be deemed to be the controlling and proper notice in the event of a discrepancy
with or failure to receive a confirming written notice. Notices to any party
shall be sent to it at the address for such party set forth on the signature
page hereof, or as to either party at such other address as shall be designated
by such party in a written notice to each other party complying as to delivery
with the terms of this section.
SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF OBLIGATIONS. This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until payment in full of the Secured
Obligations, (ii) be binding upon the Borrower, its successors and assigns, and
(iii) inure to the benefit of the Lender and its successors, transferees and
assigns. Without limiting the generality of the foregoing CLAUSE (iii), the
Lender may assign or otherwise transfer the Secured Obligations to another
Person and such Person shall thereupon become vested with all the benefits in
respect thereof granted to the Lender herein or otherwise. Upon the payment in
full of the Secured Obligations, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Borrower. Upon
any such termination, the Lender will, at the Borrower's expense, execute and
deliver to the Borrower such documents as the Borrower shall reasonably request
to evidence such termination.
SECTION 21. GOVERNING LAW; TERMS. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia, except as
required by mandatory provisions of law and except to the extent that the
validity or 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 Georgia. Unless otherwise defined herein,
terms
18
used in Article 9 of the Uniform Commercial Code of the State of Georgia are
used herein as therein defined.
19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officer(s) in
Atlanta, Georgia, as of the date first above written.
LENDER: BORROWER:
EARTHLINK, INC. CIDCO, INCORPORATED
By: /s/ Xxxxxxxxx X. Xxxx By: /s/ Xxxx X. Xxxxxxx
___________________________________ __________________________________
Name:VP, Strategy & Development Name:
______________________________ _____________________________
Title:_____________________________ Title:____________________________
Address: _____________________________ Address: ____________________________
_____________________________ ____________________________
Attn: _______________________ Telecopier _________________
Telecopier: _________________
Copy to:
_____________________________________
_____________________________________
_____________________________________
Attn: _______________________________
Telecopier: _________________________
20
SCHEDULES
SCHEDULE 1(k)(i) Patents and Patent Applications
SCHEDULE 1(k)(ii) Trademarks and Applications
SCHEDULE 1(k)(iii) Registered copyrights
SCHEDULE 4(f) Consents
SCHEDULE 4(h) Location of Equipment and Inventory
SCHEDULE 4(i) Location of Chief Executive Office and Receivables
SCHEDULE 4(k) Borrower Names
SCHEDULE 4(l) Liens
SCHEDULE 10 Use of Proceeds
21
Schedule 1(k)(i)
Patents and Patent Applications
Schedule 1(k)(ii)
Trademarks and Applications
Schedule 1(k)(iii)
Registered copyrights
Schedule 4(f)
Consents
Schedule 4(h)
Location of Equipment and Inventory
Schedule 4(i)
Location of Chief Executive Office and Receivables
Schedule 4(k)
Borrower Names
Schedule 4(l)
Liens
22
