SECURITY AGREEMENT
THIS
SECURITY AGREEMENT, dated as of January 22, 2008, is made by Red Moon, Inc.,
a
Delaware corporation (the “Borrower”), in favor of Zoom Technologies, Inc., a
Delaware corporation (the “Lender”).
RECITALS
WHEREAS,
on the date hereof the Lender will make a loan in the amount of Three Hundred
Thousand Dollars ($300,000.00) to the Borrower, which loan is evidenced by
a
Promissory Note of even date hereof (the “Initial Note”). After the date of this
Agreement, the Lender may make further loans to the Borrower pursuant to the
terms of a Convertible Note Purchase Agreement, of even date hereof, and by
and
between the Borrower and the Lender, which loans shall be evidenced by one
of
more additional promissory notes (the “Additional Notes” and, together with the
Initial Note, the “Notes”). The obligation of the Borrower under the Notes,
including the payment of the outstanding principal and accrued but unpaid
interest thereunder is secured as set forth in this Agreement.
NOW,
THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and
to induce the Lender to make such loans to the Borrower, the Borrower hereby
agrees with the Lender as follows:
1.
Defined
Terms.
Unless
otherwise defined herein, terms which are defined in the Notes and used herein
are so used as so defined, and terms which are defined in the Uniform Commercial
Code in effect in the State of Texas on the date hereof are used herein as
therein defined, and the following terms shall have the following
meanings:
“Code”
means the Uniform Commercial Code as from time to time in effect in the State
of
Texas.
“Collateral”
shall have the meaning assigned to it in Section 2 of this Security
Agreement.
“Default”
and “Event of Default” shall have the meanings assigned to such terms in the
Notes and shall include any breach of the Borrower’s obligations under this
Agreement.
“Lien”
means any lien (statutory or other), mortgage, pledge, hypothecation,
assignment, deposit arrangement, security interest, charge, claim or other
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest) and any agreement to give or refrain from giving a lien,
mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, charge, claim or other encumbrance of any kind.
“Permitted
Liens” means: (i) Liens imposed by law, such as carriers’, warehousemen’s,
materialmen’s and mechanics’ liens, or Liens arising out of judgments or awards
against Borrower with respect to which Borrower at the time shall currently
be
prosecuting an appeal or proceedings for review, (ii) Liens for taxes not
yet subject to penalties for nonpayment and Liens for taxes the payment of
which
is being contested in good faith and by appropriate proceedings and for which,
to the extent required by generally accepted accounting principles then in
effect, proper and adequate book reserves relating thereto are established
by
Borrower, (iii) Liens in favor of customs and revenue authorities arising as
a
matter of law to secure payment of customs duties in connection with the
importation of goods; (iv) Liens to which the Lender has expressly consented
in
writing; and (v) Liens in favor of the Lender.
“Obligations”
means the unpaid principal amount of, and interest on, the Notes and any
additional costs and expenses incurred by the Lender pursuant to the
Notes.
“Security
Agreement” means this Security Agreement, as amended or restated from time to
time.
2.
Grant
of Security Interest.
As
collateral security for the prompt and complete payment and performance when
due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations, the Borrower hereby grants to the Lender a security interest in
and
a Lien on all right, title and interest of the Borrower in all of the property
set forth on Schedule A
hereto
(collectively, the “Collateral”) now owned or at any time hereafter acquired by
the Borrower or in which the Borrower now has or at any time in the future
may
acquire any right, title or interest. The Borrower represents and warrants
to
the Lender that it has good title to all of the Collateral, free and clear
of
all liens, security interests and adverse interests, in favor of any person
or
entity other than the Lender.
3.
Covenants.
The
Borrower covenants and agrees with the Lender that, from and after the date
of
this Security Agreement until the principal and any interest under the Notes
are
paid in full:
(a) Further
Documentation; Pledge of Instruments and Chattel Paper.
At any
time and from time to time, upon the written request of the Lender, and at
the
sole expense of the Borrower, the Borrower will promptly and duly execute and
deliver such instruments and documents and take such action as the Lender may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Security Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction
with
respect to the security interests and liens created hereby. The Borrower also
hereby authorizes the Lender to file any such financing or continuation
statement without the signature of the Borrower to the fullest extent permitted
by applicable law. A carbon, photographic or other reproduction of this Security
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel Paper,
such
Instrument or Chattel Paper shall be immediately delivered to the Lender, duly
endorsed in a manner satisfactory to the Lender, to be held as Collateral
pursuant to this Security Agreement.
(b) Indemnification.
The
Borrower agrees to pay, and to save the Lender harmless from, any and all
liabilities, reasonable costs and expenses (including, without limitation,
reasonable legal fees and expenses) (i) with respect to, or resulting from,
any delay in paying, any and all excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral;
(ii) with respect to, or resulting from, any delay in complying with any
law, rule, regulation or order of any court, arbitrator or governmental entity,
jurisdiction or authority applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this Security Agreement.
In any suit, proceeding or action brought by the Lender under any Account for
any sum owing thereunder, or to enforce any provisions of any Account, the
Borrower will save, indemnify and keep the Lender harmless from and against
all
expense, loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction or liability whatsoever of the account debtor or obligor
thereunder, arising out of a breach by the Borrower of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to or in favor of such account debtor or obligor or its successors from
the Borrower. The foregoing indemnification shall not apply to any liabilities,
costs or expenses resulting directly from the gross negligence, actual willful
misconduct or bad faith of the Lender.
(c) Maintenance
of Records.
The
Borrower will keep and maintain at its own cost and expense satisfactory and
complete records of the Collateral. For the Lender’s further security, the
Borrower hereby grants to the Lender a security interest in all of the
Borrower’s books and records pertaining to the Collateral, and upon the
occurrence and during the continuance of an Event of Default, the Borrower
shall
turn over any such books and records to the Lender or to its representatives
during normal business hours at the request of the Lender.
(d) Compliance
with Laws, etc.
The
Borrower will comply in all material respects with all laws, rules, regulations
and orders of any court, arbitrator or governmental entity, jurisdiction or
authority applicable to the Collateral or any part thereof or to the operation
of the Borrower’s business; provided, however, that the Borrower may contest any
such law, rule, regulation or order in any reasonable manner which shall not,
in
the reasonable opinion of the Lender, adversely affect the Lender’s rights or
the priority of their liens on the Collateral.
(e) Payment
of Obligations.
The
Borrower will pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon the Collateral or in respect of its income or
profits therefrom, as well as all claims of any kind (including, without
limitation, claims for labor, materials and supplies) against or with respect
to
the Collateral, except that no such charge need be paid if (i) the validity
thereof is being contested in good faith by appropriate proceedings;
(ii) such proceedings do not involve any material danger of the sale,
forfeiture or loss of any of the Collateral or any interest therein and
(iii) such charge is adequately reserved against on the Borrower’s books in
accordance with GAAP.
(f) Limitation
on Liens on Collateral.
The
Borrower will not create or permit to be created or suffer to exist any Lien,
except Permitted Liens, of any kind on any of the Collateral.
(g) Limitations
on Dispositions of Collateral.
The
Borrower will not sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so, except for sales and
non-exclusive licenses of Collateral in the ordinary course of
business.
(h) Further
Identification of Collateral.
The
Borrower will 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. Furthermore, the Borrower will notify the Lender of any
material claim made or asserted against the Collateral by any person or entity
and of any change in the composition of the Collateral or other event which
could materially adversely affect the value of the Collateral or the Lender's
Lien thereon.
4.
Lender’s
Appointment as Attorney-in-Fact.
(a) Powers.
The
Borrower hereby irrevocably constitutes and appoints the Lender and any officer
or agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower and in the name of the Borrower or in its own name, from
time to time in the Lender’s discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and
to
execute any and all instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement, and, without limiting the
generality of the foregoing, the Borrower hereby gives the Lender the power
and
right, on behalf of the Borrower, without notice to or assent by the Borrower,
to do the following:
| (i) |
to
pay or discharge taxes and liens levied or placed on or threatened
against
the Collateral, to effect any repairs or any insurance called for
the
terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
|
| (ii) |
Upon
the occurrence and during the continuance of any Event of Default,
(A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become
due
thereunder directly to the Lender, or as the Lender shall direct;
(B) to ask or demand for, collect, receive payment of and receipt
for, any and all moneys, claims and other amounts due or to become
due at
any time in respect of or arising out of any Collateral; (C) to sign
and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any
of the
collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to
collect the Collateral or any thereof and to enforce any other right
in
respect of any Collateral; (E) to defend any suit, action or
proceeding brought against the Borrower with respect to any Collateral;
(F) to settle, compromise or adjust any suit, action or proceeding
described in clause (E) above and, in connection therewith, to give
such discharges or releases as the Lender may deem appropriate; and
(G) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully
and
completely as though the Lender was the absolute owner thereof for
all
purposes, and to do, at the Lender’s option and the Borrower’s expense, at
any time, or from time to time, all acts and things which the Lender
deem
necessary to protect, preserve or realize upon the Collateral and
the
Lender’ liens thereon and to effect the intent of this Security Agreement,
all as fully and effectively as the Borrower might do.
|
At
the
reasonable request of the Lender, the Borrower shall deliver to the Lender,
one
or more further documents ratifying any and all actions that said attorneys
shall lawfully take or do or cause to be taken or done by virtue hereof. This
power of attorney is a power coupled with an interest and shall be irrevocable.
(b) Other
Powers.
The
Borrower also authorizes the Lender, at any time and from time to time, to
execute, in connection with the sales provided for in Section 7 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
(c) No
Duty on Lender’s Part.
The
powers conferred on the Lender hereunder are solely to protect the Lender’s
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. The Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers, and neither it
nor
any of its officers, directors, employees or Lender shall be responsible to
the
Borrower for any act or failure to act hereunder, except for its own gross
negligence or willful misconduct.
5.
Performance
by Lender of Borrower’s Obligations.
If the
Borrower fails to perform or comply with any of its agreements contained herein
and the Lender, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the reasonable expenses of the Lender incurred in connection
with such performance or compliance shall be payable by the Borrower to the
Lender on demand and shall constitute obligations secured hereby.
6.
Remedies.
If an
Event of Default shall occur and be continuing, the Lender may exercise, in
addition to all other rights and remedies granted to it in this Security
Agreement, the Notes and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Lender, without demand of performance or other demand, presentment, protest,
or
notice of any kind (except any notice required by law referred to below) to
or
upon the Borrower or any other person or entity (all and each of which are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do
any
of the foregoing), in one or more parcels at public or private sale or sales,
at
any exchange, broker’s board or office of the Lender or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may
deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right
or
equity or redemption in the Borrower, which right or equity is hereby waived
or
released. The Borrower further agrees, at the Lender’s request, to assemble the
Collateral and make it available to the Lender at places which the Lender shall
reasonably select, whether at the Borrower’s premises or elsewhere. The Lender
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Lender hereunder, including, without limitation, reasonable attorneys’
fees and disbursements, to the payment in whole or in part of the Obligations,
in such order as the Lender may elect, and only after such application and
after
the payment by the Lender of any other amount required by any provision of
law,
including, without limitation, Section 9-615 of the Code, need the agent
account for the surplus, if any, to the Borrower. To the extent permitted by
applicable law, the Borrower waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise by the Lender of any
of
its rights hereunder, provided that such release shall not apply to any claim,
damage or demand resulting directly from the gross negligence, actual willful
misconduct or bad faith of the Lender. If any notice of a proposed sale or
other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least seven days before such sale or other
disposition. The Borrower shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay
the
Obligations and the fees and disbursements of any attorneys employed by the
Lender to collect such deficiency. Any sale, whether under any power of sale
hereby given or by virtue of judicial proceedings, shall operate to divest
all
Borrower’s right, title, interest, claim and demand whatsoever, either at law or
in equity, in and to the Collateral sold, and shall be a perpetual bar, both
at
law and in equity, against Borrower, its successors and assigns, and against
all
persons and entities claiming the Collateral sold or any part thereof under,
by
or through Borrower, its successors or assigns.
7.
Limitation
on Duties Regarding Preservation of Collateral.
The
Lender’s sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of
the Code or otherwise, shall be to deal with it in the same manner as the Lender
deals with similar property for its own account. Neither the Lender nor any
of
its directors, officers, employees or agents shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.
8.
Powers
Coupled with an Interest.
All
authorizations and agencies herein contained with respect to the Collateral
are
irrevocable and powers coupled with an interest.
9.
Severability.
Any
provision of this Security Agreement which is prohibited or unenforceable in
any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any
other jurisdiction.
10.
Paragraph
Headings.
The
paragraph headings used in this Security Agreement are for convenience of
reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
11.
No
Waiver; Cumulative Remedies.
The
Lender shall not by any act (except by a written instrument pursuant to
Section 12 hereof), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising, on the part of the Lender,
any right, power or privilege hereunder shall operate as a waiver thereof.
No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right
or
remedy which the Lender would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
12.
Waivers
and Amendments; Successors and Assigns.
None of
the terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed
by
the Borrower and the Lender, provided that any provision of this Security
Agreement may be waived by the Lender in a written letter or agreement executed
by the Lender or by e-mail or facsimile transmission from the Lender. This
Security Agreement shall be binding upon the successors and assigns of the
Borrower and shall inure to the benefit of the Lender and its successors and
assigns.
13.
Governing
Law.
This
Security Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Texas.
14.
Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
15.
Waiver
of Jury Trial.
TO THE
EXTENT EACH MAY LEGALLY DO SO, EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT, OR IN ANY WAY
CONNECTED WITH, OR RELATED TO, OR INCIDENTAL TO, THE DEALING OF THE PARTIES
HERETO WITH RESPECT TO THIS AGREEMENT, OR THE TRANSACTIONS RELATED THERETO,
IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE. TO THE EXTENT EACH MAY LEGALLY DO
SO,
EACH PARTY HERETO HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION, OR
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT EITHER
PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER PARTY HERETO TO THE
WAIVER OF ITS RIGHT TO TRIAL BY JURY.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Borrower has caused this Security Agreement to be duly
executed and delivered in favor of the Lender as of the date first above
written.
|
RED
MOON, INC.
|
|
|
By:
|
/s/Xxxxx Xxxxxxxx
|
|
Name:
|
Xxxxx
Xxxxxxxx
|
|
Title:
|
President
|
|
LENDER:
|
|
|
ZOOM
TECHNOLOGIES, INC.
|
|
|
By:
|
/s/Xxxxx Xxxxxxx
|
|
Xxxxx
Xxxxxxx
|
|
|
Title:
|
President
|
Schedule
A
|
Redmoon
Colo
Equipment
List
|
||||
|
Server
Farm Rack
|
||||
|
Device
|
Description
|
Serial
|
||
|
Catalyst
2924 XL
|
Server
Farm Switch
|
FAB0430NOR5
|
||
|
Catalyst
2924 XL
|
Private
Switch
|
|||
|
Barracuda
400
|
Email
Firewall
|
L14804A5080405
|
||
|
MBX
3U Server
|
MySQL
|
S6023P815A03098
/ 150262-1
|
||
|
SuperMicro
SuperServer 5010E
|
Graphs
|
SE5011099
|
||
|
MBX
3U Server
|
MSSQL
2005
|
S6023P8253043291
000000-0
|
||
|
XXX
0X Xxxxxx
|
Xxxxxx-XXX
|
S6023P825302271
1144216-1
|
||
|
Compaq
Proliant XX00XX00
|
Xxxxxxx-Xxx
|
D012DKN1L187
|
||
|
1U
Server
|
Colo-Sensor
|
1MC203502479
AA A09188-301
|
||
|
Sun
Netra T1 105
|
NS1
|
O24COFBF
|
||
|
Xxx
Xxxxx Xx 000,
|
XX0
|
000X0X0X
|
||
|
VA
Linux System 501
|
WebMD
|
SXO81
1 9921 37
|
||
|
1U
Rackable Server
|
IDS
|
29022
|
||
|
Dell
PowerEdge 750
|
Addison
|
J24WS71
|
||
|
VA
Linux System 501
|
Rad1
|
SX0921993200
|
||
|
SonicWall
Pro 3060
|
Firewall
|
USM511031
H
|
||
|
SuperMicro
SuperServer 6041
|
Mail
|
S60410335
|
||
|
SuperMicro
SuperServer 6041
|
MSSQL
2000 / Rodopi
|
$60410336
|
||
|
Hosting
Rack
|
||||
|
Cisco
RPS
|
Server
Farm and Hosting RPS
|
CAH03520228
|
||
|
Philips
15inch monitor
|
63519850
|
|||
|
Master
View Plus
|
Top
8 xxxx XXX
|
XXXXXX00000
G
|
||
|
(SSD
Iview
|
Bottom
8 port KVM
|
NA0117DE00031
|
||
|
3U
Rackable System
|
DotNet
-1
|
29023
|
||
|
1U
Rackable Server
|
Win-1
|
29024
|
|
Communications
Rack
|
||||
|
Catalyst
3512 XL
|
Edge
Switch
|
FAA0446Y17P
|
||
|
Catalyst
2912 XL
|
ColoCustomer
Master Switch
|
FABO523YOV7
|
||
|
Allot
NetEnforcer AC-201
|
992635
|
|||
|
Cisco
0000 Xxxxxx
|
Xxxx
Xxxxxx
|
XXXX000000X
|
||
|
SuperMicro
SuperSery 0000X-X
|
Xxxxxx
|
E51201906
|
||
|
Cisco
7206 VXR Router
|
Distro
|
72794892
|
||
|
Cisco
0000 Xxxxxx
|
Xxxxxx
Xxxxxx
|
XXXX000X0XX
|
||
|
Cisco
RPS
|
Comm
Rack RPS
|
CAH03520544
|
||
|
3Comm
Total Control
|
Redmoon
Dial up
|
1261
B80908G
|
|
ColoCustomer
Rack #1
|
||||
|
Catalyst
2924 XL Switch
|
CaloCust
1 Switch
|
XXX0000X000
|
||
|
XXX
0X Xxxxxx
|
XxxXxx
Solutions Dedicated Server
Hosting
|
155099-1
|
|
ColoCustomer
Rack #2
|
||||
|
Catalyst
2924 XL Switch
|
ColoCust
2 Switch
|
FABO6O2Y2UM
|
||
|
MBX
1U Server
|
Cshore-Mail
Dedicated Server Hosting
|
228
1 153949-1
|
||
|
MBX
1 U Server
|
Cshore-Newsvues
Dedicated Server Hosting
|
155049-1
|
|
oloCustomer
Rack #3
|
||||
|
Catalyst
2924 XL Switch
|
ColoCust
3
Switch
|
FABO411VOEG
|
||
|
Cisco
RPS
|
ColoCust
2 and 3 RPS
|
CAH03320275
|
