EXHIBIT 10.4
SECURITY AGREEMENT
SECURITY AGREEMENT (as amended, restated, supplemented or otherwise
modified from time to time in accordance herewith and including all attachments,
exhibits and schedules hereto, the "Agreement"), dated as of March 26, 2003,
made by VERTEL CORPORATION, a California corporation (the "Grantor"), in favor
of DMG Legacy Fund LLC, DMG Legacy Institutional Fund LLC and DMG Legacy
International Ltd. (collectively, the "Secured Parties").
WHEREAS, the Grantor has issued separate secured promissory notes to
each of the Secured Parties (the "Notes") in the aggregate principal amount of
$500,000; and
WHEREAS, it is a condition precedent to the Grantor's making the loan
evidenced by the Notes to the Secured Parties that the Grantor execute and
deliver to the Secured Parties a security agreement providing for the grant to
the Secured Parties of a continuing security interest in all personal property
and assets of the Grantor, all in substantially the form hereof to secure all
Obligations (hereinafter defined);
NOW, THEREFORE, the parties agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1. Definition of Terms Used Herein. All capitalized terms
used herein and not defined herein have the respective meanings provided
therefor in the Notes. All terms defined in the Uniform Commercial Code
(hereinafter defined) as in effect from time to time and used herein and not
otherwise defined herein (whether or not such terms are capitalized) have the
same definitions herein as specified therein.
Section 1.2. Definition of Certain Terms Used Herein. As used herein,
the following terms have the following meanings:
"Collateral" means all accounts receivable of the Grantor and all
personal and fixture property of every kind and nature, including, without
limitation, all furniture, fixtures, equipment, raw materials, inventory, or
other goods, accounts, contract rights, rights to the payment of money,
insurance refund claims and all other insurance claims and proceeds, tort
claims, chattel paper, documents, instruments, securities and other investment
property, deposit accounts, rights to proceeds of letters of credit and all
general intangibles including, without limitation, all tax refund claims,
license fees, patents, patent licenses, patent applications, trademarks,
trademark licenses, trademark applications, trade names, copyrights, copyright
licenses, copyright applications, rights to xxx and recover for past
infringement of patents, trademarks and copyrights, computer programs, computer
software, engineering drawings, service marks, customer lists, goodwill, and all
licenses, permits, agreements of any kind or nature pursuant to which the
Grantor possesses, uses or has authority to possess or use property (whether
tangible or intangible) of others or others possess, use or have authority to
possess or use property (whether tangible or intangible) of the Grantor, and all
recorded data of any kind or nature, regardless of the medium of recording
including, without limitation, all books and
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records, software, writings, plans, specifications and schematics; and all
proceeds and products of each of the foregoing.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured, waived, or otherwise
remedied during such time) constitute an Event of Default.
"Event of Default" has the meaning specified in the Notes.
"Indemnitees" has the meaning specified in Section 7.5(b).
"Lien" means: (i) any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute, or contract, and including a
security interest, charge, claim, or lien arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
agreement, security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes; (ii) to the extent not included
under clause (i), any reservation, exception, encroachment, easement,
right-of-way, covenant, condition, restriction, lease or other title exception
or encumbrance affecting property; and (iii) any contingent or other agreement
to provide any of the foregoing.
"Notes" has the meaning assigned to such term in the first recital of
this Agreement.
"Obligations" means all indebtedness, liabilities, obligations,
covenants and duties of the Grantor to the Secured Parties of every kind, nature
and description, direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or unliquidated, arising by operation of law
or otherwise, now existing of hereafter arising under or in connection with the
Notes or this Agreement.
"Registered Organization" means an entity formed by filing a
registration document with a United States Governmental Authority, such as a
corporation, limited partnership or limited liability company.
"Security Interest" has the meaning specified in Section 2.1 of this
Agreement.
"Uniform Commercial Code" means the Uniform Commercial Code from time to
time in effect in the State of New York.
ARTICLE II. SECURITY INTEREST
Section 2.1. Security Interest. As security for the payment and
performance, in full of the Obligations, and any extensions, renewals,
modifications or refinancings of the Obligations, the Grantor hereby bargains,
sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and
transfers to the Secured Parties, and hereby grants to the Secured Parties,
their successors and assigns, a security interest in, all of such Grantor's
right, title and interest in, to and under the Collateral (the "Security
Interest").
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Section 2.2. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Secured Parties to, or in any
way alter or modify, any obligation or liability of the Grantor with respect to
or arising out of the Collateral.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Grantor represents and warrants to the Secured Parties that:
Section 3.1. Title and Authority. The 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 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.
Section 3.2. Filings; Actions to Achieve Perfection. The Grantor has
authorized the Secured Parties to file Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
in each United States governmental, municipal or other office specified in
Schedule A, which are all the filings, recordings and registrations that are
necessary to publish notice of and protect the validity of and to establish a
legal, valid and perfected security interest in favor of the Secured Parties in
respect of all Collateral in which the Security Interest may be perfected by
filing, recording or registration in the United States (or any political
subdivision thereof) and its territories and possessions, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation statements or with
respect to the filing of amendments or new filings to reflect the change of the
Grantor's name, location, identity or corporate structure. The Grantor's name is
listed in the preamble of this Agreement identically to how it appears on its
certificate of incorporation or other organizational documents.
Section 3.3. Validity and Priority 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
only to the filings described in Section 3.2 above and other previously
perfected security interests in the Collateral listed on Schedule 3.3 to this
Agreement ("Existing Liens"), a perfected security interest in all Collateral in
which a security interest may be perfected by filing, recording or registration
in the United States pursuant to the Uniform Commercial Code or other applicable
law in the United States (or any political subdivision thereof) and its
territories and possessions or any other country, state or nation (or any
political subdivision thereof). The Security Interest is and shall be
subordinate to any other Existing Lien on any of the Collateral except as set
forth in the Intercreditor Agreement by and among the Secured Parties and SDS
Merchant Fund, L.P.
Section 3.4. Absence of Other Liens. The Grantor's Collateral is
owned by the Grantor free and clear of any Lien other than Existing Liens.
Without limiting the foregoing and except as set forth on Schedule 3.3 to this
Agreement, the Grantor has not filed or consented to any filing described in
Schedule A in favor of any Person other than the Secured Parties, nor permitted
the granting or assignment of a security interest or permitted perfection of any
security
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interest in the Collateral in favor of any Person other than the Secured
Parties. The Grantor's having possession of all instruments and cash
constituting Collateral from time to time and the filing of financing statements
in the offices referred to in Schedule A hereto results in the perfection of
such security interest. Such security interest is, or in the case of Collateral
in which the Grantor obtain rights after the date hereof, will be, a perfected,
first priority security interest. Such notices, filings and all other action
necessary or desirable to perfect and protect such security interest have been
duly taken.
Section 3.5. Valid and Binding Obligation. This Agreement constitutes
the legal, valid and binding obligation of the Grantor, enforceable against the
Grantor in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in this Agreement may be limited by applicable federal or
state securities laws.
ARTICLE IV. COVENANTS
Section 4.1. Change of Name; Location of Collateral; Place of Business,
State of Formation or Organization.
(a) The Grantor shall notify the Secured Parties in writing
promptly of any change (i) in its corporate name or in any trade name
used to identify it in the conduct of its business or in the ownership
of its properties, (ii) in the location of its chief executive office,
its principal place of business, any office in which it maintains books
or records relating to Collateral owned by it (including the
establishment of any such new office or facility), (iii) in its identity
or corporate structure such that a filed filing made under the Uniform
Commercial Code becomes misleading or (iv) in its Federal Taxpayer
Identification Number. In extension of the foregoing, the Grantor shall
not effect or permit any change referred to in the preceding sentence
unless all filings have been made under the Uniform Commercial Code or
otherwise that are required in order for the Secured Parties to continue
at all times following such change to have a valid, legal and perfected
first priority security interest in all the Collateral.
(b) Without limiting Section 4.1(a), without the prior
written consent of the Secured Parties in each instance, the Grantor
shall not change its (i) principal residence, if it is an individual,
(ii) place of business, if it has only one place of business and is not
a Registered Organization, (iii) principal place of business, if it has
more than one place of business and is not a Registered Organization, or
(iv) state of incorporation, formation or organization, if it is a
Registered Organization.
Section 4.2. Records. The Grantor shall 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 the 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
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schedules in form and detail satisfactory to the Secured Parties showing the
identity, amount and location of any and all Collateral.
Section 4.3. Periodic Certification; Notice of Changes. In the event
there should at any time be any change in the information represented and
warranted herein or in the documents and instruments executed and delivered in
connection herewith, the Grantor shall immediately notify the Secured Parties in
writing of such change (this notice requirement shall be in extension of and
shall not limit or relieve the Grantor of any other covenants hereunder).
Section 4.4. Protection of Security. The 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.
Section 4.5. Inspection and Verification. The Secured Parties and
such persons as the Secured Parties may reasonably designate shall have the
right to inspect the Collateral, all records related thereto (and to make
extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss the Grantor's affairs with the officers of the
Grantor and its independent accountants and to verify under reasonable
procedures the validity, amount, quality, quantity, value, condition and status
of, or any other matter relating to, the Collateral, including, in the case of
collateral in the possession of any third Person, by contacting any account
debtor or third Person possessing such Collateral for the purpose of making such
a verification. Out-of-pocket expenses in connection with any inspections by
representatives of the Secured Parties shall be (a) the obligations of the
Grantor with respect to any inspection after the Secured Parties' demand payment
of the Notes or (b) the obligation of the Secured Parties in any other case.
Section 4.6. Taxes; Encumbrances. At their option, the Secured
Parties may discharge, Liens other than Existing Liens at any time levied or
placed on the Collateral and may pay for the maintenance and preservation of the
Collateral to the extent the Grantor fails to do so and the Grantor shall
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 shall be interpreted as excusing
the Grantor from the performance of, or imposing any obligation on the Secured
Parties to cure or perform, any covenants or other obligation of the Grantor
with respect to any Lien or maintenance or preservation of Collateral as set
forth herein.
Section 4.7. Use and Disposition of Collateral. The Grantor shall not
make or permit to be made an assignment, pledge or hypothecation of any
Collateral or shall grant any other Lien in respect of the Collateral except for
the sale of the Grantor's products and license of its software in the ordinary
course of business without the prior written consent of the Secured Parties. The
Grantor shall not make or permit to be made any transfer of any Collateral and
the Grantor shall remain at all times in possession of the Collateral owned by
it, other than with respect to Existing Liens and other liens approved by the
Secured Parties and except for the sale of the Grantor's products and license of
its software in the ordinary course of business.
Section 4.8. Insurance/Notice of Loss. Within a reasonable period of
time following the date of this Agreement, Grantor, at its own expense, shall
maintain or cause to be maintained
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insurance covering physical loss or damage to the Collateral. In extension of
the foregoing and without limitation, such insurance shall be payable to the
Secured Parties as loss payee under a "standard" loss payee clause, and the
Secured Parties shall be listed as an "additional insured" on Grantor's general
liability insurance. Such insurance shall not be terminated, cancelled or not
renewed for any reason, including non-payment of insurance premiums, unless the
insurer shall have provided the Secured Parties at least 30 days prior written
notice. Grantor irrevocably makes, constitutes and appoints the Secured Parties
(and all officers, employees or agents designated by the Secured Parties) as its
true and lawful agent and attorney-in-fact for the purpose, at any time
following the Secured Parties' demand for payment of the Notes, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Secured Parties may, without waiving or releasing any
obligation or liability of Grantor hereunder, in their sole discretion, obtain
and maintain such policies of insurance and pay such premium and take any other
actions with respect thereto as the Secured Parties deem advisable. All sums
disbursed by the Secured Parties in connection and in accordance with this
Section, including reasonable attorneys' fees, court costs, expenses and other
charges relating thereto, shall be payable upon demand, by Grantor to the
Secured Parties and shall be additional Obligations secured hereby. Grantor
shall promptly notify the Secured Parties if any material portion of the
Collateral owned or held by Grantor is damaged or destroyed. The proceeds of any
casualty insurance in respect of any casualty loss of any of the Collateral
shall (i) so long as the Secured Parties have not demanded payment of the Notes,
be disbursed to Grantor for direct application by Grantor solely to the repair
or replacement of Grantor's property so damaged or destroyed, and (ii) in all
other circumstances, be held by the Secured Parties as cash collateral for the
Obligations. The Secured Parties may, at their sole option, disburse from time
to time all or any part of such proceeds so held as cash collateral, upon such
terms and conditions as the Secured Parties may reasonably prescribe, for direct
application by the Secured Parties solely to the repair or replacement of
Grantor's property so damaged or destroyed, or Grantor may apply all or any part
of such proceeds to the Obligations.
Section 4.9. Legend. Grantor shall legend, in form and manner
satisfactory to the Secured Parties, its accounts and its books, records and
documents evidencing or pertaining thereto with an appropriate reference to the
fact that such accounts have been assigned to the Secured Parties and that the
Secured Parties have a security interest therein.
ARTICLE V. FURTHER ASSURANCES; POWER OF ATTORNEY
Section 5.1. Further Assurances. Grantor shall, at its own expense,
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 (including fixture filings) or other
documents in connection herewith or therewith. If any amount payable under or in
connection with any of the Collateral shall be or
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become evidenced by any promissory note or other instrument, such note or
instrument shall be immediately pledged and delivered to the Secured Parties,
duly endorsed in a manner satisfactory to the Secured Parties.
Section 5.2. Power of Attorney.
(a) Grantor hereby irrevocably (as a power coupled with an
interest) constitutes and appoints the Secured Parties (and all officers,
employees or agents designated by the Secured Parties), its attorney-in-fact
with full power of substitution, for the benefit of the Secured Parties,
(i) to take all appropriate action and to execute
all documents and instruments that may be necessary or desirable to
accomplish the purposes of this Agreement, and without limiting the
generality of the foregoing, Grantor hereby grants the power to file one
or more financing statements (including fixture filings), continuation
statements, filings with the United States Patent and Trademark Office
or United States Copyright Office (or any successor office or any
similar office in any other country) or other documents for the purpose
of perfecting, confirming, continuing, enforcing or protecting the
Security Interest granted by Grantor, without the signature of Grantor,
and naming Grantor as debtor and the Secured Parties as secured party;
and
(ii) upon the occurrence and during the continuance
of an Event of Default (i) 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;
(ii) to demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral; (iii) to sign
the name of Grantor on any invoice or xxxx of lading relating to any of
the Collateral; (iv) to send verifications of accounts to any account
debtor or any other Person liable for an account; (v) 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; (vi) to settle, compromise, compound, adjust or defend
any actions, suits or proceeding relating to all or any of the
Collateral; and (vii) 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 the Secured Parties to make any
commitment or to make any inquiry as to the nature or sufficiency of any
payment received by the Secured Parties, 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 the Secured Parties with respect to the Collateral or any part
thereof shall give rise to any defense, counterclaim or offset in favor
of Grantor or to any claim or action against the Secured Parties.
(b) The provisions of this Article shall in no event
relieve Grantor of any of its obligations hereunder with respect to the
Collateral or any part thereof or impose any obligation on the Secured Parties
to proceed in any particular manner with respect to the Collateral or any
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part thereof, or in any way limit the exercise by the Secured Parties of any
other or further right which it may have on the date of this Agreement or
hereafter, whether hereunder, by law or otherwise.
ARTICLE VI. REMEDIES
Section 6.1. Remedies upon Default.
(a) Upon the occurrence and during the continuance of an
Event of Default, Grantor agrees to deliver each item of its 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 (but at all times subject to any Existing
Liens): 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, exercise Grantor's right to xxxx and receive
payment for completed work and, generally, to exercise any and all
rights afforded to a secured party under the Uniform Commercial Code or
other applicable law. Without limiting the generality of the foregoing,
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
Grantor, and Grantor hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal which 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 Grantor ten (10) days'
written notice (which Grantor agrees is reasonable notice within the
meaning of Section 9-504(3) of the Uniform Commercial Code) 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 to do so,
regardless of the fact that notice of sale of such Collateral shall have
been given. The Secured Parties may, without
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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, the
Secured Parties 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 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 the Secured Parties from Grantor
as a credit against the purchase price, and the Secured Parties may,
upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to 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
Grantor shall not 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
Obligations have been 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.
Section 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:
(a) FIRST, to the payment of all costs and expenses incurred
by the Secured Parties 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, and any other
costs or expenses incurred in connection with the exercise of any right or
remedy hereunder and under the Notes;
(b) SECOND, to the payment in full of the Obligations; and
(c) THIRD, to Grantor, its successors or assigns, or to
whomsoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may otherwise direct.
Subject to the foregoing, the Secured Parties shall have absolute
discretion as to the time of application of 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 any such proceeds, moneys or balances by
the Secured Parties or of the officer making the sale shall be a sufficient
discharge to the
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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.
Section 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, Grantor hereby grants to the Secured Parties
an irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to Grantor) to use, license or sub-license any of the
Collateral consisting of intellectual property now owned or hereafter acquired
by 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. The use of such license by the Secured Parties
may be exercised, at the option of the Secured Parties, only following the
Secured Parties' demand for payment of the Notes.
ARTICLE VII. MISCELLANEOUS
Section 7.1. Notices. All communications and notices hereunder to the
Grantor and to the Secured Parties shall (except as otherwise expressly
permitted herein) be in writing and delivered to the Grantor or the Secured
Parties, as the case may be, as provided in the Notes.
Section 7.2. Security Interest Absolute. All rights of the Secured
Parties hereunder, the Security Interest and all obligations of Grantor
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Notes or any agreement with respect to any of
the Obligations or any other agreement or instrument relating to any of the
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 Notes 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, Grantor in respect of the Obligations
or this Agreement.
Section 7.3. Survival of Agreement. All covenants, agreements,
representations and warranties made by Grantor 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 making of the loan and the execution and delivery to the
Secured Parties of the Notes, 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.
Section 7.4. Binding Effect; Several Agreement; Successors and
Assigns. This Agreement shall become effective as to Grantor when a counterpart
hereof executed on behalf of Grantor shall have been delivered to the Secured
Parties and a counterpart hereof shall have been executed on behalf of the
Secured Parties, and thereafter shall be binding upon Grantor and the Secured
Parties and their respective successors and assigns, and shall inure to the
benefit of Grantor, the Secured Parties and their respective successors and
assigns, except that Grantor
11
shall not 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 Notes.
Section 7.5. Secured Parties' Fees and Expense; Indemnification.
(a) Grantor agrees to pay upon demand to the Secured Parties
the amount of any and all reasonable expenses, including all 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 (including the customary fees and
charges of the Secured Parties for any audits conducted by them or on
their behalf with respect to the accounts inventory), (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 Grantor to perform or observe any of the provisions
hereof.
(b) Grantor agrees to indemnify the Secured Parties and the
agent, contractors and employees of the Secured Parties (collectively,
the "Indemnitees") against, and hold each of them harmless from, any and
all losses, claims, damages, liabilities and related 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 agreement or instrument contemplated hereby or any
claim, litigation, investigation or proceeding relating hereto or to the
Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the
extent that such losses, claims, damages, liabilities or related
expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or
willful misconduct of such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby. The provisions of this Section
shall remain operative and in full force and effect regardless of the
termination of this Agreement or the Notes, the consummation of the
transactions contemplated hereby, the repayment of any of the
Obligations, the invalidity or unenforceability of any term or provision
of this Agreement or the Notes, or any investigation made by or on
behalf of the Secured Parties. All amounts due under this Section shall
be payable on written demand therefor.
Section 7.6. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 7.7. 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
12
rights and remedies of the Secured Parties hereunder and under the Notes 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 the Notes or
consent to any departure by Grantor 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 Grantor in any case shall entitle
Grantor 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 Grantor.
Section 7.8. 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 THE NOTES. 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 NOTES, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 7.9. 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.
Section 7.10. 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. Each party shall be
entitled to rely on a facsimile signature of any other party hereunder as if it
were an original.
Section 7.11. Jurisdiction; Consent to Service of Process.
(a) 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 Notes, 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
13
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
Notes against Grantor or its properties in the courts of any
jurisdiction.
(b) 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 Notes in any New York State or Federal court. 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 process in any other manner permitted by law.
Section 7.12. Termination. This Agreement and the Security Interest
shall terminate when all the Obligations have been paid in full, at which time
the Secured Parties shall execute and deliver to Grantor, at Grantor's expense,
all Uniform Commercial Code termination statements and similar documents which
Grantor shall reasonably request to evidence such termination. Any execution and
delivery of termination statements or documents pursuant to this Section shall
be without recourse to or warranty by the Secured Parties.
Section 7.13. Prejudgment Remedy Waiver. Grantor acknowledges that
this Agreement and the Notes evidence a commercial transaction and that it
could, under certain circumstances have the right, to notice of and hearing on
the right of the Secured Parties to obtain a prejudgment remedy, such as
attachment, garnishment and/or replevin, upon commencing any litigation against
Grantor. Notwithstanding, Grantor hereby waives all rights to notice, judicial
hearing or prior court order to which it might otherwise have the right under
any state or federal statute or constitution in connection with the obtaining by
the Secured Parties of any prejudgment remedy by reason of this Agreement, the
Notes or by reason of the Obligations or any renewals or extensions of the same.
Grantor also waives any and all objection which it might otherwise assert, now
or in the future, to the exercise or use by the Secured Parties of any right of
setoff, repossession or self help as may presently exist under statute or common
law.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have duly executed this Security
Agreement as of the day and year first written above.
VERTEL CORPORATION
By: /s/ XXXX X. XXXXXXX
---------------------------------------------
Name: Xxxx X. Xxxxxxx
Title: President and Chief Financial Officer
DMG LEGACY FUND LLC
By: /s/ XXXXXX XXXXXX
---------------------------------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
DMG LEGACY INSTITUTIONAL FUND LLC
By: /s/ XXXXXX XXXXXX
---------------------------------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
DMG LEGACY INTERNATIONAL LTD.
By: /s/ XXXXXX XXXXXX
---------------------------------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
SCHEDULE A
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PLACES OF BUSINESS; CHIEF EXECUTIVE OFFICE; FILING LOCATIONS
State of Incorporation:
California
Chief Executive Office:
00000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Filing Locations:
Secretary of State of the State of California
16
SCHEDULE 3.3
EXISTING LIENS
SDS Merchant Fund, L.P. holds a blanket security interest in all of the
Grantor's accounts receivable and personal property pursuant to the Security
Agreements dated as of July 2, 2002 between the parties.
