EXHIBIT 10.18
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made
---------
effective as of May 19, 2004, by and between NS8 CORPORATION, (the "Company"),
-------
and the BUYER(S) listed on Schedule I attached to the Securities Purchase
Agreement dated the date hereof (the "Secured Party").
--------------
WHEREAS, the Company shall issue and sell to the Secured Party, as provided
in the Securities Purchase Agreement dated the date hereof, and the Secured
Party shall purchase up to One Million Five Hundred Thousand Dollars
($1,500,000) of five percent (5%) secured convertible debentures (the
"Convertible Debentures"), which shall be convertible into shares of the
-----------------------
Company's common stock, par value $___ (the "Common Stock") (as converted, the
------------
"Conversion Shares"), for a total purchase price of up to One Million Five
------------------
Hundred Thousand Dollars ($1,500,000), in the respective amounts set forth
opposite each Buyer(s) name on Schedule I attached to the Securities Purchase
Agreement;
WHEREAS, to induce the Secured Party to enter into the transaction contemplated
by the Securities Purchase Agreement, the Secured Convertible Debenture, the
Investor Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions, and the Escrow Agreement (collectively referred to as the
"Transaction Documents"), the Company hereby grants to the Secured Party a
---------------
security interest in and to the pledged property identified on Exhibit"A" hereto
----------
(collectively referred to as the "Pledged Property") until the satisfaction of
----------------
the Obligations, as defined herein below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, and for other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE
DEFINITIONS AND INTERPRETATIONS
-------------------------------
Section Recitals.
--------
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section Interpretations.
---------------
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section Obligations Secured.
--------------------
The obligations secured hereby are any and all obligations of the Company
now existing or hereinafter incurred to the Secured Party, whether oral or
E-98
written and whether arising before, on or after the date hereof including,
without limitation, those obligations of the Company to the Secured Party under
the Securities Purchase Agreement, the Secured Convertible Debenture, the
Investor Registration Rights Agreement and Irrevocable Transfer Agent
Instructions, and any other amounts now or hereafter owed to the Secured Party
by the Company thereunder or hereunder (collectively, the "Obligations").
-----------
ARTICLE
PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL
------------------------------------------------
AND TERMINATION OF SECURITY INTEREST
------------------------------------
Section Pledged Property.
-----------------
Company hereby pledges to the Secured Party, and creates in the
Secured Party for its benefit, a security interest for such time until the
Obligations are paid in full, in and to all of the property of the Company as
set forth in Exhibit"A" attached hereto (collectively, the "Pledged Property"):
---------- ----------------
The Pledged Property, as set forth in Exhibit"A" attached hereto, and the
----------
products thereof and the proceeds of all such items are hereinafter collectively
referred to as the "Pledged Collateral."
-------------------
Simultaneously with the execution and delivery of this Agreement, the
Company shall make, execute, acknowledge, file, record and deliver to the
Secured Party any documents reasonably requested by the Secured Party to perfect
its security interest in the Pledged Property. Simultaneously with the
execution and delivery of this Agreement, the Company shall make, execute,
acknowledge and deliver to the Secured Party such documents and instruments,
including, without limitation, financing statements, certificates, affidavits
and forms as may, in the Secured Party's reasonable judgment, be necessary to
effectuate, complete or perfect, or to continue and preserve, the security
interest of the Secured Party in the Pledged Property, and the Secured Party
shall hold such documents and instruments as secured party, subject to the terms
and conditions contained herein.
Section Rights; Interests; Etc.
-------------------------
So long as no Event of Default (as hereinafter defined) shall have
occurred and be continuing:
the Company shall be entitled to exercise any and all rights
pertaining to the Pledged Property or any part thereof for any purpose not
inconsistent with the terms hereof; and
the Company shall be entitled to receive and retain any and all payments
paid or made in respect of the Pledged Property.
Upon the occurrence and during the continuance of an Event of Default:
E-99
All rights of the Company to exercise the rights which it would
otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to
receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Collateral
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Collateral pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and
All interest, dividends, income and other payments and distributions which
are received by the Company contrary to the provisions of Section 2.2(b)(i)
hereof shall be received in trust for the benefit of the Secured Party, shall be
segregated from other property of the Company and shall be forthwith paid over
to the Secured Party; or
The Secured Party in its sole discretion shall be authorized to sell any or
all of the Pledged Property at public or private sale in order to recoup all of
the outstanding principal plus accrued interest owed pursuant to the Convertible
Debenture as described herein
Each of the following events shall constitute a default under this
Agreement (each an "Event of Default"):
------------------
any default, whether in whole or in part, shall occur in the payment
to the Secured Party of principal, interest or other item comprising the
Obligations as and when due or with respect to any other debt or obligation of
the Company to a party other than the Secured Party;
any default, whether in whole or in part, shall occur in the due observance
or performance of any obligations or other covenants, terms or provisions to be
performed under this Agreement or the Transaction Documents;
the Company shall: (1) make a general assignment for the benefit of its
creditors; (2) apply for or consent to the appointment of a receiver, trustee,
assignee, custodian, sequestrator, liquidator or similar official for itself or
any of its assets and properties; (3) commence a voluntary case for relief as a
debtor under the United States Bankruptcy Code; (4) file with or otherwise
submit to any governmental authority any petition, answer or other document
seeking: (A) reorganization, (B) an arrangement with creditors or (C) to take
advantage of any other present or future applicable law respecting bankruptcy,
reorganization, insolvency, readjustment of debts, relief of debtors,
dissolution or liquidation; (5) file or otherwise submit any answer or other
document admitting or failing to contest the material allegations of a petition
or other document filed or otherwise submitted against it in any proceeding
under any such applicable law, or (6) be adjudicated a bankrupt or insolvent by
a court of competent jurisdiction; or
E-100
any case, proceeding or other action shall be commenced against the Company
for the purpose of effecting, or an order, judgment or decree shall be entered
by any court of competent jurisdiction approving (in whole or in part) anything
specified in Section 2.2(c)(iii) hereof, or any receiver, trustee, assignee,
custodian, sequestrator, liquidator or other official shall be appointed with
respect to the Company, or shall be appointed to take or shall otherwise acquire
possession or control of all or a substantial part of the assets and properties
of the Company, and any of the foregoing shall continue unstayed and in effect
for any period of thirty (30) days.
ARTICLE
ATTORNEY-IN-FACT; PERFORMANCE
-----------------------------
Section Secured Party Appointed Attorney-In-Fact.
-------------------------------------------
Upon the occurrence of an Event of Default, the Company hereby appoints the
Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, xxx for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.
Section Secured Party May Perform.
----------------------------
If the Company fails to perform any agreement contained herein, the Secured
Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
ARTICLE
REPRESENTATIONS AND WARRANTIES
------------------------------
Section Authorization; Enforceability.
------------------------------
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
E-101
Section Ownership of Pledged Property.
--------------------------------
The Company warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement.
ARTICLE
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
----------------------------------------
Section Default and Remedies.
----------------------
If an Event of Default described in Section 2.2(c)(i) and (ii) occurs,
then in each such case the Secured Party may declare the Obligations to be due
and payable immediately, by a notice in writing to the Company, and upon any
such declaration, the Obligations shall become immediately due and payable. If
an Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is
continuing for the period set forth therein, then the Obligations shall
automatically become immediately due and payable without declaration or other
act on the part of the Secured Party.
Upon the occurrence of an Event of Default, the Secured Party shall,: (i)
be entitled to receive all distributions with respect to the Pledged Collateral,
(ii) to cause the Pledged Property to be transferred into the name of the
Secured Party or its nominee, (iii) to dispose of the Pledged Property, and (iv)
to realize upon any and all rights in the Pledged Property then held by the
Secured Party.
Section Method of Realizing Upon the Pledged Property : Other
-------------------------------------------------------------
Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
Any item of the Pledged Property may be sold for cash or other value
in any number of lots at brokers board, public auction or private sale and may
be sold without demand, advertisement or notice (except that the Secured Party
shall give the Company ten (10) days' prior written notice of the time and place
or of the time after which a private sale may be made (the "Sale Notice")),
-----------
which notice period shall in any event is hereby agreed to be commercially
reasonable. At any sale or sales of the Pledged Property, the Company may bid
for and purchase the whole or any part of the Pledged Property and, upon
compliance with the terms of such sale, may hold, exploit and dispose of the
same without further accountability to the Secured Party. The Company will
execute and deliver, or cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates, and affidavits and supply or
cause to be supplied such further information and take such further action as
the Secured Party reasonably shall require in connection with any such sale.
Any cash being held by the Secured Party as Pledged Collateral and all cash
proceeds received by the Secured Party in respect of, sale of, collection from,
or other realization upon all or any part of the Pledged Collateral shall be
applied as follows:
E-102
to the payment of all amounts due the Secured Party for the expenses
reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;
to the payment of the Obligations then due and unpaid.
the balance, if any, to the person or persons entitled thereto, including,
without limitation, the Company.
In addition to all of the rights and remedies which the Secured Party
may have pursuant to this Agreement, the Secured Party shall have all of the
rights and remedies provided by law, including, without limitation, those under
the Uniform Commercial Code.
If the Company fails to pay such amounts due upon the occurrence of an
Event of Default which is continuing, then the Secured Party may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company and collect the monies adjudged or decreed to be payable in
the manner provided by law out of the property of Company, wherever situated.
The Company agrees that it shall be liable for any reasonable fees,
expenses and costs incurred by the Secured Party in connection with enforcement,
collection and preservation of the Transaction Documents, including, without
limitation, reasonable legal fees and expenses, and such amounts shall be deemed
included as Obligations secured hereby and payable as set forth in Section 8.3
hereof.
Section Proofs of Claim.
-----------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Company or the property of the Company or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to the rights of Previous Security Holders, shall be entitled and empowered, by
intervention in such proceeding or otherwise:
to file and prove a claim for the whole amount of the Obligations and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Secured Party (including any claim for the reasonable
legal fees and expenses and other expenses paid or incurred by the Secured Party
permitted hereunder and of the Secured Party allowed in such judicial
proceeding), and
to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by the Secured Party to make such
payments to the Secured Party and, in the event that the Secured Party shall
consent to the making of such payments directed to the Secured Party, to pay to
the Secured Party any amounts for expenses due it hereunder.
E-103
Section Duties Regarding Pledged Collateral.
--------------------------------------
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
ARTICLE
AFFIRMATIVE COVENANTS
---------------------
The Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4 hereof):
Section Existence, Properties, Etc.
-----------------------------
The Company shall do, or cause to be done, all things, or proceed with
due diligence with any actions or courses of action, that may be reasonably
necessary (i) to maintain Company's due organization, valid existence and good
standing under the laws of its state of incorporation, and (ii) to preserve and
keep in full force and effect all qualifications, licenses and registrations in
those jurisdictions in which the failure to do so could have a Material Adverse
Effect (as defined below); and (b) the Company shall not do, or cause to be
done, any act impairing the Company's corporate power or authority (i) to carry
on the Company's business as now conducted, and (ii) to execute or deliver this
Agreement or any other document delivered in connection herewith, including,
without limitation, any UCC-1 Financing Statements required by the Secured Party
to which it is or will be a party, or perform any of its obligations hereunder
or thereunder. For purpose of this Agreement, the term "Material Adverse
----------------
Effect" shall mean any material and adverse affect as determined by Secured
Party in its sole discretion, whether individually or in the aggregate, upon (a)
the Company's assets, business, operations, properties or condition, financial
or otherwise; (b) the Company's to make payment as and when due of all or any
part of the Obligations; or (c) the Pledged Property.
Section Financial Statements and Reports.
-----------------------------------
The Company shall furnish to the Secured Party such financial data as the
Secured Party may reasonably request. Without limiting the foregoing, the
Company shall furnish to the Secured Party (or cause to be furnished to the
Secured Party) the following:
(a) as soon as practicable and in any event within ninety (90) days
after the end of each fiscal year of the Company, the balance sheet of the
Company as of the close of such fiscal year, the statement of earnings and
retained earnings of the Company as of the close of such fiscal year, and
statement of cash flows for the Company for such fiscal year, all in reasonable
detail, prepared in accordance with generally accepted accounting principles
consistently applied, certified by the chief executive and chief financial
officers of the Company as being true and correct and accompanied by a
certificate of the chief executive and chief financial officers of the Company,
stating that the Company has kept, observed, performed and fulfilled each
covenant, term and condition of this Agreement during such fiscal year and that
no Event of Default hereunder has occurred and is continuing, or if an Event of
E-104
Default has occurred and is continuing, specifying the nature of same, the
period of existence of same and the action the Company proposes to take in
connection therewith;
(b) within thirty (30) days of the end of each calendar month, a balance
sheet of the Company as of the close of such month, and statement of earnings
and retained earnings of the Company as of the close of such month, all in
reasonable detail, and prepared substantially in accordance with generally
accepted accounting principles consistently applied, certified by the chief
executive and chief financial officers of the Company as being true and correct;
and
(c) promptly upon receipt thereof, copies of all accountants' reports and
accompanying financial reports submitted to the Company by independent
accountants in connection with each annual examination of the Company.
Section Accounts and Reports.
----------------------
The Company shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:
as soon as available, a copy of any notice or other communication
alleging any nonpayment or other material breach or default, or any foreclosure
or other action respecting any material portion of its assets and properties,
received respecting any of the indebtedness of the Company in excess of $15,000
(other than the Obligations), or any demand or other request for payment under
any guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $15,000,
including any received from any person acting on behalf of the Secured Party or
beneficiary thereof; and
within fifteen (15) days after the making of each submission or filing, a
copy of any report, financial statement, notice or other document, whether
periodic or otherwise, submitted to the shareholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Collateral; or (iv) any of the
transactions contemplated in this Agreement or the Loan Instruments.
Section Maintenance of Books and Records; Inspection.
-------------------------------------------------
The Company shall maintain its books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and
financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof.
E-105
Section Maintenance and Insurance.
---------------------------
The Company shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
making all necessary repairs thereto and renewals and replacements thereof.
The Company shall maintain or cause to be maintained, at its own expense,
insurance in form, substance and amounts (including deductibles), which the
Company deems reasonably necessary to the Company's business, (i) adequate to
insure all assets and properties of the Company, which assets and properties are
of a character usually insured by persons engaged in the same or similar
business against loss or damage resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents and/or applicable law and (iv) as may be reasonably requested by
Secured Party, all with adequate, financially sound and reputable insurers.
Section Contracts and Other Collateral.
---------------------------------
The Company shall perform all of its obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Company is now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
Section Defense of Collateral, Etc.
------------------------------
The Company shall defend and enforce its right, title and interest in and
to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property , those assets and properties whose loss could have a Material
Adverse Effect, the Company shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.
Section Payment of Debts, Taxes, Etc.
---------------------------------
The Company shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged, all taxes, assessments and other governmental charges
and levies imposed upon it, upon any of its assets and properties on or before
the last day on which the same may be paid without penalty, as well as pay all
other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due
Section Taxes and Assessments; Tax Indemnity.
----------------------------------------
The Company shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
E-106
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Company in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.
Section Compliance with Law and Other Agreements.
---------------------------------------------
The Company shall maintain its business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound. Without limiting the
foregoing, the Company shall pay all of its indebtedness promptly in accordance
with the terms thereof.
Section Notice of Default.
-------------------
The Company shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the
Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.
Section Notice of Litigation.
----------------------
The Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE
NEGATIVE COVENANTS
------------------
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing:
Section 7.1 Liens and Encumbrances.
------------------------
The Company shall not directly or indirectly make, create, incur, assume or
permit to exist any assignment, transfer, pledge, mortgage, security interest or
other lien or encumbrance of any nature in, to or against any part of the
Pledged Property or of the Company's capital stock, or offer or agree to do so,
or own or acquire or agree to acquire any asset or property of any character
E-107
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber its right to receive any income or other distribution or
proceeds from any part of the Pledged Property or the Company's capital stock;
or enter into any sale-leaseback financing respecting any part of the Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
Section 7.2 Articles, By-Laws, Mergers, Consolidations, Acquisitions
----------------------------------------------------------
and Sales.
--------
Without the prior express written consent of the Secured Party, the Company
shall not: (a) Amend its Articles of Incorporation or By-Laws; (b) issue or
sell its stock, stock options, bonds, notes or other corporate securities or
obligations; (c) be a party to any merger, consolidation or corporate
reorganization, (d) purchase or otherwise acquire all or substantially all of
the assets or stock of, or any partnership or joint venture interest in, any
other person, firm or entity, (e) sell, transfer, convey, grant a security
interest in or lease all or any substantial part of its assets, nor (f) create
any subsidiaries nor convey any of its assets to any subsidiary.
Section 7.3 Management, Ownership.
----------------------
The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.
Section 7.4 Dividends, Etc.
---------------
The Company shall not declare or pay any dividend of any kind, in cash or
in property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in respect thereof, nor make any return of capital to shareholders,
nor make any payments in respect of any pension, profit sharing, retirement,
stock option, stock bonus, incentive compensation or similar plan (except as
required or permitted hereunder), without the prior written consent of the
Secured Party.
Section 7.5Guaranties; Loans.
------------------
The Company shall not guarantee nor be liable in any manner, whether
directly or indirectly, or become contingently liable after the date of this
Agreement in connection with the obligations or indebtedness of any person or
persons, except for (i) the indebtedness currently secured by the liens
identified on the Pledged Property identified on Exhibit A hereto and (ii) the
endorsement of negotiable instruments payable to the Company for deposit or
collection in the ordinary course of business. The Company shall not make any
loan, advance or extension of credit to any person other than in the normal
course of its business.
Section 7.6 Debt.
----
The Company shall not directly or indirectly permit create, incur, assume
or suffer to exist any additional indebtedness of any description whatsoever in
an aggregate amount in excess of $25,000 including commitments, contingencies
E-108
and credit availabilities, or apply for or offer or agree to do any of the
foregoing. (excluding any indebtedness of the Company to the Secured Party,
trade accounts payable and accrued expenses incurred in the ordinary course of
business and the endorsement of negotiable instruments payable to the Company,
respectively for deposit or collection in the ordinary course of business).
Section 7.7 Conduct of Business.
---------------------
The Company will continue to engage, in an efficient and economical manner,
in a business of the same general type as conducted by it on the date of this
Agreement.
Section 7.8 Places of Business.
--------------------
The location of the Company's chief place of business is Two Union Square,
000 Xxxxx Xxxxxx - Xxxxx 0000 Xxxxxxx, Xxxxxxxxxx 00000 and 000-0000 Xxxx Xxxxxx
Xxxxxxxxx, XX Xxxxxx X0X 0X0 . The Company shall not change the location of its
chief place of business, chief executive office or any place of business
disclosed to the Secured Party or move any of the Pledged Property from its
current location without thirty (30) days' prior written notice to the Secured
Party in each instance.
ARTICLE
MISCELLANEOUS
-------------
Section Notices.
-------
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Secured Party: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx-Xxxxx 0000
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxxxx LLP
0000 Xxxxxx Xxxxxx - Xxxxx 000
Xxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-109
And if to the Company: NS8 Corporation
Two Union Square
000 Xxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
NS8 Corporation
000-0000 Xxxx Xxxxxx
Xxxxxxxxx, XX Xxxxxx X0X 0X0
Telephone: (000) 000-0000
: Facsimile: (000) 000-0000
With a copy to Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section Severability.
------------
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
Section Expenses.
--------
In the event of an Event of Default, the Company will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.
Section Waivers, Amendments, Etc.
---------------------------
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
E-110
covenants shall not waiver, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
Section Continuing Security Interest.
------- ------------------------------
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged
Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.
Section Independent Representation.
---------------------------
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section Applicable Law: Jurisdiction.
------------------------------
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
Xxxxxx County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Xxxxxx County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section Waiver of Jury Trial.
-----------------------
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section Entire Agreement.
-----------------
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
E-111
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
NS8 CORPORATION
By: /s/ Xxxxx Xxxxxxxxxx
----------------------
Name: Xxxxx Xxxxxxxxxx
Title: CEO
SECURED PARTY:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Xxxx X. Xxxxxx
---------------------
Name: Xxxx X. Xxxxxx
Title: Portfolio Manager
E-112
